Costs outpace revenue at provider plans

Despite steady premium increases and efficiencies sought from new technology, provider-sponsored health plans saw their administrative costs grow more rapidly than their revenues between 2001 and 2005, according to a report by credit rating firm A.M. Best Co., Oldwick, N.J. Administrative spending for provider-owned or affiliated plans increased a total of 54.7% over the five-year period to $3.59 billion from $2.32 billion. Combined revenue rose 46.6% to $33.8 billion from $23 billion, A.M. Best said. Provider-sponsored plans’ average administrative expense ratio -- the percentage of revenue spent on administrative functions -- rose to 12.28% in 2005 from 11.63% in 2001. Partly as a result, the companies’ average underwriting margin declined to 2.1% in 2005 from 2.8% in 2003. Administrative expenses rose the fastest in 2004, jumping more than 11%, most likely due to investments required to meet the Health Insurance Portability and Accountability Act of 1996, according to the report. The largest share of administrative spending for all five years went to salaries, wages and other benefits. The report included results from 91 provider-sponsored plans nationwide, excluding California where detailed data was not available. -- by Laura B. Benko