Bonus payments for Medicare Advantage plans extended

The Obama administration has decided to extend bonus payments meant to reward top-quality Medicare Advantage plans to those performing at average quality levels, and provide larger bonuses to top performers. The move is intended to motivate low-performing plans to improve more quickly.

The Patient Protection and Affordable Care Act builds in an average 17% rate cut over the next several years for Medicare Advantage plans, which shrinks the total payments by more than $132 billion over 10 years. It also increases operational costs as a result of compliance and reporting requirements.

The healthcare reform law calls for rewarding plans that receive at least four out of five stars on quality measurements with bonuses of 1.5%, 3% and 5% in 2012, 2013 and 2014, respectively. However, the administration has extended the bonuses to plans that score at least three out of five stars, which include 62% of insurers. The bonuses begin in 2012. It will also reward five-star plans with an immediate 5% bonus in 2012, and four-star plans with a 4% bonus in 2012, instead of using the annual stepped bonus percentages.

The change was made by Medicare officials without congressional approval via a demonstration project.

For more on the changes to the Medicare Advantage plans, read Tidal Shift.