Medicare Advantage Star Ratings proposal targets top performers

Medicare Advantage insurers that have earned high quality scores in the past stand to lose up to $19.5 billion over 10 years in bonus payments under a policy proposal on the books at the Centers for Medicare and Medicaid Services.

CMS first floated this change two years ago and has not issued a regulation to carry it out. But as the agency reacts to court rulings that spurred it to roll back another methodological change to the Medicare Advantage Star Ratings program, health insurance industry experts think the time may be ripe for CMS to revisit its plans.

At issue is what's known as the "hold harmless" policy. Medicare Advantage contracts that earn at least 4 out of 5 stars can choose to disregard two highly weighted “quality improvement” elements of their scores. These track annual changes in overall quality metrics under Medicare Advantage and Medicare Part D. Overall quality improvement is the most impactful of the 42 Star Ratings measures and is weighted up to five times more than other factors.

In its 2022 pitch, CMS said it might raise the threshold so that only 5-star plans can take advantage of the hold harmless option starting in 2026. At the time, the agency estimated this would reduce quality bonus payments by $19.5 billion over 10 years. In April 2023, CMS said it intended to issue a proposed rule on the hold harmless policy but it has not emerged.

CMS may be on the verge of following through, said Mick Twomey, CEO and co-founder of Hyperlift, a data analytics firm that specializes in the Medicare Advantage Star Ratings program. “The reality is, the financials are what the financials are, and there were objectives. When the game changes unintentionally from what CMS wants, this is a lever that they can pull and try to recapture the bonuses,” he said.

CMS declined to comment.

Related: Elevance, Aetna among insurers to benefit from higher star ratings

This modification to the Star Ratings program would benefit insurers with lower ratings, such as Centene and Molina Healthcare, and disadvantage top performers such as Kaiser Health Plan, a subsidiary of Oakland, California-based Kaiser Permanente, by smoothing out scores across the sector. None of those companies responded to interview requests.

“The Centenes and Molinas of the world will have the biggest opportunity. What remains to be seen is if their performance is high enough for them to actually realize that opportunity,” said Nate Lucena, chief strategy and analytics officer at Rex Wallace Consulting, which advises insurers on star ratings.

If this had been the rule last year, Hyperlift Logic estimates that 13% of 4-star Medicare Advantage contracts would not have qualified for bonuses.

This analysis does not account for CMS' decision to recalculate scores for plans affected by the controversial Tukey Outer Fence Outlier Deletion Method that lowered scores and prompted insurers such as Elevance Health and SCAN Health Plan to sue.

But the agency's backtracking on 2024 star ratings is projected to cost more than $1 billion, money they could recoup by tightening the hold harmless policy, said Ana Handshuh, a principal at CAT5 Strategies, which consults with insurance companies about star ratings.

“There’s a greater chance of it happening this week than there was last week,” Handshuh said.

CMS has undertaken a number of changes to the Star Ratings program in recent years in an effort to promote quality improvement and health equity — and to contain costs. For example, the agency replaced the so-called reward factor with a health equity index and gave more weight to member experience.

A stricter hold harmless policy would fit the pattern by boosting insurers such as Centene and Molina Healthcare, which don't qualify under current rules and already report their quality improvement measures. Centene holds one four-star contract and Molina Healthcare has none.

"It levels the playing field between a 4- and 3.5-star because you really do still have to be improving pretty hardcore to be able to get up to that 4-star level and then keep it," Lucena said.

Nonprofit health insurance companies historically have outperformed the industry average in the Medicare Advantage Star Ratings program and thus stand to lose out under this proposal.

That would not be fair to insurers that have consistently done well because contracts that score 4 or higher don't have much room to improve, said Michael Bagel, associate vice president of public policy at the Alliance of Community Health Plans, which represents nonprofit insurance companies affiliated with providers, such as Danville, Pennsylvania-based Geisinger, Portland, Oregon-based Providence Health and Services, and Kaiser Permanente.

The Blue Cross Blue Shield Association has a similar perspective, a spokesperson wrote in an email. Moreover, the spokesperson wrote, Medicare Advantage insurers that lose bonuses would respond by trimming supplemental benefits. “Removing those benefits for disadvantaged populations would harm the administration’s health equity goals,” the spokesperson wrote.

Bagel is skeptical that CMS will go forward with the hold harmless proposal, even after redoing 2024 star ratings and distributing additional bonus money, however. “Everything, of course, is related to each other in the star ratings. But I do not believe that CMS is a tit-for-tat agency in how they do rulemaking,” he said.