Privatized Medicare Advantage nets $76 billion in overpayments as health gets worse

New federal estimates show the privatized Medicare program will overpay insurers by $76 billion this year — as the program fuels a corporate buying spree of primary care practices.

The nonprofit organization KFF notes that 32.8 million people enrolled in privatized Medicare Advantage plans in 2024, or around 54% of the eligible Medicare population.

The Medicare Payment Advisory Commission, an influential congressional advisory group known as MedPAC, reported in March that the federal government will pay 14% more to cover seniors enrolled in Medicare Advantage plans than it would if those same beneficiaries were in traditional Medicare — an estimated $76 billion in excess spending. Overpayments reached $84 billion in 2025 before a new risk-adjustment model began phasing in.

In addition to the added cost, Medicare Advantage restricts patients to specific doctor and hospital networks, requires advance insurer approval for tests and specialized care, carries higher risks of delayed or denied treatment, and costs taxpayers more per beneficiary than traditional Medicare.

The findings come as a Yale School of Public Health study projects that a national single-payer “Medicare for All” system could reduce U.S. health care spending by more than $1 trillion annually while saving 114,000 lives — a system the researchers say requires “no new discovery to implement, only enactment.”

The juxtaposition is stark: A privatized program that was supposed to deliver free-market efficiency is instead overpaying insurers by tens of billions of dollars, while a government-run alternative would cost less, cover everyone, and improve the quality of care delivered to Americans.

How Medicare Advantage became a profit center

Medicare Advantage was created more than two decades ago with a simple promise: Private insurers, competing for seniors’ business, would drive down costs while improving care. Congress agreed to pay plans a set fee per enrollee, adjusted upward for sicker patients, betting that insurers would keep members healthy and pocket the savings.

The program now covers about 35.5 million seniors — 55% of all eligible Medicare beneficiaries. And the savings never materialized.

“I think we all definitely agree that the original problem Medicare Advantage was trying to solve was high and rapidly increasing government costs,” one expert said at a panel discussion reported by Becker’s Payer Issues. “In that regard, the program has been a miserable failure.”

MedPAC’s analysis identifies two primary drivers of the overpayments: favorable selection, in which healthier-than-average seniors enroll in Medicare Advantage, and coding intensity — the tendency of plans to record more diagnoses for their enrollees than traditional Medicare would, inflating risk scores and, therefore, payments.

Accounting for those factors, MedPAC found that Medicare Advantage benchmarks are 124% of what traditional Medicare would spend on the same beneficiaries. Plans bid below those benchmarks, but the government still pays 114% of traditional Medicare costs.

“The evidence that the MA program is at least somewhat overfunded is persuasive,” MedPAC Commissioner Scott Sarran said during a public meeting. “We can disagree about orders of magnitude or methodology, but the overall directional conclusion I think is quite clear.”

The upcoding machine

The overpayments are not accidental. A January 2026 Senate investigation led by Sen. Chuck Grassley, R-Iowa, found that UnitedHealth — the nation’s largest Medicare Advantage insurer, with more than 8 million enrollees — operates a “workforce dedicated to upcoding.”

The investigation, based on 50,000 pages of internal documents, detailed how the company deploys nurses to patients’ homes to conduct health risk assessments, employs coders to review medical records for unlisted conditions, and pays external providers to assess patients for certain diseases — all activities that capture more diagnoses and maximize risk scores.

The report described specific coding practices: guiding providers to diagnose patients who take prescribed opioids as physically dependent even without withdrawal symptoms; telling providers to diagnose dementia without a full evaluation; and instructing them to code atrial fibrillation when patients are taking certain drugs without checking whether those drugs were prescribed for that condition.

UnitedHealth said it disagrees with the report’s characterization and that its programs comply with CMS requirements.

The company is currently under civil and criminal investigation by the Department of Justice over its Medicare billing practices. Kaiser Permanente affiliates agreed to a record $556 million settlement with the Justice Department in 2026 over upcoding allegations.

The corporate buying spree

The overpayments are not merely enriching insurers’ bottom lines. They are funding a massive consolidation of American medicine.

