Insurers profit on Medicare float
Wednesday, January 19, 2011
WASHINGTON (AP) — Private health insurance plans catering to Medicare recipients are making millions by taking money the government sends in advance — but isn’t immediately needed — and using it to make investments, federal investigators say in a report obtained by The Associated Press.
In financial parlance, it’s called “playing the float.”
In contrast with another government program that also deals regularly with health insurers, Medicare lets its plans keep the cash.
An audit by the Health and Human Services inspector general’s office estimates that private Medicare Advantage plans collected $376 million from investment income on advance payments from the government in 2007, the latest year available.
Of 50 plans audited, only two told investigators that they subtracted investment earnings from their Medicare bids for the following year. The rest pocketed the money.
Medicare typically pays the plans 46 days before they need the money to cover medical services, the audit found.
“Because federal requirements governing the Medicare Advantage program do not limit the ability of (private plans) to retain investment income earned on Medicare funds, the Medicare program loses potential cost savings,” said the inspector general’s report to Medicare administrator Donald Berwick. The report is to be released Wednesday.
How much is Medicare losing in potential savings?
If Medicare had hung on to the money for a few more weeks, the program’s trust funds could have collected $450 million in interest income from the Treasury, auditors estimated. That’s because the long-term Treasury securities Medicare invests in typically pay higher interest than short-term investments in which the insurance companies park their money.
In a written response to the audit, Medicare official said it shares the inspector general’s concern, but little can be done to change the situation.
Most of the potential cost savings would be wiped out because private insurers would simply increase their bids to recoup the lost investment income, administrator Berwick explained. The move could also backfire if the plans start demanding interest on any funds that Medicare owes them.
The inspector general’s office disagrees.
About one quarter of Medicare beneficiaries are signed up with private insurance plans that include such industry giants as UnitedHealthcare, Humana and Blue Cross Blue Shield plans. Medicare Advantage plans typically offer lower out-of-pocket costs than traditional Medicare, and seniors do not need to purchase additional supplemental coverage. The plans keep their costs down by using networks of hospitals and doctors.
But the insurers also get a break from Medicare that they don’t get from another major government program, the report said.
By law, Medicare pays premiums the first day of the month, even if the plans won’t actually need the money for weeks. That’s not the way the federal employee health program does it. The plan for government workers offers coverage through private insurers, but it pays them later in the month. It also requires insurers to plow any investment earnings back into the program.
Having Medicare pay on the first of the month is a headache for the Treasury, which also sends out Social Security checks at that time. But Medicare says it can’t change the date without getting Congress to sign off.
HHS Inspector General Daniel Levinson says there’s another way to accomplish the same goal.
Medicare could recover the money without getting Congress to pass a new law, said the report by his office. All it would need to do is issue a regulation that requires insurers to reduce their annual bids by the amount they expect to receive from investment earnings.
The Obama administration has moved to regulate private Medicare plans more closely than its Republican predecessor did. So far it hasn’t touched their investment earnings.
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