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Medicare Advantage covers more than half of seniors, and the debate over what it really costs is stuck in two camps. Timothy Bulat, a senior consulting actuary who spent nearly two decades leading Medicare Advantage analytics inside a major insurer, raises a question the loudest voices keep avoiding: who actually pays for the program, and is the value being shared fairly? This episode is based on his article “The truth about Medicare Advantage funding and costs,” published on KevinMD. You will hear how plans simultaneously manage costs well and extract excess taxpayer dollars through coding intensity and favorable selection, why headlines about Medicare Advantage being “in retreat” are overblown, and which specific policy levers (risk adjustment reform, benchmarking, slowing annual payment growth) the Biden and Trump administrations have already started using. Listen for the distinction Timothy draws between a funding cut and a smaller increase, and why that distinction matters for every clinician dealing with prior auth.
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Transcript
Kevin Pho: Hi, and welcome to the show. Subscribe at KevinMD.com/podcast. Today we welcome Timothy Bulat. He’s a senior consulting actuary, and today’s KevinMD article is “The truth about Medicare Advantage funding and costs.” Timothy, welcome to the show.
Timothy Bulat: Thank you, appreciate it. Happy to be on.
Kevin Pho: All right, so let’s briefly share your story and then why you decided to share this particular article on KevinMD.
Timothy Bulat: Sure. So my background has mostly been with insurance plans. I spent almost 20 years at Cigna, and their Medicare Advantage business has now been bought by the Health Care Service Corporation. But my most recent role there was leading analytics for their Medicare Advantage business. So our team was responsible both for analytics supporting utilization management, cost containment, things that lower cost, as well as analytics for risk adjustment and selection. In other words, things that increase revenue. And so I have a pretty balanced perspective of both sides of what MA plans do around margin optimization for Medicare Advantage.
I left Cigna about three years ago to move into the policy space, and as this conversation around Medicare Advantage plan funding has really heated up over the past few years, I thought I had a background that could lend itself to it.
Kevin Pho: All right, so to those who don’t follow policy as closely as you, give us some context about the conversation surrounding Medicare Advantage funding, and then we could jump into your KevinMD article.
Timothy Bulat: Yes. So going way back with Medicare Advantage, the current version of MA, when I say MA, Medicare Advantage, was defined in the 2003 Medicare Modernization Act, and the idea is that to the extent insurers can manage costs more effectively than traditional Medicare, those savings should be shared across taxpayers, the plans themselves, and beneficiaries through better benefits.
Over the past few years, though, an increasing amount of research has been coming out saying that in fact, for similar beneficiaries in traditional Medicare and Medicare Advantage, taxpayers are actually paying more for that beneficiary in Medicare Advantage. And there’s certainly no debate that the benefits for the beneficiary are really good in Medicare Advantage. They get dental, vision, increasingly they get cards that cover food, cards that cover groceries and things like that. But the question is really, is that coming from taxpayer spending or plan savings? And is the value these plans are creating, is it appropriately shared across taxpayers, beneficiaries, and plans?
Kevin Pho: All right, so when I think about Medicare Advantage, I always think of all these different camps, right? You have those who want to keep cost savings down. You, of course, mentioned the beneficiaries, and of course you have these private insurance plans that make money from Medicare Advantage plans, right? And I always see the conversation collapse into pro Medicare Advantage and anti Medicare Advantage, despite all the dynamics. Why does this conversation always devolve into pro and anti Medicare Advantage?
Timothy Bulat: Yeah, and I think that has, it’s gotten worse over the past year or two, this pro versus against camp, and I think a lot of it comes from the fact that Medicare Advantage plans can both save money by managing costs well and provide a lot of benefits to beneficiaries, while also creating a difficult situation for clinicians in terms of preauthorization and potentially costing the government more through coding intensity and favorable selection. And it’s all really wonky. It’s very complicated to understand all of those dynamics, and it’s easier to just say, I’m against or for Medicare Advantage.
And so one thing I was trying to do in my article was sort of deescalate that pro versus against by pointing out that there’s a lot of things these plans are doing well to manage costs, but that doesn’t necessarily mean everything is great for clinicians or for taxpayers, and we need to sort of get back from the pro versus against and try and understand there’s different pieces of this that are working and aren’t working. And settling into a pro versus against camp isn’t productive.
