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Private Medicare Advantage Plans Caused $7 Billion in Overpayment


Recently, Medicare Advantage overspending has created problems for the federal budget. Medicare is the nation’s second-largest federal insurance program, providing healthcare for millions of Americans annually. Unlike Original Medicare, Medicare Advantage plans (Part C) are sold through Medicare-approved private insurance companies. These policies offer extra benefits that Original Medicare doesn’t cover such as dental, vision, hearing, and more.

In the last few years, Medicare Advantage has cost the country billions of dollars. We’re here to explain why Medicare Advantage overpayment is a problem and how the government plans to address it.

Medicare Advantage Overpayment

Overpayments to Medicare Advantage cause a huge financial loss to Medicare overall. For this reason, the government introduced an overpayment rule to prevent unnecessary Medicare Advantage spending.

An overpayment occurs when a provider receives a payment that exceeds the dollar amount required for the care the beneficiary receives. When Medicare identifies an overpayment, it is added to the federal government’s debt.

Now that you understand the negative impacts of Medicare Advantage overpayment, let’s break down how it affects private insurance companies. It’s important to remember that companies selling Advantage plans work alongside Medicare and receive money from the federal health insurance program per beneficiary.

Here’s where it may get confusing. You need Original Medicare before you can sign up for an Advantage plan. But once you enroll in an Advantage plan, the private insurance company takes over. In other words, Advantage pays instead of Original Medicare. As a result, Medicare pays your new carrier to take on your risks as a beneficiary.

Higher Enrollment Equals Increased Medicare Spending

While an increase in the number of people signing up for Advantage plans may sound good, it actually drains Medicare funding. As more people enroll in Advantage plans, Medicare pays the carriers more for each beneficiary. As a result, Medicare spending for beneficiaries on Advantage plans has exceeds the spending for those on Original Medicare.

Is Medicare Spending Per Person Higher for Advantage Beneficiaries?

The short answer is yes. In the last ten years, Medicare Advantage enrollment has more than doubled.

In 2019, the federal government spent approximately $7 billion more on Medicaree Advantage ($321 per beneficiary) in comparison to Original Medicare.

While plenty of adjustments, such as geographics, health statuses, and more, have been made to control spending, it hasn’t been enough. Despite efforts to address Medicare Advantage overpayment, it continues to be a concern for lawmakers. In the 2022 budget, the Biden Administration wants to restructure payments between Medicare Advantage and Medicare. The hope is to prevent hospitals that accept Medicare from financial ruin.

According to the Kaiser Family Foundation, decreasing payments between Advantage carriers and Medicare could potentially generate savings and lead to extra benefits for people in Advantage plans.

Why is Spending Higher for Medicare Advantage?

A 2021 report from the Kaiser Family Foundation attributes Medicare Advantage overpayment on higher rebates and benchmarks. The organization also said higher enrollment, incorrect billing practices, and higher risk numbers among MA beneficiaries lead to an elevation in spending.

The Medicare Payment Advisory Commission (MedPAC) estimates that if spending per MA beneficiary were 2% lower each year, overall Medicare spending would be $82 billion less up until 2029. MedPAC recommends changes to how Medicare Advantage calculates its benchmarks, believing it would lead to a monumental payment reduction per beneficiary.

At this time, 43% of beneficiaries have Medicare Advantage coverage. As we said above, enrollment shows no signs of slowing down. From 2021 to 2029, federal payments to MA could grow from $348 billion to $664 billion. Meanwhile, KFF predicts spending for enrollees to grow approximately 5.3% during that same period.

FAQs

Does Medicare Advantage save the government money?
No, Medicare Advantage has never saved the government money, nor will it ever. Instead, Medicare Advantage requires more money as enrollment for Advantage plans increases.
Will Medicare Advantage grow over the next decade?
Yes, Medicare Advantage will increase as the government works to control Medicare overpayments along with general spending. In the next ten years, the prediction for Medicare spending is an increase of $316 billion.
How can Medicare Advantage spending be fixed?
MedPAC suggests changing Advantage payment calculations, which it says could reduce annual payments by 2%. The Kaiser Family Foundation also recommends correcting inaccurate billing practices and higher risk numbers analysis.

Jagger Esch

Jagger Esch is the Medicare expert for MedicareFAQ and the founder, president, and CEO of Elite Insurance Partners and MedicareFAQ.com. Since the inception of his first company in 2012, he has been dedicated to helping those eligible for Medicare by providing them with resources to educate themselves on all their Medicare options. He is featured in many publications as well as writes regularly for other expert columns regarding Medicare.

2 thoughts on “Private Medicare Advantage Plans Caused $7 Billion in Overpayment

  1. Good article! But why are MA plans offering part B rebates in 2022 if the government is losing money on MA plans?

    1. Hi Jeff – thank you for your comment. The Part B giveback option is available because Medicare is no longer paying beneficiary claims; Advantage takes over. However, in the long run, Advantage costs the government more than Original Medicare – thus, not saving money.

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