justen

Update: In related news (to the post below), KP today said it has cut 175 positions from KP-IT headquarters in Pleasanton. Nearly two weeks ago, KP said it was laying off 100 employees, so it is not yet clear whether the the 175 figure is an additional round of layoffs or just an upward revision of the original figures released.

You might already know that not a dime of corporate income tax will be paid on that $2.5 billion in profit Kaiser Permanente has made so far this year. That’s because the Kaiser Foundation Health Plan and Hospitals side of Kaiser Permanente long ago applied to the Internal Revenue Service and was granted tax exemption as a “charitable” organization under section 501(c)(3) of the Internal Revenue Code.

What makes Kaiser Permanente different from, say, WellPoint, which owns Blue Cross of California? WellPoint has to pay federal and state income taxes, so why not Kaiser Permanente, you ask? Theoretically, the $800 million that Kaiser Permanente pays out to various community organizations makes it more charitable than WellPoint, which gives away about $300 million each year through its various foundations. Of course, WellPoint is also a publicly-traded company, with shareholders who get a cut of its $3 billion in profit each year. On the flip side, all of Kaiser Permanente’s profit is supposed to go back into the community or into its hospitals (incidentally, both areas which have seen their funding cut significantly recently).

Otherwise, the big requirement that Kaiser Permanente set for itself a number of years ago is that it should operate for the “public benefit,” and that “its assets are irrevocably dedicated to public and charitable purposes.”

Which, at last, brings me to my topic of the day: how is eliminating jobs in California, and moving those jobs to India, Russia, the Philippines, China, and Israel “benefitting” Californians? (More than two-thirds of Kaiser Permanente members are in California, for what it’s worth.)

Two years ago, the California State Auditor did a report on offshoring by organizations which receive money from state contracts. The audit found Kaiser Permanente was one of six out of 39 audited organizations that shipped a portion of its workload to other countries. In the case of Kaiser Permanente, the state auditor found a “small portion” of the dollars the state paid the organization ultimately wound up employing someone in another country, instead of in California.

At that time, I believe about 100 of about 500 employees in the application support division within the organization’s information technology department were offshored. While those figures are important, the big difference is in cost: Kaiser Permanente spent about $107,000 in salary and benefits for the California workers, compared to only about $47,000 for the offshore workers. The direct amount of pay eliminated from the California economy? About $10 million.

No big deal, you say? The application support division offshoring was a test. An experiment. To see how well offshoring worked. Sadly for us, it went pretty well. At that time, about a fifth of the application support team was offshored. The new head of KP-IT, Phil Fasano, has a strong need to continue to cut costs (to keep his own job). What if a fifth of all of Kaiser Permanente’s information technology workforce was offshored? The total direct cost to the California workforce economy would be upwards of $110 million.

So, an organization that is specifically mandated to operate for the public benefit, which has “irrevocably” dedicated all its resources to benefit Californians, is offshoring a significant portion of its workforce. Does eliminating California jobs to cut costs, and shipping those jobs overseas fit within the requirements of a not-for-profit?

I think it’s very difficult to justify, especially for a not-for-profit that’s generating nearly $1 billion in profit every few months, tax free.

What do you think?