Facing Government Scrutiny, Kaiser Backs Off Rate Increases

Facing Government Scrutiny, Kaiser Backs Off Rate Increases
by Leighton Woodhouse, NUHW
Oct. 05‚ 2011

Emeryville, CA - Kaiser Permanente recently announced that it will roll back $30 million in premium increases it imposed this summer on hundreds of thousands of Californians, in order to avoid further examination of its rates by the California Department of Managed Health Care (DMHC).

The $30 million rate rollback will affect more than 300,000 Californians employed by small businesses and nonprofit organizations whose monthly rates were boosted by an average 10.7% on July 1, 2011. Kaiser has reduced rates for these consumers by 1.2% across the board going forward, and will refund that portion of the premiums it has collected since July.

In June, the National Union of Healthcare Workers (NUHW) and the Courage Campaign submitted formal letters of complaint to the Governor's office regarding Kaiser's plans to boost these consumers' monthly premiums by an average 10.7 percent. The complaint letters requested an examination of Kaiser's rate hike by the DMHC and explained that Kaiser’s rate review filings to the DMHC “demonstrate significant data deficiencies, and the evidence they do contain makes it hard for anyone to conclude that the rate hikes are justified.”

The letters cited Kaiser’s failure to disclose information about its massive profits ($5.7 billion since the beginning of 2009) and executive compensation practices as well as its failure to provide historical data on prior rate hikes. Furthermore, the letters noted that Kaiser sought rate hikes that were more than triple the rate of medical cost inflation.

Kaiser’s decision to roll back its rate increases, described in this sample letter to customers, follows a review of the HMO's rate hikes by DMHC conducted as requested in the letter from NUHW and The Courage Campaign. Kaiser's letter states that "Kaiser Permanente has undergone a highly complex rate filing and review with the Department of Managed Health Care. As a result, we've agreed to this small rate reduction."

Kaiser’s action is described in a recent press release issued by KaiserQuotes.com, which reports "the information that they [Kaiser] provided to the DMHC presented challenges and delays," as Kaiser does not report financial data "broken down by specific department classifications" as required of other insurers.

Kaiser’s tacit recognition that its rate hike was too high points to a need for further scrutiny by purchasers of the giant HMO's rate increases on other groups. Two weeks ago, a teachers union that represents tens of thousands of classroom instructors sent a letter to Kaiser taking it to task for seeking double-digit rate increases on cash-strapped school districts facing massive budget deficits.

The letter, dated September 22, 2011, states in part:

“Despite this enormous profitability, Kaiser currently seeks a 10% hike in the monthly premiums for health care from Los Angeles Unified School District employees. As you can imagine, this proposed premium hike – which would drain an additional $40 million a year – could not come at a worse time. In the midst of the Great Recession, our city’s school district has laid off 1,400 teachers and other staff and has forced our children to endure ballooning class sizes that deprive them of the education they deserve. In fact, last month Kaiser reported that it earned $1.6 billion in profits during the first six months of 2011 – a 45% increase compared to the same period in 2010. In this context, it’s difficult to understand how Kaiser, which we understand is a nonprofit, can rationalize the boosting of its rates on consumers…”

While Kaiser’s rate rollback is an important victory for California consumers and will save $30 million for small businesses and nonprofit organizations, NUHW and the Courage Campaign seek further investigation of Kaiser's rate hikes, in addition to Kaiser's compliance with DMHC reporting requirements.

“Last week's rate rollback is just the first step we must take to bring Kaiser in line,” said Rick Jacobs, chair and founder of Courage Campaign, a 700,000 member grassroots, progressive, online organization based in California. “Even after returning $30 million to consumers, Kaiser’s will still reap nearly $350 million in profits from its remaining rate hikes, making it the most profitable HMO in California — and it pays no taxes. And with those profits and tax savings, they buy a vast lobbying machine to kill rate regulation, just as they did with AB 52. Californians are struggling with the worst economy since the Great Depression, and Kaiser is acting like the most rapacious hedge fund manager, making money as its members struggle to make ends meet."