How Medicare Advantage Costs Taxpayers — and Retirees

With private insurers set to receive $1.2 trillion in excess payments by 2036, retirees may soon face a reckoning over costs and coverage. When you purchase through links on our site, we may earn an affiliate commission. Here’s how it works. Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.You are now subscribedYour newsletter sign-up was successfulWant to add more newsletters?Delivered dailyKiplinger TodayProfit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more delivered daily. Smart money moves start here.Sent five days a weekKiplinger A Step AheadGet practical help to make better financial decisions in your everyday life, from spending to savings on top deals.Delivered dailyKiplinger Closing BellGet today's biggest financial and investing headlines delivered to your inbox every day the U.S. stock market is open.Sent twice a weekKiplinger Adviser IntelFinancial pros across the country share best practices and fresh tactics to preserve and grow your wealth.Delivered weeklyKiplinger Tax TipsTrim your federal and state tax bills with practical tax-planning and tax-cutting strategies.Sent twice a weekKiplinger Retirement TipsYour twice-a-week guide to planning and enjoying a financially secure and richly rewarding retirementSent bimonthly.Kiplinger Adviser AngleInsights for advisers, wealth managers and other financial professionals.Sent twice a weekKiplinger Investing WeeklyYour twice-a-week roundup of promising stocks, funds, companies and industries you should consider, ones you should avoid, and why.Sent weekly for six weeksKiplinger Invest for RetirementYour step-by-step six-part series on how to invest for retirement, from devising a successful strategy to exactly which investments to choose. Medicare Advantage, the private insurance system that supplants traditional Medicare, continues to set off alarms for triggering massive overpayments costing taxpayers billions.The latest comes from the nonpartisan Committee for a Responsible Federal Budget, which projects $1.2 trillion in overpayments over the next decade, based on an estimate from the Medicare Payment Advisory Commission (MedPAC), an independent agency that provides Congress with analysis and policy advice on the Medicare program.Medicare Advantage plans will be overpaid by roughly $76 billion in 2026. “If continued, we estimate this would translate to $1.2 trillion of overpayments through 2035,” the budget committee says.Become a smarter, better informed investor. Subscribe from just $107.88 $24.99, plus get up to 4 Special IssuesProfit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.Profit and prosper with the best of expert advice - straight to your e-mail.Unlike traditional Medicare, in which providers are reimbursed for each procedure they perform, Medicare Advantage plans are paid a monthly amount per enrollee — with the size of that reimbursement adjusted based on the health of each beneficiary. More than half of all Medicare beneficiaries are enrolled in the alternative private plans, which tend to offer individuals more benefits while relying on government subsidies.Critics say Medicare Advantage’s private insurers are incentivized to find billing codes that support higher payments, regardless of whether they are supported by the beneficiaries’ actual health.One method for doing this is known as upcoding — where insurers increase the number of diagnoses for patients to make them appear sicker or at higher risk. To compensate for this, the government reduces MA payments by 5.9%, but MedPAC estimates that MA plans overall cost 14% more than traditional Medicare. But evidence suggests MA enrollees are generally healthier than those who use traditional Medicare, meaning the MA patients’ costs are lower.The committee also estimates $520 billion in overpayments will come from the Medicare Hospital Insurance Trust Fund. Absent these overpayments, the trust fund would be solvent for the next decade and beyond. Instead, the trust fund is projected to run out of reserves in 2032. Additionally, MA overpayments also increase base premiums by $230 billion over a decade.What are the prospects of fixing the situation? That’s anybody’s guess. On the positive side are several bipartisan proposals, including the No UPCODE Act, introduced by Sens. Bill Cassidy (R-La.) and Jeff Merkley (D-Ore.). The act would eliminate the use of health risk assessments to boost coding intensity and utilize two years of data to more accurately depict the health status of MA patients. This could save $150 billion or more.■ United Healthcare claims.

Add Senate Republicans to the long list of those accusing United Healthcare of gaming the Medicare Advantage payment system to increase its profits without helping beneficiaries. Last year, the Alliance of Community Health Plans, an organization of nonprofit health insurers, released a report saying that United Healthcare, the largest national MA insurer, “collected up to $785 more per beneficiary than local, nonprofit plans in 2023 alone. That difference cost Medicare more than $6 billion.” The alliance said the companies are manipulating a system that pays MA insurers more for covering people with more serious diagnoses.Now, Sen. Chuck Grassley (R-Iowa) has released a majority staff report with similar allegations. “Bloated federal spending to UnitedHealth Group is not only hurting the Medicare Advantage program, it’s harming the American taxpayer,” Grassley says. “My investigation has shown UnitedHealth Group appears to be gaming the system and abusing the risk adjustment process to turn a steep profit. Taxpayers and patients deserve accurate, clear-cut and fair risk adjustment processes.”The analyses echo previous investigations by the Health and Human Services inspector general and the Government Accountability Office.According to Reuters, United Healthcare denies the latest allegations, saying in an email, “Our programs comply with applicable (government regulatory) requirements and have, through government audits, demonstrated sustained adherence to regulatory standards.”■ Kaiser Permanente settles fraud claims. Affiliates of Kaiser Permanente have agreed to pay $556 million to resolve allegations that they violated the federal False Claims Act by submitting invalid diagnosis codes (a.k.a. “upcoding”) for their Medicare Advantage enrollees in order to receive higher payments from the government, according to the Department of Justice.The government alleged that Kaiser engaged in a scheme in California and Colorado to improperly increase its risk adjustment payments by pressuring physicians to alter medical records after patient visits to add diagnoses that the physicians had not considered or addressed at those visits.“More than half of our nation’s Medicare beneficiaries are enrolled in Medicare Advantage plans, and the government expects those who participate in the program to provide truthful and accurate information,” says Assistant Attorney General Brett A. Shumate of the Justice Department’s Civil Division. This settlement “sends the clear message that the United States holds health care providers and plans accountable when they knowingly submit or cause to be submitted false information… to obtain inflated Medicare payments.”Note: This item first appeared in Kiplinger Retirement Report, our popular monthly periodical that covers key concerns of affluent older Americans who are retired or preparing for retirement. Subscribe for retirement advice that’s right on the money.Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.Elaine Silvestrini has worked for Kiplinger since 2021, serving as senior retirement editor since 2022. Before that, she had an extensive career as a newspaper and online journalist, primarily covering legal issues at the Tampa Tribune and the Asbury Park Press in New Jersey. In more recent years, she's written for several marketing, legal and financial websites, including Annuity.org and LegalExaminer.com, and the newsletters Auto Insurance Report and Property Insurance Report.

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