Mandatory Spending
Function 570 - Medicare
Reduce Medicare Advantage Benchmarks
CBO periodically issues a compendium of policy options (called Options for Reducing the Deficit) covering a broad range of issues, as well as separate reports that include options for changing federal tax and spending policies in particular areas. This option appears in one of those publications. The options are derived from many sources and reflect a range of possibilities. For each option, CBO presents an estimate of its effects on the budget but makes no recommendations. Inclusion or exclusion of any particular option does not imply an endorsement or rejection by CBO.
Billions of dollars | 2025 | 2026 | 2027 | 2028 | 2029 | 2030 | 2031 | 2032 | 2033 | 2034 | 2025– | 2025– |
Change in outlays | 0 | 0 | -18 | -50 | -52 | -61 | -66 | -72 | -85 | -85 | -120 | -489 |
This option would take effect in January 2027.
The Medicare Advantage program allows Medicare beneficiaries—people age 65 or older and younger people with long-term disabilities or end-stage renal disease—to enroll in private plans for their Medicare coverage (a Medicare Advantage plan) instead of the publicly administered Medicare fee-for-service (FFS) program. About 31 million Medicare beneficiaries (or 52 percent of beneficiaries) were enrolled in a Medicare Advantage plan in 2023. The federal government pays a fixed amount for each beneficiary to insurers offering those plans, and the insurers bear the cost of any health care expenses incurred by the beneficiary for services covered by the plan.
Insurers submit bids indicating the amount they will accept for providing the benefits covered by Medicare Part A (which primarily covers inpatient services provided by hospitals and care in skilled nursing facilities, home health care, and hospice care) and Part B (which mainly covers services provided by physicians and other practitioners and by hospitals' outpatient departments) for a beneficiary of average health. How much the federal government pays insurers depends on those bids and how they compare with predetermined benchmarks set by the federal government. Benchmarks are currently tied to the projected spending for an average beneficiary in Medicare FFS in the same county.
This option would reduce benchmarks in the Medicare Advantage program by 10 percent, beginning in January 2027. That reduction would be applied uniformly across all counties. All other methods for calculating payments to Medicare Advantage plans would continue as required under current law.
Under this option, average premiums for Medicare Advantage and FFS enrollees would be lower than they would be under current law. Medicare Advantage enrollees would, on average, pay more out of pocket for services than they would under current law and receive fewer supplemental benefits.