A new analysis from the USC Schaeffer Center for Health Policy and Economics warns that overpayments to Medicare Advantage plans now exceed 20%  — or $75 billion — per year, underscoring the urgent need for reform.

The Centers for Medicare and Medicaid Services (CMS) currently sets Medicare Advantage payments based on county-level expenditures derived from claims data for those remaining in traditional Medicare, not data from Medicare Advantage expenditures.

But the research shows that Medicare beneficiaries who have switched to Medicare Advantage plans have lower spending than those with similar health risks who remain. This pattern more than doubles prior overpayment estimates made by the Medicare Payment Advisory Commission (MedPAC), which reflected aggressive coding of enrollee health conditions plus certain easily-achieved bonus payments related to quality — but did not include favorable selection.

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