Medicare Advantage Overpayments: Lower Medical Costs, Higher Medicare Payments

Medicare Advantage overpayments are the extra amounts Medicare pays private plans above what it would cost to cover the same beneficiaries in traditional Medicare. A plan can reduce the cost of medical care and still collect more from the government. For someone in finance, coding or compliance, the question is how much of that difference comes from who enrolled, how their health was recorded and what the payment formula rewards.

The Medicare Payment Advisory Commission’s March 2026 report to Congress projects that Medicare will pay $76 billion more in 2026, or 14% above what those enrollees would have cost in traditional fee-for-service Medicare.

The previous March report projected $84 billion, or 20% more, for 2025. The commission attributes the lower projected difference for the following year chiefly to the completed phase-in of the Version 28 risk model and newer data showing slower growth in Medicare Advantage risk scores.

A Medicare Advantage fraud case can turn on what happens after a review finds unsupported diagnoses. Keeping the resulting overpayments after learning they must be returned can support a False Claims Act case. The insider can explain what the organization learned and why the money stayed.

Why Can Lower Medical Costs Mean Higher Medicare Payments?

Plans can deliver care for less while receiving more because the government’s payment depends on bids, benchmarks, rebates and risk adjustment. The cost of treating the patient and the amount Medicare pays the insurer are different decisions.

The benchmark is the county-based target against which a plan bids. The bid is the plan’s price for providing the standard Part A and Part B benefit to an average beneficiary, including administration and profit. When a plan bids below its benchmark, it receives part of the difference as a rebate, with the share depending on its star rating. That money finances extra benefits, reduced cost sharing or lower premiums.

The commission’s 2026 comparison puts bids at 95% of what the enrollees would have cost in traditional Medicare, benchmarks at 124%, and payments at 114%. A bid below the cost of traditional Medicare can sit well below the benchmark that determines the rebate.

The commission says its projections, together with the costs plans report in their bids, are consistent with plans reducing enrollees’ medical expenses by 18% relative to traditional Medicare. Medical expenses are only part of the bid, which also pays for running the plan and its profit. There is room for efficiency in delivering care and excess public payment in the same business.

The plan saves on care, but Medicare still pays more. A low bid creates a larger gap below the benchmark. The payment rules send part of that gap back to the plan for benefits that help it attract enrollees. Saving money on care does not mean the same saving reaches Medicare.

The commission attributes roughly $57 billion of the projected excess payment in 2026, the largest component, to favorable selection, the enrollment of people whose risk scores predict more spending than they actually require.

Allegations of disability steering turn on enrollment instructions and incentives. In its complaint against eHealth, the government alleged that Aetna asked the broker to reduce sales to people with disabilities. eHealth then allegedly changed its quoting tool to remove Aetna plans from the options agents could offer those callers.

The commission attributes another $22 billion of higher projected payments in 2026, after the federal coding adjustment, to coding intensity in Medicare Advantage.

Before selection and coding, the commission estimates spending would be about $3 billion lower than for similar beneficiaries in traditional Medicare.

A diagnosis raises the plan’s monthly payment by lifting the enrollee’s risk score, and a provider contract can tie the medical group’s compensation to that payment. The physician’s documentation, the coder’s interpretation and the plan’s revenue are then connected along the trail from diagnosis to revenue.

A 2015 working paper hosted by Duke University, Upcoding or Selection? Evidence from Medicare on Squishy Risk Adjustment, examined how coding changes the score for the same people:

The paper found a larger difference in fully integrated physician-owned plans, where risk scores were 16% higher than under traditional Medicare. It also followed a smaller sample of people moving from commercial insurance into Medicare and found a jump in recorded diagnoses among those choosing Medicare Advantage.

That is why the insurer-provider relationship matters. The paper describes how closer contractual ties make it easier to align physician behavior with the insurer’s objectives, including more intensive coding. For an insider, the useful connection is between the financial incentive, the diagnosis recorded and the instructions behind it.

What Do Health Risk Assessments and Chart Reviews Show?

Health risk assessments and chart reviews can add diagnoses that increase payments without appearing elsewhere in the year’s service records. The Department of Health and Human Services Office of Inspector General’s October 2024 evaluation estimated $7.5 billion in 2023 payments from diagnoses reported only on assessments or assessment-linked chart reviews in the 2022 encounter data.

The Inspector General identified two concerns: the diagnoses could be inaccurate, producing improper payments, or enrollees could have serious conditions for which they received no needed follow-up care.

For an insider, the next connection is between the diagnosis, the assessment that supplied it and the clinical record supporting it. A coder or clinician may be able to explain why the condition appeared on the assessment and what support the review actually found.

What Do Medicare Advantage Rebates Buy?

Medicare Advantage rebates finance supplemental benefits, lower cost sharing and premium reductions. They also help plans compete for enrollment. In 2026, the commission projects an average rebate of $222 per member per month across non-employer plans.

The benefit budget tells only part of the story. Plans reported roughly $24 billion in spending on non-Medicare services in 2023, but the commission says available data do not show the extent to which beneficiaries used those benefits. The program can put a price on the benefit package while leaving its value to the enrollee largely unmeasured.

Competition also affects how much additional government payment reaches the customer. Does Privatized Health Insurance Benefit Patients or Producers? Evidence from Medicare Advantage, a 2014 University of Chicago Stigler Center working paper, studied changes in payments created by an earlier payment-floor policy. It found that the share passed through in lower premiums was 13% in the least competitive markets and 74% in the most competitive markets.

Who competes for the enrollee affects who receives the value of the government’s extra dollar.

Why Do Traditional Medicare Beneficiaries Pay More Too?

Traditional Medicare beneficiaries help finance higher Medicare Advantage payments because Part B premiums fund a share of total Part B spending. The financing reaches people who never enrolled in the private plans receiving the money.

The commission estimates that higher payments to Medicare Advantage plans will add about $11 billion to Part B premiums in 2026, equivalent to roughly $175 per beneficiary for the year.

People outside the plan help pay for the benefits used to attract people into it.

When a Review Finds Errors and the Codes Stay

An insider can connect an unsupported diagnosis to the decision that kept it in the payment process. The source chart, review findings, submitted codes and management’s response can show what happened after the company learned of the problem.

The government’s complaint against Anthem alleged that its one-way chart reviews pursued additional payments while disregarding findings that existing diagnoses lacked support. According to the complaint, Anthem directed its vendor, Medi-Connect, to point its chart review and coding at new codes that would generate revenue.

The government also alleged that Anthem failed to compare previously submitted codes with the vendor’s findings, even though its programmers could perform the comparison. That allegation gets to the decision an internal witness can explain: which findings the business was willing to process, and what happened to the rest.

For someone in healthcare finance or compliance, the useful evidence may be the connection between a review result, a revenue forecast and an instruction to leave an existing code alone. We work with insiders to develop that connection into a specific case. A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers.

When You Know Why the Payment Stayed

If you know which findings were kept out of a coding correction or repayment decision, speak with our whistleblower experts about the payment trail inside your organization. We help build your case around what the company learned, the money it kept and the people who directed that result. We bring in Medicare Advantage whistleblower lawyers who understand risk-adjustment evidence and stay beside you through the case.