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 replaces 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.

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.

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.

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