In a nutshell, the government publishes the cost of providing services to Medicare beneficiaries in a county and allows health plans to bid to provide those services. Since there is so much competition among health plans, they always bid below the benchmarks.
To ensure Medicare enrollees benefit from this competition, the government pays the plans a rebate — a share of the difference between the benchmark and the below-benchmark bid — a savings that plans must pass on to beneficiaries as lower premiums, lower cost sharing, or extra benefits not available in traditional Medicare.
In 2024, these rebates averaged $194 per month. The rebate, which has doubled since 2018, is a big draw for Medicare beneficiaries. In 2018, the average Medicare beneficiary could choose from 17 Medicare Advantage plans with prescription drug coverage. In 2025, the average Medicare beneficiary has a choice of 34 plans — twice as many.
That is good news, but not as good as it should be. Plan choices actually peaked in 2024, when the average beneficiary had 36 choices. The difference between 36 and 34 may not seem like much, but 2025 is the first year with a declining number of participating plans since 2014.
Looking under the hood, data indicated the number of plans Medicare beneficiaries could choose from shrank by almost 3%, from 5,205 to 5,061. As a result, 7% of Medicare Advantage beneficiaries, just under 2 million people, were forced to switch plans — whether they wanted to or not. Further, the number of plans offering supplemental benefits, such as fitness, transportation, meals, nutrition, acupuncture, OTC benefits, and in-home support services, has shrunk. These extra benefits accounted for 17% of Medicare Advantage spending.
Health services researchers describe many of these benefits as “social factors of health.” Improving nutrition and fitness to reduce the burden of chronic illness is a priority of Robert F. Kennedy, Jr., President-elect Donald Trump’s choice to lead the U.S. Department of Health & Human Services, the center that oversees Medicare. He should ask bureaucrats why they think cutting nutritional counseling or fitness activities is good for seniors’ health.
Choices are shrinking for a reason. Because Democrats have long hoped for a so-called “single-payer” health system, through which the government rations all healthcare, the success of Medicare Advantage is a problem that the Biden administration has tried to fix by imposing more obstacles to health plans’ ability to compete for enrollment.
One way the administration has rigged the playing field is by manipulating “risk adjustment,” the very complex method through which the government calculates benchmarks. For example, a healthy 65-year-old is expected to incur much lower health spending than an 85-year-old with dementia and diabetes. So, the benchmark for a county is a blended figure, including all its Medicare beneficiaries.
Every year, the Biden administration ratchets down the payments for the more expensive patients, accusing the Medicare Advantage plans of misrepresenting their beneficiaries’ health status. However, risk adjustment is a blunt tool, only explaining about one-eighth of beneficiaries’ costs. The administration’s argument is very weak, and the most vulnerable patients are going to suffer the most if this trend continues.
The administration will announce the preliminary 2026 payment policy around Jan. 31 and will finalize it around April 1. Of course, the bureaucrats who draft the proposal will have finished it well before Inauguration Day, which is on Jan. 20. Thus, Trump’s appointees will first lay eyes on it on Jan. 20, only a week or two before its scheduled publication. They will have to be prepared to move quickly to identify and correct the increasingly harmful policies the Biden administration will propose for 2026 and restore beneficiaries’ choices.