Medicare Advantage overpayments could impact all beneficiaries

Medicare Advantage (MA) plans, which are offered by private insurance companies and approved by Medicare, are projected to cost the federal government significantly more than traditional Medicare in the coming decade. According to a recent analysis by the Congressional Budget Office (CBO), these overpayments could exceed $1 trillion over the next ten years [Medicare Rights Center]. This trend has implications for all Medicare beneficiaries, including those enrolled in traditional Medicare, potentially leading to higher premiums.

Rising Costs and Enrollment

The CBO's report highlights that the cost of Medicare Advantage is primarily driven by two factors: increasing enrollment and higher per-enrollee spending compared to traditional Medicare. Enrollment in MA plans is expected to climb from 51% of all beneficiaries in 2026 to 57% by 2036. This growth means MA will account for a larger share of Medicare Part A and Part B spending, rising from 54% to 61% over the same period [Medicare Rights Center].

Beyond enrollment, the CBO anticipates that annual spending per MA enrollee will surpass that of traditional Medicare enrollees by an average of 7% (ranging from 5% to 10%). This difference is estimated to contribute an additional $550 billion in costs [Medicare Rights Center]. The non-partisan Committee for a Responsible Federal Budget (CRFB) underscores that if an individual switches from traditional Medicare to MA, the federal spending on that enrollee could increase by approximately 15% [Medicare Rights Center].

Understanding the 'Upcoding' Factor

A significant contributor to the higher costs in Medicare Advantage 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. This practice allows plans to receive higher payments from Medicare. While the Centers for Medicare & Medicaid Services (CMS) has implemented adjustments to counter this, the CBO believes these adjustments do not fully correct for the issue, leading to about 4% higher costs [Medicare Rights Center].

Experts agree on this point. The CBO's extensive review of existing literature confirmed that studies on differential coding consistently show that CMS's adjustments do not entirely account for these coding differences [Medicare Rights Center]. The Medicare Payment Advisory Commission (MedPAC), an independent congressional agency that advises on Medicare issues, estimated in January that MA is costing Medicare 14% more in 2026 than traditional Medicare for comparable beneficiaries [Medicare Rights Center].

Impact on Premiums

The financial implications of these MA overpayments extend to all Medicare beneficiaries. The CRFB suggests that these increased costs could translate into an estimated $150 billion in higher Part B premiums for all Medicare participants over the next decade [Medicare Rights Center]. For those relying on Medicare for their healthcare needs, understanding these trends is crucial as they directly impact the program's long-term stability and their out-of-pocket expenses.