Bonus payments for Medicare Advantage plans extended

December 15, 2010

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 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.