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Administrative Expenses for Blues Plans

By June 28, 2018Commentary

Collectively the health plans run under a Blue Cross Blue Shield association license provide health coverage to the single greatest number of Americans.  In many states these plans are dominant health insurers.  They used to all be “non-profit” but many have converted to for-profit status, i.e. Anthem, in the last decade or so.  Sherlock Company does a great job of tracking health plan performance and released a new analysis of trends in Blue Cross plan administrative expenses.   (Sherlock Report)   For 2017 these costs rose 5.9%, the largest growth rate in several years.  If taxes were included, there would have been a decline, but that was caused by the recent federal insurance tax suspension for a year.  On a per member basis, the change was 5.1%.  The insured business experienced a membership decline, while self-funded plan administration grew.  Self-funded plans are generally cheaper to administer, making the overall increase seem even higher.  On a per member basis, assuming a constant mix of plan types, sales and marketing represented a significant part of the rise, about 10.7%, the same as medical and provider management activities.  Within the sales bucket, underwriting and rating was a sub-function with rapid growth.  Perhaps a perception of greater competition led to more spending on sales and marketing and on rating.  There were higher costs in the sub-functions of employer group reporting and broker commissions as well.  Harder to know why medical and provider management activities would increase at such a rapid rate.  The sub-functions with particular growth were provider audits and provider network management.  In the general category of corporate services, accounting for a 9.3% rise, the executive function contributed to the strong growth in expenses.  Looks like executives got big bonuses for better financial performance.  Charitable contributions also were up, not clear if executive bonuses fall into this category.  Account and membership administration had the lowest rate of growth, at 3%.  Information systems is part of this category and had modest growth.  Spending money on administrative costs is not the best use of premium dollars, so we would hope that Blues plans are able to rein in this level of increase.

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