CVS Health paid roughly $11 billion for Oak Street Health. Amazon bought One Medical for nearly $4 billion. UnitedHealth’s Optum subsidiary, which already employs or is affiliated with roughly 90,000 doctors, has expanded aggressively.

In 2023, payer-operated practices accounted for 4.2% of the national Medicare primary care market, up from 0.8% in 2016. In some counties, Optum alone controls nearly 45% of the primary care market.

The economics are straightforward. When an insurer owns the doctor, it can steer patients to its own clinics, capture more diagnoses and keep a larger share of the federal payment.

“That’s the big pot of money everyone is aiming at,” Erin Fuse Brown of Georgia State University told The Times in 2023.

The human cost

Meanwhile, the doctors doing the work are disappearing.

Just over 42% of physicians worked in private practice in 2024, an 18-percentage-point drop from 2012, according to the American Medical Association. More than a third now work for hospitals, and nearly 7% work for private equity-owned firms.

“The share of doctors working in practices wholly owned by physicians is unraveling under compounding pressures,” said AMA President Bruce Scott. “The cumulative impact of burdensome regulations, rising financial strain, and relentless cuts in payment poses a dire threat to the sustainability of private practices.”

After adjusting for inflation, Medicare physician payments have fallen 33% over the past 25 years. Small practices are vanishing — last year, the share of physicians working at practices with 10 or fewer doctors dipped below 50% for the first time.

Nearly 60% of doctors employed by hospitals and corporations say non-physician ownership harms patient care quality, according to a Physicians Advocacy Institute survey. Most blamed decreased time with patients and management’s focus on financial success.

The smart alternative

The Yale study, published as a preprint in August, models what would happen if the U.S. adopted a single-payer system like the Medicare for All Act. Using 2024 data, researchers estimated the system would reduce annual health expenditures by $1.04 trillion — nearly 20% — even after expanding coverage to the uninsured and underinsured.

The savings would come from lower pharmaceutical prices ($377.5 billion), paying providers at Medicare rates ($295.6 billion), reduced administrative overhead ($286.3 billion), less fraudulent billing ($285.7 billion), and fewer avoidable emergency visits ($100 billion).

The study projects 114,000 lives saved annually, including 33,232 among the uninsured and 29,631 among the underinsured — working-age adults whose deductibles and cost-sharing put care beyond reach even though they have coverage.

“Healthcare costs have been rising faster than inflation, and a staggering share of that spending is consumed by administrative middlemen, soaring drug prices, and emergency care for conditions that should have been treated earlier and for less,” said senior author Alison Galvani. “Medicare for All strips out those sources of waste while providing everyone with healthcare, saving over a trillion dollars and 114,000 lives every year.”

The researchers acknowledge limitations: The study does not account for transition costs or administrative job losses, and the mortality estimates for the underinsured required modeling. Even under conservative assumptions, savings would reach at least $663 billion annually.

Political stakes

The findings land in a politically charged landscape. Medicare Advantage has become a target of bipartisan criticism, with lawmakers from both parties expressing interest in curbing overpayments.

A Republican-led bill advanced by the House Ways and Means Committee would force MedPAC to produce two analyses of Medicare Advantage spending — one accounting for favorable selection and one without — a move Democrats criticized as undermining the advisory group’s independence.

MedPAC Chair Dr. Amol Navathe defended the commission’s work at an industry event, saying MedPAC is “not interested in making MA look bad” and welcomes substantive feedback.

“We recognize that we may not agree on every data point or every policy prescription,” Navathe said.

But the numbers speak for themselves. A program sold as a cost-saving alternative to government-run Medicare is instead costing taxpayers $76 billion more per year than the system it was meant to replace — while the doctors who care for patients are being absorbed into the very corporations profiting from the arrangement.

“A system that covers everyone, costs $1 trillion less, and averts more than 100,000 deaths annually requires no new discovery to implement, only enactment,” the Yale researchers wrote.

The question, as MedPAC Commissioner Lynn Barr put it, is whether Congress will act: “The problem is that it’s just so profitable. They can make so much money on coding that they’re not doing what we want them to do.”