Medicare Will Recalculate Quality Ratings of Medicare Advantage Plans
Plans with high ratings can get lucrative bonus payments. A redo would mean hundreds of millions of dollars in additional payments.
The federal government plans to redo this year’s quality ratings of private Medicare plans, according to people familiar with the matter, a move that would deliver hundreds of millions in additional bonus payments to insurers next year.
The decision by the Centers for Medicare and Medicaid Services could be announced as soon as Thursday. It comes in the wake of two court rulings that faulted the agency’s ratings, in cases filed by insurers SCAN Health Plan and Elevance Health.
By paving the way for higher payments, the CMS move would provide a win for Medicare insurers at a time when their business is under pressure from rising healthcare costs and rates for next year that came in lower than investors had expected.
At issue are quality ratings of privately run Medicare Advantage health plans, which CMS ranks on a scale of one to five stars. Higher quality by CMS measures equals more stars.
Plans with high ratings get bonus payments that can have a major impact on their financial success. The star bonuses are important to the Medicare Advantage plans’ competitive positioning, because the money can be used to bolster benefits that entice seniors to enroll.
Industry officials said the impact of the recalculation would vary by plan, but they expected the overall effect would be to raise bonus payments.
“Plans are going to go to market this fall with more generous benefits and field products that will be more attractive to seniors because they will have access to higher-quality bonus payments,” said SCAN Chief Executive Sachin Jain.
SCAN, a nonprofit, and Elevance, one of the biggest Medicare insurers, won their challenges of CMS’s ratings calculations last week.
A federal judge first ruled in the SCAN case that the Medicare agency had erred in implementing certain technical changes for this year’s quality ratings, which affect payments in 2025. The judge ordered the agency to recalculate SCAN’s ratings, a move the company said would raise its 2025 Medicare payments by about $250 million.
A different federal judge made a similar finding a few days later in a case brought by Elevance, though the judge limited its impact to one particular Elevance plan. The company has said the decline in its 2024 Medicare quality ratings would reduce its bonus payments by about $310 million.
Under the new decision, the Medicare agency would be expected to do a similar recalculation across the entire industry. Betsy Seals, chief executive of Rebellis Group, a Medicare Advantage consulting firm, said that when she analyzed the impact of a redo for clients, she found all of their bonuses increased.
SCAN executives estimated that such a move could result in more than $1 billion in additional payments to insurers, affecting about 60 Medicare contracts covering more than a million members. The executives said the impact will vary by insurer, but the changes shouldn’t decrease any plan’s bonus payments.
Raymond James analysts estimated the current star ratings cost Humana about $150 million in bonus payments and UnitedHealth Group $70 million in bonuses.
However, the timing of the CMS decision would probably create headaches for both the insurers and the agency. Insurers have already submitted their Medicare plan bids for 2025, and they would have to be tweaked and resubmitted to account for the new quality ratings.