Over one-half of eligible Medicare beneficiaries are enrolled in Medicare Advantage plans this year, according to KFF.
Given that enrollment and recent scrutiny, all eyes are on how the private alternative to traditional Medicare gets paid. A Nov. 20 KFF issue brief cited how the Medicare Payment Advisory Commission estimates federal government payments to MA plans are 20% greater than traditional Medicare spending this year.
To cover the cost of core Medicare under MA, plans get a monthly payment per enrollee from the federal government. These funds may also be sufficient to cover some supplemental benefits. The government bases payments by county as a percentage of Medicare spending, with many counties taking in over 100% the amount for traditional Medicare.
Here are four things to know on these payments:
1. MA accounts for $84 billion in additional federal spending in 2025, according to MedPAC. Coding intensity and favorable selection, resulting in lower costs to provide coverage, contribute $40 billion and $44 billion, respectively.
2. Base payments and rebates comprise payments to plans. Plans that bid at or below the benchmark get 100% of the bid through the base payment. If bidding above, enrollees pay a supplemental premium. Lower bids can get a portion of their difference with the benchmark through rebates, which have specific use cases. Star ratings can inform benchmarks and rebates, too.
3. Even disregarding spending differences due to coding intensity and favorable selection, government savings are not promised. In three-quarters of counties, benchmarks are at or above traditional Medicare spending. The quality bonus program and rebate payments also limit savings.
4. While MA reform is a hot topic, some industry players are concerned that lower payments could translate to fewer additional benefits and higher premiums.
