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According to a study by the Government Accountability Office, offerors of Medicare Advantage plans earned profits in excess of $1.1 billion more than anticipated for the year 2005. The GAO found that the increased profits occurred because the Medicare Advantage organizations spent 85.7% of their revenues on medical expenses, but the projections had assume spending of 90.2%.
The profit margin for the MA plans was 5.1%. Moreover, the study found that 2/3 of beneficiaries enrolled in MA plans were enrolled with organizations that realized larger profits than anticipated.
The report provides ammunition to those who oppose the entry of private insurers into the Medicare system.
The issue remains of whether the single year 2005 has produced skewed results with 2006 and beyond conforming more to prior projects or whether the 2005 figures presage a continuing level of corporate profits. The Center for Medicare and Medicaid Services argues that the numbers for 2006 and beyond will conform to projections. The GAO disagrees saying that it is wrong to assume that there is no relationship between the 2005 payment system and the process in the following years.
For a more in depth discussion of the GAO report and the issue, please see Inside Washington Publishers' Inside CMS, "GAO: MA Plans Pocket $1.14 Billion Above their Projected Profits," Vol. 11, No. 13, June 26, 2008.
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According to a letter from James Cosgrove, Director of Healthcare, GAO to Congressman Pete Stark, Chairman of the Ways and Means Subcommittee on Health, "although differences between projected and actual expenses and profits may not have affected Medicare payments to MA organizations, the inaccuracy of projections could have impacted the types and costs of services that MA beneficiaries received." (http://www.gao.gov/new.items/d08827r.pdf).
Ours is a society based on capitalism, and there is nothing wrong with a company making a profit. However, when those profits begin to impact the services of beneficiaries, something needs to change. Health care costs continue to increase faster than people's ability to pay, yet most legislation seems to be more concerned with insurance company profits. If in the process, the beneficiary manages to get some care without declaring bankruptcy, then that's a bonus.
Possibly, this is an anomaly and will correct itself in years to come. Additionally, I don't believe we should force companies into a situation where they are not profitable. However, excess profits without significantly lower costs and improved services, is not an acceptable consequence for this, or any healthcare program.
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