Press releases

Medicaid Plans Administrative Expense Growth: Fastest Since 2014

17 December 2018

PHILADELPHIA--(BUSINESS WIRE)-- Medicaid-focused health plans had increases of 5.5% in core administrative costs in 2017, the highest since 2014. This compares to last year’s increase of 1.4%. Increases are calculated for continuously participating plans, after eliminating the effect of mix changes.

On an as-reported basis, per member core costs increased by 7.1% compared with 3.9% in the prior year. Cost increases exclude the effect of ACA-related and other taxes, which plummeted. If included, total administrative expenses would have declined by 3.5%.

Account and Membership Administration expenses grew by 5.9% per member, higher than the 1.1% growth posted for 2016. Medical and Provider Management flipped from a decline to an increase of 5.7% in 2017, while the Corporate Services Cluster grew by 12.0%.

The Corporate Services Function, including HR, Legal Facilities and similar activities, was the most important source of growth in Core expenses for Medicaid plans. The growth in the Actuarial function was the most rapid. While not included in Core expenses, growth in Risk Adjustment expense was both the fastest growing and most important source of growth for the Sales and Marketing cluster.

Staffing ratios were higher, while compensation and outsourcing increased slightly over last year.

The median core costs for the universe were $28.83 per member per month, lower than last year’s $29.56. The median administrative expense ratio was 8.4%, unchanged from last year. Median Core costs for Medicaid products of the plans was 6.2% of premiums.

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

We will discuss the results via free web conference on Wednesday, October 17th from 2:00 PM to 3:00 PM Eastern 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.

This Navigator analysis excerpts from the 2018 Medicaid edition of the Sherlock Benchmarks. The benchmarking study analyzes in-depth surveys of 12 health plans focused on Medicaid. They collectively serve 9.1 million comprehensive members, of which 4.1 million are Medicaid. With Medicaid results from other universes included in the reports of the study, the Benchmarks include 18 plans serving five million Medicaid members.

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 818 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 Medicaid universe, other universes include Blue Cross Blue Shield Plan plans, Independent / Provider – Sponsored plans, and Medicare plans. Collectively, the 40 participating plans serve 53 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.