Does Medicare Advantage funding disparity affect managed care insurers' profitability? Evidence from Puerto Rico

Puerto Rico's Medicare Advantage market operates under a persistent yet fluctuating federal funding disparity, with reported benchmark payments approximately 38% below those in US states. Health insurance industry representatives have argued that this disparity constrains their financial margins, warranting measures to reduce healthcare benefits and demand more federal funds for Medicare.

This study assessed the relationship between Puerto Rico's Medicare funding disparity and medical loss ratio, administrative loss ratio, and profit margins within the Medicare Advantage market. We analyzed insurer financial statements filed with the Puerto Rico Insurance Commissioner Office and Part C plan payment data from the Centers for Medicare & Medicaid Services using descriptive trends and regression models.

The funding disparity was not significantly associated with medical loss ratio or profit margin, but was associated with higher administrative loss ratio. Profit margins exhibit abrupt fluctuations coinciding with external shocks affecting healthcare utilization and the healthcare market.

Annual variation in the funding disparity alone does not explain insurer financial performance. Efforts to increase federal Medicare Advantage payments to Puerto Rico should be accompanied by oversight regarding how additional revenues are allocated among medical care, administrative activities, and profits.