GAO: Most Medicare Advantage Plans Met Medical-Loss Ratio
In 2011, Medicare Advantage plans spent an average of 86.3% of their revenue on medical expenses, exceeding the 85% medical-loss ratio required of the plans under the Affordable Care Act, according to a according to a report released Thursday by the Government Accountability Office, Modern Healthcare reports (Demko, Modern Healthcare, 1/23).
The ACA sets maximum profit margins -- known as a medical-loss ratio -- for certain insurance plans and prescription drug benefit programs. The final rule on the MLR requires MA plans and the Medicare Part D program to spend 85% of their premiums on "clinical services, prescription drugs, quality improving activities and direct benefits to beneficiaries."
Plans that fail to meet the requirements will be subject to "enrollment sanctions" and will be cut from the federal programs after five consecutive years (California Healthline, 9/13/13). Insurers also are required to refund excess revenue to the federal government.
For the report, which was requested by House Ways and Means Committee ranking member Sander Levin (D-Mich.), GAO examined 1,242 MA plans that provided coverage to a total of 7.5 million Medicare beneficiaries in 2011 (Modern Healthcare, 1/23).
- GAO found that in addition to spending an average of 86.3% of their revenue on medical expenses, the plans in 2011:
- Spent 9.1% or their revenue on administrative costs; and
- Retained 4.5% of their revenue -- or about $3.3 billion -- as profit (GAO report, 1/23).
The report did not specify how many MA plans exceeded the 85% spending threshold, but it noted that 39% of MA beneficiaries were enrolled in plans that failed to meet the ACA standard.
It also found that insurers received $9,893 per beneficiary in 2011, which was 2.7% higher than they projected during the bidding process that sets MA payments (Modern Healthcare, 1/23). In addition, the report found that special needs plans, which serve beneficiaries with chronic diseases, accounted for 8.6% of revenue, or nearly double that of other MA plans (GAO report, 1/23).
According to Modern Healthcare, insurers had estimated that they would make $777 in profit from each special-needs beneficiary, but they actually earned $1,115 in profit, or 44% higher than they anticipated (Modern Healthcare, 1/23).
Insurers also made more profit than expected on group plans offered through employers or unions, garnering about $861 per enrollee -- more than double what was projected -- for a total of 7.6% of the overall profit (GAO report, 1/23).This is part of the California Healthline Daily Edition, a summary of health policy coverage from major news organizations. Sign up for an email subscription.