Kaiser Permanente, one of the nation's largest and oldest managed-care plans, lost nearly half a billion dollars last year on providing coverage to its 8.6 million enrollees.
Income from investments trimmed that loss to $288 million from $434 million on total revenues of $15.5 billion, the company reported Friday.
Still, last year's net loss topped the plan's net loss of $266 million in 1997. Operating losses were $447 million that year.
The losses in 1997 and 1998 represent the only two money-losing years in Kaiser's 54-year history.
The company blamed higher-than-expected pharmacy expenses, hospitalization costs and the use of contracted hospital services, especially in California, for the continuing losses.
The California division, which represents two-thirds of Kaiser's enrollment, accounted for more than $350 million of the $434 million in operating losses last year.
But plan executives insist that the worst is behind the company and that cost reductions and premium increases should result in a profitable 1999. To help make that happen, Kaiser said it is delaying capital projects worth $500 million this year.
Some units, including those in the Washington-Baltimore, Cleveland and Kansas City markets have already bounced back from 1997 operational losses, and others were profitable both years, officials said.
"The efforts we began in 1998 to restore Kaiser Permanente's financial health give us the opportunity to turn the organization around in 1999," Kaiser Chief Executive Officer David Lawrence, M.D., said in a prepared statement.
Separately, Lawrence told employees in an internal newsletter that Kaiser expects to achieve a 2% profit margin this year and a 4% profit margin in 2000.
Historically, the organization has required 5% to 6% margins to build capital reserves, and that is Kaiser's longer-term goal, said Dale Crandall, Kaiser's chief financial officer.