Administrative expenses of Medicare plans rose in 2008

Per member administrative costs grew by 8.3% in 2008, compared with 3.3% in 2007. Adjusting for changes in product mix, administrative expense growth increased to 10.2% in 2008 from 1.9% in 2007. Administrative expenses were 10.2% of premium equivalents in 2008 compared with 9.4% in 2007. Plans reported total administrative expenses of $46.46 per member per month. All cited values exclude net capital costs and net non-operating income, income taxes and miscellaneous business taxes.

These results are excerpted from the Medicare edition of the Sherlock Expense Evaluation Report (SEER), a benchmarking study comprising the results of 11 plans serving 3.0 million people surveyed by Sherlock Company. The median membership in this universe was 241,000 members, and the median percent of the premiums and fees attributable to Medicare products was 67.1%. With supplemental information included, SEER reflects the results of 22% of Medicare Advantage members.

For public policy and competitive reasons, administrative cost management is a high priority for health plans. Sherlock benchmarks include thousands of operational and financial performance metrics. Besides Medicare plans, other universes include Independent / Provider-Sponsored plans, Blue Cross Blue Shield plans, Medicaid plans and Larger plans. Collectively, the 50 plans serve more than 39 million insured Americans.

The growth in administrative costs ranged from a high of 29.1% for Marketing to a decline of 10.1% for Corporate Services. Douglas B. Sherlock, CFA, Sherlock Company’s president, noted, “Membership growth was likely related to both of these trends.”