Medicare Advantage is Not What You Think It is.

Two articles in this commentary. The first CEPR article discusses selective loss of Medicare Advantage enrollees. This not necessarily because of people leaving the plans. It is more on the order of the plans cutting benefits in certain plans and also cutting coverage in certain markets of the US. People are also using their plans which means less profit. If no one uses the plan, profits are higher. MA plans are famous in stalling approvals, cutting benefits, and denying coverage as not needed. In all cases the MA users suffer longer.

The second article discusses the costs of providing insurance for various patient needs. The cheer leaders for Medicare Advantage were touting lower costs and improving health care for seniors. Medicare Advantage has not achieved neither of these goals. Indeed, MA has become wildly profitable for the private insurance giants. The giants who have vast experience in coding patients have now become adept at using the Medicare Advantage billing model to extract exorbitant profits.

What you are getting in this post is how Medicare Advantage works and the costs of the procedures. A few billion here and a few billion there and your business grows becoming more profitable.

Medicare Advantage Shrinks as Insurers Cut Coverage, CEPR

The Center for Medicare & Medicaid Services (CMS) recently announced its 2026 projections for Medicare Advantage (MA), the privatized version of Medicare coverage that is dominated by a handful of massive insurance companies. For next year, about one million fewer people will be enrolled in MA plans (down from about 35 million to 34 million), and the MA share of the Medicare population will drop to 48 percent.

For those who have been critical of MA – seeing it as a confusing and bloated waste of billions of taxpayer dollars that often leaves seniors without the health coverage they need – this might sound like good news. But it’s not. In fact, it is just another sign that the current system is broken. 

For two decades, the Medicare Advantage program has funneled taxpayer money to private companies to manage health coverage for those eligible for Medicare. The companies are paid a fixed amount per enrollee based on a range of factors. As has been amply documented, the companies increase profits by providing less care (often by selecting healthier patients) and making patients appear sicker than they are (known as upcoding), which increases the payments they receive. 

There is no doubt that MA has been a boon to private insurers – their share of the Medicare market has exploded, and they make more providing Medicare coverage than they do selling conventional insurance coverage. Insurers made that kind of money in part by relying on prior authorization to limit the amount of medical care available to their customers.  

So, what has changed? The simple answer is that people are using the health care they are paying for, which reduces insurance company profits. So, insurers seek to deny more claims, increase the costs borne by customers, or exit certain markets altogether. As many subscribers have found out the hard way, Medicare Advantage plans sound great until you need to take advantage of the coverage that the companies and their marketing materials have promised. 

So that is what is happening now – MA insurers are cutting back on some coverage and exiting certain markets they have deemed unprofitable – practices euphemistically described as being “much more focused on profitability.” Seniors who suddenly find themselves without coverage must now shop for an alternative, which is likely to be more expensive and worse quality. 

These moves to scale back MA benefits, as the Wall Street Journal noted two months ago, have been met with cheers on Wall Street. Two of the largest providers – Humana and CVS, which operates Aetna – saw their share prices rise as they unveiled plans to cut coverage for hundreds of thousands. Meanwhile, UnitedHealth had been pursuing a strategy of growing its MA footprint. The company’s stock price was trending in the opposite direction, while it also found itself the target of Justice Department investigations over its MA practices. In the end, United joined the rest of the major players, recently announcing that it would stop offering MA plans in 109 counties, affecting about 180,000 people.

As Medicare open enrollment begins this week, many seniors will get word that their insurers are changing the terms of their plans, or they have decided to ‘exit’ their market altogether. Other MA beneficiaries will likely see a cut to benefits as insurers boost profits by offering ‘skinny’ plans with some combination of higher cost sharing for dental, vision and hearing care, and reduced coverage for other necessities. The burden will be on enrollees to review their plans to see what changes insurance companies have made. Those who have lost MA plans entirely may need to revert to traditional Medicare, but they may not be able to secure a supplemental insurance policy that would pay the balance of the cost of care after Medicare pays its part of the bill, putting them at serious financial risk.

The tens of billions of dollars of waste propping up for-profit insurers under the banner of Medicare Advantage could be better spent on making Traditional Medicare stronger and more affordable for everyone.

