[July 10, 2019] SACRAMENTO, Calif. – Healthcare giant Kaiser Permanente would no longer be able to hide details of a $7.7 billion compensation scheme with its already highly paid executives and doctors under legislation passed by the Senate Judiciary Committee. The gimmick exists even as the corporation raises rates for patients and threatens to outsource hundreds of jobs in communities it serves.

Kaiser is composed of three separate entities:

• Non-profit Kaiser Foundation Hospitals, which runs the hospitals and clinics;
• Non-profit Kaiser Foundation Health Plan, which provides insurance to Kaiser members; and
• For-profit Permanente Medical Groups, which hires and provides 23,000 doctors who work in Kaiser’s hospitals and clinics.

Under the arrangement between the non-profit and for-profit arms of Kaiser, the Kaiser Foundation Health Plan furnishes a supplemental retirement plan to the for-profit Permanente Medical Groups’ executives and doctors that carries a $7.7 billion obligation. In effect, the non-profit part of Kaiser serves as financial backstop to the for-profit medical group.

“The Kaiser Foundation Health Plan receives billion-dollar tax breaks in return for being a ‘non-profit’ organization that is required under California law to put the community’s interests first, and yet it refuses to fully disclose what it’s doing with taxpayers’ money,” said Assemblymember Miguel Santiago (D-Los Angeles), the author of AB 1404. “The public deserves to know who exactly is benefitting from this secretive arrangement, how much they are receiving, and why the for-profit medical group doesn’t take financial responsibility for its own retirement plans.”

The supplemental retirement plan for the Permanente Medical Groups is unusual for several reasons:

• Executives and doctors with the Permanente Medical Groups already have at least one retirement plan. The supplemental retirement plan financed by the Kaiser Foundation Health Plan – sometimes referred to as a “golden handcuff” – is a type of tax-deferred compensation plan often used by employers who want to offer added incentives to highly paid employees who may have maxed out their contribution limits under traditional plans such as a 401k;
• The non-profit Kaiser Foundation Health Plan bears financial liability for the medical groups’ supplemental retirement plan, which amounts to $7.7 billion, rather than the medical groups themselves;
• Non-profit assets are generally subject to public scrutiny and governmental oversight, but how Kaiser spends these assets is hidden from view;
• This type of arrangement is highly unusual in the healthcare industry, and may be unique; and
• Kaiser Foundation Health Plan provides no details about which executives and doctors are recipients of the tax-deferred compensation plan and how much they are receiving.

AB 1404 would mandate that Kaiser and any other similar non-profit healthcare system report to the public more information about the use of the non-profit assets being allocated as benefits for executives and doctors at for-profit businesses. It would close a loophole that allows non-profits to keep such arrangements in the dark.

The $7.7 billion financial guarantee is among a series of recent disclosures raising questions about whether the non-profit parts of Kaiser have lost their way in recent years, acting less like non-profit organizations and more like for-profit corporations:

• Kaiser has reported $9 billion in profits since January 2017, including more than $3 billion in the first quarter of 2019 alone;
• It has $31.5 billion in reserves, more than the total city budgets of Los Angeles, San Francisco, San Jose, San Diego, Oakland and Sacramento combined;
• Kaiser has given its CEO 166 percent in raises in recent years, to $16 million a year, and 36 Kaiser executives are paid more than $1 million annually;
• It raised insurance rates more than nine percent for the individual market in California in 2019; and
• It is threatening hundreds of jobs with outsourcing.

More than 55,000 Kaiser Permanente employees in California are members of SEIU-United Healthcare Workers West (SEIU-UHW). Their contract with Kaiser Permanente expires Sept. 30, 2019.