Medicare Advantage: Special Needs Plans Were More Profitable, on Average, than Plans Available to All Beneficiaries in 2011

What GAO Found

Special needs plans (SNP) reported having higher profit margins and spending a lower percentage of total revenues on medical expenses, on average, than Medicare Advantage (MA) plans available to all beneficiaries in 2011. For instance, SNPs' average profit margin was 4.0 percentage points higher than plans available to all beneficiaries--8.6 percent vs. 4.6 percent. SNPs also had a higher plan-level median profit margin compared to MA plans available to all beneficiaries--7.1 percent vs. 3.2 percent. All three types of SNPs--dual-eligible SNPs, chronic condition SNPs, and institutional SNPs--spent, on average, a lower percentage of total revenue on medical expenses and had higher profit margins relative to MA plans available to all beneficiaries. SNPs also spent a lower percentage of total revenue on medical expenses and had higher profit margins relative to MA plans available to all beneficiaries after accounting for whether a plan had a high or low enrollment-weighted average benchmark--the maximum amount Medicare will pay plans to serve an average beneficiary in a given area. Similarly, SNPs spent a lower percentage of total revenue on medical expenses and had higher profit margins relative to MA plans available to all beneficiaries after accounting for plan type (i.e., health maintenance organizations and preferred provider organizations). Further, these differences persisted, on average, after excluding SNPs located in Puerto Rico from the overall SNP analysis and the analyses that accounted for benchmarks and plan type. The MA market in Puerto Rico has some unusual characteristics, such as having benchmarks that are substantially higher relative to Medicare fee-for-service (FFS) than other areas of the United States.

The federal government paid approximately $124 billion in 2011 to MA organizations--entities that offer a private health plan alternative to Medicare FFS. The private plans offered by MA organizations are generally available to all Medicare beneficiaries in the plans' service areas, although there are some MA plans--such as SNPs--with more The federal government paid approximately $124 billion in 2011 to MA organizations--entities that offer a private health plan alternative to Medicare FFS. The private plans offered by MA organizations are generally available to all Medicare beneficiaries in the plans' service areas, although there are some MA plans--such as SNPs--with more specific eligibility requirements. As of November 2011, approximately 1.4 million beneficiaries, or about 12 percent of all beneficiaries enrolled in MA, were in SNPs.

Medicare payments to SNPs tend to be higher than payments to other MA plans, in part, because the beneficiaries enrolled in SNPs are generally in poorer health and are expected to use more health services relative to enrollees in other MA plans. However, even after accounting for differences in relative health status, Medicare payments to SNPs were higher in 2011, on average, than payments to the average MA plan.

GAO was asked for information about how SNPs allocated the payments they received to medical expenses, nonmedical expenses (such as marketing, sales, and administration), and profits, and how these allocations compared to those made by MA plans available to all beneficiaries. This report examines the extent to which actual expenses and profits in 2011 differed, if at all, between SNPs and MA plans available to all beneficiaries.