Medicare Advantage Pays More. The Question Is What That Buys.
Our CEO Aaron Carroll examines whether Medicare is paying the right price for Medicare Advantage and whether those payments are tied to better outcomes that are being financed fairly.
Medicare Advantage was supposed to be the more efficient version of Medicare. Private plans would compete for enrollees. Competition would lower costs. Plans would coordinate care, offer extra benefits, and save the federal government money.
On enrollment, the model worked. More than half of Medicare beneficiaries are now in MA plans.
On spending, it has not.
The Medicare Payment Advisory Commission, the independent body that advises Congress on Medicare, has long documented that the federal government pays MA plans more per enrollee than it would spend covering comparable beneficiaries in traditional Medicare. Its March 2026 report estimates Medicare will pay MA plans about 14 percent more in 2026, or $76 billion in higher spending. That’s not a rounding error.
A recent congressional report, summarized by the Medicare Rights Center, traces one consequence most beneficiaries never see. Because Part B premiums finance a share of Part B spending, higher MA payments raise premiums for everyone in Part B, including people in traditional Medicare. The Joint Economic Committee found this added $212 per enrollee in 2025, using MedPAC’s earlier $84 billion overpayment estimate; about $192 under the revised figure. The increases may not feel dramatic in any single year. But they compound.
So where does the money go?
MA plans are paid more for enrolling sicker patients, which makes sense. A plan caring for someone with multiple chronic conditions should receive more than one caring for someone without them. The problem is that the system also rewards plans for finding and documenting more diagnoses, even when the diagnoses don’t change patient care.
Plans review medical records, send clinicians into homes, and use other tools to identify conditions. Some of that uncovers real unmet needs. Some makes patients look sicker on paper than comparable beneficiaries in traditional Medicare. CMS has tried to adjust for this, but MedPAC has concluded the adjustment falls short.
Money also comes through benchmarks and rebates. Plans bid against county-level spending targets, and when they bid below the benchmark, they keep part of the difference as a rebate to fund extra benefits or lower cost sharing. In theory, that rewards efficiency. In practice, benchmarks are set high enough that plans appear to generate savings while being paid more than traditional Medicare would have cost.
Here’s where things get more complicated, though. Beneficiaries really do get something for the money.
Most MA plans offer dental, vision, hearing, transportation, meals, and over-the-counter benefits traditional Medicare does not cover. Beneficiaries value them; we shouldn’t pretend otherwise.
The appeal isn’t hard to understand. Traditional Medicare has no out-of-pocket maximum, and supplemental coverage can be expensive or unavailable. For many people, MA offers lower premiums and benefits they otherwise couldn’t afford. Those are real advantages.
They are also not the same thing as savings.
The federal government is paying private plans more than it would spend in traditional Medicare, and some of that excess is returned to MA enrollees as benefits not available to the rest of Medicare. People in traditional Medicare help finance them through premiums and taxes.
That doesn’t make the benefits bad. It does make the financing hard to defend, though.
If policymakers want Medicare to cover dental, vision, or hearing care, they could provide those benefits directly. If they want plans to coordinate care better, they could pay for outcomes. If they want lower cost sharing, they could design it transparently. What we have now is less clear: we are paying more, calling some of it savings, and using part of the difference to fund benefits only some beneficiaries receive.
Quality is the other argument for higher spending. The CMS star ratings system rewards higher-performing plans with bonus payments, which now total about $12.7 billion a year. But MedPAC has long raised concerns that the program does not reliably distinguish better care from better performance on administrative targets. CMS has made changes to the methodology, which is welcome. But the ratings remain a payment lever as much as a quality signal.
None of this means Medicare Advantage should be eliminated. The program serves real needs, and millions of beneficiaries are satisfied. But we should be honest about what we’re buying. MA isn’t delivering Medicare more cheaply through competition. It’s delivering additional benefits to MA enrollees by paying plans more than traditional Medicare would cost, with the bill spread across everyone in Medicare and taxpayers.
The reform conversation needs to start there. The question isn’t whether Medicare Advantage has value. It does. The question is whether Medicare is paying the right price for that value, whether those payments are tied to better outcomes, and whether the benefits are being financed fairly.
Right now, the evidence suggests they are not.