A 2009 report from Congress highlighted the reasons why Democrats hate Medicare Advantage. The study of Medicare Advantage plans’ revenues and expenses from 2005 to 2008 found that the average Medicare Advantage insurer spent over 15% of its revenues on marketing, administrative costs, and profits. Most of these companies’ revenues come directly from Medicare (around $800 per month per enrollee in Arizona; $1,000 per month per enrollee in Florida) while the rest comes from premiums charged to people enrolled in the plans.
Medicare spends less than 1.5% on administrative expenses and over 98% on health care costs for seniors. Two-thirds of Medicare Advantage plans spent only 85% of their revenue on enrollees’ health care costs. The study sited six plans that spent only 75% of revenues on their enrollees.
The report concluded that total amounts spent on profits, marketing, and other expenses by Medicare Advantage plans over the last four years was 27 billion dollars. This is money that should have stayed in the Medicare Trust Fund, but instead went to private insurance companies to be spent on things other than health care for seniors and disabled citizens on Medicare. This is why Democrats have targeted Medicare Advantage for big cuts.
The report notes that in 2007 one Medicare Advantage company paid its top executive $35 million. Another company paid out a total of $210 million among 260 managers. The study also reported on expensive retreats, which are typical rewards for top sales agents and employees in the insurance industry. In 2007, one insurer spent over $3 million on retreats in Hawaii while it spent only 83% of its revenue on health benefits for seniors enrolled in its plans.
This is why Democrats hate Medicare Advantage plans. And this is why Democrats will see to it that Medicare cuts payments to the insurance companies that run the plans. Democrats in Congress don’t agree on much, but I think this is the exception.
It looks like there’s plenty of fat that can be cut from these plans’ expense sheets – and profit margins – before they start raising co-pays and premiums for seniors. But we’ll have to see how that turns out.
The full report can be found at http://energycommerce.house.gov/Press_111/20091209/MedicareAdvantageReport120909.pdf