---
type: claim
domain: health
description: "Prior authorization and narrow networks create self-selection of healthier members generating $580B in overpayments without illegal activity"
confidence: likely
source: "Committee for a Responsible Federal Budget via MedPAC data, March 2025"
created: 2026-03-11
---

# Favorable selection in Medicare Advantage is structural not fraudulent because plan design discourages care-seeking among sicker beneficiaries

Medicare Advantage favorable selection generates $580 billion in overpayments over 2025-2034—nearly equal to the $600 billion from coding intensity—but operates through legal structural mechanisms rather than fraudulent billing practices. This makes it both harder to detect and harder to regulate.

MA plans use prior authorization requirements and narrow provider networks to create friction in care access. These design features disproportionately discourage enrollment and retention of beneficiaries who need frequent or complex care. Healthier Medicare beneficiaries, who face lower friction costs from these barriers, self-select into MA plans. The result is an 11% cost increase versus fee-for-service Medicare in 2025 from selection effects alone.

Unlike coding intensity (which involves diagnosis manipulation that CMS can audit and adjust), favorable selection emerges from plan design choices that are individually defensible but collectively create systematic risk pool advantages. There is no fraud to prosecute—plans benefit from attracting healthier members through features that appear to be standard managed care tools.

The trust fund impact is $250 billion over the decade, with beneficiaries bearing an additional $110 billion through premium increases. Because the mechanism is structural rather than fraudulent, policy solutions require changing payment methodology or plan design rules, not enforcement actions.

## Why This Matters

Policy debate focuses heavily on upcoding fraud, but favorable selection is almost exactly as large as a fiscal problem while being far less visible. The symmetry between the two mechanisms ($600B vs $580B) means that addressing only coding intensity leaves half the overpayment problem untouched.

## Evidence

- Favorable selection: $580B total overpayment (2025-2034)
- Trust fund impact: $250B
- Beneficiary premium impact: $110B
- 11% increased MA costs vs FFS in 2025 from selection alone
- Mechanism: prior authorization and narrow networks discourage care-seeking
- Healthier beneficiaries self-select into MA due to lower friction costs

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Relevant Notes:
- [[value-based care transitions stall at the payment boundary because 60 percent of payments touch value metrics but only 14 percent bear full risk]]
- [[CMS 2027 chart review exclusion targets vertical integration profit arbitrage by removing upcoded diagnoses from MA risk scoring]]
- [[proxy inertia is the most reliable predictor of incumbent failure because current profitability rationally discourages pursuit of viable futures]]

Topics:
- [[domains/health/_map]]
