Medicare Advantage Overpayments Cost Every Enrollee $212 Extra Yearly

If you're enrolled in a Medicare Advantage plan — or even if you're in Original Medicare — there's a financial drain happening behind the scenes that affects every single beneficiary in the program. Federal data and independent health policy research have consistently shown that the government overpays Medicare Advantage insurers by a significant margin compared to what it would cost to cover those same enrollees under traditional fee-for-service Medicare. The most recent estimates put that overpayment figure at approximately $212 per enrollee per year, and with more than 33 million Americans now enrolled in Medicare Advantage plans in 2025, the cumulative cost to the Medicare trust fund runs into the tens of billions of dollars annually.

To understand why this matters to you personally, it helps to know how Medicare Advantage is funded. When you enroll in a Medicare Advantage plan — whether it's an HMO, PPO, or Special Needs Plan — the federal government pays your insurer a fixed monthly amount called a 'capitation payment.' That payment is supposed to reflect how sick or healthy you are, using a risk-adjustment formula that assigns you a score based on your diagnoses. The idea is straightforward: sicker patients cost more to treat, so insurers covering sicker populations should receive more money. In practice, however, insurers have become extraordinarily skilled at maximizing those risk scores — not always by identifying genuinely sick patients, but by aggressively documenting diagnoses that inflate payment rates without necessarily changing the care a patient receives.

This practice is known as 'upcoding,' and it has been documented extensively by the Department of Health and Human Services Office of Inspector General (OIG), the Medicare Payment Advisory Commission (MedPAC), and academic researchers. Insurers conduct retrospective chart reviews, send nurses to members' homes for 'health risk assessments,' and use proprietary algorithms to flag diagnoses that may not have been captured during routine physician visits. When a diagnosis like diabetes with complications is recorded instead of uncomplicated diabetes, the insurer's risk score — and therefore its federal payment — goes up. The patient's care may not change at all, but the insurer collects more money from Medicare. MedPAC has estimated that risk-score manipulation accounts for a substantial portion of the overpayment gap between Medicare Advantage and traditional Medicare.

The Centers for Medicare & Medicaid Services (CMS) has been conducting Risk Adjustment Data Validation (RADV) audits for years to identify and recover these overbillings. However, the audit and recovery process has been plagued by delays, legal challenges from the insurance industry, and methodological disputes about how to calculate overpayments. In 2023, CMS finalized a rule intended to strengthen RADV audits and recover more overpaid funds, but insurers including UnitedHealth Group, Humana, and CVS Health (which owns Aetna) have pushed back aggressively through lobbying and litigation. The result is that billions in overpayments have gone unrecovered, and the audit cycle remains years behind real-time enrollment data.

So what does a $212-per-person annual overpayment actually mean for you as a beneficiary? First, it means the Medicare trust fund — which pays for hospital coverage under Part A — is being depleted faster than it would be if payments were calibrated accurately. The Medicare trustees have repeatedly warned that the Part A trust fund faces long-term solvency challenges, and overpayments to Medicare Advantage insurers accelerate that timeline. Second, it means that the 'extra benefits' Medicare Advantage plans advertise — the dental, vision, hearing, and gym memberships — are partly being subsidized by inflated federal payments rather than genuine insurer efficiency. When an insurer collects $212 more per member than it should, it has room to offer a $0 premium plan with a free gym membership, making the plan look attractive even if the underlying network or drug coverage is inferior to what a Medigap-plus-Original-Medicare combination would provide.

For beneficiaries comparing their options during the Annual Enrollment Period (AEP), which runs October 15 through December 7 each year, this context is critical. A Medicare Advantage plan with a $0 premium and flashy extra benefits may look like a bargain, but the true cost is embedded in the federal payments flowing to the insurer — payments drawn from the same trust fund that supports your hospital coverage. In 2025, the average Medicare Advantage plan premium was approximately $17 per month, but out-of-pocket maximums can reach $8,850 for in-network services and $13,300 for combined in- and out-of-network costs. Those caps matter enormously if you develop a serious illness and need frequent specialist visits or hospitalizations.

If you're currently in a Medicare Advantage plan and wondering whether the overpayment issue should prompt you to switch, the answer depends heavily on your health status, your providers, and your financial situation. For relatively healthy beneficiaries who rarely use specialist care and value the $0 premium, a Medicare Advantage plan may still make financial sense — even accounting for the systemic overpayment problem. But for beneficiaries managing multiple chronic conditions, those who travel frequently, or those who want unrestricted access to any Medicare-accepting provider nationwide, Original Medicare paired with a Medigap supplemental policy (also called Medicare Supplement Insurance) typically offers more predictable costs and broader access. In 2025, Medigap Plan G — the most comprehensive option for new enrollees — carries average monthly premiums ranging from roughly $100 to $300 depending on your age, gender, location, and the insurer, but it eliminates nearly all out-of-pocket costs after the Part B deductible of $257 in 2025.

Switching from Medicare Advantage back to Original Medicare is possible during the Medicare Advantage Open Enrollment Period (OEP), which runs January 1 through March 31 each year. During OEP, you can drop your Medicare Advantage plan and return to Original Medicare, and you can also add a standalone Part D prescription drug plan. However, returning to Original Medicare does not automatically guarantee you Medigap coverage — in most states, insurers can use medical underwriting to deny or price Medigap policies based on your health history if you're outside a guaranteed issue window. The exceptions are beneficiaries in states with birthday rule protections: California, Idaho, Illinois, Kentucky, Louisiana, Maine, Maryland, Missouri, Nevada, New Jersey, New York, Oklahoma, and Oregon all provide a 30-day window around your birthday each year to switch Medigap plans without medical underwriting.

The broader policy debate around Medicare Advantage overpayments is unlikely to be resolved quickly. The insurance industry argues that Medicare Advantage plans deliver better care coordination and lower hospitalization rates that justify their payment levels, and some research does support improved outcomes for certain populations. But independent analysts at KFF (formerly the Kaiser Family Foundation) and MedPAC have consistently found that the payment differential exceeds any documented efficiency gains. For now, the most practical step you can take is to use Medicare's Plan Finder tool at Medicare.gov to compare your current plan's star rating, out-of-pocket maximum, drug formulary, and network against alternatives in your ZIP code — and to call 1-800-MEDICARE (1-800-633-4227) if you want personalized guidance on whether switching plans or coverage types makes sense for your specific situation.