Blue Cross Blue Shield plans kept administrative costs in check in 2009

Administrative expenses for Blue Cross Blue Shield plans dipped to 9.7 percent of premiums in 2009 compared with 9.9 percent in 2008, according to a new study by Gwynedd, Pa.-based Sherlock Co.

After adjusting for product mix changes among the 24 Blues plans studied, the 2009 administrative cost totals represented growth of 3.8 percent, compared with a 1.6 percent increase the year before. The plans' median total administrative cost in 2009 was $28.02 per member per month.
Blues plans moderated administrative cost growth in the face of the struggling U.S. economy and the likely passage of health reform legislation, Sherlock Co. President Douglas Sherlock said. The healthcare reform law that passed this year will cap insurers administrative expenses to 15 or 20 percent, depending on the type of plan.
But the data suggest Blues plans were strategic in how they allocated administrative spending. "Plans are adapting to these changes by increasing spending on information systems and in corporate governance, where strategic changes are made," Sherlock said in an Aug. 5 briefing.
Account and membership administration was the highest-cost area, at a median of $12.21 per member per month. That was up 4.2 percent on a product-mix adjusted basis, compared with 0.7 percent growth in 2008. Information systems were the main reason for this hike, anticipating greater data demands under health reform, Sherlock said.
Marketing was the second biggest category, at a median of $7.49 per member per month. Adjusted growth in this area declined 2 percent in 2009, compared with a growth decline of 3.8 percent in 2008--even though broker commissions jumped significantly.
Corporate services, which includes strategic planning, came in third, at a median of $4.96 per member per month. Adjusted growth was 5.7 percent, compared with growth of 0.6 percent in 2008. The increase may reflect health reform factors, Sherlock said.
Provider and medical management was the smallest category, at a median of $3.41 per member per month. That area grew by 5.4 percent, down from 12 percent growth in 2008. Plans may have spent more to hold back the traditional surge of medical utilization in a weak economy, Sherlock said.

To learn more:
- read the Sherlock Co. report on Blue Cross Blue Shield Administrative Costs for 2009
- here's the Sherlock Co. report on analytics for health plan administration
- see Douglas Sherlock’s Aug. 5 presentation transcript 

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