Kaiser, Humana, UnitedHealth reap big Medicare Advantage bonuses

The federal government will pay less in quality bonuses to Medicare Advantage insurers this year compared with last year, according to a new report.

Medicare Advantage insurers will receive an estimated $11.8 billion in bonus payments from the Centers for Medicare and Medicaid Services this year linked to their star rating performance during the 2023 plan year, according to a report released by healthcare research institution KFF on Wednesday. That’s down about 8% from the total CMS distributed to health insurers last year.

Related: CMS hospital ratings: 60% of hospitals earned 3 stars or less

The bonuses will account for less than 3% of payments made to health plans this year, the report said.

While federal bonuses paid to Medicare Advantage plans increased each year from 2015 to 2023, the decline in bonuses allotted this year reflects the expiration of pandemic-era policies that eased calculation standards and resulted in a record number of companies achieving high scores.The health plans rated with four or more stars earn 5% quality bonus payments. Plans can use the extra money to pay for supplemental benefits and to offer $0-premium plans, which can differentiate their plans in a competitive marketplace.

The quality bonus program is intended to help consumers decide which Medicare Advantage plan to choose and to entice insurers to invest in quality initiatives. The bonuses are also important as Medicare Advantage carriers contend with compounding financial and regulatory challenges squeezing margins this year.

Kaiser Permanente will collect the highest per-member bonus this year after also coming out on top last year. CMS will pay the health system’s insurance branch $516 per member, compared with this year’s average annual bonus per enrollee of $361. Kaiser will receive a total of $976.4 million given nearly all of its members are enrolled in plans with at least four stars, the report said.

Conversely, Centene will bring in the lowest per-member bonus among the major insurers, $32, since only 8% of its enrollees are covered by a plan receiving bonuses this year. Centene will earn $34.8 million in total bonus payments.

Medicare Advantage leaders UnitedHealthcare and Humana will reap 50% of total bonus payments this year. UnitedHealthcare, the health insurance unit of UnitedHealth Group, will receive $3.4 billion in total bonus spending, or $365 per enrollee. Humana will receive $2.5 billion in total bonus payments, or $433 per enrollee. Among the major health insurers, only Humana will see a higher average bonus per enrollee this year compared with 2023, according to the report.

Blue Cross and Blue Shield plans will receive $1.7 billion in bonus payments, followed by CVS Health subsidiary Aetna, which will see $1.1 billion in bonuses, according to the report.

CMS’ recalculation of star ratings this year following legal challenges to how the agency revised the program will mean more health plans could see bonuses in 2025 than initially expected, since some were bumped up to four-star ratings.

Medicare Advantage has swelled in popularity among beneficiaries over the years and now covers 32.8 million people, or more than half of the Medicare population. Nearly three-fourths of Medicare Advantage members are enrolled in plans receiving bonuses, down from 85% last year, KFF found. Insurers, including Humana and Centene, are planning on withdrawing Medicare Advantage plans from unprofitable markets next year as the industry navigates elevated medical costs and a small rate cut.

The health insurers included in this story did not immediately return requests for comment on their bonus payments and stars performance.