CMS Revised Medicare Advantage Star Ratings. Here’s Which Payers Benefited.

Dive Brief:

• More than 60 Medicare Advantage health plans offered by 40 insurers received a higher star rating for 2024 after the CMS was forced to recalculate the scores, according to a Healthcare Dive analysis of new government data.
• The CMS published the new quality scores for plans in the privately run Medicare program last week after losing two court cases about how it previously calculated the ratings, which underpin massive bonuses for insurers in MA.
• Thirteen additional health plans — including some offered by insurance giants CVS, UnitedHealth, Elevance and Centene — passed the four-star threshold after regulators reran the scores, meaning they’re eligible for the maximum bonus payment next year. The changes also benefited smaller insurers like Scan Health Plan, which brought one of the lawsuits against the CMS over its original ratings calculations.

Dive Insight:

Last month, the CMS said it would recalculate MA star ratings after two federal judges ruled the agency had erred in calculating the original ratings for 2024, which were released in October. Regulators only changed plans’ scores if they improved under the new methodology.

Along with serving as an indication of quality, star ratings have a major impact on insurers’ revenue from MA. The CMS uses stars 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, giving them a competitive advantage in their markets.

Now, thirteen additional health plans will be eligible for hundreds of millions of dollars in additional bonuses after moving from 3.5 to four stars.

Those plans include those offered by national insurance companies Cigna, Elevance, CVS, Centene and UnitedHealth. CVS and UnitedHealth had two contracts apiece move to four stars.

In addition, smaller operators Athena Healthcare, Baylor Scott and White, Blue Cross Blue Shield of Michigan, Blue Cross Blue Shield of Kansas City, Centers Plan for Healthy Living and Scan had plans cross the four-star threshold. Scan has said its payments should increase by $250 million as a result.

Several insurers, including UnitedHealth, Humana, Elevance and CVS, also had contracts move from 4.5 stars to five. Reaching the five-star maximum doesn’t result in additional bonuses, but does allow plans to bring on new members outside of traditional enrollment periods.

When CVS announced it was recalculating the star ratings, experts estimated the changes could lead to upwards of $1 billion in additional bonuses to health insurers.

However, the actual ratings changes are expected to be more minimal, boosting insurers’ payments by an average of $0 to $2 per member per month, down from previous expectations of up to $8 per month, according to a note from TD Cowen analyst Gary Taylor.

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 to shield margins and placate investors after higher spending on seniors’ medical care threatened profit outlooks.

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. Bonuses have risen along with insurers’ profits in the program, which has swelled to cover some 33.4 million individuals — more than half of all eligible Medicare beneficiaries.

The MA market recorded the highest profit margins of any health insurance program last year, according to the health policy research firm KFF. Payers in MA had a gross margin of $1,982 per member in 2023, according to the group — largely similar to margins in 2022, despite insurers reporting higher spending on MA beneficiaries’ care.

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.