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Profit In 2006 Was $1.3B Higher For Medicare Advantage Plans

Ruzanna Harutyunyan's picture

Insurers offering Medicare Advantage plans made $1.3 billion more in profit in 2006 than projected, according to a Government Accountability Office report expected to be released Thursday, the AP/Albany Times Union reports. The federal government bases its payment rates for MA plans partly on the plans' anticipated revenue and expenses.

The report looked at the MA program for 2006, the most recent year for which data are available. MA insurers reported $50 billion in revenue that year. On average, insurers earned profits of 6.6%, compared with the 4.1% they had projected. They also spent 83.3% of revenue on medical expenses, compared with the nearly 87% that was projected.

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House Ways and Means Health Subcommittee Chair Pete Stark (D-Calif.) -- who requested the analysis -- said that the federal government spends on average 13% more on MA plans than traditional Medicare. The GAO report "puts to bed this idea [that] the plans are offering tremendous extra benefits with the overpayments," he said, adding, "The overpayments are going to profits." He said he plans to push for legislation next year that would lower the federal government's payments to MA plans.

Federal officials said that the profits are within the normal range, "given the difficulty in forecasting medical trends and spending," the AP/Times Union reports. Jeff Nelligan, spokesperson for CMS, said, "The goal of the payment structure, as mandated by Congress, was to ensure broader access to MA plans, particularly for lower-income, minority and rural beneficiaries" (Freking, AP/Albany Times Union, 12/11).

Reprinted with permission from kaisernetwork.org. You can view the entire Kaiser Daily Health Policy Report, search the archives, and sign up for email delivery at kaisernetwork.org/email . The Kaiser Daily Health Policy Report is published for kaisernetwork.org, a free service of The Henry J. Kaiser Family Foundation. © 2007 Advisory Board Company and Kaiser Family Foundation. All rights reserved.