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

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Abstract:

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 2008.1 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.2 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.3 MA organizations are not required to submit claims data to the Centers for
Medicare & Medicaid Services (CMS)—the agency that administers Medicare—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.