August 15, 2007
Philadelphia. August 15, 2007. The median administrative costs of larger health plans were $25.14 Per Member Per Month (PMPM) in 2006. This equated to 8.8% of premium equivalents, as detailed in Sherlock Company's SEER benchmarks.
The six Larger Plans participating in this year’s study are a subset of Blue Cross Blue Shield Plans. They serve 17.8 million people. They are of particular interest to managers since conventional wisdom holds that economies of scale exist in health insurers.
“Larger health plans are the household names of health plan industry, and are often leaders in investments in information systems. Many plans aspire to their size, seeking scalar economies for a sustainable competitive advantage,” said Sherlock Company’s president, Douglas B. Sherlock, CFA.
Larger Plans serve 52.9% of their members through self-insurance, similar to publicly-traded companies. By contrast, Blue Cross Blue Shield Plans in SEER serve only 38.0% through such arrangements. Plans in this universe typically serve more members than most publicly traded health plans.
Among insured commercial products, POS reported the lowest costs at $27.91 PMPM, or 9.6% or premium equivalents. Medicare Advantage costs were $55.88 or 6.2% of premiums, and Medicaid costs, at $19.34, were 9.7% of premiums.
ASO products tend to operate at $10.00 less PMPM mainly because of lower marketing expenses. POS and Indemnity products’ administrative costs, at $20.45 and $18.67 respectively, were each 7.5% of premium equivalents.
Administrative costs are segmented into the eleven most common products offered by Larger Plans. These include POS, Indemnity and HMO (ASO and Insured for each), plus Medicare Advantage, Medicaid, Medicare Supplemental, Stand-alone Dental and Medicare Part D. Administrative costs are also segmented into nearly 70 functional areas.These results are excerpted from Sherlock Company’s health plan performance benchmarks, or SEER. Benchmarks include thousands of operational and financial performance metrics and compile the results of approximately 50 health plans serving 35 million insured Americans. Plans in the tenth annual studies include the Larger Health Plans, most Blue Cross Blue Shield Plans, Medicare-Oriented plans, Medicaid-Oriented plans and Provider-Sponsored (Independent) Plans.