I was disappointed with, earlier this year, the Wall Street Journal editorial board having two articles basically saying any question around Medicare Advantage funding is, in their words, academic liberal attempts to undermine Medicare Advantage, which shortcuts an attempt to understand what’s really potentially driving the results of this research finding higher costs to the federal government for Medicare Advantage. In fact, a fiscally responsible perspective here should be, and that’s what the journal usually tries to take, OK, if we want Medicare Advantage to be this private alternative to Medicare, how do we structure it in a way that’s winning for taxpayers and winning for beneficiaries? We know it’s winning for beneficiaries because the benefits are really good, but it’s fair to ask, is it winning for taxpayers? Without saying that means I’m anti Medicare Advantage. It’s just trying to understand. We need to understand the nuance behind the funding mechanisms before forming an opinion that’s just pro or against.
Kevin Pho: So walk us through the numbers. You’re an actuary, of course. So explain how the numbers work for Medicare Advantage. Just walk us through the different facets. What’s working well numbers-wise and what’s not working as well.
Timothy Bulat: Yeah, so the funding mechanisms for Medicare Advantage are complicated, but at the simplest level, Medicare Advantage plans bid for how much it’s going to cost to cover traditional Medicare services, and the difference between the bid and the government funding, plans have to spend on supplemental benefits. And if the bids are below government funding, you have plans have this money they can spend on dental, vision, enhancing benefits, things like that.
And so from a beneficiary perspective, we see the overall spending of plans on enhancing benefits at literally an all-time high in 2026. Plans are spending more than they ever have providing additional benefits to beneficiaries. So that’s working great for beneficiaries. They have all these extra benefits.
The question is, is that because bids are low, because plans are managing costs well, or government funding is too high because of things like coding intensity, favorable selection? There’s research, there’s good research out there saying plans do manage costs well, the bids are low because they manage costs well, and plans are doing a good job maximizing that government funding. I do think it’s both myself. I think there’s good evidence on both sides. And we have to figure out that component around plans managing to optimize the revenue. What is it about the policy that allows them to do that? Is it things like home health assessments for risk code capture? Probably. And are there things that can be done there? But there are pieces there that for sure are costing taxpayers extra dollars.
There have been actions over the past few years, both in the Biden administration and Trump administration, to sort of dial back on those funding levers that plans are taking advantage of. There’s been a lot of noise coming out of the plans and media taking the plan noise and making headlines like “Medicare Advantage is in retreat” or things that make it sound like the sky is falling. Those are overblown. Medicare Advantage grew again in 2026. I mentioned already benefit spending’s at an all-time high.
We have seen a couple of the largest plans lose share. United lost a lot of market share this year, but that market share didn’t leave Medicare Advantage. It went to some of the smaller plans, and that might not be a bad thing if some of these changes are sort of flattening the playing field, disadvantaging some of the bigger guys and helping the smaller plans hitch back up.
Kevin Pho: How sustainable is Medicare Advantage moving forward, assuming we continue on this fiscal trajectory?
Timothy Bulat: Over the past, say, 15 years or so, Medicare Advantage has gone from a small minority of Medicare beneficiaries to over half. It has gone to over half despite the fact that it costs the government more to fund someone in Medicare Advantage than traditional Medicare. And so it’s pretty sustainable. I mean, the fact that we are now at 50, 55 percent of beneficiaries in Medicare Advantage, and the trajectory of Medicare funding overall has not gotten worse because of it still. And beneficiaries tend to appreciate the Medicare Advantage plans because of the extra benefits they get, usually at no additional cost.
So there’s a lot in here that’s sustainable. That doesn’t mean we can’t ask the question, are all these savings accruing to plans and beneficiaries and not to taxpayers? Medicare Advantage should play a bigger role in helping defer medical trends than it is. Not to say it’s unsustainable, but it can play a bigger role than it is.
Kevin Pho: And what would you suggest, what kind of levers can they use to play that bigger role?
Timothy Bulat: Like the past couple years under both Biden and Trump, doing things like simplifying risk adjustment to take out some of the opportunity for plans to capture codes through home visits, through chart reviews, through things that don’t happen in traditional Medicare but do happen in Medicare Advantage. Those things reduce the amount of coding intensity, reduce the revenue to plans, usually at the expense of some of the larger plans that have more sophisticated code capture algorithms, so they help the smaller plans compete more. That’s a lever the government has started to take, and I support continuing to take it.
