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As soon as House Republicans’ budget resolution was published, it was clear that almost all of the $880 billion 10-year spending cut target for the Energy and Commerce Committee would have to come out of Medicaid, because Medicaid accounts for 93% of projected 10-year spending under E&C’s purview — excluding Medicare. And Medicare, unlike Medicaid, is a sacred cow.
That’s too bad, because while the cuts that Republican lawmakers are proposing to Medicaid funding will likely cause 10-20 million people to lose coverage, federal payments to private Medicare Advantage plans, which now enroll 54% of Medicare beneficiaries, can and should be cut by something in the neighborhood $880 billion over ten years — a reduction that would still leave the plans overpaid.
Don’t ask me, ask MedPAC, the Medicare payment advisory commission that reports annually to Congress on Medicare spending. According to MedPAC’s March 2025 report, “In 2025, we estimate that Medicare will spend 20 percent more for MA enrollees than it would spend if those beneficiaries were enrolled in FFS Medicare, a difference that translates into a projected $84 billion.” Projecting that estimate forward, the Committee for a Responsible Federal Budget estimates that MA plans will be overpaid by $1.2 trillion from 2025-2034.
According to MedPAC, almost half of the overpayment of MA plans stems from a mismatch between MA enrollees’ actual health profiles and the insurer-calculated “risk scores” that affect federal payments to the plans. Plans have several techniques for inflating risk scores by loading on superfluous diagnoses, including the home risk assessments and chart reviews flagged by the Department of Health and Human Service’s Office of the Inspector General in more than one analysis. MedPAC estimates that inflated risk scores will account for $40 billion in MA plan overpayments in 2025.
While most MA plans claim risk scores for their enrollees well in excess of the baseline risk profile of the average traditional Medicare enrollee, they attract enrollees who are healthier on average than those in traditional Medicare. This “favorable selection,” according to MedPAC, accounts for another $44 billion in overpayments. Favorable selection inflates the payment benchmarks against which MA plans bid, which range from 95% to 115% of the estimated per-person cost of traditional Medicare (benchmarks are higher in counties where Medicare costs are lower than average, lower in counties with high average costs). Payments to MA plans are further increased by a quality bonus program which, MedPAC finds, fails to provide meaningful information on plan quality for Medicare beneficiaries.
Overpayment of MA plans creates a feedback loop, in which the plans use the overpayments, which have increased over time, to offer a suite of benefits not available in traditional Medicare — starting with a mandatory annual cap on out-of-pocket costs, and usually including a bundled Part D drug plan and some measure of dental, vision and hearing coverage (often quite limited). Most MA plan enrollees pay only the Medicare Part B premium ($185 per month in 2025), whereas traditional Medicare with a Medigap supplement and Part D plan added on generally costs in excess of $300/month. The tradeoff is that MA enrollees subject themselves to a limited provider network, prior authorization, and more frequent coverage denials and limitations — most notoriously, for post-acute care.
MA insurers’ inflation of their enrollees’ risk scores is so obvious and pervasive that CMS is statutorily required to shave a minimum of 5.9% off of MA risk scores. It’s not enough, but CMS has never increased the haircut. The Congressional Budget Office estimates that increasing the haircut to 20% — fully covering MedPAC’s estimate of MA overpayment stemming from risk score inflation and favorable selection — would reduce federal spending on the program by more than $1 trillion from 2025-2034 — with savings only kicking in beginning in 2027. A far more modest — and likely — increase in the “minimum risk score reduction” to 8% would save $159 billion by 2034, according to CBO.
Some studies do indicate that some MA insurers at least
improve outcomes such as cardiac events or hospital admissions through their
“managed care” protocols, which can include treatment programs for chronic
disease and in-network coordinated care as well as often-onerous “prior
authorization” requirements for a broad array of treatments. Analysts employed
by insurers cite
evidence that MA treatment protocols have spillover effects on traditional
Medicare that drive down costs. The
overall evidence as to outcomes in Medicare Advantage vs. traditional Medicare
is varied, fractured, and mixed, as a systematic
review by KFF indicates. To the
extent that MA plans do bring cost efficiencies, however, the financial benefit
of those efficiencies would be increased, not diminished, by cutting excess
payments.
A handful of Republicans have murmured about MA plans’ risk score gaming. But why would they go for cuts that would pare some private-plan extra benefits for some seniors when they can instead strip coverage from “able-bodied” poor people on Medicaid?
Effects of cutting Medicaid or Medicare
Because Medicaid is jointly funded by the federal government and the states, any cuts to federal Medicaid spending put the onus on states to make up the difference — or cut benefits and eligibility. Because state laws require 49 states to balance their budgets, cuts to benefits and eligibility are the inevitable choice. Cutting anything to close to $880 billion from federal Medicaid spending would be ruinous. Republican House leadership has made it clear that they intend to defund the ACA Medicaid expansion (at an estimated “savings” of $561 billion over ten years), uninsuring most of the 20 million low-income adults currently rendered eligible by the expansion. They will almost certainly layer on work requirements, which, as designed, push eligible people off the rolls with deliberately onerous reporting requirements.
Conversely, what would be the effect of cutting, say, $500 billion to $1 trillion out of Medicare Advantage payments over ten years?
Substantial cuts to MA plan payments would result in some paring back of extra benefits provided by the plans, including premium reductions and low out-of-pocket maximums. The MA industry screamed bloody murder when the ACA cut payment benchmarks, reducing projected spending by an projected $136 billion over ten years. According to MedPAC’s most recent calculations, the ACA’s benchmark changes did reduce overpayment:
Between 2011 and 2017, relative MA payments decreased from 23 percent above FFS spending 16 percent above FFS spending. However, after changes to benchmarks were fully implemented in 2017, MA payments increased relative to FFS spending through 2025—driven by the combined effects of coding intensity and selection (p. 339).
The relatively lean years notwithstanding, MA enrollment rose by more than 50% from 2010 to 2016. As MedPAC indicates, plans found new ways to game the system — and who knows, perhaps even found some new efficiencies beyond simply denying claims for post-acute care and other high-expense items more relentlessly. Should Congress substantially increase the risk adjustment haircut — or, gasp, institute a revenue-neutral risk adjustment system, as in the ACA — the cycle would doubtless repeat itself.
In a political system where rational policymaking were possible, cuts to MA plan payments would be plowed back into traditional Medicare, particularly into repairing its greatest flaw: the lack of an annual out-of-pocket maximum, which necessitates purchase of a Medigap policy to reduce enrollee risk to manageable levels. Needless to say, a rational political system is now more out of reach than it has ever been. For a party looking for savings, however — whether to expand healthcare benefits in another direction, as Democrats did in 2010, or to partially fund tax cuts for corporations and the wealthy, as Republicans aim to do now, Medicare Advantage was, and is, the low-hanging fruit. Too bad it’s as out of reach as sour grapes.
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