“Don’t Worry, Insurance Covers It”

Fee-for-service (FFS) payment models still dominate Medicare Part B and much of Medicare Advantage. The incentives are clear: more care delivered, more bills sent, more revenue collected.

If you’ve ever heard a nurse, receptionist, or medical assistant say to a family member, “Don’t worry, insurance pays for it,” you’ve seen the mindset in action. In the moment, it sounds reassuring. But when the insurance in question is a taxpayer-funded program like Medicare, that phrase masks a hard truth: overuse and inefficiency don’t just impact a budget line - they eventually hit all of us in the form of higher premiums, taxes, and reduced program sustainability.

How Fee-for-Service Incentives Play Out

Under FFS, each office visit, test, scan, and procedure generates a separate bill. The more services provided, the higher the total reimbursement. This model still sets the rules of the game for:

Medicare Part B - covering outpatient services, specialist visits, and diagnostics.

Many Medicare Advantage provider contracts - even though plans receive a capitated payment from CMS, they often reimburse physicians based on FFS or hybrid models.

This means that a Medicare Advantage patient getting an unnecessary MRI “because insurance covers it” can create the same cost pressures as a traditional Medicare patient under Part B.

The Scale of the Problem

MA Overpayments via Coding Intensity (~$40B): MedPAC projects Medicare Advantage risk scores remain about 10% higher than comparable FFS beneficiaries, even after CMS’s statutory adjustment. This drives roughly $40 billion in extra payments in 2025.

Improper Payments in FFS (~$31.7B): CMS estimates a 7.66% improper payment rate in 2024 - from documentation errors to services that fail medical necessity checks.

Low-Value Care (~$3.6B): JAMA Health Forum identified dozens of services that provide little or no clinical benefit, still billed regularly.

Beneficiary Out-of-Pocket (~$0.8B): Even “fully covered” services can leave seniors paying coinsurance or deductibles for low-value care.

Everyday Examples

Unnecessary Imaging: An older adult with routine back pain receives a high-cost MRI within the first week, despite guidelines recommending conservative therapy first. Insurance pays most of it - Medicare, in this case - but taxpayers foot the ultimate bill.

Redundant Testing: Multiple specialists repeat lab panels because “it’s covered,” ignoring recent results in the electronic record.

Prolonged Therapy: Physical therapy sessions continue well past the point of measurable improvement, justified on the grounds that the patient enjoys them and “insurance will cover it.”

Why It Persists

Volume-Based Compensation: In many practices, physician pay is tied to work RVUs - essentially a productivity measure. More services mean more income.

Supplemental Coverage: Medigap and employer retiree plans reduce or eliminate patient cost-sharing, removing the only point-of-service brake on overutilization.

Diffuse Accountability: When multiple providers, specialists, and facilities are involved, no single entity feels responsible for managing total cost of care.

The Cost of “Don’t Worry”

Between volume-based incentives, coding-driven overpayments, persistent improper billing, and supplemental coverage that removes price signals, the cost of “don’t worry, insurance pays” is substantial and it’s borne by all of us.

Left unchecked, these dynamics threaten Medicare’s long-term sustainability. And as more baby boomers age into the program, the fiscal strain will only increase.

Moving Toward Solutions

Align Provider Payment Models: Expand population-based risk arrangements that reward quality and efficiency over volume.

Tighten Risk Adjustment Rules: Ensure MA payments reflect actual patient complexity without inflating coding intensity.

Target Low-Value Care: Use claims analytics to identify and reduce unnecessary services.

Engage Patients: Educate beneficiaries about cost, necessity, and alternative treatment options - even when they’re told “insurance covers it.”

Sources: MedPAC 2025; CMS 2024 Improper Payment Report; JAMA Health Forum 2022

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