For more than two decades, I have worked in health insurance, first at insurers and more recently as a consultant on Medicare policy. I have led large Medicare Advantage analytics and actuarial organizations comprising actuaries and data scientists working to improve care delivery, manage costs, and optimize revenue. Having seen firsthand the sophistication insurers bring both to improving care and to maximizing revenue within the rules, I find today’s MA funding debate frustratingly dramatized.

The conversation is hardening into opposing pro- and anti-MA camps. Some, including the Wall Street Journal editorial board, have taken a position so defensive of MA that any research on payments is framed as a political attempt to undermine the private sector’s role in Medicare. The opposing camp is quick to conclude that MA is simply a waste of taxpayer dollars. Insurers themselves have fed this rhetoric. The 2024 and 2025 CMS payment updates increased MA payments, though by less than in prior years. Insurers protested with one of the largest decrying a “generational pullback in Medicare funding.” Major media echoed those talking points, with headlines proclaiming MA was on “wobbly legs” and insurers were “in retreat.” Yet newly released 2026 MA enrollment showed continued growth, and insurers spent an all-time high on supplemental benefits.

These dramatics obscure the real issue. The question is not whether MA creates value (it does) or whether insurers should be paid for that value (they should). The question should be whether that value is fairly shared among beneficiaries, insurers, and taxpayers. With MA now covering over half of seniors, that distinction is critical to Medicare’s sustainability. The modern MA program, created in 2003, established a pathway for private insurers to compete with traditional Medicare. If they delivered care more efficiently, savings would be shared: Beneficiaries would receive enhanced benefits, taxpayers would benefit through lower federal spending, and insurers would earn returns on their investments. Success would mean better benefits, lower costs, and program growth.

In care delivery, MA has largely succeeded. Insurers build networks around high-quality, lower-cost providers, invest in care management and prevention, and use payment models that steer patients to appropriate settings. These efforts reflect the competitive incentives of the MA program and are powered by increasingly sophisticated analytics. Some tools, such as pre-authorization, have gone too far and warrant reasonable correction. Still, substantial evidence, including a study in the American Economic Journal, shows that managing care reduces costs by 10 to 30 percent.

However, medical cost savings do not necessarily mean taxpayer savings, given MA’s payment mechanisms. A large body of research finds the federal government spends approximately 15 percent more per beneficiary in MA than in traditional Medicare after adjusting for health status. These conclusions are not confined to progressive critics: Fiscally conservative groups like the Committee for a Responsible Federal Budget and market-oriented institutions such as the American Enterprise Institute and Paragon Health Institute are also concerned.

Two primary factors explain these higher payments. First, because MA payments are tied to diagnoses, insurers invest heavily in documenting medical conditions through home visits, clinical chart reviews, and clinician engagement. While this can increase preventive care and follow-up, traditional Medicare lacks comparable incentives, so similar individuals often appear sicker in MA, generating higher payments. Second, MA plan designs tend to attract beneficiaries who use less costly care than others with similar underlying health, for example, beneficiaries less likely to use emergency departments or high-cost hospitals. Yet payments are benchmarked to traditional Medicare’s spending levels. The combination of intensive diagnosis coding and favorable utilization patterns widens the gap between what plans are paid and what their enrollees actually cost.

While these mechanics are technical, the incentives are straightforward. Unlike traditional Medicare, MA insurers are rewarded for maximizing revenue and have responded accordingly. Although insurers control costs more effectively than traditional Medicare, total payments to plans have grown faster than the savings they generate. The gap between savings and payments is visible in the rapid expansion of supplemental benefits. Insurers must devote a statutorily mandated portion of the difference between revenues and medical costs to provide extra (“supplemental”) benefits. Spending on supplemental benefits has exploded, from $912 per beneficiary per year in 2015 to $2,664 in 2026. Supplemental benefits began as dental, vision, and reduced cost-sharing, but now include groceries, rent assistance, high-end gym memberships, and even ski lift tickets. The magnitude of supplemental benefit spending exceeds even optimistic estimates of what managed care can save.

Questioning these trends is not anti-MA; it reflects an understanding of how private entities respond to incentives. In rare alignment, under both the Trump and Biden administrations, CMS began modestly addressing these dynamics. A revised risk adjustment model introduced in 2024 and fully implemented in 2026 reduced payments for diagnoses most susceptible to aggressive coding. Despite warnings of MA’s decline, enrollment and benefit spending continued to rise. Competition also increased, with smaller insurers gaining share, consistent with reduced opportunities for the largest insurers’ sophisticated coding strategies.

CMS has proposed further refinements in 2027, refining risk adjustment to make it less gameable and implementing only a modest payment increase. Rhetoric has escalated, with the industry framing this modest payment restraint as an existential threat to MA participation. In finalizing 2027 payments over the next month, CMS must act as a steward of taxpayer dollars. Taxpayers are entitled to ask whether federal dollars should subsidize increasingly non-medical perks. As plans align benefits with revenues, MA will remain more generous than traditional Medicare because of the real savings insurers create. The reforms under consideration do not undermine MA’s model; they move it closer to its original promise of sharing value among beneficiaries, insurers, and taxpayers.

This article reflects the author’s personal views and not necessarily those of his employer.

Timothy Bulat is a fellow of the Society of Actuaries, a member of the American Academy of Actuaries, and a senior consulting actuary at Actuarial Research Corporation. He previously served as managing director of analytics and chief actuary in Cigna’s government businesses. He is also affiliated with the University of Pennsylvania.

Bulat’s work focuses on Medicare policy, payment reform, and actuarial analysis, with particular attention to Medicare Advantage and site neutrality. His recent publications examine topics such as Medicare Advantage policy changes in 2026, updated estimates of site neutrality, the growing payment differential between hospital outpatient departments and physician offices, the sizing of off-campus hospital outpatient department site neutrality proposals, and the potential effects of site neutrality on drug administration costs.

His writing reflects a strong emphasis on health policy modeling, reimbursement design, and the financial implications of federal payment policy for providers, plans, and patients. Professional updates are available on LinkedIn.