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Kent J. Sacia, Robert H. Dobson, Milliman USA, February 20, 2003.
Focus: To examine health plan administrative cost trends from 1998 through 2002 and their impact on overall healthcare costs.
Study Design: Used data on administrative costs and efficiency of health plans, insurance companies, and third party administrators (TPAs) from its Milliman Health Plan Operations Benchmark database. The report covers insured, administrative service only (ASO), and administrative service contract (ASC) lines of business.
Results:
- During 1998-2002, premiums for insured business increased at an annualized rate of 7.4 percent, while administrative costs increased at a slower rate of 4.6 percent. The average administrative cost as a percentage of premium fell from 12.9 percent to 11.6 percent.
- In 2000, the administrative cost ratio was 11 percent for Blue Cross and Blue Shield Plans, versus 11.6 percent for the industry as a whole.
- Sixty percent of the 4.6 percent increase in administrative costs is related to payroll, staffing, and associated variable cost increases. Some of this was due to wage inflation, which occurred across most industries, and some, to staffing increases.
- The staffing growth of 0.7 percent was primarily driven by growth in Customer Service and Information Technology staff.
Full Study:
Understanding Health Plan Administrative Costs (PDF format, 96KB)
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