Healthcare Business News

Medicare Advantage plans spent 86.3% of revenue on medical expenses in 2011: GAO report

By Paul Demko
Posted: January 23, 2014 - 7:30 pm ET

A new report from the Government Accountability Office suggests that most Medicare Advantage carriers won't struggle to meet the 85% medical-loss ratio imposed on the private Medicare plans starting in 2014 under the Patient Protection and Affordable Care Act.

If plans fail to spend enough money on medical costs, they'll be required to refund excess revenue to the federal government.

In 2011 Medicare Advantage plans spent an average of 86.3% of their revenue on medical expenses, according a report issued Thursday by the Government Accountability Office. Administrative costs accounted for 9.1% of revenue, according to the GAO report, and the remaining 4.5% was profit, which totaled $3.3 billion.

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The report does not break down how many plans cleared that bar in 2011, but it does note that 39% of Advantage beneficiaries were enrolled in plans that did not.

The GAO report looked at 1,242 Advantage plans, which provided coverage to 7.5 million Medicare beneficiaries in 2011. The study was requested by Rep. Sander Levin (D-Mich.), the ranking member of the Ways and Means Committee.

The 2010 federal healthcare reform law reduced anticipated spending on Advantage plans by more than $200 billion through 2019. Despite projections that enrollment in such plans would drop significantly in the ensuing years, the percentage of Medicare beneficiaries signing up for Advantage plans has continued to climb. Nearly 30% of those eligible are now enrolled in private Medicare plans.

In 2011, the year examined by the GAO, insurers received $9,893 per beneficiary in 2011. That was 2.7% higher than the $9,635 that companies projected during the bidding process that determines Advantage payments.

Special needs plans, which serve individuals with specific chronic diseases or characteristics, had profit levels nearly double that of other Advantage plans, accounting for 8.6% of revenue, according to the GAO report. Insurers had projected that they would make a profit of $777 per special needs enrollee. But their actual profit per enrollee turned out to be $1,115—or 44% higher than anticipated.

Group plans offered by employers or unions were also significantly more profitable for insurers. On average, 7.6% of revenue for group plans went toward profit, or about $861 per enrollee—more than double what the plans projected.

Follow Paul Demko on Twitter: @MHpdemko

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