Does This Trump Proposal End the Insurance Industry’s Medicare Gravy Train?

In just one day, shares in four health insurance giants plummeted, losing nearly $100 billion in market capitalization. What happened? The Trump administration proposed to rein in one of the most profitable parts of the industry – the privatized Medicare scheme otherwise known as Medicare Advantage (MA).

At the end of January, the Centers for Medicare & Medicaid Services (CMS) proposed a basically flat payment increase of 0.09 percent for 2027, amounting to roughly $700 million. This payment increase sharply differs from the administration’s payment increase for 2026, which was 5.06 percent, amounting to over $25 billion.

For years, the large insurance companies that dominate the Medicare Advantage market have stolen taxpayer dollars to the tune of hundreds of billions of dollars. The Trump administration’s latest move will limit the industry’s exploitation, but it also exposes the harsh consequences of MA’s growth for patients.

The flat payment decision is reflective of heightened bipartisan scrutiny on overpayments to MA insurers. These refer to the billions extra that taxpayers have given to the companies to cover seniors’ health care compared to what they would have spent if those seniors were enrolled in traditional Medicare.

The two central pillars of this corporate looting have been upcoding and favorable selection. The former refers to insurers making their beneficiaries enrolled in their plans appear sicker, which increases the risk-adjusted payments that CMS gives the companies to provide coverage. The latter regards the practice of choosing healthier patients who will use less, and less expensive, health care services. By getting higher government payments while reducing actual spending on care, the insurers then get to reap more profits.

For years, the Medicare Payment Advisory Commission (MedPAC) has estimated tens of billions of dollars in overpayments to MA insurers. MedPAC estimated $84 billion in 2025 overpayments and a slightly lower $76 billion figure for 2026 following changes in CMS’s risk adjustment policies. Based on the 2025 estimate, the Committee for a Responsible Federal Budget estimated $1.2 trillion in overpayments from 2025-2034, and MedPAC released an estimate of $482 billion in overpayments from 2020-2026.

Vast overpayments have made Medicare Advantage extremely lucrative, with companies like UnitedHealthcare earning twice as much revenue in MA compared to its standard private insurance to those below the age of 65.

Taking in vast sums of revenue helps companies advertise extra benefits like gym memberships while downplaying the downsides of MA compared to traditional Medicare. Practically universally, these private plans also offer coverage for vision, hearing, and dental care unlike traditional Medicare. The quality of such coverage is often poor, covering inexpensive routine care with a cap on how much the company will spend annually.

At the same time, MA plans function like normal private insurance with restricted provider networks that limit patients’ choice of doctor and prior authorizations that delay and deny delivery of care. This is a key trade-off with traditional Medicare, where 98 percent of non-pediatric physicians accept such coverage and there are highly limited circumstances for prior authorizations (although the administration is trying to increase its usage in the program).

MA insurers with vast resources also capitalize on immense profits through extensive advertising campaigns, which have succeeded in growing the number of seniors who choose to enroll in an MA plan rather than traditional Medicare. 2025 marked the third year where a majority (54 percent) of eligible Medicare beneficiaries enrolled in an MA plan, with a majority first enrolling in MA plans in 2023 (51 percent) and having grown from 25 percent in 2010.

What Will Happen Next?

With the 0.09 percent proposed payment increase, the private MA insurance industry is now publicly threatening to worsen the health care coverage that it offers. Citing the rising costs of medical care, the industry has pointed to potential cuts in the benefits it offers, further restricting its provider networks to limit doctor choice, raising premiums, and not offering plans to certain geographic areas.

Importantly, the current Trump administration move is just a proposal, and the industry is reportedly preparing a significant lobbying campaign to see if it can purchase a more favorable payment increase with the administration.

Industry is tying these threats to the wellbeing of patients – and they aren’t wrong, at least in the short term. For example, UnitedHealthcare’s CEO Tim Noel described“a profoundly negative impact on seniors’ benefits and access to care.” Elevance CEO Gail Boudreauz warned that the company could change “benefits, networks, premiums, and exiting geographies. And quite frankly, that’s not good for seniors.”

Indeed, if insurers turn to worsening their plan offerings through shifting more costs onto patients and further restricting their choice of doctor, then millions of seniors will have worse and/or more expensive access to health care under Medicare Advantage.

People could choose to switch to traditional Medicare; however, there is a significant downside. The federal government requires MA plans to cap annual out-of-pocket (OOP) expenses for patients ($9,250 in 2026 for approved services). Policymakers have chosen not to create such a cap in traditional Medicare, and the program only covers 80 percent of the cost for outpatient services. Legislators could institute an OOP cap for traditional Medicare – and one estimate from Brown University researchers pegged the cost of a $1,000 cap for 2025 at $44 billion, much less than MA overpayments – but they have chosen not to.

Private insurers do offer supplemental Medigap plans that fill this cost-gap. Aside from having to pay additional premiums for these Medigap plans, the insurers can legally deny coverage for seniors switching from MA to traditional Medicare based on pre-existing conditions. Only a handful of states offer protections from such discrimination. Thus, sicker patients who need better coverage may struggle to switch over to traditional Medicare.

Yet, the federal government does need to stop overpaying Medicare Advantage companies if it seriously wants to reduce waste, fraud, and abuse. These overpayments cost tens of billions of dollars annually and around a trillion dollars over a decade.

That’s the dilemma. Through creating and supporting Medicare Advantage for decades, policymakers in Congress and CMS have allowed large, immensely profitable insurance companies to regularly steal billions from taxpayers while continuously increasing the number of patients they cover. After decades of growth and theft, the government is finally starting to rein in the program but now the cost is much higher.

Theoretically, insurance companies could accept lower profit margins to not hurt patients – especially given how much more profitable MA plans are than the individual private insurance market – but their goal is maximizing profits, not public health. Thus, to keep cash flowing to its executives and shareholders, insurance companies will likely shift the burden of lower government payments onto patients by providing worse coverage.

However, this dilemma exists insofar as the policy debate is restricted to only tinkering with the Medicare Advantage program and not drastically altering it or eliminating it entirely. Other countries with universal health coverage achieved with private insurance do not have for-profit insurance companies providing primary health insurance. If Medicare Advantage is truly to mimic these other nations, then the program should only include nonprofit insurance funds to keep out the predatory actors that currently dominate the MA market.

Alternatively, Medicare Advantage need not exist at all. Taxpayers have alwaysspent more on Medicare Advantage than they otherwise would have spent if all seniors were enrolled in traditional Medicare. The program doesn’t just save money, but it offers patients vastly greater choice of doctor without restricted networks, and it lacks the pervasive use of prior authorizations.

The current issues with traditional Medicare are intentional policy decisions that the government can reverse. Legislators could create a $1,000 cap on OOP expenses and add vision, hearing, and dental care with the funds it currently wastes by overpaying health insurance companies in MA.

Ultimately, the Trump administration’s proposal is a small step in the right direction towards reining in exorbitant waste in Medicare Advantage, but it does not go as far as is necessary to truly root out profiteering and provide seniors with comprehensive coverage.

This first appeared on CEPR.

The post Does This Trump Proposal End the Insurance Industry’s Medicare Gravy Train? appeared first on CounterPunch.org.