CMS Paying More for Medicare Advantage Patients Compared to Traditional Enrollees

 by Cheryl Clark

The Centers for Medicare & Medicaid Services (CMS) is continuing to pay Medicare Advantage (MA) plans more -- $76 billion more in 2026 -- than if those same patients were enrolled in traditional fee-for-service Medicare.

That higher cost comes despite a policy CMS redesigned in 2024 to limit MA plans' ability to exaggerate patients' health risks to garner higher monthly payments.

This finding was among those from a status report on Medicare plans presented last week to the Medicare Payment Advisory Commission (MedPAC), which advises CMS on Medicare policies.

The report attributed the difference in spending between MA and traditional Medicare to two factors: MA plans' "coding intensity," the practice of aggressively categorizing patients as having higher risk scores, which may not reflect actual services or costs, and "favorable selection," the tendency for healthier, less costly patients to enroll in MA plans rather than fee-for-service plans.

Andy Johnson, PhD, a principal policy analyst for MedPAC, noted that "MA plans have a financial incentive to document more diagnoses than providers in fee-for-service Medicare, leading to larger MA risk scores and greater Medicare spending when a beneficiary enrolls in MA."

Luis Serna, another principal policy analyst, told commissioners that, looking back to 2015, "Medicare Advantage payments were at least 13% more than fee-for-service spending for comparable beneficiaries in each year." Payments reached 20% and 21% more, respectively, in 2022 and 2023.

MA plans received 18% more than fee-for-service plans in 2024, 17% more in 2025, and they are expected to receive 14% more this year, indicating that the new CMS policy may be starting to work.

"We estimate that MA plans will be paid $76 billion above fee-for-service spending in 2026," Serna said. About $22 billion of that $76 billion is due to plans' coding intensity.

The new policy, called V28, has phased in a payment formula that changes how risk scores are calculated. For starters, it prioritizes serious illnesses actually diagnosed rather than use of algorithms to predict an enrollee's potential future diagnoses. The formula is designed to translate to lower CMS payments to the plans.

Commissioner Scott Sarran, MD, MBA, founding chief medical officer of Harmonic Health in Cook County, Illinois, noted that the issue of MA coding intensity has been widespread.

He pointed to the Department of Justice's recent announcement that one of the largest MA plan providers, Kaiser Permanente, has agreed to pay $556 million in a fraud settlement "to resolve allegations that they violated the False Claims Act by submitting invalid diagnosis codes" for MA plan enrollees "in order to receive higher payments from the government."

Kaiser Permanente, Sarran added, is not investor-owned, and "almost universally offers plans rated with 4 or 5 stars. And they're the good guys, right? What we have to acknowledge, I think, is that the [Medicare coding] system, whether it's version 24, version 28, or 32, creates irresistible incentives to play the game or at least push the envelope."

Earlier this month, a report from Sen. Chuck Grassley (R-Iowa) slammed UnitedHealth Group for artificially inflating MA enrollees' risk adjustment scores, saying the large private health plan is "gaming the system and abusing the risk adjustment process to turn a steep profit."

Commissioner Gina Upchurch, RPh, MPH, executive director of Senior PharmAssist, a Durham, North Carolina nonprofit that counsels seniors on Medicare benefits, said she hopes the Medicare program "can move away from this gaming with coding and try to figure out what's happening more to claims and true data."

Meanwhile, Commissioner R. Tamara Konetzka, PhD, of the University of Chicago, was more cynical about the impact of the new V28 policy.

"I imagine there will be sort of a behavioral response" from the plans, she said. "Some codes are easier to overcode than others ... [and] there probably will be new codes that plans find ... that aren't in the V28 model." She asked if CMS could penalize some of the plans "that have a higher propensity to overcode."

Upchurch also took issue with a long-standing MedPAC policy that "the commission strongly supports the inclusion of private plans in the Medicare program" because of its trade-offs -- supplemental benefits and caps on spending, but more limited provider options and constraints on utilization. She objected to the word "strongly."

"Given what we know now about how they have been rolled out, can we adjust this to strike the word 'strongly' supports inclusion of private plans?" she asked. "And then say, 'and wants meaningful and transparent competition' because we're not getting that."

Upchurch also noted a perhaps-underappreciated negative aspect of MA plans, which is when the plans change networks mid-year, or when hospital systems announce they are "breaking up with this insurance company." That has happened in dozens of markets throughout the country over the last several years.

"That is super stressful to people who are very sick," she said, adding that CMS needs to add more special enrollment periods "that protect the consumer when mid-year breakups happen."

MedPAC's report on MA plans also revealed -- for the first time due to a new CMS reporting requirement -- that plans spent $24 billion on non-Medicare-covered services, or supplemental benefits, in 2023, the first year for this detail.

The plans spent 28%, or $6.6 billion, on dental services; 24% on benefits described as "non-primarily health-related," such as food, pest control, or housing support; 18% on over-the-counter items; 7% on vision; 4% on transportation; 3% each on fitness, hearing, and meals; and 10% on other benefits not specified.

https://www.medpagetoday.com/publichealthpolicy/medicare/119500