The True Cost of Medicare Advantage to US Taxpayers

Creating routed queues for disaster-related retro-auths keeps normal UM operations from collapsing. This was essential during the California wildfires, when hospitals submitted weeks’ worth of delayed authorizations in a compressed timeline.

Provisional approvals allow care to proceed while establishing a documented commitment to review full clinical details once records are available. This prevents provider frustration and avoids unsafe delays while maintaining medical necessity oversight.

Chronic conditions drive most Medicare spending, and patterns in 2025 show that Medicare Advantage enrollees include a high share of individuals with serious illnesses and social risk factors. Research indicates that non‑Hispanic Black and Hispanic people, low‑income individuals and dual‑eligible beneficiaries are more likely to enroll in Medicare Advantage and that diabetes prevalence is higher in MA plans than in fee‑for‑service Medicare.

Source: PubMed & NIH Article

Opioid use disorder (OUD) remains a pressing chronic condition. A 2025 Health Affairs study reported that fewer than 40 % of Medicare beneficiaries diagnosed with OUD received standard-of-care medications in 2020, and Medicare Advantage performed worse than fee‑for‑service Medicare on six of eight quality measures.

Medicare itself% of Medicare beneficiaries diagnosed with OUD received standard-of-care medications in 2020, and Medicare Advantage performed worse than fee-for-service performed worse than Medicaid on all comparable measures, underscoring widespread gaps in treatment. On the other hand, earlier research from the National Bureau of Economic Research found that switching from fee‑for‑service to Medicare Advantage reduces the probability of receiving any opioid prescription by 37 %, largely by limiting access to high‑volume prescribers. Sources: AHA opioids, NBER Opioids

A Penn LDI brief summarizing a recent study found that home health use declined for Traditional Medicare beneficiaries over the past decade but increased for Medicare Advantage enrollees, particularly for community‑initiated episodes. In MA, episodes are shorter in duration because of utilization management and prior authorization, and there has been growth in in‑home risk assessments used to capture additional diagnoses. This has led to more diagnosis fraud occurring in MA-related claims.

Out‑of‑pocket costs in Medicare Advantage remain a critical consideration for enrollees’ standard of living. The Kaiser Family Foundation reports that 76 % of MA beneficiaries pay no premium beyond the standard Part B premium (set at $185 for 2025), and the average MA premium is about $13 per month.

At the same time, maximum out‑of‑pocket limits average $5,320 for in‑network services and $9,547 for combined in‑network and out‑of‑network coverage. HMOs have lower limits (around $4,091) than local and regional PPOs (roughly $9,519–$11,001). While these caps protect enrollees from catastrophic costs, they remain significant expenses for people with limited income, especially given rising premiums for Part B and prescription drug coverage. Sources: Kaiser MA enrollees, CMS Report

There is no definitive count of all providers participating in Medicare Advantage plans, but evidence shows continued narrowness rather than expansion. A 2025 Kaiser Family Foundation study found that MA enrollees are in plans that include only about half of local physicians on average, with networks ranging from 18 % to 58 % of physicians in the 30 counties with the largest MA enrollment.

Counties with higher shares of people of color have narrower networks, and some specialties (such as ophthalmology) are better represented than others (primary care). Meanwhile, numerous hospital systems announced they would drop MA contracts in 2025 due to administrative burdens and slow payments, and the Better Medicare Alliance reported a 2.8 % decline in total plan offerings, including a 6.5 % drop in individual plans

In 2025, CMS implemented a new outpatient behavioral health facility–specialty category that allows nurse practitioners, physician assistants and clinical nurse specialists to count toward network adequacy if they have furnished services to at least 20 patients in the previous 12 months. Plans also receive a 10 % credit for telehealth providers in this category. This reclassification of mid‑level providers is intended to expand behavioural health networks and ensure access to mental health services, particularly in areas with physician shortages. By formally recognizing mid‑level practitioners for network adequacy, the policy aims to ease provider shortages but may not address other specialty gaps.

Provider dissatisfaction with Medicare Advantage reimbursement continued in 2025. A Guidehouse analysis found that providers often realize only about 90 % of the reimbursement they would receive under Traditional Medicare due to high rates of denials and prior authorization, leading to margin declines and extended lengths of stay.

More than 35 million prior authorization requests were submitted to MA plans in 2021, adding administrative burden for providers. An OIG report on behavioural health networks noted that many providers refuse to participate in MA due to low payment rates and administrative complexity, resulting in “ghost” networks where listed providers are not actually available. Sources: Guide House article, OIG Report

Higher MA payments directly affect premiums and taxpayers. Part B premiums are set to cover roughly a quarter of Part B costs, including payments to MA plans. As a result, overpayments raise premiums for all Medicare beneficiaries. MedPAC projects that additional MA spending will raise Part B premiums by about $13 billion in 2025 and 2026, ranging from $190 to $220 per beneficiary. The Hospital Insurance Trust Fund also depletes faster because Part A payments to MA plans exceed FFS spending. Taxpayers shoulder the remaining cost through general revenues. The paradox is that MA enrollees enjoy low or zero extra premiums and rich benefits, but those benefits are financed by higher premiums and taxes paid by everyone, including Traditional Medicare beneficiaries.

