Medicare Advantage Fraud: How Insurers Overbilled Taxpayers $84 Billion

Medicare Advantage now covers more than half of all Medicare beneficiaries---34.1 million Americans who chose private insurance plans instead of traditional Medicare. (Source: KFF, 2025) The federal government pays private insurers to provide their care. And according to the nonpartisan Medicare Payment Advisory Commission (MedPAC), the government paid $84 billion more for these enrollees in 2025 than it would have under traditional Medicare. (Source: MedPAC, March 2025) Much of that overpayment stems from insurers making their patients look sicker on paper than they actually are---a practice at the center of billions of dollars in fraud allegations.

What Is Medicare Advantage?

Medicare Advantage (MA), also called Medicare Part C, allows private insurance companies to offer Medicare benefits as an alternative to the government-run traditional (fee-for-service) Medicare program. Beneficiaries who enroll in MA plans receive their Part A (hospital) and Part B (medical) coverage through a private insurer like UnitedHealthcare, Humana, or Kaiser Permanente, often with additional perks like dental or vision coverage.

As of 2025, 54% of eligible Medicare beneficiaries---34.1 million people---are enrolled in Medicare Advantage plans. (Source: KFF, 2025) That share has nearly tripled from 19% in 2007, and the Congressional Budget Office projects it will reach 64% by 2034.

How Risk Adjustment Works---And Why It Creates a Perverse Incentive

The Centers for Medicare & Medicaid Services (CMS) pays MA plans a monthly capitated rate for each enrollee. That payment is "risk-adjusted"---CMS pays more for sicker patients and less for healthier ones. This is supposed to ensure that plans covering populations with greater medical needs receive adequate funding.

Here is the problem: the more diagnoses an insurer documents for a patient, the higher the risk score, and the more CMS pays. Unlike traditional Medicare, where providers are paid per service rendered, MA insurers are paid per diagnosis recorded. Not per treatment. Per diagnosis. The incentive isn't to make patients healthier. It's to make them look sicker on paper.

What Is Medicare Advantage Upcoding?

Medicare Advantage upcoding is the practice of systematically recording patient diagnoses that increase risk adjustment scores---and therefore CMS payments---without providing corresponding medical treatment. It is the central mechanism behind billions of dollars in suspected Medicare Advantage fraud.

Insurers use several methods to inflate diagnoses:

Health Risk Assessments (HRAs)

MA insurers send nurses or nurse practitioners to enrollees' homes to conduct "wellness visits." These Health Risk Assessments frequently result in new diagnoses being added to patients' records---diagnoses that increase risk scores and trigger higher CMS payments. The HHS Office of Inspector General found that in 2023, approximately 1.7 million MA enrollees had diagnoses reported solely on HRAs with no supporting service records elsewhere in their medical history. (Source: HHS OIG, 2024)

Diagnoses that exist on insurance paperwork. Not in any doctor's treatment records. Nowhere else.

Retrospective Chart Reviews

Insurers hire medical coders to comb through patient records after the fact, hunting for "missed" diagnoses they can submit to CMS. A coder finds a passing mention of a condition in a physician's note and adds a diagnosis code---even if the physician didn't consider it clinically relevant and never treated it. The doctor didn't think you had it. The coder disagrees. CMS pays.

The Scale of the Problem

The OIG's 2024 report found that questionable HRA-only diagnoses generated $7.5 billion in MA risk-adjusted payments for 2023 alone. (Source: HHS OIG, 2024) Key findings included:

• Just 20 MA companies drove 80% of the $7.5 billion in payments
• UnitedHealth received approximately $3.7 billion (the largest share), Humana approximately $1.7 billion (second largest)
• Nearly two-thirds---roughly $5 billion---came from in-home HRAs. These are typically administered by insurers or their third-party vendors, not patients' own doctors
• CMS concurred with only 1 of 3 OIG recommendations, declining to impose restrictions on HRA-based diagnoses or conduct additional audits

Seven and a half billion dollars in questionable payments. The government's own inspector general identifies them, makes three recommendations, and CMS accepts one. The system is not self-correcting.

The $84 Billion Problem: MedPAC's Findings

MedPAC---Congress's nonpartisan advisory body on Medicare---has been warning about MA overpayments for years. Its March 2025 report put a number on it. (Source: MedPAC, March 2025)

Understanding the Two Sources of Overpayment

Not all $84 billion comes from the same place, and the distinction matters for how you fix it:

Both components cost taxpayers real money. But coding intensity is something you prosecute. Favorable selection is something you redesign.

The Impact on All Medicare Beneficiaries

This is not just an MA problem. MedPAC estimates that Part B premiums are approximately $13 billion higher in 2025 because of elevated MA spending. That translates to roughly $198 per beneficiary per year---paid by every person enrolled in Medicare, including those in traditional Medicare who never chose an MA plan. (Source: MedPAC, March 2025)

You are subsidizing MA insurer profits whether you chose their product or not.

