Kaiser's investment income helps insurer keep up with rising costs

Kaiser Permanente Hawaii, which plans to raise health-insurance rates 3.75 percent beginning in January, swung to a profit of $1.5 million in the second quarter from a year-earlier loss as net investment income more than tripled.

However, the state's largest health-maintenance organization said it remains concerned about its margins after expenses grew faster than revenue in the quarter. Kaiser had a 0.7 percent net return on $217.1 million in revenue, which rose 4.5 percent from $207.7 million a year ago. Expenses increased 4.7 percent to $219.1 million from $209.3 million.

Kaiser's net loss in the second quarter of 2005 was $600,000.

"The 0.7 percent margin is reason for concern and we are implementing improvements to our revenue generation processes," said Allison Maney, Kaiser's acting chief financial officer.

One of those improvements is KP HealthConnect, Kaiser's electronic medical records system. KP HealthConnect has improved Kaiser's ability to process billings and track payments from private and government contractors while enhancing member service and quality of care.

The health provider also has been holding vacant personnel positions open, managing medical capacity and minimizing outside hospital costs.

"Our expense reduction initiatives have had a positive financial impact and helped to moderate our operating losses," Kaiser President Jan Head said. "We are implementing new cost-saving and service initiatives later in the year that will increase value to our members."

Among the initiatives being considered are plans to internalize care by making sure Kaiser has enough capacity and expertise on hand so it doesn't have to send patients to outside providers. Kaiser also is looking into consolidating business services.

Kaiser, whose 225,000 members rank it as the second-largest overall insurer in the state behind Hawaii Medical Service Association, saw its operating loss widen to $2 million from an operating loss of $1.6 million in the year-ago period.

Net investment income of $3.5 million pushed Kaiser's net earnings into the black last quarter. A year ago, Kaiser netted $1 million from its investments.

The nonprofit, which operates 18 outpatient clinics on Oahu, Maui and the Big Island, has 3,800 employees and 380 physicians.