Administrative costs of Medicare plans decline 4.1% in 2009

Administrative expenses of Medicare plans fell by 4.1% per member in 2009 versus an increase of 8.3% in 2008. After eliminating the effects of product mix, costs declined by 4.1% in 2009 versus 4.1% growth in 2008.

“The decline in marketing costs may reflect health plan uncertainty about the program plus a soft economy. But expense growth in other functions was also modest.”

Marketing was chiefly responsible for the decline in expenses. Controlling for changes in product mix, per member marketing costs decreased by 10.4% versus growth of 13.8% in the prior year. Administration of Medicare Advantage products comprised 7.9% of premiums in 2009.

Results are excerpted from the 2010 Medicare edition of the Sherlock Expense Evaluation Report (SEER). The universe included eleven Medicare plans, serving 2.9 million members of which 1.2 million were Medicare beneficiaries. Medicare comprised 55.0% of the revenues of these plans. Including all universes polled by Sherlock Company, its benchmarks reflect the results of plans serving 22% of all Medicare health plan membership.

Medicare-focused plans face pressure to reduce administrative costs. Under health care reform, payments are expected to decline from earlier payment methodologies. Also, beginning in 2014, Medicare-focused plans will be subject to minimum medical loss ratio regulation.

According to Douglas B. Sherlock, CFA, Sherlock Company's president, "The decline in marketing costs may reflect health plan uncertainty about the program plus a soft economy. But expense growth in other functions was also modest."

Sherlock Company included 58 health benefit organizations serving approximately 43 million insured Americans in its administrative cost surveys in 2010. Besides Medicare, Sherlock universes include Independent/Provider-Sponsored plans, Blue plans, TPAs and Medicaid plans.

Additional information was published Tuesday in Plan Management Navigator, available upon request or see our website, www.sherlockco.com. The complete analysis is available in SEER.