December 8, 2008

Medicare Advantage Organizations: Actual Expenses and Profits Compared to Projections for 2006

The federal government's spending on the Medicare Advantage (MA) program has grown substantially in recent years, from approximately $60 billion in 2006 and $77 billion in 2007 to an estimated $91 billion in 2008. MA organizations provide health care coverage to Medicare beneficiaries through private health plans, thus offering an alternative to the original Medicare fee-for-service (FFS) program. Payments to MA organizations are, in part, based on the projected expenditures organizations submit in their bids for providing Medicare-covered services, as well as actual enrollment and beneficiary health status. Once Medicare payments are determined, they are not modified based on differences between actual and projected expenses. MA organizations are not required to submit claims data to the Centers for Medicare & Medicaid Services (CMS), but they must report actual expenditures for the year 2 years prior to the upcoming contract year. For example, MA organizations reported their actual 2006 expenditures in their bid submission for contract year 2008. When MA organizations submit their bids, the actual expenditures reported in their bid submissions reflect the MA organizations most recent full calendar year of actual expenditure data.