The Medicare Star Ratings program is one way regulators are trying to improve outcomes while reducing costs, but what is really at stake for plans, and do consumers even care?
The Star Rating System was enacted nearly a decade ago to measure how well Medicare Advantage and its prescription drug plans perform for consumers. The current ratings are based on numerous factors, including clinical outcomes, patient experience, customer service, and access to care.
According to recent performance data released by CMS, 81 plans earned at least four stars for 2016. The average rating across the 369 private Medicare contracts last year was 4.03—a jump from the 3.92 average for 2015, according to a CMS spokesperson.
Plans with higher ratings are eligible for bonus payments, which equate to roughly 5% of monthly per-member payments, according to CMS.
Monisha Machado-Pereira, a principal at McKinsey & Co., says these incentives are in addition to medical cost savings resulting from better care if the ratings have their intended effect to improve care. “If managed in the right way, it can be quite a windfall,” she says.
The bonuses are effectively all or nothing, Machado-Pereira adds. Plans that achieve four stars receive an incentive amounting to about $500 per member per year. Those with under four stars get nothing, but there is also no additional financial incentive for plans that achieve five stars, resulting in a large increase in plans achieving four stars but a small fraction that have improved to five stars. The benefit for plans with five stars is a year-round enrollment period, she says.
The incentives provided through the Star Ratings program also help health plans make up for any losses that came from the implementation of the Affordable Care Act and the transition from fee-for-service to performance-based payments.
“It’s a way for health plans to continue to invest in certain areas,” says Machado-Pereira. “For a health plan that is looking at where to continue to maintain margins but also improve care, this is a way to continue to fund those initiatives.”