Correction: Fitch Assigns Kaiser Permanente -- California -- 'A/F1' Debt Ratings.

Business Editors

(In a press release issued yesterday, the CP rating for Kaiser Foundation Hospitals was not mentioned. The revised press release follows.)

Fitch Ratings-New York-June 26, 2002: Fitch Ratings has assigned a long-term rating of 'A' and a short-term rating of 'F1' to Kaiser Permanente's (Kaiser's) outstanding debt issues listed below. In addition, Fitch has assigned an 'F1' rating to Kaiser Foundation Hospitals' $350 million commercial paper program. The rating action affects approximately $2.3 billion of debt outstanding. Fitch has also assigned an 'A' insurer financial strength rating to Kaiser Foundation Health Plan, Inc. and other affiliated HMO companies. Fitch will assign a long-term rating to Kaiser's off balance sheet financings, also listed below, at a later date. The Rating Outlook is Stable.

The ratings reflect the underlying strength and diversity of Kaiser's unique integrated health care delivery system, brand name and reputation, balance sheet fundamentals, and improving earnings profile.

Kaiser operates the largest integrated delivery system in the United States, and ranks among the five largest health insurer/managed care companies in terms of total membership. Kaiser maintains a very strong market position in California (77% of combined revenue) based on its strong brand name and reputation, significant operating scale as the largest HMO operator in the state, and integrated approach to health care delivery and financing. While Kaiser's integrated business model does carry inherent operating challenges and increased complexity, Fitch believes that it does provide the company certain cost advantages, a point of differentiation in the market, and a sustainable competitive advantage.

Kaiser has made very good progress improving operating performance and debt service coverage ratios in recent years following losses incurred in the 1997-1999 period. Operating margins improved to 4.8% in the first quarter of 2002 compared with 3.1% and 2.6% in fiscal years 2001 and 2000, respectively. Favorable earnings trends have been driven by improved commercial premium pricing, exiting from underperforming markets, and progress reducing operating costs. Fitch expects operating margins to be at or near 3.5% in 2002 with further improvement in 2003. Kaiser's coverage of maximum annual debt service (MADS) before consideration of off balance sheet transactions was a strong 5.9 times (x) at fiscal year-end 2002. In addition, Kaiser's debt burden relative to operations is low as indicated by MADS as a percentage of revenue of 1.3% for the same period.

Strong balance sheet fundamentals reflect Kaiser's high quality investment portfolio, good liquidity position and moderate debt levels. Kaiser's invested assets are concentrated in cash and short-term (51%), investment-grade fixed income (18%) and common equities (31%). Kaiser's strong cash flow has resulted in significant liquidity growth as Kaiser unrestricted cash and investments grew to approximately $2.9 billion (60 days cash on hand at fiscal year-end 2001 from $609 million (15 days cash on hand) in fiscal 1998. At March 31, 2002, pro forma debt-to-total capitalization was 24%, and is projected to be approximately 22% at year-end 2002. Cash to debt was strong at 163% at March 31, 2002, and debt to EBITDA is projected to be a very manageable 1.2x in 2002.

Primary credit concerns include the rising cost of health care delivery, the capital-intensive nature of Kaiser's business model, large Medicare exposure, additional improvements that should be made related to financial reporting capabilities, and the competitive, regulatory and legal challenges confronting Kaiser and its health plan competitors.

The rapid increase in health care delivery costs driven by increased utilization, the introduction of expensive new technology and higher drug costs increases the potential for premium mispricing. Kaiser's integrated business model does allow the company to effectively 'lock-in' a significant portion of its operating costs, which mitigates the risk of premium mispricing. However, Kaiser's fixed cost structure does increase the company's risk exposure in a competitive commercial pricing environment and potential reductions in Medicare funding, which would negatively impact revenues and membership.

Despite Kaiser's strong liquidity growth and low debt burden, Fitch believes that the future financial flexibility of the organization could be somewhat limited by the systems capital needs, which include Kaiser's plans to implement a clinical information system ($1.1 billion through 2010), reaching seismic compliance in all of its hospitals ($4 billion through 2013), and general facility maintenance ($800 million annually). Despite its sizeable capital plans Fitch believes that Kaiser has effectively balanced the amount of fixed to leased assets in its portfolio creating a competitive advantage over other health systems.

Fitch is concerned about Kaiser's sizeable position in the troubled Medicare+Choice business, which represents 8% of membership and 27% of total revenues, based on the current level of underfunding in the program and the non-negotiated nature of the reimbursement rates. Positively, Kaiser competes in Medicare markets that have generally favorable reimbursement, and Kaiser has been profitable in this business. Nevertheless, the current level of funding in this business is not sustainable.

Kaiser Permanente is a large not-for-profit integrated health care delivery system headquartered in Oakland California operating a health plan, and 27 hospitals. Physician services are rendered via eight independent medical groups, which comprise over 11,000 physicians. In 2001 Kaiser had approximately 8.2 million members in its health plan, and total operating revenues of $19.6 billion.

Outstanding Debt Rated by Fitch:

-- $6,930,000 California Infrastructure and Economic Development Bank, Capital Certificates, (Kaiser Hospital Assistance I-LLC) series 2001C

-- $169,505,000 California Infrastructure and Economic Development Bank, revenue bonds, (Kaiser Hospital Assistance I-LLC) series 2001A.

-- $28,110,000 California Infrastructure and Economic Development Bank, revenue bonds, (Kaiser Hospital Assistance I-LLC) Series 2001B

-- $63,425,000 City of Oakland, California insured revenue bonds (1800 Harrison Foundation) series 1999 A;

-- $15,720,000 City of Oakland, California insured revenue bonds (1800 Harrison Foundation) series 1999 B;

-- $27,000,000 City of Oakland, California Insured Revenue Bonds (1800 Harrison Foundation) series 1999 A (taxable);

Outstanding Off-Balance Sheet Debt Not Yet Rated by Fitch:

-- $6,930,000 California Infrastructure and Economic Development Bank, Capital Certificates, (Kaiser Hospital Assistance I-LLC) series 2001C

-- $169,505,000 California Infrastructure and Economic Development Bank, revenue bonds, (Kaiser Hospital Assistance I-LLC) series 2001A.

-- $28,110,000 California Infrastructure and Economic Development Bank, revenue bonds, (Kaiser Hospital Assistance I-LLC) Series 2001B

-- $63,425,000 City of Oakland, California insured revenue bonds (1800 Harrison Foundation) series 1999 A;

-- $15,720,000 City of Oakland, California insured revenue bonds (1800 Harrison Foundation) series 1999 B;

-- $27,000,000 City of Oakland, California Insured Revenue Bonds (1800 Harrison Foundation) series 1999 A (taxable);

Commercial Paper Ratings:

--Kaiser Foundation Hospitals, 'F1'.

Insurer Financial Strength Ratings:

Kaiser Foundation Health Plan, Inc.

Kaiser Foundation Health Plan of the Northwest

Kaiser Foundation Health Plan of Georgia, Inc.

Kaiser Foundation Health Plan of the Mid-Atlantic States, Inc.

Kaiser Foundation Health Plan of Colorado

Kaiser Foundation Health Plan of Ohio

--Insurer financial strength 'A'.