Puerto Rico Medicare Advantage: Underpaid, Overstudied, and Still the Villain: Brought to You by People Who Have Never Adjudicated a Claim

Usually, when you look at a corporate balance sheet, you expect the math to tell a coherent

story.

Right.

Like a single version of the truth.

Exactly.

It functions almost like a blueprint for the business.

The money comes in, the money goes out, and if there's a fundamental flaw in the

operation, it's just sitting right there in black and white.

I mean, it's supposed to be an objective accounting of reality.

You know, a ledger shouldn't have hidden agendas.

But then you step into the world of healthcare financing, specifically in Puerto Rico,

and suddenly that balance sheet turns into a total Rorschach test.

Oh, absolutely.

It's wild.

We're looking at a financial landscape today that is full of massive glaring contradictions.

Like two opposing sides are looking at the exact same numbers and drawing wildly different

conclusions.

It represents the absolute definition of a fiscal paradox.

Welcome to today's deep dive.

Our mission today is to unpack this really fascinating 2026 study published in Health

Affair Scholar.

Yeah.

It looks at the financial realities of Medicare Advantage, which we'll call MA, down in Puerto

Rico.

The hook here, the thing that makes us so compelling for you listening, is this massive

contradiction playing out right now.

Right.

Because on one hand you have insurance companies in Puerto Rico sounding the alarm.

They claim they are severely underfunded by the federal government operating on razor

thin margins and that they desperately need more money just to survive.

But then on the other hand, you have this study and critics looking at the system trying

to argue that these companies are operating as a highly profitable oligopoly.

Yeah.

They claim it's sustained by public funds while constantly demanding more.

But I think we really need to question the premise of this study today.

Oh, we definitely do.

Because when you actually look at the facts, and we will, the narrative this study

pushes gets a little shaky.

To understand the stakes here, we have to set the table with just how unique

the healthcare landscape in Puerto Rico actually is.

The structure of the market is entirely different than the mainland.

Right.

Just for context, if you look at the U.S. mainland in 2024, about 54% of Medicare beneficiaries

are enrolled in a Medicare Advantage plan.

Which is private managed care.

You know, where the government pays a private company to manage a patient's health.

As opposed to traditional Medicare, which is run directly by the government.

So on the mainland, 54% is a slight majority.

But in Puerto Rico, a staggering 95% of Medicare beneficiaries are enrolled in MA plans.

95%.

It's not just an alternative option.

It is the de facto healthcare system for older adults on the archipelago.

It is total market dominance.

And if you pay a monthly premium, you probably assume that money sits in a vault waiting

for the day you get sick.

Right.

But when private companies control 95% of an entire demographic's healthcare, that

premium becomes part of a completely different game.

You're going to want to hear how the math of your health actually works behind closed doors.

Because what happens in a market with that level of penetration acts as a crystal ball

for the rest of the country.

Okay.

Let's unpack this.

To figure out who is right in this debate, we first have to understand the specific

funding gap that these insurers are complaining about.

The insurers aren't just making up numbers out of thin air, are they?

No.

Not at all.

The gap is a documented reality.

Because of Puerto Rico's status as a U.S. territory rather than a state, the federal

funding formulas work differently.

Right.

Specifically, the federal risk standardized benchmark payments, which is basically the

baseline amount the government pays a plan to cover a person, those payments to MA plans

in Puerto Rico are approximately 38% lower than they are in the U.S. states.

38% lower is a massive haircut.

It's huge.

It's exactly the argument from the Medicaid and Medicare Advantage Product Association

of Puerto Rico.

They represent the big health insurance companies down there.

And they argue that this 38% underfunding creates intense financial instability.

They've stated this disparity forces them into a corner where they have to consider

reducing health care benefits for patients and they're demanding more federal funds.

I mean, on its face, that argument follows a logical business progression.

Less revenue should equal less stability.

I have to push back here though.

If any business is receiving 38% less revenue than its peers on the mainland to do the exact

same job, it seems like it would naturally be struggling just to keep the lights on.

So how are they staying afloat, let alone allegedly operating as this profitable oligopoly

the study claims?

Well, that brings us to the nuance of the data.

The 38% number is real, but it is not the final math.

Okay, explain that.

The study highlights two crucial mitigating factors that act as a counterbalance.

First, these insurance plans receive higher risk scores and quality bonus payments from

the federal government.

Wait, how does an insurer just get a higher risk score for a patient?

Are people in Puerto Rico just fundamentally sicker or is this an accounting trick?

It's a mix of demographics, but a significant portion comes down to what the industry calls

coding intensity.

Medicare pays these private insurers more money if a patient is deemed sicker and

more complex to treat.

So insurers are highly incentivized to comb through medical records, sometimes hiring massive

teams to do so.

Just to add diagnostic codes to a patient's file.

Exactly.

