Medicare Advantage, the privatized alternative to traditional Medicare, was sold as a cost-saving innovation. Three decades and tens of billions of dollars later, the evidence is overwhelming that it costs taxpayers more per beneficiary than traditional Medicare while routinely denying care that traditional Medicare would cover. The program’s defenders argue it offers richer benefits. The critical question, which Congress has consistently declined to ask seriously, is at whose expense.
The structure invites abuse, and the audits keep confirming it.
The upcoding problem nobody fixes
Medicare Advantage plans are paid based on how sick their enrollees are, measured by diagnosis codes submitted to CMS. The more conditions documented, the more money the plan receives. Multiple watchdog reports, including from the Department of Health and Human Services Office of Inspector General and MedPAC, have found that plans systematically code patients as sicker than they actually are. MedPAC’s own analyses estimate that risk-score gaming inflates Medicare Advantage payments by roughly 6% above what the same patients would cost in traditional Medicare, costing taxpayers somewhere between $50 billion and $80 billion over the past decade. The Justice Department has multiple active fraud cases against major insurers, including UnitedHealth, Humana, and Cigna, alleging exactly this pattern. Settlements happen. The structural incentive remains untouched.
Care denials run the other way
While insurers code aggressively to maximize revenue, they often deny care to minimize cost. A 2022 OIG report found that Medicare Advantage plans denied roughly 13% of prior authorization requests that would have been covered under traditional Medicare. Skilled nursing stays, post-surgical rehab, and high-cost imaging are particular flashpoints. The problem isn’t a few rogue claims; it’s a deliberate model in which denials function as profit. Stat News and ProPublica investigations have detailed insurers using algorithmic tools, like NaviHealth, to override physician judgment and curtail post-acute care. Beneficiaries who appeal often win, but only roughly 10% of denied patients ever appeal, which means the denial-by-default strategy works as a margin enhancer most of the time.
Why Congress doesn’t act
The political economy answers the question. Insurers in the Medicare Advantage business spend tens of millions a year on lobbying. The trade group AHIP runs sophisticated campaigns highlighting MA’s lower-out-of-pocket-costs framing while sidestepping the network restrictions and prior authorization burden. Senators on both sides of the aisle take meaningful contributions from these companies and represent states where MA enrollment is large and politically organized. Roughly half of all Medicare beneficiaries are now enrolled in MA plans, which makes any reform politically delicate. The combination, concentrated industry interests, diffuse beneficiary harm, and rising enrollment, is a textbook recipe for legislative paralysis. The Inspector General keeps publishing reports. Congress keeps not holding hearings.
The takeaway
Medicare Advantage isn’t a scam in the sense of being illegal. It’s worse: a legal program structured so that the predictable behavior of profit-seeking insurers transfers public dollars to private margins while restricting care. Reform options exist, tighter risk-adjustment audits, prior authorization limits, mandatory benchmarking against traditional Medicare costs. None require new ideas. They just require a Congress willing to take on a sector currently writing checks to both parties.
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