Debt Management
Treasury's Cash Management Challenges and Timing of Payments to Medicare Private Plans
GAO-09-118, Mar 2, 2009
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A timing difference between cash in- and outflows poses challenges for the Department of the Treasury. Increased volatility of monthly cash flows may lead to unexpected short-term debt issuance and hence increased borrowing. While Social Security payments made at the start of the month will diminish gradually in coming years, start-of month payments to Medicare plan sponsors for Medicare Advantage and Part D benefits are projected to grow. As requested, this report (1) describes how Treasury, the Centers for Medicare & Medicaid Services (CMS), and plan sponsors operate under the current payment schedule; (2) identifies timing options; and (3) describes potential implications for Treasury, CMS, and Medicare. GAO analyzed Treasury cash flows, and interviewed Treasury, CMS officials, and plan sponsor representatives.
Treasury's primary debt management goal is to finance the government's borrowing needs at the lowest cost over time. Issuing debt through regularly scheduled auctions lowers borrowing costs because investors and dealers are willing to pay a premium for liquidity and certainty of supply. In 2006 GAO reported that Treasury faced misalignment of cash flows, with large payments due at the start of the month and large cash receipts occurring midmonth. This misalignment results in increasing cash flow volatility. The volatility leads Treasury to carry higher average cash balances and issue short-term debt outside its regular schedule, which may raise overall interest costs. Payments to Medicare plan sponsors made at the start of the month have increased the misalignment of cash flows. These payments have more than doubled between 2005 and 2007, and they are projected to continue to grow. GAO developed several options for changing the timing of Medicare plan payments that would facilitate cash management, keep payments predictable, and treat all plans equally. The options include keeping a single payment but making it on a different date or making multiple payments each month. Treasury officials said that moving some or all of the Medicare payments away from the start of the month would greatly facilitate cash management. CMS expressed concerns about potentially increased administrative burden. Plan sponsors GAO interviewed and CMS's Office of the Actuary indicated that sponsors would generally seek to recoup any loss by raising their Medicare bids, thereby raising costs to the Medicare program and beneficiaries. The overall impact on the federal budget of changing payment timing would depend on the relative size of interest cost reductions and plans' responses.
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Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.
- In Process
- Open
- Closed - implemented
- Closed - not implemented
Recommendations for Executive Action
Recommendation: The Secretary of the Treasury and the Administrator of CMS should expeditiously convene a joint interagency effort to study options identified by GAO and any other options that would improve Treasury's ability to manage cash flow and reduce overall interest costs while not unduly increasing administrative burden for CMS. For each option, the joint study should include discussion of (1) operational impacts on and likely consequences for cash management, CMS, and Treasury operations; (2) plan sponsors' likely responses and the consequences of these for the Medicare program and beneficiaries; (3) the expected change in federal costs and the distribution of any increases or decreases; (4) analysis of feasibility and mechanics of varying payment schedule by size/scale of plan; and (5) what would be needed for implementation, including which options would require statutory change and if so the specific changes necessary. Based on the work done and our discussions with Treasury officials, we believe it is reasonable for this study to be completed by the end of CY 2009.
Agency Affected: Department of Health and Human Services: Centers for Medicare and Medicaid Services
Status: Open
Comments: Treasury and CMS worked together throughout 2009 analyzing several options. Concurrently, CMS began plans to update its IT systems, which constituted a barrier to flexibility in payment timing. Given that passage of health care reform legislation would likely impact Medicare private plan payments, the agencies agreed to continue their discussions after the legislative debate was over. We have contacted Treasury for an update on their study and are awaiting a response. We are monitoring their efforts even though our recommendation said they should complete the study by the end of CY 2009.
Recommendation: The Secretary of the Treasury and the Administrator of CMS should expeditiously convene a joint interagency effort to study options identified by GAO and any other options that would improve Treasury's ability to manage cash flow and reduce overall interest costs while not unduly increasing administrative burden for CMS. For each option, the joint study should include discussion of (1) operational impacts on and likely consequences for cash management, CMS, and Treasury operations; (2) plan sponsors' likely responses and the consequences of these for the Medicare program and beneficiaries; (3) the expected change in federal costs and the distribution of any increases or decreases; (4) analysis of feasibility and mechanics of varying payment schedule by size/scale of plan; and (5) what would be needed for implementation, including which options would require statutory change and if so the specific changes necessary. Based on the work done and our discussions with Treasury officials, we believe it is reasonable for this study to be completed by the end of CY 2009.
Agency Affected: Congress
Status: Closed - Not Implemented
Comments: This recommendation was not implemented by the due date.
Recommendations for Congressional Consideration
Recommendation: In designing new programs, Congress may wish to consider the nature of Treasury's cash management challenge when enacting legislation that specifies payment timing. Where payment timing is not specified, Congress should direct the implementing agency to consult with Treasury in establishing payment schedules.
Agency Affected: Department of the Treasury
Status: Open
Comments: According to Treasury, language that would provide greater flexibility in cash management was discussed during the development of health care reform legislation. We are currently reviewing the final health care reform legislation (Public Law 111-148) to determine whether the timing of any payments is specified.