Payers

How CMS’s recalculated star ratings will affect Medicare Advantage insurers

Payers could receive roughly $1 billion in additional bonus payments, experts project.
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• 4 min read

The Centers for Medicare & Medicaid Services (CMS) announced in June it would recalculate 2024 Medicare Advantage (MA) star ratings for all plans after two court rulings called into question the agency’s method for determining this year’s ratings.

The decision is estimated to cost the federal agency roughly $1 billion in additional bonus payments for insurers, according to healthcare analytics firm Cotiviti. The move comes after several large insurers laid off employees in late 2023 after their star ratings decreased.

The court rulings “potentially have far-reaching implications for the Medicare Advantage landscape, affecting not only health plans’ star ratings and revenue but also providers and beneficiaries,” Hayley Rogers and Matthew Smith, consulting actuaries at risk management and benefits firm Milliman, wrote in a June 12 white paper.

What are star ratings?

CMS uses a model that ranks MA insurance plans from one to five stars (five being the best) based on quality. The intent is to help beneficiaries compare MA plans.

Plans that receive four or five stars are eligible for bonus payments from CMS. The agency spent more than $12.8 billion on bonus payments in 2023, a 30% increase from the prior year, according to the KFF.

That extra money helps MA plans gain more members, which can in turn increase profits for insurers, as Healthcare Brew previously reported.

Some background

Many insurers saw ratings drop on their MA plans in 2023 after CMS ended “disaster” provisions from the Covid-19 pandemic.

CVS-owned Aetna previously projected it would lose up to $1 billion in 2024 due to the lower ratings, Healthcare Brew reported, and Elevance expected to lose $500 million.

This isn’t the first time CMS has changed the method it uses to calculate star ratings, Richard Frank, a senior fellow in economic studies and director of the Center on Health Policy at the nonprofit research org Brookings, told Healthcare Brew. The agency has faced “a lot of scrutiny and a fair amount of criticism” over its calculation methods, he added.

But CMS’s decision to recalculate this year’s star ratings after insurers had already submitted bids for 2025 (which were due June 3) is “uncharted territory,” Milliman analysts wrote in the June analysis. CMS let insurers with boosted star ratings resubmit bids up to the end of the month.

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The recalculation is likely good news for many MA insurers, as it could give them “a little bit of cushion” financially, Frank said.

Plus, the move won’t negatively affect any MA plans since CMS has decided to only update the ratings for plans with scores that would improve, not those that would worsen after the recalculation.

By the numbers

CMS data published on July 2 shows that more than 60 MA plan contracts from 40 insurers gained half a star under the recalculations—with 13 insurers newly reaching the four-star threshold to qualify for bonus payments—affecting roughly 3.5 million beneficiaries, according to Milliman analysts.

Plans that got a higher score could see “significant improvements,” including “increased revenue for plans and potentially providers, and enhanced benefits for beneficiaries,” the analysts wrote.

Some insurers stand to see major increases to their 2024 bonus payments.

Scan Health Plan—one of the MA insurers that sued the US Department of Health and Human Services (HHS), which oversees CMS, over the change in how the agency calculates star ratings—is set to gain an additional $250 million from the recalculation, according to court documents.

Elevance Health, the other MA insurer that sued HHS because of the star ratings, expects to gain $310 million, according to a Securities and Exchange Commission filing.

Lisa Gill, a managing director at investment bank JP Morgan, estimated UnitedHealth will gain an extra $120 million, Aetna $29 million, and Humana $20 million, Healthcare Dive reported.

Looking ahead: There are many other factors affecting the MA landscape that insurers will need to keep a close eye on, Frank noted.

For example, he mentioned the Justice Department has announced a number of antitrust investigations, including one looking into Medicare billing practices at UnitedHealth.

“There’s a lot going on in terms of the pressures and the opportunities for the insurers,” Frank said. “I think that there are lots of other things that may be affecting the way business is conducted in MA.”

Navigate the healthcare industry

Healthcare Brew covers pharmaceutical developments, health startups, the latest tech, and how it impacts hospitals and providers to keep administrators and providers informed.