News: Medicare Advantage overcharges taxpayers $88 billion, report says

Medicare Advantage (MA) overpayments have cost taxpayers approximately $88 billion per year (or 22% of 2022 MA spending levels), according to a new report.

The report, authored by the Physicians for a National Health Program (PNHP), suggested that Part B premiums or federal spending on Part D drug benefits—each of which totaled about $131 billion and $126 billion, respectively—could have been funded entirely by eliminating these overcharges.

The authors cited existing research from the Medicare Payment Advisory Commission (MedPAC), which argued that, despite the prevailing wisdom on the cost-effectiveness of privatized Medicare, the data culled from the past two decades shows MA plans have “always been higher than they would have been for patients in Traditional Medicare.”

In addition, MedPAC argued that enrollees in MA plans “must contend with heavily limited networks,” as well as “arcane prior authorization procedures.”

The PNHP report broke down the $88 billion in overpayments into the following four sub-components:

1. Favorable selection: The authors of the report stated that because beneficiaries of MA plans tend to be healthier and less costly than Traditional Medicare (TM) enrollees—and because the current system maintains the same level of spending for both TM and MA plans—there is an excess amount allocated toward MA.
2. Upcoding: According to MedPAC, the total effect of uncorrected differences in HCC risk scores accounted for a $17 billion excess in MA payments in 2021, close to 5% of total payments for that year.
3. Benchmarking and bonuses: The report suggested that the levels set for the county benchmarking system—an ACA policy intended to entice counties with low spending toward MA plans—are “higher than necessary.” Additionally, the quality bonus model, which is based upon a star-rating system, is “highly flawed” and suffers from limited data, poor sampling, and score inflation.
4. Induced utilization: The authors argued that MA enrollees receiving subsidized supplemental coverage plans have caused the benchmarking system to increase due to an excessive amount of healthcare spending.

Editor’s note: Read the PNHP report, here.