Looking Ahead: $1.2 Trillion Over a Decade

The numbers are getting slightly better---and are still enormous. At MedPAC's January 2026 meeting, preliminary data for the March 2026 report showed MA overpayments of $76 billion for 2026, down from $84 billion, in part because CMS's new risk adjustment model (V28) is being phased in. (Source: Healthcare Dive, 2026) The breakdown shifted to approximately $22 billion from coding intensity (down from $40 billion) and $57 billion from favorable selection (up from $44 billion).

The Committee for a Responsible Federal Budget projects cumulative MA overpayments of $1.2 trillion from 2026 through 2035---$470 billion from coding intensity and $730 billion from favorable selection. (Source: CRFB, 2025)

Eighty-four billion dollars is roughly 6% of total Medicare spending. It is more than the entire budget of the Department of Homeland Security.

Kaiser Permanente: The $556 Million Record Settlement

On January 14, 2026, the Department of Justice announced that Kaiser Permanente affiliates would pay $556 million to resolve False Claims Act allegations---the largest Medicare Advantage risk adjustment settlement in history. (Source: DOJ, January 2026)

What the DOJ Alleged

According to the DOJ, Kaiser "systematically pressured its physicians to alter medical records after patient visits to add diagnoses that the physicians had not considered or addressed at those visits." The alleged scheme ran from 2009 to 2018. Nine years. Approximately 500,000 added diagnoses. Approximately $1 billion in excess payments from CMS. These are the government's characterizations, not a forensic count.

Settlement Details

• Settling entities: Kaiser Foundation Health Plan Inc., Kaiser Foundation Health Plan of Colorado, The Permanente Medical Group Inc., Southern California Permanente Medical Group, and Colorado Permanente Medical Group P.C.
• Whistleblowers: Two qui tam lawsuits, filed by Ronda Osinek and James M. Taylor, M.D., were consolidated for the settlement
• Whistleblower share: Approximately $95 million combined
• Admission of guilt: None. The DOJ explicitly stated: "The claims resolved by the settlement are allegations only and there has been no determination of liability."

Half a billion dollars. No admission of guilt. This is the standard outcome in False Claims Act settlements: the company pays, the government declares victory, and no one goes to prison. The penalty becomes a line item.

UnitedHealth Group: Criminal and Civil Investigation

Kaiser wrote a check and moved on. UnitedHealth Group---the largest health insurer in the United States, with roughly 29-30% of the MA market---may not get that option. (Source: UnitedHealth Group, July 2025)

DOJ Criminal and Civil Probes

On July 24, 2025, UnitedHealth confirmed in an SEC filing that the Department of Justice had launched both criminal and civil investigations into the company's Medicare billing practices. The investigation focuses on whether UnitedHealth systematically inflated or fabricated patient diagnoses to increase risk scores and extract higher payments from CMS. (Source: CNBC, July 2025)

The Wall Street Journal reported that between 2019 and 2021, UnitedHealth received $8.7 billion in payments from the federal government for diagnoses that were not documented in treatment claims. Diagnoses on paperwork. No corresponding medical care. $8.7 billion. (Source: WSJ via Rise Health)

The DOJ investigation reportedly extends to OptumRx (UnitedHealth's pharmacy benefit manager) and physician reimbursement practices at Optum-employed practices. For more on UnitedHealth's broader monopolization of the healthcare system, see our deep-dive.

The Grassley Senate Investigation

Then came the internal documents. On January 12, 2026, Senator Chuck Grassley (R-Iowa) released a 105-page Senate Judiciary Committee majority staff report built from more than 50,000 pages of UnitedHealth's own records. The title tells you everything: "How UnitedHealth Group Puts the Risk in Medicare Advantage Risk Adjustment." (Source: Sen. Grassley, January 2026)

What the documents showed:

• UnitedHealth "turned risk adjustment into a major profit centered strategy"
• The company deployed "aggressive strategies" including in-home HRAs, retrospective chart reviews, and "pay-for-coding" arrangements with external providers
• Internal training materials instructed providers to diagnose conditions based on minimal criteria:
  • Opioid dependence: Diagnose "physical dependence" in patients taking prescribed opioids as directed, without requiring withdrawal symptoms
  • Alcohol use disorder: Diagnose based on screening questionnaires alone
  • Dementia: Diagnose using just two of four standard diagnostic criteria rather than a comprehensive evaluation
• UnitedHealth leveraged "its size, degree of vertical integration, and data analytic capabilities to stay ahead of CMS's efforts to counteract unnecessary spending related to coding intensity"

The Grassley report concluded that "risk adjustment in MA has become a business in itself---by no means should this be the case." (Source: Medicare Rights Center, January 2026)

Market Impact

Wall Street noticed:

• Stock price: UnitedHealth shares fell more than 40% in 2025 (Source: Barchart, 2025)
• S&P Global Ratings: Revised outlook to negative in June 2025, citing DOJ investigation risk and operational underperformance (Source: Investing.com, June 2025)
• AM Best: Downgraded credit ratings in August 2025---Long-Term ICR from "a" to "a-" and Financial Strength Rating from A+ to A---citing "significant deterioration in operating performance" (Source: AM Best, August 2025)

No individuals have been criminally charged. Not yet.

The Broader Pattern: Which Insurers Have Been Caught?

