Independent/Provider-Sponsored Administrative Costs Accelerated in 2017

PHILADELPHIA--()--Independent/Provider-Sponsored health plans had administrative cost increases of 5.5% in 2017, the highest since 2013. Last year’s increase was 2.4%. Increases are calculated for continuously participating plans, after backing out the effect of mix changes.

On an as-reported basis, per member costs grew by 5.2% compared with 3.0% in the prior year. A shift in mix to a less expensive product meant that reported expenses appeared to increase by less than if the mix was constant. While membership in continuously participating plans declined, low cost ASO and Medicare Supplemental shares increased outweighing increases in high cost Medicare Advantage.

Cost increases exclude the effect of ACA-related and other taxes, which plummeted, and led to total administrative expense decline of 3.8%.

Every cluster of expenses accelerated. Account and Membership Administration increased by 6.2% per member. Growth in Customer Services, Actuarial, Rating and Underwriting were especially notable. Corporate Executive, Association Dues were among the fastest growing expenses.

Staffing ratios were slightly higher while outsourcing declined. Compensation was higher but limited to a few functions.

The median total costs for the IPS universe as a whole was $38.35 per member per month, higher than last year’s $38.23. The median administrative expense ratio was 8.5% compared with 8.7% last year.

Additional information was published recently in Plan Management Navigator and is posted at sherlockco.com/navigator.

We will discuss the results via free web conference on Wednesday, July 18th from 2:00 PM to 3:00 PM Eastern Daylight Time. Douglas Sherlock will offer a brief presentation, followed by questions and answers. To participate in the web conference, please register at sherlockco.com/webinar. Once registered, dial-in information and a link to connect will be provided in a confirmation email.

The Navigator analysis excerpts from the 2018 Independent/Provider-Sponsored Plan edition of the Sherlock Benchmarks. This benchmarking study analyzes in-depth surveys of 20 IPS plans serving 10.8 million members. Surveyed plans include more than one-third of the membership in provider-sponsored health plans.

Health plans that optimize their administrative costs amplify their operating profits and mute operating losses. “Managing what you measure” facilitates achievement of that goal. In a competitive environment, measurement implies comparison with the leaders in your industry.

The Sherlock Benchmarks reflect over 815 health plan years of experience spanning 21 consecutive years. They are “the gold standard” of benchmarks used to measure and manage health plan administrative activities. Thus planning, budgeting and cost-benefit analyses are credibly informed by the Sherlock Benchmarks.

Besides the Independent/Provider-Sponsored universe, other universes include Blue Cross Blue Shield Plan plans, Medicare plans and Medicaid plans. Collectively, the approximately 38 participating plans serve nearly 50 million insured Americans.

Sherlock Company (www.sherlockco.com), based in North Wales, Pennsylvania, provides informed solutions for health plan financial management. Since its founding in 1987, Sherlock Company has been known for its impartiality and technical competence in service to its clients.

Contacts

Sherlock Company
Douglas B. Sherlock, CFA, 215-628-2289
sherlock@sherlockco.com

Release Summary

Independent/Provider-Sponsored Health Plan Administrative Expenses Increase in 2017 - Sherlock Company

Contacts

Sherlock Company
Douglas B. Sherlock, CFA, 215-628-2289
sherlock@sherlockco.com