Medicare advantage overpayments projected to exceed $1 trillion

A recent analysis from the Committee for a Responsible Federal Budget (CRFB) indicates that Medicare Advantage (MA) plans may incur over $1 trillion in overpayments over the next decade. This finding, derived from projections by the non-partisan Congressional Budget Office (CBO), highlights increasing costs within the Medicare program [Medicare Rights Center]. These rising costs are largely attributed to the growing enrollment in MA plans and specific payment mechanisms.

Enrollment and Cost Trends

Medicare Advantage enrollment is projected to increase significantly in the coming years. The CBO estimates that MA plans will cover 51% of all Medicare beneficiaries in 2026, rising to 57% by 2036. During this period, MA is expected to represent an increasing share of Medicare Part A and Part B spending, climbing from 54% to 61% [Medicare Rights Center]. While enrollment growth contributes to higher overall costs, the analysis points to other factors driving the difference in spending.

Understanding the Payment Discrepancy

The CBO's projections suggest that the annual spending per MA enrollee will surpass that of traditional Original Medicare (OM) enrollees by approximately 7% over the next ten years, ranging between 5% and 10% [Medicare Rights Center]. This difference is estimated to result in an additional $550 billion in costs. A significant factor contributing to this gap 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. Although adjustments are made to counteract this issue, the CBO believes that upcoding still accounts for about 4% more in costs [Medicare Rights Center].

Further CBO analysis reveals that if a beneficiary switches from OM to MA, Medicare spending for that individual could increase by roughly 15%. This increase is primarily due to coding intensity and what is termed "favorable selection," where healthier beneficiaries may be drawn to MA plans, even as the plans receive higher payments based on reported health conditions [Medicare Rights Center]. The CRFB notes that this could lead to $1 trillion in MA overpayments and potentially contribute to $150 billion in higher Part B premiums for all Medicare beneficiaries over the next decade [Medicare Rights Center].

Consistent Findings from Experts

The CBO's comprehensive review of existing literature consistently points to substantial MA overpayments. All published studies on differential coding indicate that the adjustments made by the Centers for Medicare & Medicaid Services (CMS) do not fully resolve the discrepancies in coding practices [Medicare Rights Center]. These findings align with other independent expert assessments, such as an estimate from the Medicare Payment Advisory Commission (MedPAC) in January, which suggested that MA costs Medicare 14% more in 2026 for similar beneficiaries compared to Original Medicare [Medicare Rights Center]. These analyses underscore the ongoing discussion about the financial sustainability and equitable funding within the Medicare program.