I also think this selection issue is real, and continuing to benchmark Medicare Advantage payments to traditional Medicare when we know that there’s different utilization patterns among beneficiaries even with the same health status is a way in which plans have found a way to optimize revenue relative to the cost of their beneficiaries. There’s more that needs to be done there. But these levers are things that CMS should look at to balance payments against the cost of beneficiaries enrolling in Medicare.
Kevin Pho: So when you look at all the parties involved with Medicare Advantage, you have the beneficiaries, you have the insurers, and then you have the taxpayers, and a lot of times they’re in tension with one another in terms of their goals and the effects of how much Medicare Advantage is costing. If you were to construct a fairer Medicare Advantage model, what would that fairer model look like? Or would it just be straight Medicare? Like what would be a fairer Medicare Advantage model to you?
Timothy Bulat: Yes, I certainly don’t think it’s straight Medicare. I think Medicare Advantage absolutely has a place here. I think the culture of our country is one that prefers a private alternative to Medicare than just a Medicare for all. So Medicare Advantage absolutely has a place.
The traditional way of determining Medicare Advantage funding by benchmarking traditional Medicare and then doing risk adjustment has been, your plans have optimized within that framework to maximize their revenue. And I do think there’s relatively small tweaks around how you benchmark Medicare Advantage payments, how you do risk adjustment, that would go a long way in making Medicare Advantage share value more fairly across beneficiaries, taxpayers, and the plans.
I also just think, and it’s where I ended the article, like just the overall increase year over year in Medicare Advantage funding, keeping that trend lower than it’s been the past few years, or that it was prior to, I guess 2024 was the first year that the Biden administration started cutting that, those increases, that would help bring things in line slowly. There’s a lot of noise when the increase for Medicare Advantage isn’t as much as it used to be. In fact, you’ve seen headlines like “Medicare Advantage funding cut,” Medicare Advantage funding was cut, when in fact the increase was just a little less than the prior year. That’s not a cut in funding. It’s a slightly smaller increase, but that stuff goes a long way to realigning the funding levels between Medicare Advantage and traditional Medicare.
Kevin Pho: So going forward, what do you predict is going to happen? Is it certainly going to be administration dependent? So from your perspective as an actuary, what do you anticipate are some of the foreseeable paths going forward?
Timothy Bulat: Predicting what would happen is hard because it’s very political. I think some of the paths are, maybe there’s three potential paths, and which one we end up on, I won’t try and predict, but one is a sort of status quo where plans make a lot of noise unless funding levels sort of increase in line with trend, and maybe we have a percent or so of lower increases than trend, but it’s not enough to dramatically change funding levels or benefit levels. So that’s probably, that status quo-ish is one option.
Another is one in which things like risk adjustment continue to be modified to take away opportunities for some of the more sophisticated plans to increase the intensity of their coding. We’ve seen some of that out of CMS. I think continuing sort of modest size program adjustments like that is a very plausible approach that we’ll continue to see CMS take regardless of the administration over the next few years.
And then probably the third option is a little more, our bigger changes. Things like taking away the benchmark to fee-for-service Medicare altogether and having the plans just bid against each other within Part C so that there’s no longer this benchmark to traditional Medicare. That’s a proposal that’s out there. It’s been out there for several years. It’s a much bigger change. And what we’ve seen on the other two, but it’s a plausible path forward as well.
Kevin Pho: We’re talking to Timothy Bulat. He’s a senior consulting actuary. Today’s KevinMD article is “The truth about Medicare Advantage funding and costs.” Timothy, let’s end with some take-home messages that you want to leave with the KevinMD audience.
Timothy Bulat: Yes. I think, first, Medicare Advantage is absolutely a valuable part of the Medicare program in our country. Plans add value. That said, questioning if that value is shared fairly across all parties is a very fair question, and one that I think policymakers have a duty to ask. I mean, plans are going to be optimizing both revenue and costs against the playing field that policymakers define. Let’s allow the policymakers to ask questions about if that playing field is optimal, if that’s taking advantage of the competition that exists in a way that benefits all parties.
And certainly any disruption at all is met with a lot of noise, like we’ve seen the headlines over the past year or so, like those Wall Street Journal editorials. That noise needs to be put in the context of what’s actually changing. We have not seen a big reduction. We continue to see a growth in Medicare Advantage enrollment and benefits. So just putting the noise in context is really important.
Kevin Pho: Timothy, thank you so much for sharing your perspective and insight. Thanks again for coming on the show.
Timothy Bulat: I appreciate it. Thank you.
