In response to a request from the health subcommittee of the U.S. House of Representatives Committee on Ways and Means, the Government Accountability Office (GAO) has issued a report on the accuracy of profit and expenditure projections by Medicare Advantage (MA) organizations.
The federal government’s spending on the MA program has grown substantially in recent years, from approximately $60 billion in 2006 and $77 billion in 2007 to an estimated $91 billion in 2008. MA organizations provide healthcare coverage to Medicare beneficiaries through private health plans, thus offering an alternative to the original Medicare fee-for-service program. Payments to MA organizations are, in part, based on the projected expenditures organizations submit in their bids for providing Medicare-covered services, as well as actual enrollment and beneficiary health status.
On average, MA organizations reported earning profits of 6.6 percent of total revenue in 2006, which was higher than their projected profits of 4.1 percent. More than half of beneficiaries were enrolled in health benefits plans offered by MA organizations for which profits as a percentage of revenue were greater than projected and the combined medical and non-medical expenses as a percentage of revenue were lower than projected. Among the three types of MA health plans with the largest enrollments--HMOs, PPOs, and private fee-for-service plans--there was a consistent pattern of actual profits being higher than projected and medical expenses being lower than projected.
Read the report.
