Researchers have found that the overpayment to Medicare Advantage companies, which has grown over time, was, intentionally or not, baked into the Medicare Advantage payment system. Medicare Advantage plans are paid more for enrolling people who seem sicker, because these people typically use more care and so would be more expensive to cover in traditional Medicare.
However, differences in how people’s illnesses are recorded by Medicare Advantage plans causes enrollees to seem sicker and costlier on paper than they are in real life. This issue, alongside other adjustments to payments, leads to overpayment with taxpayer dollars to insurance companies.
Some of this extra money is spent to lower cost sharing, lower prescription drug premiums and increase supplemental benefits like vision and dental care. Though Medicare Advantage enrollees may like these benefits, funding them this way is expensive. For every extra dollar that taxpayers pay to Medicare Advantage companies, only roughly 50 to 60 cents goes to beneficiaries in the form of lower premiums or extra benefits.
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