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Independent / Provider-Sponsored Administrative Cost Trends Increase in 2008 as Ratios Decrease on Product Mix Change

July 7, 2009

Philadelphia. July 7, 2009.  Per member administrative costs grew by 11.5% in 2008, compared with 4.9% in 2007. Adjusting for the shift in product mix towards Medicare Advantage, administrative expense growth increased by 6.2% in 2008 from 3.1% in 2007. By contrast, administrative expenses were 8.3% of premium equivalents in 2008 compared with 9.4% in 2007.  Plans reported total administrative expenses of $30.37 per member per month.  All cited values exclude investment and non-operating income and expense, income taxes and miscellaneous business taxes.

These results are excerpted from the Independent / Provider - Sponsored (IPS) edition of the Sherlock Expense Evaluation Report (SEER), a benchmarking study comprising the results of 16 plans serving 5.7 million people surveyed by Sherlock Company. Approximately 77% of last year’s IPS participants did so again in 2009 and 75% have at participated for at least three years. For public policy and competitive reasons, administrative cost management is a high priority for health plans.

Sherlock benchmarks include thousands of operational and financial performance metrics. Besides Independent / Provider-Sponsored plans, other universes include Blue plans, Medicare plans, Medicaid plans and Larger plans. Collectively the 50 plans serve more than 39 million insured Americans.

The growth in administrative costs ranged from a high of 22.7% for Medical and Provider Managements to a low of 6.0% for Account and Membership Administration. Douglas B. Sherlock, CFA, Sherlock Company’s president, noted, “The growth of Medicare dramatically affected comparisons.”

Additional information will be published on July 8 in Plan Management Navigator, available upon request or see our website, www.sherlockco.com. The complete analysis is available in SEER. Please call for additional information.

We will host a web conference on Thursday, July 9 from 2:00 PM to 3:00 PM East Coast Time to discuss the summary results. Doug Sherlock will offer a brief presentation, followed by questions and answers. To participate in the web conference, please register at:

https://www2.gotomeeting.com/register/733072418

Once registered, dial-in information and a link to connect to the web will be provided in a confirmation email.

 

Sherlock Company (www.sherlockco.com), 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.

Contact:
Douglas B. Sherlock, CFA
Sherlock Company
215-628-2289
sherlock@sherlockco.com
www.sherlockco.com

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