Debt Management:

Treasury's Cash Management Challenges and Timing of Payments to Medicare Private Plans

GAO-09-118: Published: Jan 30, 2009. Publicly Released: Mar 2, 2009.

Additional Materials:

Contact:

Susan J. Irving
(202) 512-9142
contact@gao.gov

 

Office of Public Affairs
(202) 512-4800
youngc1@gao.gov

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.

Status Legend:

More Info
  • Review Pending-GAO has not yet assessed implementation status.
  • Open-Actions to satisfy the intent of the recommendation have not been taken or are being planned, or actions that partially satisfy the intent of the recommendation have been taken.
  • Closed-implemented-Actions that satisfy the intent of the recommendation have been taken.
  • Closed-not implemented-While the intent of the recommendation has not been satisfied, time or circumstances have rendered the recommendation invalid.
    • Review Pending
    • Open
    • Closed - implemented
    • Closed - not implemented

    Matter for Congressional Consideration

    Matter: 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.

    Status: Closed - Not Implemented

    Comments: According to Treasury, enacted legislation that specified payment timing has not had substantial effects on their cash management operations.

    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: Closed - Not Implemented

    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. Efforts to explore the timing of Medicare payments have been overtaken in recent years by higher priority events, including the passage of health care reform laws.

    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 the Treasury

    Status: Closed - Not Implemented

    Comments: Treasury and CMS worked together throughout 2009 analyzing several options. However, efforts to explore the timing of Medicare payments and manage cash flows have been overtaken in recent years by higher priority issues. Further, the lower interest rate environment coupled with other factors including the Federal Reserve's October 2008 policy change to begin paying interest on depository institutions? required and excess reserve balances have supported higher Treasury cash balances and decreased the use and cost of cash management bills for managing cash flows.

    Mar 27, 2014

    Mar 6, 2014

    Feb 20, 2014

    Jan 24, 2014

    Oct 29, 2013

    Sep 30, 2013

    Sep 26, 2013

    Jul 29, 2013

    Jul 24, 2013

    Jul 10, 2013

    Looking for more? Browse all our products here