Medicare Advantage Bonuses Poised To Drop This Year For First Time Since 2015, KFF Says

Dive Brief:

• Bonus payments to Medicare Advantage plans are expected to fall by $1 billion this year, after the expiration of pandemic-era policies that temporarily increased plans’ star ratings, according to new research.
• The drop reverses a long period of growth in MA bonuses, which critics maintain increase the financial burden on Medicare. MA bonus payments increased more than 400% between 2015 and 2023, according to health policy research firm KFF.
• However, MA plans will still rake in at least $11.8 billion in bonuses this year — still a higher total than in each year from 2015 to 2022, KFF said. UnitedHealthcare and Humana, the two largest MA payers in the country, are expected to receive half of that sum.

Dive Insight:

The star ratings system was established by the Affordable Care Act over a decade ago in a bid to get plans to compete over quality. Star ratings are used to determine two parts of a plan’s MA outlook: whether a plan receives a bonus, and a plan’s ability to bid against a higher benchmark rate.

Plans that receive four stars or above receive a 5% quality bonus adjustment for the following year and have their benchmark increased. Bidding against a higher benchmark rate and higher rebate percentages give plans a competitive advantage with respect to benefit offerings and plan value.

As such, the ratings are closely watched by executives and investors and and any changes from the government that could curb the ratings are quickly opposed.

During the coronavirus pandemic, the government passed policies that temporarily increased star ratings for certain plans. Those policies sunset in 2022, causing star ratings to dip for the 2023 plan year. Still, bonus payments in MA reached a record $12.8 billion last year due to the lagging impact of the ratings — payments in 2023 were based on ratings from 2022, when the COVID-19 policies were still in effect.

Generally, MA bonuses to plans track to the size of their enrollment. UnitedHealthcare, the biggest MA payer in the U.S., should receive $3.4 billion in bonuses this year, followed by its next-largest peer in the program, Humana, which should get $2.5 billion, KFF said.

Kaiser Permanent is collecting the highest per-member bonus, at $516, while Centene is bringing in the lowest per-member bonus, at $32. Only 8% of Centene’s members were in plans last year that qualified to receive bonuses this year, though Centene has improved its stars since.

The star ratings bonuses are controversial among Medicare watchdogs and some health policy experts for not serving as a useful indicator of plan quality while contributing to Medicare’s spending deficit.

Spending on bonus payments has grown faster than enrollment in MA, even as enrollment has skyrocketed to about 33.4 million individuals — more than half of all eligible Medicare beneficiaries — this year. Enrollment is projected to continue growing.

As a result of increasing bonus payments, along with frequent insurer upcoding of members’ health needs, privatized MA plans have raised costs for Medicare by $612 billion since 2007, including $82 billion last year alone, according to congressional advisory group MedPAC.

Earlier this summer, the CMS was forced to recalculate MA star ratings after federal judges ruled in lawsuits brought by health insurers that the agency had erred in calculating the original ratings for 2024.

The redo granted more than 60 MA plans offered by 40 insurers higher stars. It’s a boon for the industry as it faces rising costs from more seniors using medical services, and unfavorable regulatory changes, including payment rates for next year and a stricter method for calculating members’ health needs, that are expected to lower reimbursement.

However, plans could see their ratings fall next year after regulators increased more than 60% of MA cut points for 2025, Leerink analyst Whit Mayo warned in a note last month. Cut points are the bounds that determine star ratings, and increasing them could mean the difference between a plan receiving a 3.5 star rating versus a 4.

“This underscores a fact given the relative framework of Stars how the overall industry saw broad improvement, but also underscores the increased competitiveness and risk that plans could slip further in 2025 after a very challenged 2024 performance year,” Mayo wrote.