Plans reported an MLR near 90% in 2023. But an Insurance Watchdog Coalition analysis reveals, by insurers own filings, medical and prescription-drug claims were 82.5% of revenue — below the 85% federal requirement, and $36 billion below the figure they reported.
WASHINGTON, DC — The Insurance Watchdog Coalition (IWC) today released a new report finding that Medicare Advantage insurers are spending billions less on health care than what they’re reporting. Plans reported a Medical Loss Ratio (MLR) near 90% in 2023 — but by their own filings to the Centers for Medicare & Medicaid Services (CMS), only 82.5% of revenue actually paid a medical or prescription-drug claim.
“For years, policymakers thought Medical Loss Ratio (MLR) meant insurers paid 85% of every dollar on health care. But insurers rigged the system, counting billions in overhead, marketing and of other costs as ‘medical’ expenses. We need real transparency to make sure health dollars go to patients — not just insurers’ bottom line,” said Mark Merritt, Executive Director of the Insurance Watchdog Coalition.
The $36 billion gap includes administrative costs that insurers classify as “quality improvement,” non-medical extras such as prepaid “Flex Cards,” bonus payments to providers, and premium subsidies that never touch a claim.
Flex Cards operate more like SNAP cards than health care benefits — cash for everyday living expenses, not medical costs like co-pays. MedPAC’s own research found they’re a key reason low-income, dual-eligible seniors enroll in Medicare Advantage in the first place.
The report also finds that insurers can meet the 85% MLR minimum by paying their own affiliated physician practices more than they pay independent providers:
- Up to 61% more for identical services in some markets, with every dollar of that markup still counting as medical spending
- CMS does not require insurers to disclose what they pay their own affiliates
Bipartisan, Cross-Industry Concern
The American Hospital Association, representing the nation’s community and nonprofit hospitals, and the Federation of American Hospitals, representing investor-owned hospital systems, have both told Congress they are concerned insurers are gaming MLR by directing payments to their own affiliated entities. A Democrat and a Republican on the House Ways and Means Committee have jointly asked the Government Accountability Office to investigate.
Key Findings
- CMS conducts only “selected review” of insurer-submitted MLR data, not an audit — insurers classify their own spending with no independent verification.
- Research on the ACA’s own commercial MLR requirement found that once insurers hit the required floor, claims costs rose while premiums did not fall.
- CMS does not require Medicare Advantage insurers to disclose what they pay their own affiliated providers, so the affiliate-markup problem cannot currently be measured in this program.
Recommended Reforms
The report calls on policymakers to consider three reforms:
1. Count only medical and prescription-drug claims toward the 85% test. CMS can do this by regulation; no new law is required.
2. Require insurers to report MLR by plan, not by contract, so a strong plan and a weak plan can no longer be blended into one number.
3. Require insurers to disclose what they pay their own affiliated providers, in dollars, benchmarked against independent-provider rates.
None of these reforms cost taxpayers a dime. They just make the number tell the truth.
The full report, “The Medicare Advantage Spending Gap: What Insurers Actually Spend on Health Care” is available at insurancewatchdogcoalition.com.
###
Insurance Watchdog Coalition’s mission is to educate legislators, regulators, key opinion leaders, the media and the American people about the harmful impacts of vertically integrated insurance monopolies, especially in our healthcare system, which in turn will help create more competition in the marketplace, lower healthcare costs, and ensure that healthcare savings go to patients, not big insurers.