Kaiser and UnitedHealth are the largest cases. They are not outliers. Medicare Advantage risk adjustment fraud has become one of the DOJ's biggest enforcement areas---and the timeline shows why:

Every single one of these settlements was resolved without an admission of guilt. All of them.

For fiscal year 2025, the DOJ recovered a record-setting $6.9 billion in False Claims Act settlements and judgments---with healthcare accounting for $5.7 billion (83%) of the total. (Source: Inside the False Claims Act, 2025) A record 1,297 whistleblower (qui tam) lawsuits were filed in FY2025, surpassing the previous record of 979.

The settlements keep coming. The behavior keeps continuing. Cigna paid $172 million to resolve allegations involving billions in extracted payments. That is not a deterrent. That is a licensing fee.

What Regulators Are (and Aren't) Doing

Enforcement: Too Little, Too Slow

The HHS Office of Inspector General has conducted 44 managed care audits since 2017, with 42 of them focused on diagnosis coding accuracy. (Source: Morgan Lewis, 2025) Forty-four audits for an industry processing millions of diagnosis codes across hundreds of MA organizations. That is a screen door on a submarine.

CMS also operates a Risk Adjustment Data Validation (RADV) audit program to identify and recover improper payments. It has spent years developing its methodology. The billions kept flowing while it did.

The V28 Risk Adjustment Model

CMS is phasing in a revised risk adjustment model (CMS-HCC V28) that reduces the financial impact of certain coding patterns. Early data suggests it is working: MedPAC's January 2026 figures showed coding intensity overpayments falling from $40 billion (2025) to approximately $22 billion (2026)---a 45% reduction. (Source: Healthcare Dive, 2026)

However, favorable selection overpayments simultaneously increased from $44 billion to $57 billion. Total overpayments went from $84 billion to $76 billion. You can see where this goes: fix one leak, the water finds another path.

Legislative Proposals: Stalled

In March 2025, Senators Bill Cassidy (R-LA) and Jeff Merkley (D-OR) introduced the No UPCODE Act (S. 1105), which would: (Source: Congress.gov)

• Require CMS to use two years of diagnostic data (instead of one) in its risk adjustment model
• Exclude diagnoses documented solely on HRAs or chart reviews from risk adjustment calculations
• Require CMS to assess coding differences between MA and traditional Medicare and publicly report findings

The bill has bipartisan support and AARP's endorsement. It has not passed. The insurance industry has made sure of that. (Source: AARP, 2025)

No Criminal Accountability

Billions in documented overpayments. Zero criminal charges against any executive at any major MA insurer. The DOJ's criminal investigation into UnitedHealth could change that---but as of this writing, no charges have been filed.

Civil settlements don't create personal accountability. Kaiser paid $556 million. No executive was prosecuted. The corporation absorbs the penalty, shareholders take the loss, and the people who designed the system go home.

How This Affects You

If You're on Medicare (Any Kind)

Every Medicare beneficiary pays approximately $198 more per year in Part B premiums because of MA overpayments. (Source: MedPAC, March 2025) You don't have to be enrolled in a Medicare Advantage plan to pay for their billing practices. That $13 billion in elevated Part B premiums comes out of every beneficiary's pocket.

If You're on Medicare Advantage Specifically

Your plan may be documenting conditions you don't actually have. This is not just a billing abstraction---phantom diagnoses in your medical record can affect your future care, your insurance options, and your life insurance eligibility. Conditions you never had, following you through the system.

What you can do:

1. Review your Medicare Summary Notice (MSN) carefully. Look for diagnoses, procedures, or services you don't recognize or didn't receive.
2. Request your medical records from your MA plan and compare them to what your doctors actually told you.
3. Report suspicious activity to 1-800-MEDICARE (1-800-633-4227) or file a complaint at medicare.gov.
4. Contact your Senior Medicare Patrol (SMP)---a federally funded program that helps beneficiaries detect and report Medicare fraud. Find yours at smpresource.org.

If You're a Taxpayer

The $84 billion in annual MA overpayments comes from federal tax revenue and Medicare trust fund reserves. $1.2 trillion projected over the next decade. Most of it legal under current rules. This is privatized losses with socialized costs---one of the largest sustained transfers of public money to private corporations in American history, happening in plain sight.

The Connection to Your Personal Medical Bills

The same companies overbilling Medicare are the ones processing your personal medical claims. UnitedHealthcare, Cigna, Aetna, Humana---the largest MA insurers are also the largest commercial health insurers. An institutional culture that treats diagnosis codes as a revenue strategy does not stop at the Medicare line.

If your insurer is denying claims, adding unexpected charges, or using coding practices that inflate your bills, you are dealing with the same corporate incentives that produce $84 billion in Medicare overpayments. Understanding how medical loss ratio rules are supposed to constrain insurer profits---and how insurers work around them---is the first step toward protecting yourself.

The industry will tell you risk adjustment is complex, that coding differences are "legitimate," that MA plans provide valuable extra benefits. Some of that is true. But $84 billion in overpayments, $7.5 billion in phantom diagnoses, record-breaking fraud settlements, and an ongoing criminal investigation tell a clearer story. The system isn't accidentally broken. It is working exactly as designed---and you are paying for it.