Medicare Advantage plans were profit powerhouses in 2021 for private insurance companies with margins that were double those of Medicaid managed care, group and individual market plans.
A recent report by the Kaiser Family Foundation found MA plan average gross margins were $1,730 per person. That compares to $768 for Medicaid managed care plans, $745 for individual plans and $689 for group plans. While MA plans yielded handsome margins for private payers in 2021, the amount was 30% lower than the $2,257 per person gross margins the plans earned in 2020.
MA plans also had a lower medical loss ratio (87%) than individual (88%) and group plans (88%), according to the report. The medical loss ratio was slightly higher than the loss ratio for Medicaid managed care plans (86%). Medical loss ratios are the percent of premium income that insurers pay out in medical claims. The lower the medical loss ratio, the more income the payer has left over to cover administrative costs or keep as profits.
The loss ratio is important to MA plans because if that number falls below 85% over a number of years, the plans could face penalties from the Centers for Medicare & Medicaid Services. To avoid that risk, MA plans with lower medical loss ratios may add more generous supplemental benefits such as home care, transportation, meals or other benefits.
The report comes at a time when MA plans are gaining in popularity among older adults because of their lower rates than traditional Medicare plans and supplemental benefits. Last year, Kaiser estimated 48% of eligible Medicare beneficiaries were enrolled in MA plans — an amount that is expected to eclipse 50% within the next couple of years.
At the same time, MA plans are coming under fire by government watchdogs for delaying or denying services covered under Medicare. Last month, a report found that the plans denied 6% of prior authorization requests for medical services in 2021. Providers, including home health agencies, have also criticized MA plans, saying some are squeezing them on reimbursement rates.
