Medicare Advantage Costs Are Under Fire: What It Means for You

Medicare Advantage — the private insurance alternative to Original Medicare that now covers more than half of all Medicare beneficiaries — has long been a financial flashpoint in Washington. Insurers have collected hundreds of billions of dollars in federal payments over the past two decades, and a growing body of research, including analysis from the Center for Retirement Research at Boston College, suggests those payments have consistently exceeded what it would have cost to cover the same patients under traditional Medicare. Now the federal government is pushing back, deploying a combination of payment audits, prior authorization reforms, and benefit transparency rules. Whether these efforts will actually bend the cost curve — or simply shift financial pressure onto beneficiaries — is the central question facing anyone enrolled in or considering a Medicare Advantage plan in 2025 and 2026.

The core of the overpayment problem lies in something called risk adjustment. Medicare pays MA insurers more money for sicker patients, which makes sense in theory — a beneficiary with diabetes and heart disease costs more to care for than a healthy 67-year-old. But insurers discovered they could dramatically increase their payments by aggressively coding patients as sicker than their actual care utilization suggested. CMS estimates that improper payments due to risk score manipulation have cost the Medicare program tens of billions of dollars over the past decade. The agency's Risk Adjustment Data Validation (RADV) audits, which were finalized in a 2023 rule, are now being used to recoup some of those overpayments — though insurers have fought the methodology in court, and the recoupment process remains slow and contested.

For beneficiaries, the practical consequence of this financial tug-of-war is already showing up in plan design. In 2025, the average Medicare Advantage plan offered fewer supplemental benefits than in prior years, reversing a multi-year trend of ever-expanding extras like over-the-counter allowances, transportation benefits, and home meal delivery. According to KFF analysis of CMS plan data, the number of MA plans offering dental, vision, and hearing benefits declined modestly in 2025 compared to 2024 peak levels. Insurers are recalibrating what they can afford to offer when federal payments are tightening. If RADV audits accelerate and recoupments increase, further benefit trimming is likely — which means the $0-premium plan that looked attractive two years ago may look considerably leaner by 2026 or 2027.

Prior authorization is the other major battleground. MA plans are legally permitted to require prior authorization — advance insurer approval — before covering certain procedures, specialist visits, or post-acute care like skilled nursing or home health. Critics, including the American Medical Association and multiple congressional investigations, have documented that some insurers deny medically necessary care at rates far exceeding what Original Medicare would deny. CMS responded with a landmark rule that took effect January 1, 2024, requiring MA plans to make prior authorization decisions within 72 hours for urgent requests and 7 calendar days for standard requests. A separate interoperability rule requires plans to share prior authorization data publicly, making it easier to compare denial rates across insurers. These are real improvements, but enforcement depends on CMS follow-through, and beneficiaries who are denied care should know they have the right to appeal — first to the plan, then to an independent review organization, and ultimately to an administrative law judge if the dollar amount exceeds $180 (the 2025 threshold).

So what does all of this mean if you're sitting down to compare plans during the Annual Enrollment Period, which runs October 15 through December 7 each year? First, don't assume last year's plan is still the best fit. MA plans can change their premiums, deductibles, copayments, drug formularies, and supplemental benefits every single year, and your plan is required to send you an Annual Notice of Change (ANOC) by September 30. Read it. Specifically, look for changes to your drug formulary — if a medication you take has moved to a higher tier or been removed entirely, your out-of-pocket costs could jump significantly. In 2025, the Medicare Part D out-of-pocket cap is $2,000, a major improvement from prior years, and this cap applies to drug costs within MA-PD plans as well as standalone Part D plans.

If you're comparing a Medicare Advantage plan against Original Medicare plus a Medigap supplement, the financial math has shifted somewhat in Medigap's favor for certain beneficiaries. Medigap Plan G — the most comprehensive option available to those who became Medicare-eligible after January 1, 2020 — typically costs between $100 and $300 per month depending on your age, gender, location, and the insurer, but it covers most out-of-pocket costs under Original Medicare with no network restrictions and no prior authorization requirements. For beneficiaries who travel frequently, have complex medical needs, or simply want predictable costs, Medigap can provide significant peace of mind even at a higher monthly premium. The tradeoff is that Medigap plans generally don't include Part D drug coverage, so you'd need a standalone Part D plan, and they don't offer the supplemental extras that MA plans advertise.

State-level protections matter here too. If you live in California, Idaho, Illinois, Kentucky, Louisiana, Maine, Maryland, Missouri, Nevada, New Jersey, New York, Oklahoma, or Oregon, you have what's called a birthday rule — a 30-day window each year around your birthday during which you can switch to a different Medigap plan of equal or lesser value without medical underwriting. This is a significant protection because in most states, if you've been enrolled in Medicare Advantage and want to switch to Medigap outside of specific guaranteed-issue windows, insurers can deny you coverage or charge higher premiums based on your health history. New York and Connecticut go further, offering year-round guaranteed issue for Medigap regardless of health status. If you're in one of these states and have been considering a switch away from Medicare Advantage, your birthday window may be your best opportunity.

The broader policy question — will government efforts to rein in Medicare Advantage costs actually work? — doesn't have a clean answer yet. The RADV audit process is real but slow, and insurers have significant legal resources to contest recoupments. Prior authorization reforms are meaningful but depend on CMS enforcement capacity, which has historically been limited. What's more certain is that the era of Medicare Advantage plans competing primarily by piling on extra benefits is likely ending. The plans that will thrive under tighter payment rules are those with genuinely efficient care management, not those that simply coded patients as sicker to collect higher federal payments. For beneficiaries, the practical advice is this: use Medicare's Plan Finder tool at Medicare.gov to compare total estimated annual costs — not just the monthly premium — and pay close attention to your specific doctors, hospitals, and medications when evaluating network and formulary coverage. A $0-premium plan that doesn't cover your cardiologist or requires prior authorization for your maintenance medications may cost you far more than a plan with a modest monthly premium and broader access.