Kaiser sees net income drop

By Deborah Adamson
Advertiser Staff Writer

Kaiser Foundation Health Plan, the state's second largest health insurer, yesterday reported a drop in net income for the third quarter, as costs rose faster than revenue.

In the quarter, net income was $2.3 million compared with $2.4 million in the like period a year ago. Revenues came to $178.5 million while medical and administrative costs totaled $176.2 million. That compares with revenues of $160.3 million and expenses of $157.9 million in the third quarter a year ago.

A 54 percent increase in pension costs and a 35 percent hike in liability insurance contributed to higher operating expenses in the quarter, said Arnold Matsunobu, vice president of finance.

Kaiser had to increase its contribution into its pension because assets had decreased because of the effect of a three-year down market. Kaiser wanted to avoid having an underfinanced pension, he said.

Liability insurance costs — which mainly covers malpractice — rose as the number of insurers offering coverage has shrunk, Matsunobu said.

Kaiser will have to find a new insurer for malpractice insurance next year since Farmers Insurance will stop offering it in Hawai'i, he said.

Earlier this week, the Hawaii Medical Service Association, the state's largest insurer, reported a net income of $9.1 million for the third quarter, more than doubling its profit from a year earlier. HMSA also said it plans to raise rates for most of its 676,000 plan members next year.

Kaiser still awaits state approval for a 14.5 percent rate hike for 2004, which it requested in September. The HMO need only ask for one rate change a year, which would cover its 235,000 Hawai'i members.

Building projects, installation of a new medical records system and rising healthcare costs prompted the application for a rate increase.

"Medical costs are going up," Matsunobu said. "Even if we didn't have these two other expenses (construction of clinics and the medical records system), we still would have a rate increase — but probably not to the extent that we're asking."

Kaiser said its Maui Lani Clinic shell has been completed and interior construction should start next month. The building of O'ahu's Waipi'o clinic remains on schedule. Both are slated to open in late 2004.

Kaiser also said it recently was ranked among the Pacific region's top five health plans by the National Committee for Quality Assurance.

Reach Deborah Adamson at dadamson@honoluluadvertiser.com or 525-8088.