Medicare advantage costs raise concerns for future spending and premiums

A new analysis by the Committee for a Responsible Federal Budget (CRFB) highlights a concerning trend in Medicare Advantage (MA) spending, projecting significant overpayments over the next decade [Medicare Rights Center]. This report, drawing from findings by the non-partisan Congressional Budget Office (CBO), suggests these rising costs could strain the overall Medicare program and potentially lead to higher Part B premiums for all Medicare beneficiaries [Medicare Rights Center].

The Rising Cost of Medicare Advantage

The CRFB's analysis indicates that Medicare Advantage plans could result in $1 trillion in overpayments within the next ten years [Medicare Rights Center]. This projection is rooted in CBO's findings, which anticipate a continued increase in MA enrollment. The CBO estimates that MA enrollment will grow from 51% of all beneficiaries in 2026 to 57% by 2036, consequently increasing MA's share of Part A and Part B spending from 54% to 61% during the same period [Medicare Rights Center].

Why MA Costs More

One of the primary drivers behind the higher costs associated with MA plans, as noted by the CBO, is that annual spending per MA enrollee is expected to outpace that of Original Medicare (OM) by approximately 7% (ranging from 5% to 10%) [Medicare Rights Center]. This difference is largely attributed to a practice known as “upcoding,” where plans may increase the number of diagnosis codes for patients. This makes patients appear sicker than they might be, which in turn can lead to higher payments to the plans, even after CMS's adjustments designed to counter this issue [Medicare Rights Center].

The CBO's literature review confirmed that existing adjustments by the Centers for Medicare & Medicaid Services (CMS) do not fully correct for these coding differences [Medicare Rights Center]. Other independent analyses, such as that from the Medicare Payment Advisory Commission (MedPAC), have also estimated that MA plans are costing Medicare 14% more in 2026 for similar beneficiaries compared to Original Medicare [Medicare Rights Center].

Potential Impact on Beneficiaries

The financial implications of these overpayments are substantial. If an individual were to switch from Original Medicare to a Medicare Advantage plan, the analysis suggests it would increase Medicare spending on that enrollee by roughly 15% [Medicare Rights Center]. This increase is primarily due to coding intensity and favorable selection, where MA plans might attract healthier beneficiaries, or the coding practices make them appear to have more complex conditions than they would in OM [Medicare Rights Center].

Such a scenario could translate into an estimated $1 trillion in MA overpayments and an additional $150 billion in higher Part B premiums for all Medicare beneficiaries over the next decade [Medicare Rights Center]. For those enrolled in Medicare, understanding these dynamics is important as conversations around the long-term financial health of the program continue.