CMS Abandons Efforts to Rein in Medicare Costs

After proposing meaningful reforms to reduce Medicare Advantage (MA) overpayments in January, the Centers for Medicare & Medicaid Services (CMS) reversed course this week to instead propose further payment increases, on top of additional MA payment expansions. Their latest proposal is likely to worsen the $1.3 trillion of MA overpayments projected over the next decade, rather than begin to address them.

We praised CMS’ proposed rate notice in January, which would have nearly flatlined the annual MA payment increase and included reforms to reduce the practice of “upcoding,” where insurance companies boost their federal payments by making their enrollees appear sicker. This included the proposed elimination of unlinked chart reviews and an update to the CMS Hierarchical Condition Category (CMS-HCC) Risk Adjustment Model (V28). CMS estimated these two reforms would save $22 billion, on top of the cost containment from the rate freeze.

Unfortunately, CMS’ final rate notice reversed course. Instead of its initially proposed 0.09% payment boost, CMS announced a 2.48% rate increase. Most significantly, this increased the starting “effective growth rate” from 4.97% to 5.33% and reduced the risk model revision and normalization adjustment from -3.32% to -1.12%. CMS estimates its finalized rate notice will increase MA spending by $13 billion in 2027 alone. 

The final rate notice also abandoned most of the upcoding reforms in the initial proposal. CMS narrowed the exclusion of unlinked chart reviews to apply to all but individuals that switch MA plans, while declining to incorporate the more recent data in the V28 model.

Comparison of Proposed Rate Notice to Final Rate Announcement

Source: Centers for Medicare & Medicaid Services. *Part of separate rule issued one week before the rate notice. Note: Rebasing and re-pricing did not get scored in the proposed rate notice and was finalized at -0.17%. 

These costly expansions come on top of a rule CMS finalized last week to expand the star ratings quality bonus program, at a cost of $18 billion over a decade. The quality bonus program has already proved quite costly relative to value, with 85% of plans eligible for bonus payments despite little evidence of actual quality improvements. The new rule would make such bonuses even easier to achieve, by removing measures based on beneficiary input, such as call center satisfaction.

Both of these final actions represent reckless spending by the Administration that will compound our nation’s fiscal challenges. Not only do MA overpayments affect the federal budget significantly, increasing costs by $1.3 trillion over the decade, they also continue to deplete the Hospital Insurance trust fund that finances care in hospitals. The trust fund is expected to be insolvent by 2032, and Congress and the Administration need to act to ensure providers do not see a 12% payment cut.

The exorbitant MA rates also increase beneficiaries’ premiums. Recently, the Joint Economic Committee released a report detailing how beneficiaries in both traditional Medicare and MA saw an extra $212 in premiums in 2025 due to MA overpayments. By our estimate, premiums will increase $250 billion over ten years.

If the Administration will not take action to rein in excessive MA costs, Congress should. Bills like the No UPCODE Act or the Reform the Medicare Advantage Program bill could meaningfully reduce MA overpayments, lowering deficits and premiums at the same time. Congress could also reduce benchmarks, increase risk adjustment, and/or reform the quality bonus system to save hundreds of billions over the decade.

With the Medicare Trust Fund just six years from insolvency and the national debt approaching record levels, policymakers should be working to reduce wasteful spending – not expand it. We need serious solutions to lower health care costs and improve our overall fiscal outlook.