Medicare Advantage overpayments projected to reach $1 trillion over next decade

Medicare Advantage (MA) plans are projected to generate $1 trillion in overpayments over the next decade, a significant figure that could have widespread implications for Medicare spending and beneficiaries, according to recent analyses by the Congressional Budget Office (CBO) and the Committee for a Responsible Federal Budget (CRFB) [Medicare Rights Center]. These findings suggest that the federal government is spending considerably more on individuals enrolled in MA compared to those in traditional Medicare, even for similar health needs.

Rising Costs and Enrollment

Enrollment in Medicare Advantage plans is on a steady upward trajectory, with the CBO estimating that MA will cover 51% of all Medicare beneficiaries by 2026, increasing to 57% by 2036. This growth means MA will constitute an ever-larger portion of Medicare's Part A and Part B spending, swelling from 54% to 61% over the same period [Medicare Rights Center]. While increased enrollment contributes to higher overall costs, the core issue identified by these reports lies in the per-enrollee spending.

The Role of 'Upcoding' and Higher Payments

Over the next ten years, annual spending per MA enrollee is expected to outpace that of traditional Medicare enrollees by approximately 7%, ranging between 5% and 10%. This difference alone accounts for an estimated $550 billion in additional costs [Medicare Rights Center]. A key factor contributing to this disparity is a practice known as "upcoding." Upcoding occurs when MA plans increase the number of diagnosis codes for a patient, making them appear sicker than they might be, which in turn leads to higher payments from Medicare. The CBO believes this practice drives about 4% more in costs, even after accounting for adjustments designed to mitigate this issue [Medicare Rights Center].

Furthermore, the CBO's analysis highlights that if an individual were to switch from traditional Medicare to an MA plan, Medicare spending on that enrollee would increase by roughly 15%. This jump is primarily attributed to coding intensity and favorable selection, where MA plans may attract healthier individuals, yet still receive higher payments based on documented diagnoses. This suggests the potential for $1 trillion in MA overpayments and an estimated $150 billion increase in Part B premiums for all Medicare beneficiaries over the coming decade [Medicare Rights Center].

Consistent Findings from Expert Analyses

The CBO's report drew upon an extensive literature review, with all consulted sources indicating substantial overpayments within the MA program. The CBO noted that "all published studies of differential coding show that the CMS adjustment does not fully correct for coding differences" [Medicare Rights Center]. These findings align with other independent expert assessments, including an estimate from the Medicare Payment Advisory Commission (MedPAC) in January, which found that MA is costing Medicare 14% more in 2026 than traditional Medicare for similar beneficiaries [Medicare Rights Center].

These reports underscore a persistent challenge for the Medicare program: ensuring fair and accurate payments across its different models, particularly as Medicare Advantage continues to expand. Understanding these financial dynamics can help beneficiaries make informed decisions about their healthcare coverage.