NUHW calls on state regulators to investigate Kaiser Permanente’s 2015 rate increases

December 18th, 2014

Kaiser plans premium increases of 4.1% to 15.3% amid record profits and lavish executive compensation

EMERYVILLE — As the State of California’s regulator of HMOs, the Department of Managed Health Care (DMHC) has the authority and the responsibility to review health plan premium rate increases to ensure that they are justified and reasonable and to ensure that HMOs are held accountable and their finances transparent.

The National Union of Healthcare Workers (NUHW), which represents 4,000 Kaiser employees, urges the DMHC to investigate Kaiser’s planned rate increases for 2015 to determine if they are justified and reasonable, to make its findings known and accessible to the public, and to seek appropriate relief for Kaiser plan participants should the DMHC ultimately determine that these rate hikes are excessive and unnecessary.

On January 1, 115,000 Californians enrolled in Kaiser Foundation Health Plan’s individual HMO plan will face average rate hikes of 4.1%, with increases for some subscribers as high as 15.3%. Earlier this year, rates for the same individual HMO plan increased by an average of 7.0%. In addition, approximately 418,000 Californians enrolled in the small group ACA-compliant HMO plan and the small businesses that sponsor their coverage are facing rate hikes averaging 2.4%, with increases for some subscribers as high as 4.6%. Kaiser’s proposed rate increases affect far more California consumers than any other pending rate hikes under the regulation of the DMHC.

Kaiser’s filings with the DMHC omit crucial information that makes it difficult to conclude that its rate hikes are justified:

Record Profitability. Against the state’s own guidance set forth in SB 1163, Kaiser fails to acknowledge and integrate its profitability into its rate development process. Kaiser has made more than $14.5 billion since 2009 and its 2014 profits are up 40% over last year’s record. During the first nine months of 2014, Kaiser recorded the highest profit margin among the ten largest private-sector, full-service health plans in California.  Despite its non-profit status, Kaiser’s profit margin sharply exceeded those of its for-profit competitors, including Blue Cross, United HealthCare, and Health Net.

Excessive Surplus Condition. In addition to its surging profits, Kaiser reports extraordinary growth of its excess tangible net equity (TNE), which on September 30, 2014 exceeded statutorily required levels by 1,916%. On September 30, 2014, Kaiser’s TNE exceeded the aggregate regulatory minimum requirements by approximately $24.5 billion, according to data published by DMHC. From 2009 to 2014, Kaiser’s excess TNE more than doubled from $10.7 billion to $21.7 billion—a stunning growth that has been funded by California’s consumers.

Exorbitant Executive Compensation. According to its tax returns, Kaiser has used its extraordinary profitability to provide record compensation to its executives:

  •  During 2013, there were 28 executives who each received more than $1 million in compensation.The top five highest paid executives at Kaiser earned nearly $25 million in total during 2013.
  • During 2013, Kaiser’s former CEO and chairman, George Halvorson, received $11.7 million in total compensation despite resigning as CEO in July 2013 and chairman in December 2013.  Despite retiring from his position as CEO halfway through 2013, Halvorson was paid 2.7% more in 2013 than in 2012.
  • Serving in his current role as CEO and Chairman since July 1, 2013, Bernard Tyson received $4.8 million in total compensation in 2013.  Previously, Tyson was Kaiser’s President and COO.  From 2009 to 2013, Tyson received almost $20 million in compensation.
  • Kaiser’s Board of Directors each receive between $185,000 and $231,000 annually for attending six meetings per year.

NUHW believes that Kaiser’s proposed rate hikes demand full scrutiny from state regulators. We call on the DMHC to investigate these issues and intervene with Kaiser in order to protect consumers’ interests before the rate hikes proposed for January 1. At a minimum, the DMHC should ask Kaiser to place a temporary hold on its proposed rate hikes in order to prevent consumers from paying excessive premiums before the DMHC has fully reviewed Kaiser’s proposed increases and the concerns outlined above.