The administrative expenses of selected Medicare plans grew by 7.3 percent per member per month (PMPM) in 2012, mostly due to double-digit increases in sales and marketing as well as medical management functions. The data was released from the 2013 Medicare edition of the Sherlock Expense Evaluation Report (SEER), a benchmarking study analyzing in-depth surveys of 11 Medicare plans.
“Membership growth, at a median rate of 6.2 percent, exceeded the 5.7 percent increase for Medicare Advantage as a whole during 2012,” said Douglas Sherlock, president of Sherlock Company. “Cost trends may reflect growth and corporate goals to enhance quality and reduce healthcare costs.”
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According to the report, the median administrative expenses of Medicare-focused plans were $44.57 PMPM and were 8.7 percent of premiums. Costs for Medicare Advantage plans – a type of Medicare health plan offered by a private company that contracts with Medicare to provide Part A and Part B benefits – were $80.76 PMPM and also were 8.7 percent of premiums.
According to the Sherlock Company, the Patient Protection and Affordable Care Act and the weak economic environment has increased the focus on managing health plan administrative costs. While the weak economy contributes to a loss of membership and a commensurate need to reduce administrative costs, healthcare reform leads to additional pressures on health plan administrative expenses.
The company reports that when the new laws take effect, premium rate increases will be subject to more intense oversight and medical loss ratios (MLRs) will be subject to strict minimums. In fact, the MLR rule is explicitly intended to encourage efficiency: “The rebate provisions of section 2718 are designed not just to provide value to policyholders, but also to create incentives for issuers to become more efficient in their operations.”
SEER includes surveys of 11 Medicare plans, which serve 1.2 million members and average 58 percent of their revenues in this product. The report also contains cost information from 24 other plans serving an additional 1.2 million Medicare members. The company reports that Sherlock benchmarks comprise the experience of approximately 19 percent all Medicare Advantage beneficiaries.
Edited by
Alisen Downey
