Medicare Advantage overpayments could top $75B this year: study

Legislators and policymakers have put payments to Medicare Advantage (MA) plans under the microscope, and new analysis highlights why.

Researchers at the University of Southern (USC) California Schaeffer Center for Health Policy and Economics estimate that overpayments in MA could top $75 billion in 2023, or 20%. They say that this makes plain the "urgent need for reform" to the program.

The report found that people who switched from traditional Medicare to MA had lower spending compared to those with the similar health risks who stayed in fee-for-service. About 16.9 million beneficiaries who made the switch between 2006 and 2019 had risk scores that were notably below average, and plans are paid based on that average.

In 2020, plans were overpaid by 14.4% based on this "favorable selection," the researchers said.

“The current Medicare Advantage payment structure results in overpayments markedly higher than previously understood,” said Paul Ginsburg, Ph.D., senior fellow at the USC Schaeffer Center, in a press release. “Our analysis highlights how Medicare Advantage currently operates and the need to reform how the plans are paid.”

Risk adjustment in MA has been a key topic in the health policy sphere of late following the finalization of the hotly anticipated risk adjustment data validation (RADV) rule earlier this year. The Centers for Medicare & Medicaid Services ultimately elected to phase in changes beginning in 2024.

The agency also chose not to backdate RADV audit changes beyond 2018, so insurers caught a break on several year's worth of audits. However, the industry has hinted at a campaign to have the regulatory changes fully eliminated.

The USC researchers said that a key factor to consider is the rapid growth of MA over the past several years. Following the 2023 annual enrollment period, the program covers about 50% of Medicare eligible lives.

Because enrollment in MA continues to grow, basing benchmarks for payments on spending in fee-for-service is "increasingly problematic."

The researchers suggest two paths for reform. In one, current links to average spending in fee-for-service could be overhauled, perhaps by implementing new data reporting requirements for MA plans that improve accuracy, completeness and comparability of data to better align it with data from traditional Medicare.

Or, regulators could fully abandon the current model and instead institute competitive bidding for MA, which would deploy market forces to determine what MA plans are paid.

“The skewed distribution of expenditures and the consistent trend of beneficiaries with below-average spending choosing Medicare Advantage plans have significant financial implications and are adding to the fiscal strain on the Medicare system,” said Steven Lieberman, a nonresident senior fellow at the USC Schaeffer Center, in the release.