CMS Recalculates Medicare Advantage Star Ratings In Major Win For Insurers

Dive Brief:

• The CMS has recalculated plans’ quality ratings in the Medicare Advantage program after a series of court rulings challenging the agency’s methodology in determining scores for 2024.
• The redo will result in hundreds of millions in additional taxpayer dollars going to insurers next year, even as regulators try to get a handle on runaway spending in the privately-run Medicare program.
• Regulators will recalculate each plans’ star ratings, but only officially apply them if their stars improve, the CMS wrote in a memo to plans on Thursday. Plans with ratings that would fall under the new methodology won’t see their ratings change.

Dive Insight:

The CMS’ decision to recalculate scores comes after two federal courts found the agency improperly determined star ratings for 2024. At issue is regulators’ use of a tool called Tukey to determine cutoff points for the stars themselves, which run from one to five stars for each plan and are meant to indicate plan quality to consumers when they shop for coverage.

The stars also have a huge impact on insurers’ MA revenue. That’s because they’re 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.

Payers defend their stars fiercely as a result. News that CMS is poised to pay out higher bonuses is sure to be cheered by health insurers, especially at a time when their businesses are under pressure from rising utilization of healthcare services and lower payment rates.

A spokesperson for the agency declined to share which contracts are being recalculated. However, the CMS has been ordered by judges to recalculate scores for Scan Health Plan and Elevance, after the insurers won separate suits earlier this month challenging the CMS’ use of Tukey. The CMS spokesperson noted the agency could still appeal those decisions.

If all MA plans had their ratings recalculated based on the rulings, 76 contracts under 44 health insurers would gain at least 0.5 stars, according to an analysis by actuarial consulting firm Milliman. That represents almost 3.5 million MA beneficiaries in higher-ranked plans.

Redoing all the ratings could result in upwards of $1 billion in additional bonuses to insurers, according to experts.

Based on the lawsuits, the recalculations will raise Scan’s payments by $250 million and Elevance’s by $310 million. As for other payers, the redo could result in $120 million in additional payments for UnitedHealth, $29 million for CVS and $20 million for Humana, according to Lisa Gill, a managing director at J.P. Morgan covering healthcare services.

Gill, who included her analysis in a note to investors Thursday, said that’s a low estimate based on just 10% of members in 3.5 star plans moving to 4 stars.

Recalculating the ratings is a major undertaking for the CMS, and for plans themselves. Carriers that see their ratings increase will have the option of resubmitting their plan bids for 2025, which were filed with the CMS last week.

Insurers that resubmit bids must file revised submissions by June 28, according to the CMS memo.

Along with retaining more money for themselves, plans could also use the higher bonuses to enhance benefits in resubmitted bids. Many payers shrunk their MA offerings for next year, including benefit cuts, to protect profits.

The CMS did not share how it plans to calculate star ratings for 2025, which will be published this October.

Shares in major insurers rose Thursday after news of the recalculations was first reported by the Wall Street Journal.