Medicare Advantage overpayments could total $1 trillion over next decade, CBO reports

As we age, understanding the intricacies of Medicare becomes increasingly important for our health and financial well-being. A recent analysis from the Congressional Budget Office (CBO), highlighted by the Committee for a Responsible Federal Budget (CRFB), sheds light on a significant financial concern within the Medicare system: potential overpayments to Medicare Advantage (MA) plans [Medicare Rights Center]. This issue could amount to a staggering $1 trillion over the next decade, with implications for all Medicare beneficiaries, including those enrolled in traditional Medicare.

The Rising Cost of Medicare Advantage

The CBO report indicates that Medicare Advantage spending is on a trajectory to significantly outpace traditional Medicare. By 2026, MA enrollment is projected to reach 51% of all beneficiaries, growing to 57% by 2036. This growth means that MA will comprise a larger share of Medicare's Part A and Part B spending, increasing from 54% to 61% over the same period [Medicare Rights Center].

The financial difference is substantial. The CBO expects the annual spending per MA enrollee to be about 7% higher than for those in traditional Medicare, a range between 5% and 10%. This difference alone could translate to an additional $550 billion in costs over the next ten years [Medicare Rights Center].

Understanding the 'Upcoding' Issue

A primary driver of these increased costs is a practice known as "upcoding." Upcoding occurs when Medicare Advantage plans increase the number of diagnosis codes for a patient. This practice can make patients appear sicker than they might be, which in turn increases the payments the plans receive from Medicare. While the Centers for Medicare & Medicaid Services (CMS) implements adjustments to counteract this, the CBO believes these adjustments do not fully correct for the issue, leading to approximately 4% more in costs [Medicare Rights Center].

The CBO's comprehensive review of existing literature consistently points to significant MA overpayment. All published studies on differential coding show that CMS's adjustments do not completely resolve coding differences [Medicare Rights Center]. This conclusion aligns with other independent assessments; for instance, the Medicare Payment Advisory Commission (MedPAC) estimated in January that MA is costing Medicare 14% more in 2026 for similar beneficiaries compared to traditional Medicare [Medicare Rights Center].

Implications for All Medicare Beneficiaries

The CBO’s analysis further reveals that if an individual were to switch from traditional Medicare to an MA plan, it would increase Medicare spending on that enrollee by roughly 15%. This increase is primarily attributed to coding intensity and what is called "favorable selection," where healthier individuals may disproportionately enroll in MA plans, leading to higher payments for healthier populations [Medicare Rights Center].

What does this mean for you? According to the CRFB, these findings suggest that the $1 trillion in MA overpayments could also lead to $150 billion in higher Part B premiums for all Medicare beneficiaries over the next decade, regardless of whether they are in an MA plan or traditional Medicare [Medicare Rights Center]. These projections underscore the importance of ongoing discussions about how Medicare funds are allocated and the need for careful oversight to ensure the program's sustainability for current and future generations.