Medicare Advantage Overpayments Persist Despite New Efforts to Curb Costs

The federal government is on track to spend tens of billions more on Medicare Advantage (MA) than traditional Medicare this year, reigniting concerns that the privatized program’s payment system rewards insurers more for coding intensity than for lowering costs or improving care, according to a report released by the Medicare Payment Advisory Commission.

According to new estimates, MA will cost taxpayers about $76 billion more in 2026 than it would if the same seniors were enrolled in traditional fee-for-service Medicare. While that figure is down from an estimated $84 billion in 2025, largely due to a new risk adjustment model, it still underscores what MedPAC commissioners described as deep structural flaws in how the program is financed.

MA now covers more than one-half of all Medicare beneficiaries, or nearly 35 million seniors. Under the program, the federal government pays private insurers a fixed amount per enrollee, adjusted for how sick members are expected to be. But that system creates strong incentives for plans to exaggerate patients’ diagnoses to boost payments. MA plans also tend to attract healthier-than-average enrollees, a phenomenon called favorable selection.

MedPAC analysts found that without these 2 effects, MA spending would be roughly equivalent to traditional Medicare. Instead, favorable selection adds about 11 percentage points to costs, while coding intensity adds another 4, pushing MA spending to roughly 114% of fee-for-service Medicare this year.

“This creates irresistible incentives to play the game,” said MedPAC Commissioner Scott Sarran, noting that plans must aggressively code diagnoses to remain competitive.

A key reason the overpayment estimate fell this year is the continued rollout of the Biden administration’s updated risk adjustment model, known as V28. The change has curbed coding intensity since 2024 without reducing benefits or plan availability, according to MedPAC. However, several commissioners criticized V28 as a blunt tool that penalizes smaller or more compliant insurers along with aggressive coders.

The report arrives amid growing scrutiny of MA insurers. Federal prosecutors are investigating major plans over billing practices, and recent settlements, including a $556 million agreement involving Kaiser Permanente affiliates, have intensified calls for reform. Lawmakers from both parties increasingly agree that curbing upcoding is essential to improving healthcare affordability.

Industry groups dispute MedPAC’s methodology, arguing that the estimates rely too heavily on beneficiaries who switch from traditional Medicare to MA. Still, MedPAC commissioners emphasized that, even if the precise dollar figure is debated, the direction of the problem is clear.

The findings will be formally presented to Congress in MedPAC’s March 2026 report.

Reference

Parduhn RP. Medicare Advantage overpayments will total $76B this year: MedPAC. Healthcare Dive. Published online January 16, 2026. Accessed February 6, 2026. https://www.healthcaredive.com/news/medicare-advantage-overpayments-76b-2026-medpac/809859/