Medicare Advantage is the privatized version of Medicare — a program in which the federal government pays private insurers a fixed monthly amount to cover Medicare beneficiaries, and those insurers keep the difference between what they receive and what they pay out in care. The less they spend on care, the more they keep. That structure, applied to a population of older and disabled Americans whose healthcare needs are substantial and whose federal coverage is guaranteed, has produced a documented pattern of financial manipulation that federal investigators have tracked for more than a decade.
The mechanism is called risk adjustment. The payment is the problem.
How the Payment System Works
Traditional Medicare pays providers fee-for-service — a payment for each service delivered. Medicare Advantage pays insurers a capitated rate — a fixed monthly payment per enrollee, adjusted for the expected health status of that enrollee. An insurer covering a healthier-than-average population receives a lower payment; an insurer covering a sicker-than-average population receives a higher payment. The adjustment is designed to ensure that insurers are not financially penalized for covering high-need beneficiaries and are not financially rewarded for cherry-picking healthy ones.
The risk adjustment calculation is based on diagnosis codes documented in the patient’s medical record. Each diagnosis carries a risk score that affects the capitated payment. A beneficiary with documented diabetes, congestive heart failure, and chronic kidney disease generates a higher risk-adjusted payment than a beneficiary with no documented chronic conditions — reflecting the higher expected cost of care.
The financial incentive this creates is direct and powerful: the more diagnoses an insurer can document in its enrollees’ medical records, the higher the risk-adjusted payments it receives from the federal government. Documenting a diagnosis increases revenue. Treating the documented condition costs money. An insurer optimizing for profit has a structural incentive to document conditions aggressively and treat them minimally — or not at all.
What Federal Investigators Found
The HHS Office of Inspector General has conducted multiple audits of Medicare Advantage risk adjustment practices since 2012. The findings across those audits are consistent: Medicare Advantage insurers submit diagnosis codes that increase risk-adjusted payments for conditions that are not supported by the medical record, that were not treated during the payment year, or that appear to have been added through retrospective chart review and in-home assessment programs rather than through active clinical care.
A 2020 OIG report examined a sample of Medicare Advantage risk adjustment payments and found that 99 percent of the diagnoses that led to the highest-value payment adjustments — the diagnosis codes generating the largest per-enrollee payment increases — were submitted by the insurer rather than by a treating provider. That finding is significant: diagnoses generated by insurer-directed chart reviews and in-home assessments, rather than by physicians treating the patient for the documented condition, drove the payment adjustments.
The Government Accountability Office estimated in 2022 that Medicare Advantage overpayments — payments above what the same beneficiaries would have cost in traditional Medicare — totaled approximately $75 billion over the preceding decade. The federal government’s own actuaries have consistently found that Medicare Advantage costs the Medicare program more per beneficiary than traditional Medicare would cost for an equivalent population, after accounting for the demographic and health status differences between the two populations. The program advertises itself as a more efficient alternative to traditional Medicare. The audited payment data does not support that claim.
The Specific Mechanisms
Three practices have been most consistently documented as generating improper risk adjustment revenue:
Retrospective chart reviews are systematic reviews of patient medical records, conducted by insurer-employed or insurer-contracted coders, specifically to identify diagnosis codes that could have been submitted during the payment year but were not. When a retrospective review identifies a documented but uncoded diagnosis, the insurer submits an addendum code to increase the risk score retroactively. The practice is not inherently improper — correcting genuine coding omissions is legitimate. The documented problem is that insurer-directed retrospective reviews are structured to find codes that increase payments, not to correct the full range of coding errors in both directions.
In-home health assessments send nurse practitioners or physicians to beneficiaries’ homes, nominally to conduct wellness evaluations. In practice, the assessments are documented in OIG investigations and whistleblower litigation to generate diagnosis codes — particularly for conditions with high risk-adjustment value such as depression, diabetes complications, and vascular disease — without resulting in referrals to treating physicians or changes to the beneficiary’s care plan. The assessment documents the condition; the insurer collects the higher payment; the beneficiary receives no additional treatment.
