Medicare Advantage Companies Bank Billions in Bonuses
After stealing hundreds of billions of dollars from taxpayers, insurance companies in the Medicare Advantage program are going to face significant government action. And significant government action, in this case, means that the federal government is going to award an estimated $13 billion to the insurers in bonus payments.
These bonuses are not officially a direct reward for insurance companies exploiting taxpayers, but they are emblematic of a completely broken system.
Quality bonuses in the Medicare Advantage program are meant to reward insurers for providing high-quality plans to seniors and others who qualify for Medicare. The Centers for Medicare & Medicaid Services (CMS) maintains a five-star quality rating system, and the agency awards bonuses for plans that earn at least four out of five stars. As currently structured, this system was created by the Affordable Care Act in 2012.
For 2026, the stars themselves are meant to reflect 43 or 33 measures of clinical quality, patient experience, and administrative performance (there are more measures if the Medicare Advantage plan includes a prescription drug benefit).
However, the Medicare Payment Advisory Commission (MedPAC) has repeatedlyover the years lambasted the quality star program—even calling for its abolishment—due to it being inaccurate, unreliable, and significantly increasing government spending. For example, in March 2026, MedPAC summarized in their report:
An excessive number of measures are assessed, and many administrative and process measures are not reflective of the quality of care and/or experience that plan enrollees can expect to receive.
MedPAC is not alone as several published analyses found that the measures underlying the star ratings do not adequately and meaningfully separate the quality of different plans, and the creation of the quality star system did not improve key quality measures of plans.
To highlight some examples of glaring issues with the quality bonus program: CMS awards bonus payments at the contract level, and insurers can include several, even hundreds, of plans in a single contract. This effectively means, as MedPAC has noted, that the star rating for an entire contract can bear little to no resemblance to patients’ experiences with their specific plans. Additionally, the government has allowed insurers to combine contracts in a manner that inflates their star rating and enables them to rake in higher bonus payments.
Additionally, the measures of “quality” are curious when zooming out to the larger view of what constitutes successful health care coverage. Quality measures includebut are not limited to whether patients get their annual flu vaccine, whether they are screened for breast or colorectal cancer, and how much they adhere to taking specific prescribed medications (ex: statins). Another measure is whether they received advice from a doctor in the past year on starting, increasing, or maintaining their level of exercise.
These measures do not directly account for widely known quality issues with Medicare Advantage and private insurance in the United States more generally. Unlike traditional Medicare, private plans operate in restricted networks, meaning that patients have much less choice in what doctors they can see. Many providers have stopped accepting Medicare Advantage plans due to lower reimbursements and the administrative hassle of dealing with private insurers. Administrative bloat is a feature of private insurance in the United States, as both publicly-administered Medicare and Medicaid have far lower administrative costs than their private counterparts.
Insurance companies use prior authorization to delay and deny important care, to the extent that 93 percent of 1,000 surveyed physicians in 2024 reported that prior authorizations delayed access to necessary care always (15 percent), often (42 percent), or sometimes (36 percent). Additionally, 82 percent of physicians reported abandoning recommended care always (2 percent), often (20 percent), or sometimes (60 percent).
Also, there is little to no evidence that Medicare Advantage plans use the quality bonus payments to improve their coverage. This reality is not surprising. MA plans are significantly more profitable for insurance companies than their other types of offerings; yet, insurers have repeatedly threatened to, and have actually, cut benefits and plan offerings when the government has moved to rein in overpayments.
Overpayments are a massive issue in the Medicare Advantage program, with MedPAC estimating $76 billion in taxpayer money unnecessarily going to insurance companies in 2026. This follows $84 billion in estimated overpayments in 2025, and MedPAC additionally estimated nearly half a trillion in overpayments for the period from 2020 to 2026.
These overpayments are a result of intentional strategies by insurance companies to rip off taxpayers. Insurers make patients seem sicker than they actually are — a practice called upcoding — which results in the government giving them higher payments for each seemingly sicker patient. At the same time, these companies engage in favorable selection: the practice of intentionally choosing healthier patients that will require less money to cover. Insurers profit in Medicare Advantage by getting as much money per patient as possible from taxpayers and then spending as little as possible in covering care.
When patients need to utilize health care services more, or the government potentially reins in overpayments to the extent that profits are reduced, insurance companies can and have responded by eliminating plans and decreasing the quality of others by offering fewer, worse benefits.
