How Smarter Oversight Is Reining In Medicare Advantage Overpayments

IMC Board
5 days ago
6 min read

The federal government has been paying billions more for Medicare Advantage enrollees than it would under traditional Medicare, but tighter rules are starting to close the payment gap.

Key Takeaways

Payment gap narrows—The federal government is projected to pay 14% more for Medicare Advantage enrollees in 2026 than it would under traditional fee-for-service Medicare, down from 20% in 2025.
$76 billion still at stake—Despite meaningful progress, the overpayment gap still amounts to an estimated $76 billion in 2026, signaling that the work is far from finished.
V28 is the game-changer—CMS updated its risk adjustment model, known as V28, which is the most significant reform to Medicare Advantage payment policy in years. This resulted in eliminating thousands of frequently misused diagnostic codes.
More reform is coming—Regulators show no signs of easing up; proposed 2027 rules would further restrict how plans submit diagnoses through unlinked chart reviews, potentially reducing payments by another $7 billion.

Historic Shift in Medicare Advantage Payment Rules

For decades, the Medicare Advantage program has operated with a persistent financial imbalance, with private insurers receiving considerably more per enrollee than traditional Medicare would cost. That gap is finally narrowing, thanks to a landmark overhaul of how U.S. Centers for Medicare and Medicaid Services (CMS) calculates risk-adjusted payments.

Medicare Advantage is the privatized alternative to traditional Medicare, paying insurance plans a fixed monthly amount per beneficiary rather than reimbursing individual services. Congress created the program with the expectation that private plans could deliver care more efficiently and save taxpayer dollars. The reality has been more complicated.

The Medicare Payment Advisory Commission (MedPAC), the independent body that advises Congress on Medicare policy, released its March 2026 report confirming that the payment gap is shrinking, but it remains staggering in absolute terms.

What V28 Actually Does, and Why It Matters

The V28 model, formally called Version 28 of the CMS Hierarchical Condition Category (HCC) risk adjustment model, is the most substantial overhaul of Medicare Advantage payment methodology in over a decade.

Here's what changed:

Diagnostic code reduction—CMS removed approximately 2,000 diagnosis codes from the HCC mapping system, narrowing reimbursement to codes that are genuinely predictive of future health care costs rather than simply common or loosely defined.
ICD-10 alignment—V28 shifted from legacy ICD-9-based coding structures to ICD-10, requiring far greater specificity in documentation and clinical coding.
Risk score recalibration—The model updated cost weights using more recent utilization and expenditure data (2018 diagnoses, 2019 expenditures), replacing outdated data from 2014 and 2015.
Phased implementation—CMS phased the transition in over three years (2024-2026), with V28 now fully in effect as of January 1, 2026.

The financial impact is significant. CMS projected that the 2024 partial phase-in alone would reduce Medicare Advantage risk scores by about 3.12%, translating to $11 billion in net savings to the Medicare Trust Fund in that year. As of 2026, V28 is fully operational, and insurers are feeling it.

MedPAC Numbers: Progress, But Still a Ways to Go

MedPAC's March 2026 findings tell a story of significant, although incomplete, reform.

The gap between Medicare Advantage and traditional Medicare payments dropped from 20% in 2025 to 14% in 2026. In dollar terms, that still represents $76 billion in excess spending projected for this year, but it's less than what MedPAC had estimated.

The commission identified three persistent forces driving continued overpayments:

Favorable selection—Medicare Advantage plans tend to attract relatively healthier enrollees, meaning the government pays risk-adjusted rates for a population that costs less to care for than the rates assume.
Coding intensity—Plans document more diagnoses per enrollee than traditional Medicare providers do for comparable patients, inflating risk scores and payments by roughly 4% above what would be appropriate.
Quality bonuses—The Medicare Advantage quality bonus program is expected to add $16 billion to payments in 2026 alone, with about 64% of enrollees in bonus-qualifying plans.

Enrollment is also expanding rapidly. More than 55% of eligible Medicare beneficiaries are now enrolled in Medicare Advantage, up from fewer than half just a few years ago. That scale amplifies every dollar of overpayment.

More Regulatory Pressure on Insurers

The regulatory outlook for Medicare Advantage insurance carriers suggests V28 was only the beginning of CMS's reform agenda.

In January 2026, CMS proposed a rule that would bar Medicare Advantage plans from submitting diagnoses obtained through "unlinked" chart reviews, which are clinical reviews conducted outside of an actual patient encounter.

