Prepayments to Medicare Advantage plans allowed those insurers to add $450 million to their bottom lines in the form of additional interest income in 2007, according to Healthcare Finance News. The financial upside to the insurers came from the Department of Health and Human Services' Office of Inspector General, which published a report earlier this week.
The report notes that the considerable lag time between payments from CMS to the insurers and their payment for care created a significant window of opportunity to invest the funds.
"Because federal requirements governing the Medicare Advantage program do not limit the ability of MA organizations to retain investment income earned on Medicare funds, the Medicare program loses potential cost savings," the OIG report states. "Based on our reviews of 50 MA organizations, the Medicare program continues to lose potential savings because in CY 2007 the 457 MA organizations held Medicare funds for approximately 46 days before paying for medical services."
The OIG recommends legislation be pursued to narrow the prepayment and care payment windows, and that new regulations be promulgated to reduce revenue requirements in bid proposals regarding anticipated investment income.
CMS expressed concern that such changes would lead to insurers raising their bids to provide coverage, but the OIG disagreed with the agency.