Washington, D.C. — Medicare is spending 14% more on Medicare Advantage enrollees than it would if those same patients were in traditional fee-for-service Medicare — a gap that translated to roughly $76 billion in excess spending projected for 2026, according to the Medicare Payment Advisory Commission’s latest report to Congress.
That finding, released this week, has direct implications for nursing homes. Medicare Advantage now covers more than half of all Medicare beneficiaries, and the program’s growing financial footprint is reshaping how post-acute providers get paid — and how much administrative work it takes to get paid at all.
Why Costs Are Running So High
MedPAC points to two main drivers. First, coding intensity: MA plans document more diagnoses for enrollees, which inflates risk scores and boosts federal payments by about 4% compared to what traditional Medicare would pay for patients with the same actual conditions. Second, “favorable selection” — MA plans tend to attract healthier enrollees, yet payments don’t fully adjust for that difference, pushing costs up by another 11%.
The result is that Medicare spent $537 billion on MA plans in 2025, with projections reaching $615 billion in 2026. Each beneficiary now costs $16,242 per year on average — including about $2,660 in rebate payments per enrollee.
Those rebates, which have more than doubled since 2018, are supposed to fund supplemental benefits for enrollees. But MedPAC’s report signals concern about whether that money is delivering real value — or just inflating the program’s costs.
The Nursing Home Side of the Equation
The MA overspending problem doesn’t just affect federal budgets. It feeds directly into the pressures nursing home operators face every day. MA plans — which now send a large share of post-acute referrals — have layered on prior authorization requirements, shorter approved stays, and complex billing demands that traditional Medicare never imposed.
Meanwhile, the program’s excess costs are rippling outward. MedPAC notes that higher MA spending is pushing Medicare Part B premiums up by roughly $11 billion in 2026 compared to what they’d otherwise be — a burden that falls on every Medicare beneficiary, including long-term care residents.
This comes as MedPAC separately recommended a 4% Medicare rate cut for nursing homes, adding pressure from multiple directions. Those proposed rate reductions have drawn sharp criticism from providers who say the timing couldn’t be worse.
What MedPAC Wants Changed
The commission laid out a reform agenda for Congress and CMS, calling for changes to reduce coding imbalances, replace the existing MA quality bonus program, establish fairer payment benchmarks, and improve the accuracy of encounter data used to calculate payments.
The MA quality bonus program alone is expected to add $16 billion to MA payments in 2026. About 64% of MA enrollees are expected to be enrolled in a plan that qualifies for that bonus increase. MedPAC said it remains skeptical that the current star-rating system adequately measures the quality of care MA enrollees actually receive.
For skilled nursing providers navigating a market where MA plans control an ever-growing share of admissions, MedPAC’s push for reform is worth watching. Any structural changes to how MA plans are paid — and how they’re held accountable — could eventually reshape the financial relationship between nursing homes and the insurers that send them patients.
