Medicare Advantage overpayments will total $76 billion this year: MedPAC

The federal government will pay about $76 billion more to cover Medicare Advantage seniors this year than it would if those same seniors were in traditional Medicare, according to new estimates from an influential advisory group.

This is a smaller sum than last year thanks to the continued introduction of a new risk adjustment model. Overpayments are estimated to reach $84 billion by 2025.

Still, the report released Friday by the Medicare Payment Advisory Commission It is likely to increase concerns about overpayments in the privatized Medicare program, which has grown to cover more than half of all Medicare enrollees.

“When you read this chapter, it’s hard not to be surprised by the sheer amount of money that goes into MA reimbursements, the coding issues, the lack of data on fringe benefits and recognizing how much they’re costing taxpayers,” Stacie Dusetzina, MedPAC commissioner and professor of health policy at Vanderbilt University School of Medicine, said during the MedPAC meeting on Friday. “It would be difficult for most of us to consider $76 billion in potential overpayments and not think they could be spent more efficiently.”

‘Irresistible incentives to play’

MedPAC’s annual report on the state of MA is highly anticipated, given growing evidence that private insurers are gaming the program’s payment system to increase profits.

In Massachusetts, the government pays private insurers a flat rate to cover Medicare senior care, adjusted to their members’ illnesses. As a result, insurers are incentivized to exaggerate their members’ health needs to inflate government reimbursements, a practice called coding.

MA is also more expensive than traditional Medicare because of favorable selection, when beneficiaries turn out to be healthier than expected. According to research, MA enrollees tend to use less health care than seniors in traditional Medicare.

Without those two factors, MA and traditional Medicare spending would be comparable, MedPAC analysts found. Specifically, government payments to MA plans would be 99% of those for their fee-for-service sister program. But favorable selection adds 11 percentage points and higher coding intensity adds another 4, according to the status report.

MA “creates irresistible incentives to play” MedPAC said Commissioner Scott Sarran, medical director of dementia care startup Harmonic Health. “You have to do it as a plan to be competitive.”

As a result, MA spending will be 114% of fee-for-service Medicare spending this year, which translates to a “substantial amount” of payments, given the growing share of Medicare seniors choosing MA, said Luis Serna, senior policy analyst at MedPAC. In 2025, nearly 35 million seniors were in the privatized Medicare program.

Still, the $76 billion estimate is lower than last year’s projection. MedPAC researchers said the difference is due to a program enacted by the Biden administration aimed at mitigating higher payments due to encryption intensity.

After the new risk model, called V28, was introduced, MA payments fell relative to traditional Medicare, without affecting benefits or plan availability, analysts said.

However, V28 is not a perfect solution. The model represented an overall adjustment, penalizing both plans that were not coded (generally small regional insurers that covered fewer beneficiaries) and those that were.

Several commissioners said they were concerned that MA plans that followed the rules were being unfairly harmed by V28, with Commissioner Tamara Konetzka, a public health professor at the University of Chicago, calling it a “very blunt tool.”

However, organizations with higher encryption intensity were more affected by V28, analysts noted. MedPAC did not name specific insurers. But UnitedHealthcare, MA’s largest insurer with about 8 million enrolledhas been accused of coding more intensely than its peers, and the company has struggled disproportionately to absorb V28, according to executive comments and industry analysts.

V28 has “improved the fairness” of MA’s risk adjustment system, said Andy Johnson, senior policy analyst at MedPAC.

Still, the huge delta between MA and fee-for-service Medicare spending highlights a central problem with MA’s payment system, commissioners said.

The findings are “very depressing,” said Commissioner Lynn Barr, founder of the accountable care organization Caravan Health.

Health insurers will be able to avoid any attempt to stop coding as long as the underlying payment framework remains in place, he said.