Independent / Provider - Sponsored Plan Administrative Cost Trends Moderate in 2018

PHILADELPHIA--()--In 2018, the administrative costs of Independent / Provider - Sponsored Plans increased by 3.7% per member, down from an increase of 5.2% for 2017. Reweighting to eliminate the effects of product mix differences between the years, per member costs increased by 3.4% as compared with 5.5% in 2017. The increasing importance of Medicare Advantage amplified cost trends.

Our key findings from our analysis of the Sherlock Benchmarks are:

  • Most clusters of expenses declined in growth.
  • Medical and Provider, however, accelerated.
  • Growth in Corporate Services was the single most important reason for administrative expense increase in 2018.
  • The shift in favor of products and market segments that are higher cost to administer amplified the real growth.

Staffing ratios decreased, we estimate, for the Commercial Insured product by 3-4% to approximately 25 FTEs serve every 10,000 members. Compensation increased at a median rate of 1.5%. The median proportions of FTEs that were outsourced was 11.2%.

After the effect of the Miscellaneous Business Taxes, total administrative expense PMPM increased by 14.9% compared with a decline of 3.8% in the prior year due to the restoration of the Annual Fee on Health Insurance Providers.

For the universe as a whole, the median total costs were $41.28 per member per month, higher than last year’s $38.35. The median administrative expense ratio was 8.6% compared with 8.5% last year.

Additional information was published recently in Plan Management Navigator, and is posted at

We will discuss the results via free web conference on Wednesday, July 10th 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/webinar. Once registered, dial-in information and a link to connect will be provided in a confirmation email.

The Navigator analysis excerpts from the 2019 Independent / Provider - Sponsored edition of the Sherlock Benchmarks. This benchmarking study analyzes in-depth surveys of 19 plans serving 10.2 million members. Of the 16 members of the Alliance of Community Health Plans not focused on public programs or are staff-model plans, ten are participating in this year’s Sherlock Benchmarks. Of the seven largest members of the Health Plan Alliance that are focused on commercial products, five are participating in this year’s Sherlock Benchmarks.

While health plan managers are responsible for the health care for many of your members, they manage the administrative services necessary for all of them. In the current environment, optimizing administrative expenses is a high priority for health plan managers. Plans have completed their adaptation to the Affordable Care Act and the bulge in Exchange and Medicaid members. Plus, administrative expense visibility has been heightened by the rhetoric of presidential candidates.

The Sherlock Benchmarks reflects approximately 855 health plan years of experience spanning 22 consecutive years. They are “the gold standard” of benchmarks used to measure and manage health plan administrative activities. 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 plans, Medicare plans and Medicaid plans. Collectively, the approximately 40 participating plans serve approximately 51 million insured Americans.

Sherlock Company (, 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.


Douglas B. Sherlock, CFA


Douglas B. Sherlock, CFA