Chart review addenda allow insurers to submit additional diagnosis codes after the original claim is filed, up to specified deadlines. Insurers have developed systematic programs to identify high-value codes that can be added through addenda, employing large staffs of coders and using algorithmic tools to identify documentation that supports additional diagnoses. The addenda process is legitimate in principle and necessary in practice; its systematic use as a revenue optimization tool — rather than a coding accuracy tool — is what investigators have documented.
The Named Accountability Record
The Department of Justice has pursued False Claims Act cases against multiple major Medicare Advantage insurers for risk adjustment fraud. The False Claims Act allows the government to recover treble damages — three times the amount of the improper payment — plus civil penalties, and permits whistleblowers who bring cases to share in the recovery.
UnitedHealth Group has faced the most extensive litigation. The Department of Justice filed suit against UnitedHealth in 2017, alleging that the company had systematically submitted unsupported diagnosis codes through chart review and in-home assessment programs to inflate risk adjustment payments. The case alleged that UnitedHealth had deleted valid diagnosis codes identified through chart reviews when those codes would have reduced payments, while adding codes that increased payments — a one-directional manipulation of the risk adjustment system. UnitedHealth denied the allegations and contested the case through years of litigation. A federal jury found in UnitedHealth’s favor in 2024 on the specific claims tried; the government’s broader litigation against the company continued.
Humana paid $90 million in 2023 to settle a False Claims Act case alleging improper risk adjustment practices. The settlement resolved allegations that Humana had submitted unsupported diagnosis codes generated through chart review and in-home assessment programs. Humana admitted no wrongdoing as part of the settlement.
Cigna paid $172 million in 2022 to settle DOJ allegations that it had submitted invalid diagnosis codes through a chart review program. The settlement was one of the largest Medicare Advantage risk adjustment fraud recoveries at the time. Cigna admitted no wrongdoing.
CVS Health/Aetna has faced ongoing DOJ investigation into risk adjustment practices. Whistleblower cases have been filed against multiple Aetna Medicare Advantage plans alleging in-home assessment and chart review fraud consistent with the patterns documented in other insurer cases.
The Enforcement Gap
The settlements and litigation outcomes represent a fraction of the estimated overpayments. The GAO’s estimate of $75 billion in Medicare Advantage overpayments over a decade substantially exceeds the total of all False Claims Act recoveries from Medicare Advantage risk adjustment cases over the same period. The enforcement gap — the ratio of documented overpayment to recovered funds — reflects both the difficulty of proving risk adjustment fraud under the legal standards required for False Claims Act liability and the limited resources available for audit and enforcement relative to the scale of the program.
Medicare Advantage covered approximately 33 million beneficiaries as of 2024, representing more than half of all Medicare enrollees, and generated approximately $450 billion in federal payments annually. The audit infrastructure available to CMS and the OIG to verify risk adjustment accuracy across a program of that scale is substantially smaller than the program itself. Systematic overpayment at the levels the GAO and OIG have documented is, in this environment, a rational financial strategy: the expected value of additional risk adjustment revenue exceeds the expected cost of enforcement, even accounting for the occasional nine-figure settlement.
The Full Picture
This article covers the risk adjustment fraud mechanism and the documented accountability record. It is a focused treatment of one dimension of a larger program with a more complex history.
The full Medicare Advantage story — how the program was created, how it grew from a marginal share of Medicare enrollment to the majority of it, how marketing practices target beneficiaries, what the coverage and access differences between Medicare Advantage and traditional Medicare look like, and what the policy debate over the program’s future involves — is documented in the Medicare Advantage and Private Medicare hub at americasplan.org/hub-medicare-advantage/.
Health Insurance Hub
00 — Hub: Health Insurance Industry
01 — How the Health Insurance Industry Works — and Who It Works For
02 — How Health Insurers Make Money
03 — Designed to Discourage: How Benefit Structures Reduce Claims
04 — The Denial System: How Insurers Decide What Not to Pay
05 — Prior Authorization: What Patients Experience
06 — The Administrative Burden and What It Costs
07 — Narrow Networks and What They Cost You
08 — The Employer-Sponsored Insurance Trap
09 — The Broker and Consultant Layer
10 — Billed for Diseases They Never Treated: How Medicare Advantage Fraud Works
11 — What Single-Payer Resolves: The Evidence From This Hub
12 — Health Care Forum: Join the conversation here
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