Medicare is a bit of a unicorn in today’s politics—an overwhelmingly popular government program. But it is becoming increasingly expensive, potentially threatening its popularity and viability. In 2022, Medicare benefit payments totaled $744 billion, almost three and a half times as much as in the year 2000 when they totaled just under $200 billion. This increase is often blamed on America’s aging population and rising health care costs generally. But there is another culprit—Medicare Part C (also known as Medicare Advantage).

Enrollment in Medicare Advantage plans has exploded in recent years. Today, 1 of every 2 Medicare beneficiaries is enrolled in Part C rather than traditional “fee-for-service” Medicare (also known as Medicare Parts A and B).  Under the traditional Medicare model, the government pays providers like doctors and hospitals for each service they provide. Under the Medicare Advantage model, the government pays private insurance companies (“MA plans”) a set “capitated” monthly rate for each beneficiary and those companies run the programs. The monthly rate takes into account patient characteristics such as age, gender, and health status, but it is not impacted by the medical services a patient actually receives.

Medicare Advantage was implemented in large part to control costs. It has not done so. On average, the government pays more to the companies running Medicare Advantage plans for each beneficiary than if those individuals received care under the traditional Medicare model. Research by the Kaiser Foundation indicates that an insurer’s profits on a Medicare Advantage beneficiary are about twice the average profits achieved by plans in the individual and group markets that handle patients covered by commercial plans who are not receiving any government benefit (i.e. employee sponsored health plans). The net result is that Medicare Advantage business is extremely lucrative for the private companies that run these programs.

How are Medicare Advantage plans making all of this money? In March of this year, MedPAC, an independent legislative agency that advises Congress on the Medicare program, projected overpayments to Medicare Advantage plans of $27 billion this year alone. According to MedPAC, the two main drivers of overpayments are “coding intensity” and so-called “quality” bonuses.[1] Research by academic experts indicates that, after accounting for the differential health status of beneficiaries in Medicare Advantage plans as opposed to traditional Medicare, annual overpayments are likely even higher—$75 billion in 2023.

Some of the unintended higher cost of the Part C program is the result of policies that need revision. But some of it is due to fraud. Several recent cases show that when Medicare Advantage businesses won’t clean themselves up, whistleblowers will step up. Medicare Advantage is off track. But there is increasing evidence that the government, including Congress, the Department of Justice, and the HHS Office of Inspector General, will also take action to reign in this errant train.

Molly Knobler is Senior Counsel at DiCello Levitt and Tony Munter heads the Whistleblower Reward Practice at Price Benowitz, LLP.

[1] Medicare Advantage plans have also been accused of improperly denying medically necessary care according to the U.S. Department of Health and Human Services Inspector General. This behavior further increases their profits.