Medicare Advantage Plans in 2005 Made $1.14B More in Profits Than They Projected, GAO Report Finds

Private insurers participating in the Medicare Advantage program in 2005 spent less on medical services for beneficiaries and recorded larger profits than projected, according to a Government Accountability Office report released Wednesday, the Los Angeles Times reports (Los Angeles Times, 6/26).

For the report, GAO officials examined the 2005 data from 120 forms submitted in 2007 that chronicle the previous two years, which plans are required to submit for each contract. The 120 forms reviewed by GAO represented 78% of MA plan enrollment, CongressDaily reports. According to the report, the plans on average projected spending 90.2% of total revenue on medical services but actually spent 85.7%. The disparity resulted in an extra $1.14 billion in profits. Under the rules of the program, insurers recording more profits than expected are required to spend the additional funds on extra health services for beneficiaries.

House Ways and Means Health Subcommittee Chair Pete Stark (D-Calif.), who requested the report, said, "Private plans in Medicare spend even less on medical care than they report to CMS -- to the tune of over a billion dollars in one year alone." He added, "These funds go directly into the pockets of big insurance companies, not toward medical care for beneficiaries."

CMS officials said the findings do not accurately reflect benefits spending versus profits after 2005, when the accuracy of spending projections improved under a competitive-bidding process launched in 2006 (Edney, CongressDaily, 6/25). CMS officials added that the health status of projected versus enrolled beneficiaries could have been responsible for the discrepancy (Dixon, Reuters, 6/25). However, the GAO report stated, "It would be incorrect to suggest that there is no relationship between the payment system in 2005 and the bidding process that began in 2006."

According to CongressDaily, the GAO report comes as the Senate is preparing to consider a House-passed bill (HR 6331) that would offset the cost of a delay in reducing Medicare physician fees by limiting payments to MA plans (CongressDaily, 6/25).

The report is available online.