Why Kaiser Permanente Can Drop Rates, But Won’t

Posted: May 23, 2016

by John Hansen

If Kaiser Permanente has a surplus of income, then why not just give the money back to the members? Why not just lower prices for everyone?

Blue Shield of California has their 2% commitment, where they give refunds back to their members if they make over 2%. Why doesn’t Kaiser Permanente just follow suite?

Why Kaiser Can Lower Its Rates

Kaiser Permanente is the most efficiently run health plan in California. It consistently outranks its competitors due to its integrated system and streamlined processes. Efficiency lowers costs that can be passed on to consumers.

Why Kaiser Won’t Lower Its Premiums

Kaiser Permanente couldn’t handle the amount of new enrollments that lower prices would bring in. Its network just isn’t big enough.

Already, Kaiser Permanente is struggling to deal with the huge amounts of increases in enrollment since the implementation of Health Care Reform in California. Due to Kaiser’s integrated system, they are unable to expand as fast as their chief competitors, Anthem Blue Cross and Blue Shield of California.

KP is an integrated system where the hospitals, medical staff and the health plan are all connected as one entity. So, for Kaiser to expand, huge investments must be made. Facilities must be purchased, expanded and/or built. Medical staff must be hired and trained. Networks and administrative systems must be updated.

Competitor Rate Increases Make Low Rates Dangerous for Kaiser Permanente

Blue Shield of California is projecting double digit rate increases next year. Anthem Blue Cross is likely to follow suite. That means less competition for Kaiser Permanente. And, it means the HMO is more likely to increase market share.

This could put Kaiser Permanente in an awkward position. They can afford to lower prices and increase enrollment, but they don’t have the network capacity yet for that increased enrollment.

So, Kaiser Permanente may need to increase premiums in order not to be too competitive. California’s leading HMO has to keep its membership at a manageable level in order to maintain quality of care.