Growing divergence between Medicare Advantage plan bids and payments to plans

As the Medicare Advantage (MA) program grows in enrollment and costs, there has been increasing concern that federal payments to MA plans exceed necessary levels. Estimates suggest that, in 2023, MA plans were paid up to 6% more per enrollee than would have been spent had that beneficiary instead enrolled in traditional Medicare (TM). We evaluated the factors driving this overpayment, characterizing trends in MA benchmarks, bids, and total payments from pre-Affordable Care Act (pre-ACA) levels through 2023. We found that, despite an overall decrease in risk-adjusted bids relative to average risk-adjusted TM enrollee costs, total payments to plans have modestly increased since 2015. Decomposing these trends into various factors in the MA payment formula, we found that divergent trends in benchmarks and bids are, in part, due to the increasing influence of payment adjustments, such as quartile spending adjustments, quality bonus payments, and risk adjustment. Our results suggest that current payment rules have contributed to overpayments and policy reform may be necessary.