As over half of Medicare beneficiaries are now enrolled in Medicare Advantage (MA) plans, concerns are mounting over the increased financial burden these plans place on Medicare’s finances. Despite the higher costs, MA plans do not deliver better health outcomes or more affordable care for enrollees compared to Traditional Medicare. Reallocating funds from MA overpayments could strengthen the Traditional Medicare program, benefiting all beneficiaries, including those in MA plans.
Evidence of Medicare Advantage Overpayments
A recent article in Health Affairs Forefront, “Estimating Overpayments To MA Plans: MedPAC Critics Get It Wrong,” highlights the substantial overpayments to Medicare Advantage plans. According to the Medicare Payment Advisory Commission (MedPAC), MA plans received $83 billion more in 2024 than what Medicare would have paid if these enrollees were in Traditional Medicare. This overpayment is attributed to “upcoding” and favorable selection.
“Upcoding” involves Medicare Advantage plans reporting more diagnoses to increase “risk scores”, which in turn boosts monthly payments from Medicare. Financial incentives for physicians and other mechanisms are employed to generate additional diagnostic codes, leading to higher revenues. MedPAC found that Traditional Medicare beneficiaries are generally sicker than those in MA plans, even after risk adjustment. Yet, the Medicare Advantage plans are coding a higher number of complex medical conditions to their patients to increase the reimbursement rate.
Questionable Diagnoses and Financial Gains
A Wall Street Journal investigation revealed that private insurers offering Medicare Advantage plans made numerous questionable diagnoses, resulting in extra taxpayer-funded payments from 2018 to 2021. Insurers added diagnoses that were not treated by doctors, leading to $50 billion in payments for these added diagnoses. UnitedHealth, the largest Medicare Advantage insurer, significantly contributed to this issue, adding diagnoses at a much higher rate than other insurers. (“Insurers Pocketed $50 Billion From Medicare for Diseases No Doctor Treated“, (July 8, 2024))
“UnitedHealth [Medicare Advantage] members were about 15 times as likely to be diagnosed with diabetic cataracts as the average patient with Traditional Medicare, one of the ‘most heavily used diagnoses’ to increase Medicare Advantage payments.” (Wall Street Journal Insurers Pocketed $50 Billion From Medicare for Diseases No Doctor Treated, July 8, 2024)
Less Care at Higher Costs
A Journal of American Medical Association (JAMA) article, “Less Care at Higher Cost – The Medicare Advantage Paradox,” challenges the claim that Medicare Advantage plans are a good deal for members and taxpayers. Despite overpayments, MA plans spend 9% less on medical services than Traditional Medicare, due to managed-care techniques such as network restrictions and prior authorization requirements. These techniques often reduce both high-value and low-value services, potentially harming vulnerable patients.
MA plans also incur additional expenses for advertisements, network management, executive salaries, and shareholder profits, driving overhead up to 14%. Between 2007 and 2024, MA overhead costs totaled $592 billion, nearly matching the $612 billion in overpayments during the same period.
Health Outcomes and Affordability
Despite insurance industry claims, Medicare Advantage plans do not consistently provide better health outcomes or more affordable care compared to Traditional Medicare. The Commonwealth Fund and KFF studies found that the quality of care between MA and Traditional Medicare is generally equivalent. MA may excel in preventive care and reducing hospital readmissions, but Traditional Medicare outperforms in cancer care and skilled nursing facility quality.
A study in the Annals of Internal Medicine found that switching to a Medicare Advantage Plan was associated with increased financial burdens for vulnerable populations, particularly those with low incomes. Contrary to marketing claims made by Medicare Advantage Plans, the study showed that MA plans did not offer significant financial protection, especially for lower-income enrollees.
Conclusion
Wasteful overpayments by the government to Medicare Advantage plans do not benefit the public. Despite attempts by the Centers for Medicare & Medicaid Services (CMS) to address these issues, more needs to be done. Redirecting overpayments to improve Traditional Medicare coverage would better serve older adults and reduce the financial burden on taxpayers. It is time to fix wasteful Medicare Advantage policies and practices to ensure better outcomes for all Medicare beneficiaries.
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