Payers Take a Hit from Lower Medicare Advantage Star Ratings

Now that the Centers for Medicare & Medicaid Services (CMS) has lowered the boom on payers by dropping the star ratings used to evaluate Medicare Advantage (MA) plans, health insurance administrators are scrambling to rebuild their ratings while still trying to find ways to cut costs.

Some plans have their work cut out for them.

At least one major health plan has indicated that it expects to lose around $800 million to $1 billion of operating income in 2024 due to a decline in MA star ratings. Another saw greater than 40% losses, while another saw losses totaling 17% of its revenue. Other plans, including smaller companies and non-profits, are also likely affected.

How are the Ratings Determined?

The star measures that are used to evaluate the effectiveness of Medicare Advantage plans comprise the combined performance measures from five sources: the Healthcare Effectiveness Data and Information Set (HEDIS), Consumer Assessment of Healthcare Providers and Systems (CAHPS), Health Outcomes Survey (HOS), prescription drug program, and CMS administrative data.

The CAHPS survey, which measures the perception of patients’ care from a health plan, carries the greatest weight – representing 37% of the total score. The survey measures everything from care coordination, how quickly appointments and care are administered, overall customer service, and the effectiveness of getting needed prescription drugs. The annual survey is mailed to randomly selected patients.

Administrative data collected by the CMS about a health plan’s capabilities and performance accounts for another 29% of the score.

The HEDIS measures are developed by the National Committee for Quality Assurance (NCQA) and are chosen by the CMS to measure the quality of care delivered by MA plans. The measures, which represent 19% of the star rating, can vary yearly, as the NCQA and CMS eliminate measures and incorporate new ones. Some HEDIS measures are also specific to public payers but not commercial plans.

Prescription drug events and Health Outcome Surveys round out the list of measures (12% and 3%, respectively).

In total, the star ratings consist of 38 measures.

Star Rating Criteria for Medicare-sponsored Plans

Overall, the star ratings for Medicare-sponsored plans are determined using six major factors:

• If Medicare beneficiaries remain healthy while on a plan
• Management and improvement of patient chronic conditions
• Member experience with health plans
• Customer service performance
• Member complaints with health plans
• Changes in overall health plan performance

Why Did Star Ratings Go Down?

Established in 2010 as part of the Affordable Care Act, the five-star rating program was designed to encourage plans to compete for enrollees based on quality. The better the score, the better the bonus each health plan received from the government. It also impacts a health plan’s ability to bid against a higher benchmark rate. Bidding against a higher rate and having higher rebate percentages give plans a competitive advantage concerning benefit offerings and plan value.

Medicare Advantage plans saw a big bump in ratings shortly after the COVID-19 public health emergency, resulting in specific beneficial allowances for payers. But the CMS has reversed those allowances, and star ratings have decreased accordingly.

For example, the average rating for 2023 is 4.15. That compares to the record-high rating average of 4.37 in 2022. For the 2023 plan year, more than 140 Medicare Advantage contracts with ratings of four stars or more experienced a drop.

The drops can change the financial picture dramatically.

For example, in 2022, the average bonus per member ranged from $174 to $521. If a plan has 250,000 members, an additional $174 in bonus payments per member would generate an additional $43.5 million in revenue. In addition, when the ratings fall below the four-star level, bonuses can be forfeited altogether. Five-star plans are also eligible to enroll patients year-round, compared to the standard enrollment-period-only option.

The Impact of Lower Star Ratings

The ratings shortfall forces payers to look at every aspect of their business. For example, a top-five health plan is hiring an experienced chief quality officer, assigning strong operational leaders to manage key operations and administration programs, investing in new technology to enhance access to clinical data around gaps in care, and integrating the company’s platforms into a single workflow. In addition, a newly installed management team this year added quality improvement as a key compensation metric for every health plan employee. Other payers are focusing on patient experience as a core differentiation strategy while also creating and increasing programmatic quality investments, such as improved call campaigns.

Cost-cutting Measures

Improving operations isn’t the only impact the drop in star ratings is having on health plans. Many are looking to cut costs as well.

One area ripe for cost-cutting consideration is autoimmune care.

With more than 24 million people affected, autoimmune diseases comprise some of the most widely diagnosed conditions in the U.S. Those ailments result in significant healthcare costs. For example, it’s been estimated that annual healthcare costs for autoimmune diseases are expected to grow to over $52 billion by 2027.¹

But how do payers manage or even cut those costs? Here are several opportunities:

• Disease management programs – implementing targeted disease management programs that help educate members about preventive and self-management measures and early intervention.
• Telehealth and telemedicine – implementing robust, virtual visits to reduce patient and insurer expenses.
• Preventive care emphasis – encouraging regular checkups and screenings to help prevent costly treatments later.
• Biologic and biosimilar utilization – utilizing the new wave of biosimilars for autoimmune diseases that have come into the market.
• Home health services – implementing home-based care as a viable and less costly alternative to in-patient care.
• Patient education – providing ongoing educational resources to help patients better manage their autoimmune condition.
• Cutting-edge technology – incorporating state-of-the-art technology for streamlining workflows and improving payer/provider collaborations.

References

¹Autoimmune Association (2021)