Simultaneously, the insurance lobby has been very effective in stopping Congress and the Trump administration from legislatively ending or even just limiting the tens of billions of dollars in annual waste, fraud, and abuse. Congress has never voted on existing bipartisan legislation to address upcoding, and this bill was excluded from the One Big Beautiful Bill in 2025 even though it was introduced by Republican Senator Bill Cassidy. When CMS proposed to only increase the payment rate to insurers by 0.09 percent given the massive overpayments, insurance lobbyists got the Department of Health and Human Services (HHS) to reverse course, increasing the payment rate by 2.48 percent. In Congressional testimony, HHS Secretary Robert Kennedy, Jr. publicly admitted to such industry influence.
This industry lobbying campaign succeeded even though both Secretary Kennedyand CMS administrator Dr. Mehmet Oz have castigated the practice of upcoding, with Oz even calling companies that upcode “scoundrels.” A clear indication as to why this campaign succeeded is that seven of the largest insurance companies that offer MA plans spent more than $330 million lobbying between 2020 and 2024. Public reporting has revealed that this lobbying barrage included a focus on preventing the government from cutting overpayments.
Given the reality of industry control of the federal government, it comes as no surprise that CMS will hand an estimated $13.4 billion in quality bonuses to Medicare Advantage plans in 2026, meaning that the government will have given industry $50.7 billion in such bonuses from just 2023 to 2026.
Ultimately, bipartisan members of Congress, MedPAC, the HHS Secretary, the head of CMS, and independent researchers across the political spectrum have all recognized the massive waste, fraud, and abuse in the Medicare Advantage program. The only powerful actor in support of the current system is the insurance industry itself. Yet, “somehow” policymakers have not fundamentally changed any aspect of the Medicare Advantage program that would do away with billions in stolen taxpayer dollars.
This first appeared on CEPR.
The Fraudulent War on Medicaid Fraud
Photo by Markus Spiske
The Trump Administration has launched a novel attack on Medicaid accusing blue state Attorneys General (AGs) of not cracking down on fraud — and using that as an excuse to cut funding for New York State’s Medicaid fraud agency, which has a strong record of stopping fraud.
To be clear, allegations of Medicaid fraud do not claim that individual Medicaid beneficiaries have cheated the government and enriched themselves. States have in place rigorous protocols for verifying the eligibility of individuals for enrollment in their Medicaid programs. While an individual who is not eligible may occasionally slip through and receive health care that they are not entitled to, this is fairly rare and does not result in cash payments to the individual.
The real Medicaid fraudsters are insurance companies whose Medicaid Managed Care Organizations (MCOs) overbill the Medicaid program, cheating states and the federal government to enhance corporate profits. And they are vendors and service providers that hatch schemes to falsely bill Medicaid to line their own profits. And by all available evidence, state Attorneys General – most notably New York’s – have successfully pursued these cases, returning billions in recovered funds to the Medicaid program.
This type of corporate fraud is well-documented. Centene Corporation, the insurance company that is the largest provider of Medicaid MCOs by number of Medicaid recipients enrolled, has settled with at least 20 states that accused it of overbilling Medicaid for its in-house pharmacy benefit operations. Centene allegedly overcharged Medicaid for prescription drugs and, in some states, double-billed state Medicaid programs for fees and services related to dispensing the drugs. In total, Centene has settled these claims for more than $1 billion. California, which had the largest publicly reported settlement, recovered more than $215 million – more than twice the value of Centene’s inflated price charges – which it split with the federal government.
Molina Healthcare, the insurance company that enrolls the second largest number of Medicaid beneficiaries, has paid tens of millions of dollars to multiple states to resolve False Claims Act violations. Molina, which previously owned mental health services provider Pathways of Massachusetts, agreed to pay $4.6 million to resolve allegations that it wrongly submitted claims for services provided by mental health staff that were not properly licensed and supervised. Texas Attorney General Ken Paxton brought an enforcement action against Molina for failing to assess Medicaid beneficiaries in the state who were eligible for services because they were blind, disabled or elderly and concealing its noncompliance so it could continue collecting payment for managing the care of these individuals. Molina settled these charges for $40 million.
Hospital and health system Universal Health Services (UHS) and its subsidiary Turning Point Care Center have settled with the Department of Justice for allegedly billing Medicaid inappropriately for inpatient behavioral health services that were not medically necessary while failing to provide needed services for adults and children treated in UHS facilities. UHS will pay $117 million to the federal government and states that participated in the settlement; Turning Point will pay $5 million. State Attorneys General, state Medicaid fraud agencies, and the Department of Justice participated in the investigation.
Vendors of durable medical equipment, suppliers of skilled nursing services, providers of nonresidential mental health services, personal care service providers or agencies, and even management consultant firms are examples of serviceproviders who have been investigated for abuse of Medicaid patients or fraudulently billing Medicaid.
