(CNN) The federal government may be paying insurers billions more than necessary to cover senior citizens in the popular Medicare Advantage program, a new report has found.

In Medicare Advantage, private insurers contract with the federal government to provide coverage to the elderly and disabled in Medicare. About one-third of all Medicare beneficiaries are enrolled in these plans, and that figure is expected to grow in the coming decade,

However, insurers are paid based on costs incurred by those in the traditional Medicare program, adjusted for factors such as age and health status.

The Kaiser Family Foundation found that seniors who enroll in Medicare Advantage typically spent $1,250 less in the year before they switched to an insurer-run plan, compared to those who remained in the traditional program, according to the report that was published Tuesday. They also used fewer health services, even if they had medical issues such as asthma, breast or prostate cancer and diabetes, than their peers in traditional Medicare.

This means that the federal government may be overestimating the expected costs of Medicare Advantage enrollees, who may be healthier than their counterparts in traditional Medicare. Adjusting the payments to more accurately reflect costs could have major implications.

Read More