Feel like you pay too much for health insurance? The federal government has you beat—by $84 billion.
In 2025, the federal government will spend that much more for Medicare Advantage (MA) enrollees than it would if those same patients were enrolled in traditional fee-for-service Medicare, according to the Medicare Payment and Advisory Commission (MedPAC). MedPAC—an independent, nonpartisan agency—released these findings as part of its annual report to Congress on March 13. In total, the agency predicted Medicare will pay MA plans $538 billion, or 20% more than if MA members were in traditional plans.
MA overpayments—and the criticisms that come with them—are nothing new. These numbers are similar to 2024, when MedPAC projected the government would overpay by $83 billion, or 22%.
The 2025 MedPAC report found Medicare is more expensive for two main reasons: favorable selection and coding intensity.
Favorable selection. The report predicted about $44 billion of that $84 billion overpayment will be due to favorable selection.
This refers to a phenomenon where people in MA plans generally spend less on medical care compared to people of similar health in traditional Medicare plans. In 2019, for instance, MA enrollees spent about 11% less than FFS enrollees with the same risk scores, according to a 2023 MedPAC report.
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Because MA payment is a fixed amount per beneficiary, regardless of how much medical care they get, it would have been cheaper to pay for these lower-cost members through a traditional fee-for-service (FFS) arrangement.
Coding intensity. The other $40 billion of that $84 billion overpayment can be blamed on coding intensity and risk adjustment, the report said. MA members tend to get more diagnosis codes recorded than those in FFS, driving up their risk scores 16% on average prior to any adjustments, according to the report.
The government reimburses MA plans based on patient risk scores—the predicted cost of treating a patient based on their health—so higher risk scores translate to higher expenses.
CMS is required to reduce all MA risk scores by a minimum amount each year (5.9%), but even with that adjustment, MA member scores will be about 10% higher than if they were in traditional Medicare.
Quality bonuses. On top of those costs, the MA quality bonus program increases MA payments by about $15 billion in bonuses each year. The MedPAC report noted that members in MA and FFS plans report similar satisfaction levels in surveys, calling into question how, exactly, those quality payments are helping.