Spending on supplemental benefits has exploded. In 2025, rebates for extra benefits reached an estimated $86 billion – roughly 17% of MA payments – a figure that has tripled since 2018. There is little transparency on how these funds are spent or whether beneficiaries use the benefits. Investigations have found that some benefits are delivered through insurer‑owned vendors, raising concerns that rebate money flows back to parent companies. This opacity means taxpayers finance a significant portion of supplemental benefits without clear evidence of health improvement. 

Source: StatNews

In 2025, the Office of Inspector General (OIG) continued to prioritize diagnosis-related fraud tied to Medicare Advantage risk adjustment, focusing on unsupported Hierarchical Condition Category (HCC) submissions that inflate risk scores and capitation payments. Audits increasingly examined retrospective chart reviews, in-home assessments, and vendor-driven coding programs where diagnoses lacked clinical support, treatment evidence, or ongoing management. The OIG cited patterns of chronic condition overstatement, inconsistent documentation, and provider attestations that failed medical necessity standards, reinforcing that diagnosis accuracy—not volume—remains the compliance benchmark.

Click here for the full story on Diagnosis Fraud

Home health services remained a major audit focus in 2025 due to their rapid growth, decentralized delivery models, and historically high improper payment rates. OIG audits examined eligibility determinations, physician certification and recertification practices, visit frequency inflation, and billing for services not rendered or not medically necessary. Medicare Advantage plans were scrutinized for weak oversight of contracted home health agencies, insufficient utilization controls, and failure to detect aberrant billing trends, particularly among high-cost, high-frequency home health providers.

Click here for full story on Home Health Care Fraud

The OIG expanded audits into Medicare Advantage utilization management practices, with particular attention on inappropriate service denials and delays in care. Reviews assessed whether prior authorization requirements aligned with Medicare coverage rules and whether automated decision tools were improperly restricting medically necessary services. Findings highlighted inconsistent application of clinical criteria, overreliance on algorithms without clinician review, and appeal reversal rates that suggested systemic denial issues, increasing regulatory pressure on plans to balance cost controls with beneficiary access.

Delegated risk emerged as a significant enforcement theme in 2025, with OIG audits evaluating how Medicare Advantage plans oversee downstream vendors such as chart review firms, risk adjustment consultants, home assessment providers, and delegated medical groups. The OIG emphasized that plans remain fully accountable for vendor behavior, even when services are outsourced. Common findings included inadequate vendor monitoring, insufficient audit trails, opaque incentive structures, and failure to validate vendor-generated diagnoses—reinforcing that delegation does not transfer compliance liability.

Medicare Advantage prescription drug coverage (MA‑PD) generally keeps cost sharing for generic drugs low while charging significantly more for brand‑name medications. The Kaiser Family Foundation reports that, in 2025, preferred generic drugs typically have no copay and other generics have a $5 copay, whereas preferred brand drugs carry a $47 copay or 20–24 % coinsurance and non‑preferred drugs carry 40–42 % coinsurance or a $100 copay.

The share of MA‑PD enrollees subject to coinsurance instead of fixed copays for brand drugs increased sharply for 2025. This creates strong incentives to use generics but can leave beneficiaries facing high out‑of‑pocket costs when a branded drug is clinically necessary. Sources: Kaiser

Coverage rules differ markedly for oral and infusion drugs in Medicare. Drugs administered by infusion pump in a physician’s office or inpatient setting are typically covered under Part B, whereas self‑administered infusion drugs may fall under Part D. The Medicare Rights Center notes that oral anti‑cancer drugs are covered under Part B only if they were previously available only as injectables and are used to treat cancer; other oral drugs are generally covered under Part D.

These distinctions affect Medicare Advantage enrollees because MA‑PD plans must follow Part B vs Part D rules, leading to different cost sharing and prior authorization requirements depending on the mode of administration. Understanding whether a drug is covered as an oral or infusion medication is thus critical for patients facing complex treatment regimens. Sources: Medicare Interactive

Federal oversight of PBMs intensified in 2025. In July 2025 the U.S. Department of Justice and the Department of Health and Human Services’ Office of Inspector General formed a False Claims Act Working Group targeting fraud related to drug pricing, discounts, rebates and formulary placement.

The announcement signaled that PBMs, pharmacies and other entities involved in drug pricing would face greater scrutiny under the False Claims Act and anti‑kickback statutes. The working group aims to leverage OIG data and whistleblower actions to investigate pricing practices, network adequacy and kickbacks involving drugs and devices. This new enforcement focus suggests that oversight agencies are preparing to address PBM conduct in Medicare Advantage and other federal programs.

Delegated risk emerged as a significant enforcement theme in 2025, with OIG audits evaluating how Medicare Advantage plans oversee downstream vendors such as chart review firms, risk adjustment consultants, home assessment providers, and delegated medical groups. The OIG emphasized that plans remain fully accountable for vendor behavior, even when services are outsourced. Common findings included inadequate vendor monitoring, insufficient audit trails, opaque incentive structures, and failure to validate vendor-generated diagnoses—reinforcing that delegation does not transfer compliance liability.