Medicare Advantage overpayments are costing traditional Medicare, too

Overpayments to Medicare Advantage (MA) plans has been a widely known issue for years. But overpayments don’t just raise spending in MA—they lead to higher spending in traditional Medicare as well, according to a report released March 10 by the Joint Economic Committee.

MA overpayments raise spending in Medicare Part B, which covers outpatient services such as doctor’s office visits and diagnostic tests. Premiums equal 25% of overall spending in Part B, so increased spending means increased premiums, Paul Ginsburg, senior scholar at USC’s Schaeffer Institute and nonresident senior fellow at the Brookings Institution, told Healthcare Brew.

Overpayments raised Part B premiums by $212 per beneficiary in 2025, a total increase of $13.4 billion, the Joint Economic Committee found.

And insurers have profited significantly from overpayments. A report from the Department of Health and Humans Services Office of Inspector General found that overpayments from inflated risk adjustment scores boosted insurer profits by an estimated $7.5 billion in 2023.

Backing up. MA overpayments are generally caused by two things: favorable selection and coding intensity, Healthcare Brew previously reported.

That means people in MA tend to be healthier than people in traditional Medicare (therefore spending less on medical costs) and that MA beneficiaries tend to have more diagnosis codes recorded, raising their risk scores. MA plan payments are based on risk scores, with higher scores meaning more money.

Insurance giant Elevance recently came under fire from the Centers for Medicare and Medicaid Services (CMS), which alleges the insurer didn’t report or return overpayments. In total, MA insurers received $84 billion in overpayments in 2025, according to a July 2025 analysis by KFF.

Payment rate panic. MA insurers have been sounding the alarm since CMS announced in January it would only raise payment rates by 0.9% for 2027. In comparison, CMS raised rates an average of 5.06% for 2026.

KFF Health News recently reported that a “dark money” advocacy group called Medicare Advantage Majority allegedly began running a campaign following the 2027 rate announcement, posting thousands of comments on a federal website and posing as MA beneficiaries demanding CMS raise payment rates.

Ginsburg said for MA insurers, the tiny rate increase is “obviously not good for [MA insurers], but given the magnitude of the overpayments, it should be easy for many of them to handle.” 

The most significant financial impacts will be felt by the smaller insurers that don’t receive much in overpayments, he added.

The payment rate is still preliminary, and CMS plans to announce a final rate by April 6. In recent years, the payment rate has always increased from the proposed figure to the finalized number, according to Gretchen Jacobson, VP of Medicare at healthcare research foundation the Commonwealth Fund.

If the payment rate stays low, though, MA plans will likely cut some of the extras they offer, such as fitness and grocery benefits, Jacobson said.

“Research has found that when [MA] insurers’ payments are cut, they tend to absorb some of the cut internally so that not all of the reduction in payment is felt by beneficiaries,” she added.