New GAO report discusses Medicare Advantage plans’ actual vs. projected profits

Surprise!  These plans made 50% higher profits than they “thought” they would.

Summary of the report:  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. MA organizations reported spending an average of 83.3 percent of total revenue on medical expenses, but had projected spending an average of 86.9 percent of total revenue on those expenses. 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 PFFS plans—there was a consistent pattern of actual profits being higher than projected and medical expenses being lower than projected. Projections of profits were closer to actual profits as a percentage of revenue in 2006 (2.5 percentage points difference) than they were in 2005 (3.2 percentage points difference). However, largely due to an approximate 40 percent increase in enrollment between the 2 years, the actual dollar amount of the difference between actual and projected profits increased from $1.1 billion in 2005 to $1.3 billion in 2006.

Get the report:  http://www.gao.gov/new.items/d09132r.pdf?source=ra

Remember:  these plans receive huge subsidies from US taxpayers…