FOR IMMEDIATE RELEASE, Wednesday, June 25, 2008
Contact: Brian Cook (202) 225-3202

WASHINGTON: - Ways and Means Health Subcommittee Chairman Pete Stark (D-CA) today released a report by the Government Accountability Office (GAO) that shows that private Medicare Advantage (MA) plans spent less than they projected in their 2005 bids on medical care for beneficiaries, which in turn earned them $1.14 billion in additional profits over what was expected.

“This report confirms that the ‘deal’ offered to Medicare beneficiaries and American taxpayers by these private plans is even worse than we thought,” said Rep. Stark. “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. These funds go directly into the pockets of big insurance companies – not toward medical care for beneficiaries.”

The report is important because it reveals yet another critical flaw in the current bidding and payment system for private plans. MA plans project what they will spend on medical services for beneficiaries when they submit bids in the annual application process to CMS each year. The bids also project how much profit the plans expect to earn in the bid year in question. These bid projections are used to determine how much plans are paid and what benefits are offered. Because MA plans only report two years later what they actually spent on medical care -- and CMS is not auditing these look-back reports -- these preliminary projections are the only measure that CMS uses to evaluate private plan spending on medical benefits and profit.

In this report, for the first time in the history of the Medicare Advantage program, GAO compared the private plans’ projected spending on medical care and profit margins with their actual profit margins and spending on medical care. GAO found that, in 2005, MA plans projected spending of 90.2 percent of total costs on medical services, but actual spending on benefits was 85.7 percent. By spending less on beneficiaries, these plans increased their profit margins to an average 5.1 percent of total revenue, or approximately $1.14 billion more than projected.

According to the GAO report, “The accuracy of MA organizations’ projections is important because, in addition to determining Medicare payments, these projections also affect the extent to which MA beneficiaries receive additional benefits not provided under FFS and the amounts beneficiaries pay in cost sharing and premiums.” [p. 1]

“I should not have had to ask GAO for a report on the actual medical loss ratios of Medicare Advantage plans. CMS is required by law to conduct audits of these plans. They aren’t doing their job because the Bush Administration is perfectly happy to have billions of dollars going to insurance companies instead of Medicare beneficiaries. That’s why they continue to battle any reasonable changes to the Medicare Advantage program,” continued Rep. Stark.

“This GAO Report is more evidence of the waste and abuse in the Medicare Advantage program. The overwhelming vote in the House on HR 6331 shows that Congress will no longer stand in lock step with the Bush Administration to protect insurance industry profits at the expense of Medicare beneficiaries and providers. I urge the Senate to join with us to send HR 6331 to the President so we can begin to enact balanced reforms to Medicare Advantage,” concluded Rep. Stark.

A copy of this report can be viewed here.