If they find an unrecorded minor condition and code it, the patient's risk score goes

up and the federal government sends a bigger check.

So they are maximizing the paper trail to maximize the revenue.

They are very efficient at it.

And when you factor in those elevated risk scores and quality bonuses, they partially

offset that initial gap.

It reduces the actual difference in federal payments to roughly 26%.

26% is still a significant gap though.

We are chipping away at the original 38%, but it's still a big hole.

It is.

But here's the second factor, and this is the vital piece of the puzzle.

The cost of doing business in Puerto Rico is drastically different.

Right.

Specifically, Medicare reimbursement rates for the physicians actually providing

the physical care in Puerto Rico are 40% lower than in the US states.

Wait, let me make sure I have this straight.

The federal government pays the insurers 26% less than they would state side.

But the insurers turn around and pay the local doctors 40% less?

You've hit on the exact buffer zone.

The doctors are taking a much bigger relative pay cut than the insurance companies are

taking a funding cut.

That 14% differential creates a massive financial cushion.

It leaves room for insurers to maintain profitability even under relative federal underfunding simply

by passing the squeeze down to the actual healthcare providers.

Okay, so the funding gap alone clearly doesn't tell the whole story.

If we really want to know if these corporations are struggling or thriving, we have to actually

open up their books and follow the money.

That is exactly what the researchers of this Health Affairs Scholar study did.

They built a consolidated data set, analyzing financial statements from 2011 all the way to

2022.

A full 12 years of receipts.

Yeah, and they focused on the three massive insurers that essentially run the board down

there.

MMM, Triple-S, and MCS.

By 2022, these three companies controlled about 92% of all Medicare beneficiaries

in Puerto Rico.

With mean annual revenues of $4.92 billion.

$4.92 billion a year is a staggering pool of money.

Now the study breaks down those financials into three core metrics to track the flow of

that cash.

Let's walk through those.

First, there is the medical loss ratio or MLR.

This is the percentage of revenue actually spent on medical care, doctors, hospitals,

prescriptions.

Right.

Second, there is the administrative loss ratio or ALR.

This is the money spent on bureaucracy, marketing, executive salaries.

And third, you have the profit margins.

What is left over for the house?

To understand the tension between these three, we have to talk about a crucial piece of federal

legislation.

The Affordable Care Act.

Yes, the ACA.

In 2014, the ACA implemented an 85% MLR floor for these Medicare Advantage plans.

To put it simply by federal law, 85 cents of every single federal dollar these companies

take in must go to actual patient care and provider payments.

Exactly.

They're really capped at using the remaining 15 cents for their administrative costs and

profits.

And that floor was designed to ensure that taxpayer money actually funds health care rather

than just financing corporate bloat.

But here is where we really have to pause and look at this study with a bit of a cynical

eye.

I agree completely.

Because the study points out that the funding disparity wasn't significantly associated

with the medical loss ratio.

The researchers frame this as some sort of chaotic legality or market failure.

They act like it's a huge scandal.

But wait, state the true facts here.

Out of every dollar these plans get, more than 85 cents is going directly to patient

benefits and provider payments, right?

Yes.

They are complying with the statute.

They are hitting the MLR floor.

And on top of that, if you look at how CMS, the Centers for Medicare and Medicaid

Services, if you look at how they rate these plans...

Oh, this is the craziest part.

99% of all Medicare Advantage recipients in Puerto Rico are on plans that are rated

4.5 stars or more by CMS.

99% on 4.5 star plans.

So what exactly is the illegality or the chaos this study is trying to point out?

That is the million dollar question.

If you compare these health plans in Puerto Rico to the ones in the mainland U.S.,

according to CMS, they are performing exceptionally well.

They are providing the care.

They are hitting the 85-cent rule.

They are getting top tier star ratings.

You really have to wonder if the study was just made to please someone in a bureaucratic

office somewhere.

Seriously.

Like someone who wasn't aware of the actual facts and the statutes imposed by the federal

government?

It completely ignores the reality that MA in Puerto Rico is filling massive gaps

that have been bypassed by Congress and the federal government for years.

Exactly.

The federal government under-funds the island by 38%.

The private MA plans step in, manage to get 99% of people on highly rated plans, and legally

spend the required 85% on care.

And then this study acts like the insurers are the bad guys for figuring out how to

survive that math.

Let's look at what this study actually complains about.

They say that when the funding gap widened, when Puerto Rico was getting less money

compared to the states, profits didn't automatically drop.

Right.

And conversely, when the gap narrowed, profits didn't automatically rise.

For example, between 2016 and 2017, the funding disparity widened, things supposedly got tighter,

yet insurer profit margins actually increased.

And the study frames this as deeply suspicious.

What's fascinating here is that the only thing the funding gap did consistently track

with was administrative spending.