In the consulting company case, the Virginia Medicaid fraud unit (in collaboration with multiple federal agencies) pursued a criminal investigation. The global consulting firm had advised its client, an opioid manufacturer, about sales and marketing of the client’s extended release product. The firm was held to be criminally responsible for advice resulting in the commission of a crime by the client. The case led to a $650 million settlement.
Existing State Anti-Fraud Strategies Appear to Be Working
MCOs have been encouraged to report Medicaid fraud by providers to their state Medicaid fraud investigation agencies. In 2025, they reported 5,991 cases of suspected fraud; investigations were opened in 1,114 of these suspected cases. This is up from 2,971 suspected cases referred to state fraud units in 2021.
A total of $2 billion was recovered for Medicaid in 2025 by investigations conducted by state Medicaid fraud investigators, either on their own or in collaboration with other state and federal investigation units. Civil settlements accounted for $706 million, of which $506 million resulted from state investigations without federal participation. Indiana, New York, Colorado, and Georgia were responsible for half of the total civil settlements in 2025. Criminal investigations resulted in the recovery of $1.3 billion for Medicaid, $1.2 billion for fraud and $17 million for abuse and neglect. The $2 billion does not include the Centene settlements that were made between 2022 and 2024.
In New York, the AG’s Medicaid fraud unit has recovered almost $828 million for New York’s Medicaid program over 2019 through 2025 through its criminal and civil investigations. A statewide investigation into medical transportation companies in 2025 found that they used fake billing schemes to cheat Medicaid of millions of dollars. More than $13 million was recovered and there were ten criminal convictions. While the number of criminal indictments and investigations may be lower in New York than in some other states, this is the result of the state’s decision to focus enforcement on fewer but larger instances of fraud and recover large amounts of money for the state’s Medicaid program.
In light of the importance of New York’s AG and its Medicaid fraud unit in prosecuting major civil and criminal fraud cases, it is shocking that the Trump administration has accused the state of failing to secure enough criminal convictions. In a letter dated June 30, the administration announced its intention to suspend millions of dollars in funding for the state’s fraud investigation unit through at least September 30. This will have the effect of reducing criminal indictments and delaying recoveries of funds stolen from the state’s Medicaid program.
What could have motivated this action? It appears that a math mistake by Dr. Mehmet Oz, the administrator of the Centers for Medicare & Medicaid Services, may have set the stage for this ill-considered move to weaken New York’s prosecution of Medicaid fraud. In a formal letter sent to New York’s governor in March 2026, Oz claimed that New York’s Medicaid program provided some 5 million people with personal care services in the first six months of 2025, which clearly would have been fraudulent, and threatened to withdraw billions of dollars in federal matching funds from New York’s Medicaid program.
New York has 6.8 million Medicaid enrollees, so 5 million receiving personal care services would mean that agencies and providers billed Medicaid for providing these services to nearly 75 percent of Medicaid beneficiaries. But no corresponding evidence of this billing bonanza exists. The Fiscal Policy Institute provides an analysis of how the lack of familiarity with both the Medicaid program and Medicaid data led Dr. Oz to arrive at this faulty figure. The true number of New York Medicaid enrollees that utilized personal care services in 2025, as CMS acknowledged in April, was about 400,000. This is between 6 and 7 percent of enrollees, not 75 percent – a glaring error. But the damage was done.
The June 30 letter accuses New York’s Attorney General Letitia James of neglecting to ferret out instances of abuse and fraud in the state’s Medicaid program and denies the state’s request to recertify its fraud investigation unit, ending funding for the program until at least September pending evidence of remedial steps by the state. New York officials have said they will fight this denial, noting that New York is a recognized leader in investigating and prosecuting Medicaid fraud. The fraud unit’s criminal convictions focus on owners, executives, and corporations that yield large amounts of money recovered for Medicaid.
It is inescapable that Trump has been bashing states, especially those led by Democrats, claiming they are lax on fraud in Medicaid and other public programs. Four of the five states that have been asked to share information with CMS showing how they identify and address fraud – New York, Minnesota, Maine, California, and Florida – are governed by Democrats. Medicaid funding has been withheld in Minnesota and California. In Minnesota, the program has become chaotic. Medicaid beneficiaries are being denied essential health services as thousands of providers are unable to bill Medicaid pending the Trump administration’s revalidation of the program.
From the start, the administration’s plan to place Vice President JD Vance in charge of Trump’s new anti-fraud task force that will be investigating Medicaid fraud was intended as a political weapon to attack Democratic states. The administration is clearly seeking to counter voter disapproval of its handling of health care and distract from the administration’s deep cuts to Medicaid.
This first appeared on CEPR.
