MA Spending 14% Higher Than FFS Medicare, Including at Nursing Homes, Driven by Coding Intensity and Enrollment Trends

Why It Matters

Higher MA outlays increase Medicare Part B premiums and taxpayer burden, while exposing weaknesses in risk‑adjustment and quality‑measurement systems that could distort care incentives.

Key Takeaways

• MA spending exceeds FFS by 14%, $76 B extra 2026.
• Coding intensity inflates risk scores, adding 4% payments.
• Quality bonus program will raise MA payments $16 B in 2026.
• Favorable selection lifts payments 11% above comparable FFS.
• MedPAC urges reforms: coding, benchmarks, encounter data.

Pulse Analysis

The surge in Medicare Advantage expenditures reflects a confluence of structural incentives and market dynamics. Intensified diagnostic coding raises risk scores, inflating payments by roughly four percent, while the quality‑bonus program—intended to reward high‑performing plans—adds another $16 billion to the budget. Rebates from plans bidding below benchmark rates have more than doubled since 2018, funding supplemental benefits that traditional Medicare does not cover. Together, these factors push MA spending 14% above fee‑for‑service levels, translating into an estimated $76 billion extra outlay for 2026.

Policymakers face a delicate balancing act. Elevated MA costs ripple through the broader Medicare system, driving Part B premiums up by an estimated $11 billion and increasing the fiscal strain on taxpayers. MedPAC’s report flags coding imbalances, the limited efficacy of the star‑rating system, and the need for more accurate encounter data as key levers for reform. Proposed measures include tightening coding audits, revising benchmark calculations, and overhauling the quality‑bonus framework to better align payments with actual care quality and beneficiary outcomes.

Looking ahead, the MA market remains robust, with plan options expanding despite regional enrollment disparities. However, the financial dynamics for high‑cost populations, such as those with end‑stage renal disease, reveal further challenges: MA plans charge the maximum 20% coinsurance and pay dialysis rates 22% above FFS, yet payments exceed costs by 12% on average. As enrollment continues to rise and plan choice widens, the pressure to refine risk‑adjustment models and ensure equitable, value‑based payments will intensify, shaping the future trajectory of Medicare’s hybrid financing model.