Health insurers earned $1.3 billion more on U.S. Medicare-backed plans for the elderly in 2006 than the industry projected when it bid for the government contracts the year before, according to a government report.
The insurers, led by Minnetonka-based UnitedHealth Group Inc. and Humana Inc., had a 6.6 percent profit margin on Medicare Advantage plans after winning the contracts based on predictions of a 4.1 percent profit, the Government Accountability Office (GAO) said in a report released by Congress on Thursday. Had the profit projections been accurate, the insurers could have spent more money providing extra benefits, such as lower out-of-pocket costs for their members, the GAO said.
The insurers will collect $100 billion in U.S. payments for 10.2 million members of Advantage plans, which offer more benefits than the traditional Medicare program for elderly and disabled Americans. President-elect Barack Obama on Thursday called for new controls on Advantage subsidies.
Medicare Advantage plans spent 83.3 percent of premium revenue on medical expenses compared with the 86.9 percent projected in their bids, the GAO concluded. The 2006 plan data were the most recent available under Medicare rules allowing a two-year delay in reporting medical expenses, the GAO said.
In a letter to GAO, Medicare acting administrator Kerry Weems didn't dispute the findings and called the difference in expected medical expenses "very small." Advantage revenue was boosted by enrollment growth and payment adjustments based on the health risks of individual enrollees.
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