Core administrative expenses of Medicaid plans decline

Core administrative expenses of Medicaid plans fell by 5.2% per member per month (PMPM) in 2009 versus a decline of 1.4% in 2008. After eliminating the effects of changes in product mix, PMPM costs declined by 5.8% in 2009 versus 2.7% in 2008.

“This year's decline in costs builds on last year's. The 13% per member decline in Account and Membership Administration compounds the 6% decline in the prior year.”

Declines in Account and Membership Administration costs were chiefly responsible for the overall declines. For the universe of Medicaid plans submitting 2009 data, core administrative expenses comprised 7.0% of premium equivalents compared with 8.0% for plans submitting data for 2008.

These results are excerpted from the 2010 Medicaid edition of the Sherlock Expense Evaluation Report (SEER). The universe included ten Medicaid plans, which together served 3.9 million members of which, on average, 70.8% were in Medicaid HMO.

Medicaid programs are squeezed between higher enrollment and state budget limitations. The weak economy has led to increased Medicaid eligibility and lower state tax revenues. Under health care reform, the number of Medicaid-eligible individuals is expected to increase by 16 million people.

According to Douglas B. Sherlock, CFA, Sherlock Company's president, "This year's decline in costs builds on last year's. The 13% per member decline in Account and Membership Administration compounds the 6% decline in the prior year."

The Medicaid universe is one of several surveyed by Sherlock Company in developing its benchmarks. Other universes include Independent/Provider-Sponsored plans, Blue plans, TPAs and Medicare plans. Collectively, the 58 plans serve approximately 44 million insured Americans.