KFF 1/19/2023

“Medicare pays more to private Medicare Advantage plans for enrollees than their costs would be in traditional Medicare, on average, and these higher payments have contributed to growth in spending on Medicare Advantage and overall Medicare spending. In 2022, payments to Medicare Advantage plans are estimated to be 104% of what traditional Medicare would have spent on these beneficiaries, on average, according to MedPAC. This percentage is lower than in 2010, when Congress made changes to how Medicare Advantage plans are paid, but it has been trending higher since 2017.”

“According to the Congressional Budget Office, higher payments to Medicare Advantage plans, relative to traditional Medicare spending, are due to three factors. First, the payment methodology is based on benchmarks that are higher than traditional Medicare spending in half of all U.S. counties. Second, Medicare Advantage enrollees have higher “risk scores” than traditional Medicare beneficiaries in part because plans have a financial incentive to code for diagnoses, which increases the amount they are paid per enrollee. Third, Medicare Advantage plans typically receive higher payments based on their quality-based star ratings ($10 billion in 2022, according to KFF analysis), but these bonus payments do not apply to traditional Medicare.”