This change, if finalized, would reduce Medicare Advantage payments by about 1.53%, or more than $7 billion, in 2027. The proposal aligns with recommendations from the Department of Health and Human Services Office of Inspector General and bipartisan legislation in Congress.

MedPAC has also called on Congress and CMS to:

Increase the coding intensity adjustment that reduces Medicare Advantage payments to better reflect the true gap between plan and traditional Medicare coding.
Replace the existing quality bonus program, which MedPAC has argued is structurally flawed and contributes to overpayments.
Improve the accuracy of encounter data used to calculate risk scores.
Establish fairer payment benchmarks.

Paul Ginsburg of the University of Southern California Schaeffer Center for Health Policy and Economics called V28 "the most important change in Medicare risk adjustment policy," adding that regulators are expected to continue clamping down on coding intensity and risk-adjustment practices.

Implications for Insurance Carriers and Agents

For big carriers, the tightening payment environment creates real pressure on margins, especially for plans that have historically relied on aggressive coding practices to boost risk scores. Plans that built revenue models around upcoding are the most exposed.

For insurance agents advising clients on Medicare Advantage plan options, these shifts create a more complex conversation. Here's what to keep in mind:

Plan benefits may evolve—Average rebate payments per Medicare Advantage enrollee (which fund supplemental benefits) have more than doubled since 2018, reaching $2,660 per beneficiary per year. MedPAC is scrutinizing whether these benefits are delivering genuine value.
Prior authorization is being reformed—Starting in 2026, Medicare Advantage plans must review standard prior authorization requests within seven calendar days, expedited requests within 72 hours, and publish public data on approval and denial rates. These changes may affect how agents frame plan comparisons for clients.
Part B premiums are downstream—Higher Medicare Advantage overpayments ripple outward. MedPAC found that excess Medicare Advantage spending is pushing Medicare Part B premiums up by about $175 per beneficiary per year.

Agents who understand the policy landscape can position themselves as genuinely informed advisors. That expertise matters more as plan economics shift.

What Digital Marketers Need to Understand

The narrowing of the Medicare Advantage payment gap has consequences for how insurers market their plans and how digital campaigns need to evolve.

Insurance carriers that previously competed on rich supplemental benefits (such as dental, vision, and fitness programs) may find those benefit packages under pressure as payment reform tightens their per-member revenue. Marketing messaging built around premium benefits will need to be regularly validated against what plans can actually sustain.

Compliance is also tightening. CMS has finalized requirements that Medicare Advantage plans publish lists of all services requiring prior authorization and report aggregate metrics on approval and denial rates beginning in 2026.

For digital marketers, that's both a transparency obligation and an opportunity to build trust with Medicare-eligible consumers who've grown skeptical of prior authorization complexity.

Enrollment campaigns should also reflect the reality that more than half of Medicare-eligible Americans are now enrolled in Medicare Advantage. Audience segmentation strategies that treat Medicare Advantage as a niche product need to be updated.

Sources:

AGS Health: Understanding the Changes in the CMS-HCC Model V28
AARP: Medicare Advantage Overpayments Increase Premiums, Erode Social Security Benefits for All, Lawmakers Say
Becker's Payer Issues: Medicare Advantage spending 14% higher than fee-for-service in 2026: MedPAC
Georgetown University Medicare Policy Initiative: CMS Takes Aim at Upcoding: Ending "Unlinked" Chart Reviews in Medicare Advantage
MedPAC: March 2026 Report to Congress, Chapter 12: The Medicare Advantage Program Status Report
Modern Healthcare: Oversight shrinks Medicare Advantage payment gap to $76B: MedPAC

Further Thoughts

The V28 story is ultimately about what happens when policy catches up with practice. For years, the gap between what Medicare Advantage plans claimed in risk scores and what enrollees actually cost was an open secret in the industry documented by researchers, flagged by MedPAC, and resisted by insurers.

V28, paired with growing CMS scrutiny of coding practices and prior authorization abuse, represents a genuine shift. The $76 billion gap that remains is still substantial, but the trend is unmistakable.

Insurance carriers, agents, and marketers who adapt to a tighter, more scrutinized payment environment will be better positioned for the next phase of Medicare Advantage's evolution. The plans, advisors, and organizations that thrive will be those that earn their revenue through genuine value delivery rather than coding optimization.