Kaiser Permanente’s earnings bump suggests it’s weathering COVID-19

Kaiser Permanente's earnings bump suggests it's weathering COVID-19

Dive Brief:

Kaiser Permanente — one of the few health insurers that also runs its own hospital system — saw profits increase by $800 million for the third quarter of this year, according to financial documents released Thursday. That’s despite the fact it did not receive any federal funding in response to the COVID-19 pandemic.
Unlike other hospital operators, Kaiser appears to have avoided the harshest financial impacts from COVID-19. Although it drew down an entire $2.4 billion line of credit for its hospitals in April in preparation for volume losses, it repaid the balance by June.
The organization fared comparatively well given its medical expenses increased by nearly $1 billion for the third quarter. That was offset by a $923 million higher gain from its roughly $43 billion in investments compared to the same quarter a year ago. And Kaiser’s debt load actually declined slightly as of Sept. 30 compared to Dec. 31 of last year. However, earnings through the first nine months of 2020 trail the year ago numbers.

Dive Insight:
Buoyed by tens of billions of dollars in revenue from its various health plans and a rebound in its investment income, the Oakland, California-based Kaiser Permanente has been able to avoid much of the financial buffeting experienced by other hospital systems that do not have an affiliated insurance operation.
As a result, Kaiser reported just under $2 billion in net income for the third quarter, compared to just under $1.2 billion in the third quarter of 2019. That’s a stark contrast to many other hospital operators, which were hit hard earlier this year by the mass cancellation of elective procedures — a phenomenon that is repeating itself as cases of COVID-19 surge upward again. However, some hospital-only systems, such as CommonSpirit Health, saw its fortunes rise during the third quarter.
Kaiser’s insurance premiums and co-payments climbed by $1 billion, to just under $22 billion for the quarter, compared to $20.9 billion in the third quarter of 2019. Total operating expenses grew by $1.2 billion, to $21.5 billion, compared to $20.3 billion in the year-ago quarter. While operating income declined to $456 million compared to $615 million in the third quarter of 2019, the gain in investments more than offset the difference.
Total operating revenue for the quarter was $22 billion, up from $20.9 billion a year ago.
The nine months ended Sept. 30 tell a different story. Net income was $5.4 billion, down from $6.4 billion during the first nine months of last year. Much of that can be traced to anemic returns from investment income, which dropped from $2.9 billion a year ago to $1.3 billion.
However, total operating revenue increased to $66.6 billion, up nearly $3 billion from the year-ago total of $63.7 billion, suggesting that Kaiser’s financial strength could survive the pandemic. Its debt load also dropped to $21 billion at the end of the third quarter, compared to $21.6 billion as of Dec. 31.

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