Republicans are congratulating themselves for “cutting wasteful spending” after ramming through a partisan bill to rescind $9 billion of funding for foreign aid and public broadcasting. Yet just last month, they walked away from a bipartisan proposal to save more than 60 times that amount over 10 years by curtailing overpayments to privately-run Medicare Advantage plans in their reconciliation bill.
Republicans seem afraid to make any changes to politically popular programs like Medicare, even when they’re targeting obvious waste and abuse. By refusing to tackle wasteful spending in Medicare Advantage, they missed a perfect opportunity to enact bipartisan reforms that would strengthen Medicare’s financial footing and fix a broken incentive structure that prevents Medicare Advantage from delivering on its promise.
Congress created Medicare Advantage in 1997 to give seniors the option to receive their Medicare benefits from private insurers rather than the federal government. In addition to expanding choice and competition in health care, Medicare Advantage was designed to save money for Medicare by rewarding insurers for containing costs. Under the system, private plans submit “bids” estimating the cost of covering a typical senior. Plans that bid below a benchmark, based on traditional Medicare’s per-person spending, receive part of the difference as a rebate. Payments to plans are also adjusted for each enrollee’s risk score based on their health history to compensate plans for covering sicker, more expensive patients.
Medicare Advantage had enormous potential to reduce Medicare’s costs. Traditional Medicare overpays for many services, and its fee-for-service payment structure incentivizes providers to perform unnecessary procedures in order to increase reimbursements. Introducing private competition into this market could have improved efficiency and driven down costs. But this cost-saving potential has been undermined by unscrupulous insurers who focus on manipulating the system to boost profits, rather than delivering high-value care. The most brazen tactic these insurers use is upcoding — inflating enrollees’ risk scores to make them appear sicker than they really are.
In recent years, insurance companies have found new ways to increase enrollees’ risk scores. They reward patients for completing health risk assessments with company-employed providers, which often lead to questionable new diagnoses. They also comb through patients’ medical records in chart reviews to look for diagnoses that doctors never reported. These tactics have helped insurers raise risk scores by an average of 16% compared to similar patients in traditional Medicare. Medicare applies a 5.9% coding intensity adjustment to partially offset this effect, but upcoding is still projected to cause $600 billion in overpayments to Medicare Advantage insurers over the next ten years.
Some Senate Republicans hoped to fix this problem by including language from the bipartisan No UPCODE Act in their reconciliation bill. This legislation would block insurers from inflating risk scores with diagnoses from health risk assessments or chart reviews, unless diagnoses are also confirmed in a medical setting. It would also modify the risk adjustment formula to increase parity with traditional Medicare. Most crucially, the act would require Medicare to update the coding intensity adjustment every year to account for the full effect of upcoding.
During negotiations, several Republican senators floated these reforms as a way to help offset the cost of their reconciliation package. But some GOP lawmakers in vulnerable districts pushed back, worried that any measure to reduce Medicare spending could be framed as a politically toxic cut to benefits. President Trump weighed in as well, reportedly telling a Senator that “people who play around with Medicare lose elections.” So just days later, these reforms were dropped from consideration, and Republicans put even more of their “One Big Beautiful Bill” on the nation’s credit card.
But in reality, continuing the current system of Medicare Advantage overpayments will itself lead to benefit cuts by draining Medicare’s resources at a time when the program can least afford it. Medicare’s total spending is projected to grow by nearly 8% per year over the next decade, driven by rising health care costs and an aging population. Without intervention, Medicare’s Hospital Insurance trust fund is projected to become insolvent by 2033, triggering an automatic 11% cut in payments. Medicare’s outpatient spending is growing even faster, pushing up premiums for beneficiaries and increasing the financial burden on taxpayers.
Adopting upcoding reform would save roughly $600 billion over 10 years, closing nearly half of the Hospital Insurance trust fund’s shortfall in the process. And if lawmakers went even further to tackle all the other sources of Medicare Advantage overpayments, they could roughly double their savings to $1.2 trillion. These savings could allow lawmakers to avoid making cuts to Medicare benefits in the future — that’s why the AARP endorsed the No UPCODE Act last week.
Medicare Advantage, despite its flaws, has many benefits. Seniors should have the freedom to choose the plan that best meets their needs, and genuine competition among insurers could drive them to deliver efficient and high-quality care. But in order to unlock this potential, lawmakers must pass reforms that would force insurers to compete by offering high-value plans — rather than competing to extract the largest possible overpayments.
