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Larger Plan Administrative Expenses Approximate 11% of Premiums, According to Sherlock Company

April 7, 2004

Philadelphia, April 7, 2004. The Sherlock Expense Evaluation Report (SEER), Larger Plans Edition, shows that administrative expenses for Larger Plans' insured commercial products were 11.29% of premiums, or $23.28 per member per month (PMPM) in 2002. This was significantly larger than typically found in Blue Cross Blue Shield or Public health plans. ASO / ASC PMPM costs were $13.99. Administrative expenses varied by insured product, ranging from a low of 7.21% of premium for Medicare + Choice to 11.92% for Commercial POS.

Health plans participating in Sherlock Company's benchmarking studies include public, Blue Cross Blue Shield, provider-sponsored and Medicaid-oriented plans. The six Larger Plans surveyed consist of three Blue Cross Blue Shield Plans and three publicly traded firms. Together they serve 19 million individuals.

SEER reports are the definitive benchmarks for health plan administration. They are critical tools to enhance operational performance and support strategic initiatives ranging from management of the product portfolio, vendor negotiations, outsourcing and business combinations. Studies include separate universes of Publicly Traded health plans and Blue Cross Blue Shield Plans, and an additional one for Provider Sponsored Health Plans is currently underway. Volume I for each universe contains financial metrics and Volume II contains operational metrics.

Volume I of SEER for Blue Plans contains 2,425 analyses of ten principle product areas and sixteen functional areas, plus subcategories. Separate analyses include individual products and national accounts, outsourced functions such as mental health, pharmacy and COB / Subrogation and information systems allocations. Products include HMO, Point-of-Service, Indemnity and PPO, Medicare HMO, Medicaid HMO and Medicare Supplemental.

Volume II, provides over 1,000 operational analyses of eight key functional areas, including marketing, customer service, claims, enrollment and provider relations. Examples include average cost per inquiry, average speed of answer and the average cost, speed and accuracy of processed claims.

Sherlock Company, based in Gwynedd, 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.

Additional details are available on our website or by contacting us at:

Douglas B. Sherlock, CFA
Sherlock Company

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