Administrative Costs for Medicare Plans Continue to Accelerate in 2018

PHILADELPHIA--()--In 2018, Medicare-focused health plans had administrative cost increases of 6.4%, the highest since 2012. This compares to last year’s increase of 5.3%. Increases are calculated for continuously participating plans, after backing out the effect of mix changes.

On an as-reported basis, per member costs increased by 5.4% compared with 4.5% in the prior year. Cost increases exclude the effect of ACA-related and other taxes. Total administrative expenses including ACA-related and other miscellaneous business taxes increased by 18.4% primarily due to the restoration of the Annual Fee on Health Insurance Providers.

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

  • All clusters accelerated in growth from last year except for Sales and Marketing.
  • Growth in Information Systems was the most important source of growth for Medicare-focused plans in 2018.
  • Cost trends favored lower cost products resulting in a slower growth in as-reported cost trends.

Median inferred Medicare Advantage staffing ratios increased from last year to 54 FTEs per 10,000 Medicare Advantage members. Median compensation was slightly lower by 0.4%, while non-labor costs were up by 0.5%. The propensity to outsource was lower by 0.2 percentage points.

For the universe as a whole, the median total costs were $55.45 per member per month, higher than last year’s $39.80. The median administrative expense ratio was 9.6% 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, September 25th 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 Medicare edition of the Sherlock Benchmarks. This benchmarking study analyzes in-depth surveys of 11 health plans with a plurality of their business stemming from Medicare Advantage and collectively served 4.6 million comprehensive members.

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 858 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 Medicare universe, other universes include Blue Cross Blue Shield Plans, Independent/Provider-Sponsored 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