Winners, losers from the latest Medicare Advantage star ratings

In the aftermath of unwelcome but unsurprising news for the health insurance industry about Medicare Advantage star ratings for next year, insurers cited stricter government standards as they look to move forward.

On Friday, the Centers for Medicare and Medicaid Services revealed which Medicare Advantage plans earned four or five stars under the quality assessment program and confirmed months of anxiety among health insurers that expected lower scores—and the revenue hits that come from losing lucrative bonus payments.

Related: Star ratings dim for nearly 10% of Medicare Advantage plans

For the 2024 plan year, 42% of Medicare Advantage plans with prescription drug coverage earned at least four out of five stars and will receive bonuses, down from 51% this year. The average star rating fell to 4.04, the lowest since 2017. The share of Medicare Advantage beneficiaries enrolled in five-star plans dropped from 22% this year to 7% in 2024.

CMS has sought to raise the bar after more and more insurers qualified for bonus payments over time, said Andrew Bell, a senior manager who oversees the stars practice at ProspHire, a health insurance consultancy. The government will award plans that scored four to five stars at least $12.8 billion in bonuses this year, up from $10 billion last year, according to CMS data compiled by KFF.

The agency modified how it assess quality under Medicare Advantage for the coming plan year. The regulator introduced a new method of accounting for outliers, known as the Tukey Outer Fence Outlier Deletion Method, which had the effect of depressing scores. CMS also replaced the lucrative Reward Factor with a new Health Equity Index. Additionally, the agency has proposed penalizing all plans that do not improve from one year to the next, even if they are high-performing.

“Making the program more difficult and increasing competition across the program could help stabilize some of those quality bonus payments moving forward,” Bell said. “It's not an endless pot.”

Impacts on Elevance, Centene

Because of what CMS characterizes as consistently poor performance, Elevance Health, Centene and CareFirst BlueCross BlueShield are not permitted to expand the geographic footprints for some products for the 2025 plan year. Analysts anticipate Elevance Health and Centene will lose market share amid another year of falling star ratings.

Elevance Health endured the largest slide for the 2024 plan year, with 34% of its members enrolled in four-star plans, compared with 64% this year. Elevance shares opened at $436 on the New York Stock Exchange Monday, down 4% from its closing price Friday. The company declined to comment.

The insurer, which operates Blue Cross Blue Shield plans in 14 states, will have to choose between reducing benefits and enrollment but maintaining profit margins, or retaining benefits and accepting lower margins, Gary Taylor, managing director and senior equity research analyst at the TD Cowen investment bank, wrote in a research note Monday.

One third of members in Elevance's lower-rated plans are covered under employer-sponsored Medicare Advantage plans, in which the insurer shares bonus payments with clients. To mitigate the financial hit to employers, Elevance Health could merge low- and high-rated plans, Taylor wrote. This practice, known as crosswalking, has attracted increasingly critical attention from CMS, however. Elevance could request that CMS allow it to expand the service areas for some group Medicare Advantage plans, and then crosswalk them into higher-rated contracts, Taylor wrote.

“While we typically estimate a plan could lose 20% enrollment if compelled to reduce supplemental benefits by [more than] 20%, Employer Group Waiver Plans can move en bloc if the crosswalk fails and the employer isn’t willing to foot the higher wrap-around expense in order to maintain benefits,” Taylor wrote.

Elevance will lose an estimated $448 million in bonuses because of diminished star ratings, Scott Fidel, managing director at Stephens investment bank, wrote in a research note Monday.

In a Securities and Exchange Commission filing Friday, Elevance attributed its lower scores to the Tukey outlier methodology and a decline in member experience scores. The insurer wrote that it was considering contract diversification and other operational changes to offset the potential earnings impact.

Centene reported the lowest scores among large insurers, and achieved a four-star rating for just one plan, the same as this year. The insurer warned investors to temper expectations after 2023 ratings came in worse than anticipated. Centene laid off 2,000 employees last month, in part because of Medicare Advantage headwinds. The company is in the midst of a value-creation plan, which includes improving star ratings, and aims to have 85% of members enrolled in plans rated 3.5-stars or better next year.

In an SEC filing Monday, Centene said 87% of its members are enrolled in plans rated at least three stars, up from 53% last year. “While the company has work to do to improve star scores, this demonstrates the first step towards its multi-year goals,” Centene wrote.

Centene did not respond to an interview request. The insurer’s stock opened at $71.46 on the New York Stock Exchange Monday, flat from Friday’s close.

Impact on Aetna, Humana

On the other side, Humana’s high performance is expected to win the company business. Humana recorded the greatest percentage of members enrolled in plans that scored at least four stars: 94% of its 5.8 million Medicare Advantage enrollees.

“Because of this continued outperformance, we expect Humana to continue to steal market share,” Morningstar Senior Equity Analyst Julie Utterback wrote in a research note Monday. Humana stock opened at $515 on the New York Stock Exchange Monday, up 1.8% from Friday. 

CVS Health subsidiary Aetna, meanwhile, attributed its star ratings rebound this year in part to improved customer experience scores, the company wrote in a news release Friday. CVS Health opened at $72.75 on the New York Stock Exchange Monday, 2.6% higher than Friday’s close. Aetna did not respond to an interview request.