Medicare advantage costs projected to increase spending by $1 trillion over next decade

For many years, Medicare Advantage (MA) plans have offered an alternative to Original Medicare, promising comprehensive benefits often with lower out-of-pocket costs. However, a recent analysis from the Committee for a Responsible Federal Budget (CRFB) suggests that these plans may significantly increase Medicare spending, potentially by $1 trillion over the next decade [Medicare Rights Center]. This projection could have a notable impact on the financial health of the Medicare program and individual beneficiaries.

Understanding the Cost Projections

The CRFB's findings are based on a report from the non-partisan Congressional Budget Office (CBO), which indicates that rising MA costs are shifting Medicare spending dynamics [Medicare Rights Center]. The CBO estimates that MA enrollment will continue to grow, projected to reach 51% of all beneficiaries in 2026 and 57% by 2036. During this period, MA is expected to account for an increasingly larger share of Medicare Part A and Part B spending, growing from 54% to 61% [Medicare Rights Center].

A key factor in these rising costs is that annual spending per MA enrollee is expected to outpace that of Original Medicare (OM) enrollees by approximately 7%—ranging between 5% and 10%—over the next ten years. This difference alone could amount to $550 billion in additional costs [Medicare Rights Center].

The Role of 'Upcoding' and Higher Premiums

A significant driver of the increased costs in MA plans is a practice known as “upcoding.” This occurs when plans increase the number of diagnosis codes to make a patient appear sicker than they might be, which in turn leads to higher payments from Medicare. While the Centers for Medicare & Medicaid Services (CMS) implements adjustments to counter this, the CBO believes that upcoding still results in about 4% higher costs [Medicare Rights Center].

According to the CRFB, if an individual switches from Original Medicare to a Medicare Advantage plan, the analysis suggests an increase in Medicare spending for that enrollee by roughly 15%. This is attributed primarily to coding intensity and favorable selection, where healthier individuals might be more attracted to MA plans [Medicare Rights Center].

These factors combined suggest a potential $1 trillion in MA overpayments, which could lead to an estimated $150 billion in higher Part B premiums for all Medicare beneficiaries over the coming decade [Medicare Rights Center].

Consistent Findings from Experts

The CBO's report highlights that all published studies on differential coding indicate that the CMS adjustments do not fully correct for coding differences in MA plans. The findings align with other independent expert analyses [Medicare Rights Center]. For example, the Medicare Payment Advisory Commission (MedPAC) estimated earlier this year that MA plans are costing Medicare 14% more in 2026 than Original Medicare for similar beneficiaries [Medicare Rights Center]. These consistent observations from various sources underscore the importance of understanding the financial implications of Medicare Advantage plans for both the program and its beneficiaries.