PHILADELPHIA, PA — Administrative costs at Medicaid-focused health insurers increased 5.6% per member in 2025, the fastest annual growth since 2020, as higher compensation, outsourcing expenses and declining enrollment added pressure to operating costs, according to new research from Pennsylvania-based Sherlock Company.
The increase accelerated from 5% in 2024 after adjusting for changes in insurance product mix, according to the company’s 2026 Medicaid edition of the Sherlock Benchmarks.
Median administrative expenses across all insurance products reached $55.37 per member per month, up from $52.40 a year earlier.
Despite the higher spending, administrative costs declined as a share of premium equivalents because premium revenue grew substantially faster.
Administrative expenses represented 8.1% of premium equivalents in 2025, down 1.1 percentage points from the previous year.
Among health plans participating in both annual surveys, premiums and premium equivalents per member increased a median 13.8%. The increase reached 16.1% for Medicaid health maintenance organization products.
The divergence between administrative spending and premium growth indicates that insurers devoted a smaller proportion of their premium equivalents to administration even as their per-member operating expenses increased.
Account and Membership Administration recorded particularly strong cost growth, rising 6.8%, the largest annual increase for that category since 2019.
The study also identified changes in staffing and operating practices that affected administrative expenses.
Staffing ratios declined 6.1% after adjusting for product mix, while compensation and non-labor costs per full-time equivalent employee increased. Participating insurers also reported greater use of outsourced services.
Medicaid enrollment among continuously participating plans declined a median 3.5%, potentially contributing to higher per-member administrative costs as expenses were distributed across smaller membership bases.
The findings come from detailed surveys of 12 Medicaid-focused health plans covering 5.2 million Medicaid HMO and Children’s Health Insurance Program members and 8.4 million members across all insurance products.
Medicaid products accounted for an average of 56% of participating plans’ revenue.
The research provides a measure of how changes in enrollment, staffing and compensation are affecting the administrative economics of Medicaid-focused insurers.
Sherlock Company, based in Gwynedd Valley, Montgomery County, has conducted health plan administrative cost benchmarking for 29 consecutive years, drawing on more than 1,000 health plan years of operating data.
Its broader 2026 benchmarking program includes participants serving approximately 53 million Americans across Medicaid, Medicare, Blue Cross Blue Shield, independent and provider-sponsored health plans, and other insurance categories.
The company said health insurers use the benchmarks to compare administrative spending with peer organizations, evaluate operating efficiency and identify opportunities for cost management.
The Medicaid findings are summarized in the company’s Plan Management Navigator, available at https://sherlockco.com/navigator.
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