May 10, 2019

Kaiser Foundation Health Plan and Hospitals financial update

Overall solid financial performance enables ongoing investments in care delivery to improve the health of our members and the communities we serve.

Kaiser Permanente’s mission is to provide high-quality, affordable health care services and to improve the health of our members and the communities we serve. As not-for-profit organizations, Kaiser Foundation Health Plan, Inc. and Kaiser Foundation Hospitals “KFHP/H” devote our resources to advancing our mission through investments in integrated care delivery and in programs that improve member and community health.

“We are pleased that our membership increased by more than 150,000 members in the first quarter, as more people are choosing Kaiser Permanente for their care and coverage,” said Executive Vice President and Chief Financial Officer Kathy Lancaster. “We normally see our largest membership growth in the first quarter due to the fall open enrollment cycle. Our solid first quarter operating results will help Kaiser Permanente provide high-quality health care to our 12.3 million members and support the communities we serve. Our performance also allows us to make strategic investments in technology, facilities, and people helping to keep care more affordable in today’s increasingly competitive environment.”

First quarter 2019 results

For the quarter ended March 31, 2019, KFHP/H reported combined operating revenues of $21.3 billion and operating expenses of $19.8 billion. Operating income was $1.5 billion in the first quarter of this year, compared to $1.1 billion in the first quarter of last year. This year-over-year increase in Q1 operating income was significantly impacted by several accounting estimates that were favorable when compared to the same period last year.

Our net non-operating income — generated largely by returns on investments — was $1.6 billion in the first quarter of this year, compared to $334 million in the same period of the prior year. An accounting change effective January 1, 2019, requires reporting of unrealized gains on certain equities as net non-operating income, which added $896 million to non-operating income, while additional gains were driven by strong investment performance. Net income was $3.2 billion for the first quarter.

Historically, the operating margin for the first quarter is our strongest due to the timing of the open enrollment cycle. We typically see lower operating margins in the three subsequent quarters as expenses tend to increase throughout the year, while revenue stays relatively flat.

Membership

Kaiser Permanente’s membership totaled 12.3 million as of March 31, 2019, compared to 12.2 million as of March 31, 2018. 

Capital spending

Capital spending of $834 million in the first quarter reflects ongoing investments in upgrading and opening new facilities, as well as in technology.

In the first quarter, KFHP/H opened two new medical offices, Acero Medical Offices and Oakland Addiction Medicine & Recovery Services. These medical office additions bring our total number of medical offices nationwide to 696, along with 39 hospitals.

There are presently more than 80 new medical offices in active design or construction phases expected to open over the next three years. We are also in the midst of a $500 million multi-year project to expand and enhance our mental health care offices, allowing us to provide our patients more convenience, comfort, and privacy.

Improving community health by addressing housing insecurity

As part of a comprehensive strategy to address the economic, social, and environmental conditions affecting the health of the communities we serve, Kaiser Permanente continues to invest in initiatives to improve health outcomes, including the creation of stable housing for vulnerable populations.

  • Kaiser Permanente will drive affordable housing through two key funds developed between Enterprise Community Partners (“Enterprise”) and Kaiser Permanente:
    • The RxHome Fund will provide a $100 million loan fund to create and preserve multifamily rental homes for low-income residents throughout Kaiser Permanente’s service areas. Enterprise matched Kaiser Permanente’s $50 million commitment for the total $100 million available for investment and the fund has begun to identify investment opportunities.
    • The Housing for Health Fund plans to raise at least $85 million to provide equity capital to preserve affordable housing in the San Francisco Bay Area. The fund has already begun making investments in properties near Kaiser Permanente’s national headquarters and in other communities in the region.
  • Kaiser Permanente awarded a $600,000 grant to ShelterCare, a private, nonprofit human services agency in Oregon, to continue its transitional housing program for people with severe mental illness or medical conditions.

Q1 2019 and 2018 financial summary

($ in millions) Q1 2019 Q1 2018
Total operating revenues $21,349 $20,277
Operating expenses $19,815 $19,224
Operating income $1,534 $1,053
Net non-operating income (see accounting change note below) $1,621 $334
Net income $3,155 $1,387
Capital spending $834

$881

Note: Effective January 1, 2019, KFHP/H adopted the provisions of ASU 2016-01, Financial Instruments – Overall, which requires that changes in estimated fair value for equity securities be recognized in non-operating income. Previously, changes in estimated fair value were recorded on the balance sheet within net worth as unrealized gains or losses. Approximately $896 million of net increases to estimated fair value of equity securities are included within non-operating income in Q1 2019.

For more information, contact: Marc Brown, 510-271-6328, marc.t.brown@kp.org

 


Footnotes:
Certain statements included in this document may constitute “forward-looking statements.” Such statements are generally identifiable by the terminology used, such as “plan,” “project,” “forecast,” “expect,” “estimate,” “budget” or other similar words. The achievement of certain results or other expectations contained in such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause actual results, performance or achievements described to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Accordingly, actual results will vary and the variations may be material. None of the Kaiser organizations plan to issue any updates or revisions to those forward-looking statements if or when expectations change, or events, conditions or circumstances on which such statements are based occur.