So when federal funding got tight, they didn't cut patient care because they legally couldn't

and ethically shouldn't, they just shifted around their internal administrative spending.

Which is just sound business management when you're underfunded.

Right.

But the study then pivots to this idea of disaster economics to explain the profit spikes.

Yeah, this is where they look at external shocks.

If you map out the 12 years of profit margins, you see these massive spikes that align with

national emergencies.

To understand why a disaster creates a profit spike for a health insurer, you

have to understand capitated payments.

Capitated meaning per head.

The government pays the insurer a flat fee per patient per month, regardless of

how much care that patient uses.

It's like having a monthly gym membership.

Oh, right.

You keep paying your fee, auto drafted from your account.

But suddenly a hurricane hits and the gym is closed for three months.

The gym still gets your money, but they don't have to pay for electricity, water

or towel service.

Their costs vanish, but revenue stays the same.

That perfectly captures the dynamic of Puerto Rico in 2017 with Hurricane Maria

and 2020 with the COVID-19 pandemic.

During Maria infrastructure was destroyed.

Roads were blocked.

The power grid collapsed.

Patients physically could not access their doctors.

And in 2020, you had lockdowns and quarantines.

Healthcare utilization plummeted.

Because MA operates on those capitated payments, the federal money

kept flowing in while the medical payouts dropped.

The study points out that in 2020, the medical loss ratio hit a study

period low of 80.1 percent, while profit margins peaked at 3.32 percent.

But again, let's be realistic here.

Are we supposed to blame the health plans because a global pandemic kept people home?

Exactly.

They were fully prepared to pay for the care.

The patients just literally couldn't go get it.

And even then, they still maintained those 4.5 star ratings from CMS.

They were doing everything they could under impossible conditions.

Here's where it gets really interesting, though.

Look at the final year of this study, 2022.

Right.

The pandemic lockdowns have subsided.

Healthcare utilization is returning to normal.

Crucially, this is also when these local Puerto Rican insurers

were acquired by national corporate firms.

What happened to the profits?

In 2022, the profit margin actually plunged to negative 0.19 percent.

The margins tighten up significantly

when the system operates under normal conditions.

So if we step back from the academic hand-ringing of the study,

what does this all actually mean?

What are the real policy recommendations here?

Well, let's finish strong with recommendations,

breaking it down for the federal government,

the private sector, and the beneficiaries.

Let's start with the federal government.

The researchers warn that just throwing more money at the system

without oversight might just inflate administrative costs.

Right.

If CMS is going to increase funding for equity,

they need strict oversight.

They suggest raising the MLR floor from 85% to 90%

for any additional funds.

I mean, that's fair if the feds finally step up

and close that 38% gap.

Ring fencing the new money to guarantee it goes to patients

makes sense.

But the federal government also needs

to recognize the reality that these MA plans are currently

holding the entire system together.

Exactly.

You can't regulate them into the ground

when they are the ones filling the mass of health care

gaps Congress has ignored.

Now, for the private sector, the study

recommends regulating vertical integration.

Right, because a lot of these insurers

own the provider networks and pharmacies they pay.

The government needs to strictly regulate what

counts as a medical expense when an insurer is essentially

paying its own subsidiary.

Keep the accounting transparent.

Prove the money is reaching the front line of care.

And finally, for the beneficiaries.

The everyday people paying the premiums.

The recommendation is to strengthen traditional Medicare

to create actual competition.

If the government reduces out-of-pocket costs

for traditional Medicare, making it a viable alternative,

seniors would actually have a choice

outside of the private insurers.

Competition forces everyone to be better.

But if we connect this to the bigger picture,

it reflects a vulnerability in capitated health care

models nationwide.

Right, Puerto Rico is just the extreme example

because of that 95% market penetration.

Whenever you pay a private entity a flat fee to manage care,

the financial incentive is always

going to be at a limit utilization.

But to summarize our deep dive today,

yes, Puerto Rico's MA system is undeniably

underfunded by the federal government.

Absolutely.

That gap is real.

But despite the study trying to paint

the insurers as chaotic or illegal,

the data shows they are legally hitting their 85-cent mandates

and providing 4.5-star care according to CMS.

The profit spikes during disasters

were a mechanical result of the capitated system

during a crisis, not some malicious plot.

It really highlights how we need to look critically

at academic studies that might just be pushing

a bureaucratic narrative rather than acknowledging

the real work being done on the ground

to fill the gaps left by Congress.

And I'll leave you with a final thought to ponder

as we wrap up.

Let's hear it.

If a health care financing system, like Capitation,

is designed in such a way that it inherently achieves

its highest profitability during a population's greatest

periods of suffering, like a hurricane or a pandemic,

is the system fundamentally broken,

or is it working exactly as its financial incentives

were mathematically designed to?

Something to mull over next time you pay that premium.

Thanks for joining us on this deep dive,

and we'll catch you next time.

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