The administration defended the program, saying without bonuses many plans would not have an incentive to improve.
But Sen. Orrin Hatch, R-Utah, said the GAO report suggests that the administration abused its authority, pumping money to the plans to avoid more criticism over the cuts.
Medicare Advantage is a popular private insurance alternative to the traditional health care program. More than 3,000 private plans serve nearly 12 million beneficiaries, about one-fourth of Medicare recipients. They offer lower out-of-pocket costs, usually in exchange for some limitations on choice.
The health care law trimmed Medicare Advantage to compensate for prior years of overpayments that had allowed the plans to offer attractive benefits and pocket healthy profits.
Republicans fiercely attacked those cuts during their successful campaign to take control of the House in the 2010 midterm elections. Seniors responded by backing GOP candidates.
After the election, the administration announced what it called a "demonstration program" to test whether a generous bonus program would lead to faster, broader improvements in quality. (The health care overhaul law had already provided a smaller bonus program only for top-rated plans.)
GAO, the investigative agency of Congress, did not address GOP allegations that the bonuses are politically motivated. But, its report found the program highly unusual. It "dwarfs" all other Medicare pilots undertaken in nearly 20 years, the GAO said.
Most of the bonus money is going to plans that receive three to three-and-half stars out of a possible five stars on Medicare's quality rating scale, the report said.
Available through 2014, the bonuses will soften much of the initial impact of the Medicare Advantage cuts, acting like a temporary reprieve.
This year, for example, the bonus program offset about 70 percent of the cuts in the health care law. Indeed, Medicare Advantage enrollment is up by 10 percent and premiums have gone down on average.
But GAO questioned whether the bonus program will achieve its goal of finding better incentives to promote quality. "The design of the demonstration precludes a credible evaluation of its effectiveness in achieving (the administration's) stated research goal."
The administration says it disagrees with the GAO findings and believes the bonuses will improve the quality of care.
"Absent this demonstration, we believe that many plans would not have an immediate incentive to improve the quality of care delivered to (Medicare Advantage) enrollees," the Health and Human Services department said in its formal response to GAO.
Hatch, the ranking Republican on the Senate panel that oversees Medicare, is questioning whether the administration had the legal authority to create the program.
"The Obama administration seems to be using a technicality to sidestep Congress and write itself a blank check to spend more money for political purposes leading into this year's elections," said Hatch.
"The White House does not have the authority to green-light spending on whatever program it wants," he added. "This report is just the beginning I will be demanding answers."
HHS spokeswoman Erin Shields said the bonuses will help Medicare improve quality. "The temporary demonstration will build on the improvements due to star quality ratings to learn how to best incentivize quality while we bring payments down," she said.
The Associated Press first reported on concerns about the bonus program last spring. Administration officials said at the time it had nothing to do with politics.
But another nonpartisan agency that advises lawmakers on Medicare also criticized the bonus plan as the administration was pursuing it.
The Medicare Payment Advisory Commission said it amounts to "a mechanism to increase payments" and its design "sends the wrong message about what is important to the program and how improved quality can best be achieved."
The bonuses are the costliest demonstration program in Medicare history. They'll be paid from the Medicare trust fund.