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Much news coverage has been devoted to the higher costs awaiting millions of American seniors and those with disabilities choosing a Medicare Advantage (MA) plan for 2027. But, a recent move by the Trump administration highlights how the MA program is in an even worse situation.

Medicare Advantage is privatized Medicare. Instead of traditional Medicare, where the federal government directly covers seniors’ health care, Medicare Advantage has the government give taxpayer funds to health insurance companies to manage people’s coverage. Each company gets a flat fee per enrollee — with higher payments for sicker enrollees — and the company profits by keeping the difference between the taxpayer funds they receive and what they spend on patient care.

From now until December 7, eligible Americans will be enrolling in new MA plans. Significant media attention has focused on how many people — an estimated 3.8 million — are being forced to find new coverage. 512,000 of these people come from 14 states where their plan no longer serves their geographic area.

The vast majority of beneficiaries will be able to keep their current plans, but they still face changes in the form of higher costs and less benefits. While upfront costs may remain the same in terms of the same or even lower premiums, the insurance companies are increasing the cost-sharing burden borne by patients. Higher copays and deductibles mean that patients will have to spend more out of pocket per service and they will have to spend more before their insurance even kicks in. Additionally, insurance companies are reportedly cutting back on historically widely advertised supplemental benefits not offered in traditional Medicare, such as coverage for dental care.

These cuts follow higher costs faced by insurance companies, as patients have increasingly used their health coverage rather than pay for it and not seek services. Spending more on providing care means that MA insurers have less to hold onto as profits.

This situation highlights a fundamental flaw in Medicare Advantage that the media coverage too often misses. The interests of insurance companies to maximize profits supersedes their focus on actually ensuring seniors and people with disabilities get health care. This is especially problematic given that Medicare Advantage is funded by American taxpayers as part of the Medicare program, which Congress created to ensure health coverage rather than fuel the private insurance industry’s profits.

The “Ghost Networks” Problem

Even a recent move by the Trump Administration to improve the Medicare Advantage program further highlights this fundamental flaw. The Centers for Medicare and Medicaid Services (CMS) oversees Medicare Advantage, and it recently proposed a rule to crack down on “ghost networks.” Like other forms of private insurance, MA plans contract with doctors and other providers to form networks, and patients are restricted to getting care within these networks or else they’ll have to pay much more or entirely out of pocket.

So-called “ghost networks” refer to networks listed by insurance companies that include significant numbers of providers that are not actually contracted to be part of those networks. Looking at data for 2019-2022, researchers estimated that among 432,146 providers that insurers advertised as being in-network in at least one of 3,659 plans, around four in ten were likely ghosts. Their estimate is based on the fact that these providers billed fewer than 11 total services for patients enrolled in MA plans.

This issue is a problem with restricted networks in private insurance at-large rather than simply Medicare Advantage. The majority of people on Medicaid actually get coverage through Medicaid managed care organizations, where private companies are paid to manage people’s coverage in restricted networks. According to reporting by The Wall Street Journal, more than one in three providers listed on the provider networks for Medicaid managed care plans among 22 states did not actually provide care to Medicaid patients in 2023.

While it is better than not for CMS to propose a rule to attempt to better regulate the existence of ghost networks, the need for such enforcement at all reflects a fundamental issue with the MA program. The proposed rule aims to implement a directive from Congress in the 2026 Consolidated Appropriations Act. Accordingly, the rule outlines how insurers in MA must verify their provider networks every 90 days, report accuracy scores publicly and to CMS for their listed networks, and remove providers that the insurer determines are no longer a part of the network.

The extent to which CMS will properly enforce these requirements, and how much ghost networks will actually decrease, is unknown. But one thing is for certain: the issue that there are substantial ghost networks at all reflects the profit-over-people incentives in the MA program. Maintaining accurate networks is a cost, while having a larger network is a benefit when marketing plans to potential enrollees. If they can get away with it, insurers are financially incentivized to not crack down on ghost networks.

Perhaps more importantly, this problem does not exist in traditional Medicare. There are no restricted networks in traditional Medicare as there are in MA, as nearly all clinicians (98 percent) participate in Medicare. Thus, the issue is unique to the privatized MA system that has relied on the integrity of health insurance companies.

While insurance companies in MA force higher costs onto their enrollees, cut benefits, and mislead patients with networks of ghost providers, it is vital to remember that these behaviors occur on the taxpayer’s dime. While proponents of MA originally advertised the program as a cost-cutting, efficiency-increasing alternative to traditional Medicare, MA has never saved money. Most recently, according to the independent Congressionally-created watchdog MedPAC (Medicare Payment Advisory Commission), taxpayers will spend $76 billion more funding private insurers to manage health care than they otherwise would have spent if all beneficiaries were enrolled in traditional Medicare.

Ultimately, as millions of Americans are forced to confront issues with their Medicare Advantage coverage and media reports cover ongoing developments with the program, it is important to consider the broader context of the MA program and what it means for how the government spends taxpayer money.

This first ran on CEPR.