I would argue that Medpac is a better place to go for data on the relative inefficiency of Medicare Advantage compared to traditional Medicare, but the study released yesterday by the House Energy and Commerce Committee won’t make any friends at the water coolers of the nation’s managed care plans either. The study notes:
From 2005 through 2008, the average Medicare Advantage insurer spent over 15% of premium revenue on profits, marketing, and other corporate expenses. Two-thirds of the Medicare Advantage insurers surveyed by the Committee had a medical loss ratio below 85% during at least one of the four years examined. Six of the insurers had medical loss ratios below 75% in one or more years. In comparison, traditional Medicare spends less than 1.5% on administrative expenses and over 98% on health care. In the aggregate, the Medicare Advantage insurers spent $1,450 per beneficiary in 2008 on profits, marketing, and other corporate expenses, nearly ten times as much as traditional Medicare spent on administrative expenses per beneficiary.
As a point of reference, 15% is more or less what the entire managed care industry spends on administration and profits, which isn’t a defense of Medicare Advantage, but rather an indictment of the managed care industry. Taken a step further, profits are less a problem than administrative costs and hassles — which affect not just the plans, but the entire provider community.
The only way this industry is going to survive long-term (and this goes for Medicare Advantage and managed care at large) is to simplify administration and start doing a better job of reducing the cost of care without resorting to the hammer of denials, rescissions and other tricks that may save money but are ultimately harmful to real people. It’s a tall task, but that’s why these cats make the big bucks.
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