The Urgent Need for Medicare Advantage Reforms to Tackle Overpayments
The latest projections signal that Medicare Advantage (MA) overpayments could reach a staggering $1.3 trillion from 2027 to 2036, according to the February 2026 Congressional Budget Office (CBO) baseline. The Medicare Payment Advisory Commission (MedPAC) estimates that these overpayments could amount to $76 billion in 2026 alone, potentially leading to $1.2 trillion in excess payments through 2035. These alarming figures emphasize the urgent need for policy reforms to mitigate overpayments, ultimately benefiting both taxpayers and Medicare beneficiaries.
Medicare Advantage serves as a private alternative to the traditional Fee-For-Service (FFS) Medicare, operating on a distinct payment structure backed by government funding. MA plans receive a fixed monthly payment per enrollee, which adjusts according to the health risk of each beneficiary. While Medicare Advantage has the potential for cost efficiencies compared to FFS, it often incurs higher federal expenditures.
The escalated costs stem primarily from overpayments linked to enrollee health assessments. MedPAC identifies two main culprits: coding intensity and favorable selection. Coding intensity involves MA plans increasing diagnosis codes to depict higher patient risk, a practice known as "upcoding." The Centers for Medicare & Medicaid Services (CMS) attempts to counterbalance this with a statutory minimum payment adjustment of 5.9%, yet MedPAC suggests the real impact is more significant, contributing to MA plans costing the federal government 14% more than traditional FFS.
Addressing Overpayments and Enhancing Regulatory Compliance
To tackle this issue, CMS enacted the CMS-HCC Risk Adjustment Model (V28) in 2024, designed to improve the accuracy of coding intensity calculations. This model aligns payments closer to actual risk, aiming to reduce excess payments while preserving benefits and options for enrollees. MedPAC's revised estimates suggest a decline in coding intensity from 16.4% in 2025 to 10.3% in 2026, potentially saving the government an impressive $470 billion through 2035.
Moreover, MA plans capitalize on favorable selection, enrolling healthier individuals who incur lower insurance costs. Despite this, payments to MA plans surpass FFS, with favorable selection expected to increase costs by 11%, resulting in approximately $730 billion by 2035. This financial strain could severely impact the Medicare Hospital Insurance (HI) trust fund, potentially depleting its reserves by 2032 and raising base premiums by $230 billion over the next decade.
Several legislative proposals address these overpayment challenges. The No UPCODE Act, introduced by Senators Bill Cassidy and Jeff Merkley, aims to curtail factors contributing to coding intensity and refine health status assessments, potentially saving over $150 billion. Additionally, the Medicare Advantage Reform Act, proposed by Representative David Schweikert, suggests reducing plan benchmarks and eliminating quality bonuses, offering substantial savings.
Given the concerns surrounding the Medicare HI trust fund's sustainability and escalating healthcare expenses, reforms in MA payments are critical. Proactive measures could bolster the trust fund's solvency, lower beneficiary premiums, and significantly reduce unnecessary Medicare spending.