Elevance, Aetna among insurers to benefit from higher star ratings

Medicare Advantage insurers that receive higher revised star ratings for this year stand to gain additional quality bonus payments that one analysis estimates could exceed $1 billion.

The Centers for Medicare and Medicaid Services announced Thursday that it has redone 2024 quality scores for Medicare Advantage plans after years of complaints and a pair of losses in lawsuits challenging how it modified the ratings formula. Medicare Advantage contracts that earn new scores of at least 3.5 of 5 stars will get higher bonus payments this year and have more time to submit bids for 2025.

The agency's pivot on the star ratings could shake up competition in Medicare Advantage next year. Not only will some insurers pocket extra revenue this year, but the deadline extension for 2025 bids will enable them to reconsider benefit packages, premiums and out-of-pocket costs and offer more attractive plans.

CMS will have to pay out at least $1.3 billion in additional bonus payments for 2024 as a result of the recalculations, according to an analysis the star ratings data firm HyperLift Logic performed for Modern Healthcare.

Elevance Health is in line to receive $22 million, or an additional $12 per member per month, the most among big, for-profit Medicare Advantage carriers, according to projections the investment bank TD Cowen published Friday. CVS Health subsidiary Aetna will get the smallest reward at $6.5 million, or $1.90 per member per month, TD Cowen estimated.

CVS Health is still evaluating how Aetna is affected but is pleased, a spokesperson wrote in an email. Elevance Health, which previously got CMS to revisit some of its star ratings and won a legal case against CMS over its scores last week, did not respond to an interview request.

Related: CMS recalculates 2024 Medicare Advantage star ratings

"This is pretty positive news out there for most insurers offering Medicare Advantage plans, but fairness is in the eye of the beholder," said Rick Kes, a healthcare senior industry analyst at the consulting company RSM.

Seventy-six Medicare Advantage contracts from 44 insurers covering nearly 3.5 million beneficiaries will see higher scores, according to a Milliman estimate. Insurers with large shares of low-income enrollees were most affected by the now-defunct star ratings policy change and are positioned to benefit, Milliman concluded.

Smaller insurers with slimmer margins such as SCAN Health Plan — which also beat CMS in court over its star ratings — will gain the most, said Chris Meekins, managing director at the investment bank Raymond James. Scores for insurers with fewer members in four-star rated plans, such as Centene and Molina Healthcare, have the most room to grow, so revisions could trigger bonuses, he said.

SCAN Health Plan anticipates collecting $250 million more in quality awards this year, CEO Dr. Sachin Jain said. “That will translate into higher payments to providers and better benefits for members,” he said. Centene and Molina Healthcare did not respond to interview requests.

“For some companies, it really does make a difference between profit or losing money,” Meekins said. “This really was a pretty embarrassing procedural mistake by CMS that probably should result in someone losing their job, since it's going to cost the government $1 billion.”

CMS declined to comment.

Nonprofit health insurance companies historically have outperformed for-profit competitors on star ratings and could be disadvantaged when their rivals are boosted, but the Alliance of Community Health Plans doesn't see a concern.

"It is equitable that plans that are going to have their scores recalculated for '24 and have a change in their revenue have a chance to modify their '25 bids because they were at a different place when they submitted it," said Michael Bagel, associate vice president of public policy at the trade group for nonprofit insurers.

Allowing only insurers that get increased scores to resubmit bids could provoke lawsuits, Meekins said. “There's still the potential for legal challenges to that because there's a bit of game theory that goes into the bid process and what you think other people are going to do,” he said.

CMS has not said how it will handle star ratings for 2025, whether it will reinstitute the methods the courts overturned on technical grounds or whether it will appeal the Elevance Health and SCAN Health Plan decisions.