Filed Under:

Could Kaiser Permanente's Low-Cost Health Care Be Even Cheaper?

Play associated audio

Kaiser Permanente rose out of Henry J. Kaiser's utopian, industrialist dream.

During the 1930s and '40s, Kaiser wanted to make sure the workers at his Richmond, Calif., shipyard stayed healthy. Kaiser Permanente then opened its doors to the public in 1945.

That's a key difference from other providers: Kaiser Permanente owned its own hospitals and clinics and directly employed physicians. Other insurers had to negotiate with outside hospitals and doctors demanding ever-higher payments. Without those burdens, Kaiser could offer health coverage that was high-quality and less expensive than conventional insurers.

Today, it's a different story, says Mark Smith, head of the California HealthCare Foundation. The organization is no longer the bargain it used to be, he says, possibly because of what economists call "shadow pricing."

"If your competitor takes $4 to make a banana and it only takes you $2 to make a banana, you price your banana at $3.95 and you pocket the rest," Smith says.

It's difficult to discern just how Kaiser fares against other companies since negotiations between health plans and employers are largely confidential. Kaiser says its costs increase by about 5 percent each year. But some of Kaiser's biggest customers say their premiums have jumped much higher, in some cases 20 percent.

That's a charge Kaiser CEO George Halvorson denies. "We're at least 10 percent better everywhere. Sometimes we're 15 to 20 percent less expensive," he says.

Halvorson insists Kaiser's rates are based on how much it spends on patient care, not based on what other insurers are charging. And, he adds, Kaiser offers richer benefits than other plans.

But according to David Lansky, of the Pacific Business Group on Health, Kaiser Permanente has difficulty explaining how it sets its prices.

This may stem in part from the very trait that makes Kaiser Permanente so efficient: The health maintenance organization, unlike other providers, doesn't have a menu of fees.

Bob Kocher, a former health care adviser to President Obama, says Kaiser's model was at the back of policymakers' minds when they wrote what are essentially Kaiser look-alikes into the health overhaul law.

Kaiser hospitals have shown they can deliver top-shelf care for happy-hour prices. Recent Medicare data show all but one of Kaiser's hospitals cost significantly less than the national average. And the company's electronic medical record system is one of the most advanced in the world and has largely eliminated duplicative tests.

But Kocher suspects that as more doctors and hospitals band together into Kaiser Mini-Me's, Kaiser Permanente could face more competition.

Kaiser Permanente, meanwhile, is marching east. It's expanding in the Washington, D.C., area, as well as in Georgia. Some health policy experts assert that the company is setting its premiums, in part, to underwrite this expansion.

Halvorson says Kaiser Permanente spends its surplus to benefit its customers.

"We use our money to invest in our care system; we use our money to invest in our computer systems," he says. "We reinvest money in hospitals and clinics and that's the only use of the money."

Halvorson contends if all Americans got their care at Kaiser-like facilities, the U.S. would save hundreds of billions of dollars in health care costs. Others are less convinced. The cautionary tale of Kaiser Permanente, they say, is that even under the best circumstances, U.S. health care prices may still be untamable.

This story was supported in part by Kaiser Health News, which is not affiliated with Kaiser Permanente.

Copyright 2012 KQED Public Broadcasting. To see more, visit


Lisa Lucas Takes The Reins At The National Book Foundation

Lucas is the third executive director in the history of the foundation, which runs the National Book Awards. Her priority? Inclusivity: "Everyone is either a reader or a potential reader," she says.

The Shocking Truth About America's Ethanol Law: It Doesn't Matter (For Now)

Ted Cruz doesn't like the law that requires the use of ethanol in gasoline. So what would happen if it was abolished? The surprising answer: not much, probably.
WAMU 88.5

The Latest on the Military, Political and Humanitarian Crises in Syria

Russia continues airstrikes in Syria. Secretary Kerry meets with world leaders in an attempt to resolve the country’s five-year civil war. A panel joins Diane to discuss the latest on the military, political and humanitarian crises facing Syria.


Twitter Tries A New Kind Of Timeline By Predicting What May Interest You

Twitter has struggled to attract new users. Its latest effort at rejuvenation is a new kind of timeline that predicts which older posts you might not want to miss and displays them on top.

Leave a Comment

Help keep the conversation civil. Please refer to our Terms of Use and Code of Conduct before posting your comments.