A new federal report reveals that private Medicare Advantage plans make millions of dollars each year by "playing the float" or earning interest on funds waiting to be paid out. When companies receive advance payments from the government, the money is invested, earning additional profit for the companies. Typically, Medicare issues payments 46 days before a plan needs the money to cover medical services.
For 2007, the latest year available, a Health and Human Services audit showed that Medicare Advantage plans collected $376 million from investment income on advance payments from the government. Of the 50 health plans studied in the audit, only two subtracted float interest from their Medicare bids during the succeeding year. The rest pocketed the cash.
According to the report, which was presented to Medicare administrator Donald Berwick, "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."
In fact, each year Medicare loses more money on the float than the insurance companies earn. This is because Medicare typically invests its money in long-term Treasury securities, which earn more than the short-term vehicles that the insurance companies use. How much more? A total of $450 million or $74 million more.
Medicare officials say that, while they regret the loss of funds to the program, only Congress can change the way Medicare is paid. And while the Obama administration has sought tighter regulation of MA plans, so far the plans' investment income has been off the table.
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