Private insurance plans tailored to accommodate Medicare recipients are making massive profits by using advance government payouts. The Medicare program regularly sends money in advance, much of which has no immediate need, and insurers are using the funds to secure investments, according to an investigation report by the Department of Health and Human Services.
Those in the financial world are familiar with this practice called, “playing the float”.
The HHS inspector general estimated that private Medicare plans obtained some $380 million from these investments with money used from the government advances. These findings were based on a report from 2007, the most recent audit on record.
Medicare is mandated by law to pay plans in advance, usually 46 days before money is needed to cover services. Out of a reportedly 50 insurers audited, 48 took the income from the investments. Had the funds been reabsorbed by Medicare it would have collected $450 million in interest.
Medicare The inspector general said that because federal requirements pose no limit to insurers’ ability to retain the investment income, Medicare loses potential cost savings.
A similar federal program does not pay premiums on the first of the month, like Medicare, and any money insurers make on investments are swept back into the program. Any changes that Medicare could make to resemble this practice would require Congressional approval.
However, HHS inspector general, Daniel Levinson, says there is another way to ensure the money goes where it is needed most: “The program would need to issue a regulation requiring insurers to reduce their annual bids by the amount they expect to receive from investment earnings.”
Though the Obama administration has begun to regulate private Medicare plans more closely, they have not yet made any action on any investment earnings.