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Health Plan Administrative Expense Growth Plummets

July 18, 2005

The growth of health plan administration declined to 2 percent in 2004 per member, down significantly from increases in 2003, according to Sherlock Company’s performance benchmarks.

This trend is broadly experienced and found in both Blue Cross Blue Shield Plans and in independent, typically provider-sponsored, health plans. For selected Blue Cross Blue Shield Plans, administrative cost increases per enrollee declined to 2.1% from 9.8% in 2004. Provider-sponsored plans declined to 1.9% compared with a 15.0% increase in 2004.

While growth was sharply reduced, the underlying trend may be even more favorable. For instance, excluding costs that are directly sensitive to changes in medical trend, commissions and medical management, administrative expenses increased by only 0.2% among the selected Blue Cross Blue Shield Plans. More than one-fourth of the plans in each universe reported declines in per enrollee administrative expense costs.

“We think that health plans are intently focused on improving their operational performance, including aggressive cost management,” said Sherlock Company’s president, Douglas B. Sherlock, CFA. “They are motivated by consumer demand and increasingly possess the technological ability to lower their costs and enhance other aspects of their operations.”

Corporate Services cost declines were especially notable, falling by 6.2% per member among Blue Cross Blue Shield Plans, and 2.0% per member for provider sponsored health plans.  Corporate Services includes finance, corporate governance and other support services. HIPAA costs were sharply down in both universes.

These results are drawn from Sherlock Company’s health plan performance benchmarks, or SEER. Benchmarks include thousands of operational and financial performance metrics based on the results of over 40 health plans serving 40 million insured Americans that participate in the current studies. The results of the eighth annual study include most of the Blue Cross Blue Shield Plans, eighteen provider-sponsored plans, Medicaid oriented plans and a selection of larger plans.


Douglas B. Sherlock, CFA
Sherlock Company

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