Numerous studies and media investigations have documented the problems with Medicare Advantage. What follows is a collection of some of the most notable figures documenting the high costs of this failed experiment in privatizing Medicare.

“Medicare “Advantage” By the Numbers,” CEPR

The quasi-privatized system called “Medicare Advantage,” otherwise known as Part C, was created in 2003 as a means of expanding the role of private sector corporations in the publicly-funded Medicare system. Proponents claimed it would lower costs and improve health care for seniors. It has achieved neither of those goals; instead, MA has become a wildly profitable scheme for private insurance giants, who have become adept at taking advantage of Medicare’s billing model to claim exorbitant profits. At this point, MA is more profitable for many companies than their conventional insurance businesses.

And the program continues to grow. MA now has more enrollees than traditional Medicare, thanks in no small part to aggressive public relations campaigns that sell seniors on the idea that the plans cut costs and increase choice. Congress has simultaneously failed to plug the holes in traditional Medicare, pushing seniors towards MA to avoid high out-of-pocket costs. Policymakers can fill these gaps and guarantee true comprehensive coverage simply by redirecting the overpayments to MA insurers into Medicare.

Numerous studies and media investigations have documented the problems with Medicare Advantage. What follows is a collection of some of the most notable figures documenting the high costs of this failed experiment in privatizing Medicare.

$88-$140 billion: The amount that the federal government overpaid private insurers under Medicare Advantage in 2022, according to the Physicians for a National Health Program (PNHP).

$612 billion: The amount that Medicare Advantage plans overcharged the federal government due to upcoding and favorable selection between 2007 and 2023, according to the Medicare Payment Advisory Commision (MedPAC), an independent congressional agency established to advise Congress on issues affecting the Medicare program.

$600 billion: According to one study, this is the projected excess spending between 2023 to 2031 due to the ways that Medicare Advantage plans use ‘upcoding,’ the process of classifying beneficiaries as being sicker than they really are in order to increase payments.

$35 billion: The amount that MedPAC estimates taxpayers will overpay MA insurers this year through ‘favorable selection,’ the practice of targeting healthy seniors for their plans.

$4.2 billion: The amount that MA insurers received for questionable home visit health risk assessments (and related chart reviews) in 2023, according to an October 2024 report from the Department of Health and Human Services.

80 percent: The percentage of mental health providers in a sample of MA plans that were determined to be “ghosts” (meaning they were unreachable, not accepting new patients, or not in-network), according to a recent Senate investigation.

1.8 million: Estimated number of Medicare Advantage customers whose health plans will be canceled in 2025.

167 percent: The amount that drug deductibles will increase for roughly two-thirds of all Medicare Advantage enrollees next year.

55.7 percent: The increase in MA care denials from 2022 to 2023, according to research from the American Hospital Association.

54 percent The increase in the denial rate for long-term acute care hospitals in Humana’s Medicare Advantage plans from 2020 to 2022 (Senate Majority Staff Report, 10/17/24).

$660 million: The amount of taxpayer money that CVS/Aetna stashed away in 2018 by denying Medicare Advantage patients’ claims for treatment at inpatient facilities (Senate Majority Staff Report).

78 percent: The percentage of physicians in a 2023 American Medical Association survey who said that Medicare Advantage’s prior authorization processes caused a recommended treatment for a patient to be abandoned.

$6 billion: One estimate of the amount spent in 2022 on the marketing companies that work to attract new subscribers in Medicare Advantage plans.

556,068: The number of English-language TV commercials touting outing  Medicare Advantage that aired during the seven-week open enrollment period in 2022.

$50 billion: The amount that the Wall Street Journal estimates private insurers received between 2018 and 2021 for “hundreds of thousands of questionable diagnoses that triggered extra taxpayer-funded payments.”

$2,329: The amount that MA insurers receive per beneficiary above the estimated costs of Medicare.

$1,730: The gross profit margin posted by MA companies in 2021 – more than double their profit margin on the individual market.

$172 million The amount that Cigna agreed to pay in 2023 to “resolve allegations that it knowingly submitted and failed to withdraw inaccurate and untruthful diagnosis codes for its Medicare Advantage Plan enrollees to increase its payments from Medicare.” The Justice Department continues to investigate similar allegations involving other MA providers.