Medicare missing out on $111 million interest payday

When putting money in a bank, interest is a big consideration for most people.  But apparently not to the government.

In fact, investigators think that Medicare could be missing out on as much as $111 million because it’s missing out on interest rates as high as 4.4 percent.

Medicare Part D helps beneficiaries pay for prescription drugs, but investigators at the Health and Human Services Office of Inspector General think the money is being paid out too quickly.  If the government held onto the cash for only 20 more days, investigators think they could have gotten an extra $111.2 million annually.

“If Federal requirements had been established to delay the prepayments to Part D plans until after the beginning of the beneficiary’s coverage period…by the same 20 days that the plans held Medicare funds, the Medicare Part D trust fund could have earned approximately $111.2 million of interest income” in 2009, the inspector general’s report said.

The money is going to prescription drug plans, which are in turn sticking the money in accounts until it is needed.  So the companies are getting about $5 million annually through interest, money investigators think the government is missing out on.  Keeping the funds in federal coffers longer would add extra interest and extra revenue for the government.

For missing out on a potentially major payday, Congress and the Centers for Medicare and Medicaid Services (CMS) win this week’s Golden Hammer, a distinction given out by the Washington Guardian to the worst examples of government waste or fiscal mismanagement.

Investigators want CMS to petition Congress for new legislation, either to keep the money in federal accounts longer, or to force the prescription plan providers to use the interest they earn to pay for part of the costs.

CMS officials said the ideas wouldn’t be as good as they sound.  Requiring prescription plan suppliers to give up their earned interest would only cause the companies to raise their prices so they could keep their profit margins.  Thus any hoped for savings by the government would be mitigated.

“CMS believes that implementing either option would cause most Part D plans to increase their bid proposals in order to recoup investment income that they would lose,” said a letter from Marilyn Tavenner, the CMS Acting Administrator.  “If the Part D plans were to increase the ir bid proposals to account for the proposed offsets, these higher costs would be recognized in the bid proposals and would result in a decrease in most or all of the estimated cost savings.”

But investigators rejected that claim, pointing out that if plan providers started to raise their prices, they would be a less attractive option to customers seeking Medicare plans.  Even if suppliers did raise their prices, the government would still be getting more money from the extra interest, investigators said.

“Even if Part D plans increased their bid proposals to account for lost investment income caused by delayed payments, most of the estimated savings would be maintained because the Medicare trust funds realize higher interest rates on their investments than do the Part D plans,” the inspector general said.