Medicare Advantage Overpayments: Impacts on Spending and Premiums

A recent report underscores that excess payments to Medicare Advantage (MA) plans significantly push overall Medicare spending higher, affecting both the MA and traditional Medicare costs. The Joint Economic Committee's findings show elevated expenditures impacting Medicare Part B, which manages outpatient services. The increased spending leads to higher premiums, accounting for 25% of total Part B costs.

The analysis of overpayments suggests a $212 increase in Part B premiums per beneficiary by 2025, leading to a collective rise of $13.4 billion. A separate investigation by the Department of Health and Human Services' Office of Inspector General estimates that overpayments, attributed to inflated risk adjustment scores, resulted in $7.5 billion in insurer profits this year.

The primary issue originates from favorable selection and coding intensity. Individuals in MA plans generally exhibit healthier profiles than those in traditional Medicare, which indicates lower medical expenses. Additionally, MA beneficiaries often include more diagnosis codes, leading to higher risk scores and subsequently increased payments.

Elevance, a significant player in the insurance market, faced scrutiny from the Centers for Medicare and Medicaid Services (CMS) over allegations of not addressing or returning these overpayments. A July 2025 analysis by KFF revealed that MA insurers collectively received $84 billion in overpayments.

Concerns emerged within the industry following CMS's recent announcement to increase payment rates by only 0.9% for 2027, a contrast to the average rise of 5.06% in the previous year. Reports indicate a campaign organized by the group Medicare Advantage Majority aimed to influence CMS to reconsider these rates.

According to Paul Ginsburg, a senior scholar at the USC Schaeffer Institute, the modest rate increase may pose challenges, particularly for smaller insurers with limited overpayment receipts. However, he observes that many larger insurers may effectively manage the implications, given the extent of previous overpayments.

Gretchen Jacobson, Vice President of Medicare at the Commonwealth Fund, suggests that if final rates remain low, MA plans might reduce extra benefits such as fitness and grocery offerings. Historically, MA insurers have absorbed some payment reductions internally, mitigating the impact on beneficiaries. CMS plans to finalize the ruling by April 6, with expectations of an upward adjustment in final rates.