News: Report predicts overpayments to Medicare Advantage plans will exceed $75 billion in 2023

A new report conducted by the USC Schaeffer Center for Health Policy and Economics has suggested that overpayments to Medicare Advantage (MA) plans could exceed $75 billion this year, HealthLeaders reported.

In recent years, citing more benefits and out-of-pocket cost limits, traditional Medicare enrollees have been switching to the MA program. For instance, in 2020, 46.9% (11.3 million) of MA enrollees switched from traditional Medicare in 2006-2019, according to the USC report.

The payment plan for MA beneficiaries is based on the average cost per beneficiary in traditional Medicare in each county; however, because only a minority of Medicare enrollees are in traditional Medicare, MA plans are getting overpaid relative to the costs of providing traditional Medicare care.

"[…] this has contributed to the magnitude of extra benefits offered to MA enrollees," one of co-authors Paul Ginsburg said in a press release. "While this is appealing to consumers, this is increasing federal spending and accelerating the rate at which the Medicare trust fund is being exhausted."

According to the report, fee-for-service (FFS) beneficiaries with below-average, risk-score-adjusted expenditures to MA creates overpayments because “the capitation amounts paid to MA plans assume these FFS beneficiaries have average expenditures.” Between 2015 and 2019, this data skew led to overpayments occurring on the order of 14.4%. The researchers especially noted that the primary component driving costs in the overpayments were due to coding differences ($23 billion).

To rectify the issue of overpayments, the researchers recommended reforming the current payment approach (e.g., reduction of aggressive coding, reporting requirements for MA plans), and instituting competitive bidding by MA plans for determining “what Medicare pays Medicare Advantage plans” and to capture “efficiency gains for taxpayers.”

Editor’s note: To read the Healthleaders story, click here. To read the USC press release, click here. To read the USC Schaeffer report, click here.