Medicare Advantage Could Get Up To $1.6 Trillion More Than It’s Entitled To Over The Next Decade, And That Could Hurt The Medicare Trust Fund

Medicare Advantage plans could end up getting too much money from the government — by as much as $1.6 trillion — over the next decade, putting pressure on the trust fund that supports Medicare.

This forecast comes from the Committee for a Responsible Federal Budget, which looked at the intricacies of insurance coding, as well as the demographics of who signs up for different types of Medicare plans. Medicare Advantage is the private-plan alternative to traditional Medicare.

CRFB looked at two published studies by the USC Schaeffer Center for Health Policy and Economics and the Medicare Payment Advisory Commission (MedPAC), which provided new research into the amount the government-funded Medicare overpays private Medicare Advantage. CRFB also used its own research to come up with estimates on the overpayments and the impact on the federal budget.

Medicare Advantage plans, run by private companies, cost the federal government “significantly more” per beneficiary than traditional Medicare due, in part, to “coding intensity,” which makes Medicare Advantage enrollees look sicker than similar enrollees in the traditional Medicare program, the nonprofit public policy organization said.

CRFB previously said that the overpayments stem from incentives that lead Medicare Advantage plans to report enrollee diagnoses more completely than physicians billing traditional Medicare. As a result, Medicare Advantage beneficiaries appear sicker than they are relative to traditional Medicare beneficiaries, which leads to higher payments.

In reality, the Medicare Advantage population is actually “significantly healthier” than the traditional Medicare population and, as a result, are receiving overpayments even greater than previously estimated, CRFB said in the new report.

The Centers for Medicare and Medicaid Services (CMS) is supposed to adjust payments to account for these differences in diagnostic reporting — called coding intensity — but adjustments have not corrected the problem, CRFB said.

Having healthier beneficiaries sign up for Medicare Advantage, plus the difference in “coding intensity” could lead to overpayments of between $810 billion and $1.6 trillion through 2033, which means $140 billion to $260 billion in higher Medicare premiums, CRFB said.

“There’s increasing realization that overpayments are happening,” said Josh Gordon, director of health policy at the CRFB.

These estimates could worsen the solvency of the trust fund that backs Medicare by three to five years. Currently, the expected depletion date for the Hospital Insurance trust fund, which serves Medicare Part A, is 2031.

“The Medicare trust fund is becoming insolvent,” Gordon said. “It’s time to stop being afraid to make incremental changes to Medicare Advantage.”

The public policy group also said that the next decade of overpayments have ramifications on the overall federal budget and will boost the national debt by 2% to 5% of gross domestic product (GDP).

“It is clear that the federal government is vastly overpaying MA plans with enormous federal budget ramifications,” CRFB said.

“Medicare Advantage reforms are essential for keeping down costs for the federal government, the Medicare trust fund, and beneficiaries. Both the Centers for Medicare and Medicaid Services  and Congress should take appropriate action to rein in overpayments,” CRFB said.

CMS said it has taken actions to ensure that the Medicare Advantage program works for people with Medicare and that private insurance companies are held accountable.

A CMS spokesperson said that in February it finalized a rule to start recovering improper payments made to MA plans. In March, CMS finalized policies in the 2024 MA and Part D Rate Announcement to improve payment accuracy, support a strong MA program, and ensure taxpayer dollars are well-spent. Meanwhile, in April CMS said it finalized the 2024 MA & Part D Final Rule, which will crack down on misleading marketing schemes by MA plans, Part D plans and their downstream entities; removing barriers to care; and expanding access to behavioral health care.


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