Medicare Advantage: 54% of Seniors, $75B in Overpayments, and Insurers Gaming the System
More than half of Medicare beneficiaries now get their coverage through private Medicare Advantage plans. The program has bec-text-light);font-size:1rem;max-width:640px;margin:0 0 8px;"> More than half of Medicare beneficiaries now get their coverage through private Medicare Advantage plans. The program has become the most profitable line of business for major US insurers — and federal auditors say it has been systematically overbilling taxpayers by tens of billions of dollars annually. Here is how it works and what the debate is about.
- Medicare Advantage (Medicare Part C) covers 54% of Medicare enrollees as of 2025 — the majority of new Medicare beneficiaries now choose private plans over traditional Medicare.
- Medicare Advantage plans are offered by private insurers (UnitedHealth, Humana, CVS/Aetna) and receive risk-adjusted payments from Medicare to cover enrollees.
- Critics argue Medicare Advantage has engaged in upcoding and prior authorization practices that cost Medicare more than traditional Medicare while restricting beneficiary access to care.
- The Biden administration tightened Medicare Advantage payment and marketing rules in 2023-2024 — the Trump administration's position on these rules will determine the program's future trajectory.
Medicare Advantage vs. Traditional Medicare
| Feature | Traditional Medicare | Medicare Advantage |
|---|---|---|
| Provider network | Any Medicare-accepting provider nationwide | HMO or PPO network; out-of-network can be expensive |
| Prior authorization | Generally not required | Frequently required; studies show high denial rates |
| Extras (dental, vision) | Not covered; need Medigap supplement | Often included (a key selling point) |
| Cost to enrollee | Premiums + Medigap supplement premiums; no out-of-pocket max | Often $0 premium; out-of-pocket maximum required by law ($8,850 in 2024) |
| Who pays the insurer | N/A — government pays providers directly | CMS pays per-enrollee rate to private insurer |
How the Overpayment Problem Works
Medicare Advantage plans are paid a risk-adjusted rate — higher for sicker patients, lower for healthier ones. The incentive for insurers is to code diagnoses as extensively as possible to maximize the "risk score" and therefore the payment rate for each enrollee. This practice, called "upcoding," adds diagnoses that may be inactive, speculative, or found through chart-review activities (like sending nurses to review records) rather than actual clinical encounters.
The HHS Office of Inspector General found that plans added an average of 19% more diagnosis codes per patient than traditional Medicare found in the same population. When CMS pays based on these inflated risk scores, the result is systematic overpayment. CMS Risk Adjustment Data Validation (RADV) audits are supposed to catch and recoup this, but the insurance industry has successfully challenged the methodology of these audits in federal court, limiting recoupment.
Why It Matters for 2026
Republican reconciliation proposals in 2025 targeted Medicare Advantage payment rates as a budget offset. Insurers argued cuts would force them to reduce benefits or exit markets. Democrats argued the cuts were justified given documented overpayments. Several major insurers — UnitedHealth, Humana, Cigna — reported significant earnings misses in 2024 partly due to MA cost increases, making the fiscal math a live political issue.
A 2022 HHS OIG report found MA plans denied 13% of prior authorization requests that would have been approved under traditional Medicare criteria. Congress passed legislation in 2024 requiring MA plans to speed up prior authorization decisions and improve transparency. The law's implementation was contested; CMS enforcement was weakened under the Trump administration's deregulatory posture.
CMS tightened star ratings methodology in 2024, stripping several large plans of their 4-star bonus eligibility. Insurers sued. The bonus payments at stake amount to billions annually — a 5% bonus on a $300B program is $15B. The litigation and regulatory battles over star ratings methodology will shape how the largest US health insurers allocate their Medicare Advantage businesses through 2026.
Frequently Asked Questions
What is Medicare Advantage and how does it differ from traditional Medicare?
Medicare Advantage (Part C) delivers Medicare benefits through private insurers under government contract. Key differences: MA plans use networks and require prior authorizations, while traditional Medicare covers any participating provider nationwide. MA often includes dental and vision and has a required out-of-pocket cap; traditional Medicare does not cap out-of-pocket costs without a Medigap supplement.
How much are taxpayers overpaying for Medicare Advantage?
Federal auditors found $75 billion in overpayments over five years due primarily to diagnosis upcoding. MedPAC estimated MA plans are paid about 6% more per enrollee than traditional Medicare for comparable patients. CMS has struggled to recoup funds due to successful industry litigation against its audit methodology.
What is the Medicare Advantage star ratings system?
CMS rates MA plans 1-5 stars on quality and member experience. Plans with 4+ stars receive a 5% bonus payment from CMS. Plans with 5 stars get additional enrollment flexibility. Auditors found insurers gaming specific metrics to hit bonus thresholds. CMS tightened ratings methodology in 2024; multiple large insurers lost their 4-star ratings and sued CMS over the methodology change.
