Payers

Medicare Advantage star ratings take hit after pandemic

Why fewer plans got four- and five-star ratings in 2023.
article cover

All_about_najmi/Getty Images

5 min read

Anyone who’s ever used Yelp understands how four- and five-star ratings can affect where people choose to eat, stay, and spend money—and how companies use positive rankings to drive up business (and revenue).

The federal Centers for Medicare and Medicaid Services (CMS) uses a similar model to help older adults select Medicare plans offered by private insurers. The five-star rating system ranks Medicare Advantage contracts from one to five stars—with five being the best—based on quality metrics.

With the best performers (those earning four or five stars) eligible for bonus payments, the ratings system has been a boon for insurance companies. The federal government spent an estimated $10 billion on bonus payments in 2022 alone—more than three times what it spent in 2015, according to a Kaiser Family Foundation analysis.

This year, fewer contracts have received top marks as CMS phases out “disaster” provisions enacted to help plans during the Covid-19 pandemic. The change has sparked immediate action from insurers to improve their future star ratings (and calm shareholders).

Healthcare Brew breaks down what you need to know about the Medicare Advantage star rating system, and what the 2023 changes mean for the industry.

How we got here

CMS scores Medicare Advantage contracts with prescription drug coverage on 38 quality and performance measures (including things like breast cancer screenings, care coordination, and timely decisions about appeals). Medicare Advantage-only contracts are scored on 28 measures, while standalone Part D (or prescription drug plan) contracts are scored on 12.

Contracts that receive a coveted four- to five-star rating can earn bonus payments, which must be used to offer other benefits to enrollees. The extra funds can help health plans attract more members—hence, increasing profitability for insurance companies.

About half (51%) of Medicare Advantage contracts offering prescription drug coverage scored an overall rating of at least four stars for 2023 (that’s 260 out of 507)—down from 68% in 2022, according to CMS. Meanwhile, nearly three-quarters of enrollees (72%) in Medicare Advantage contracts with prescription drug coverage selected plans with four or more stars for 2023, compared to 90% last year.

The decline did not come as a surprise.

CMS changed rules during the pandemic to affect how the agency calculated Medicare Advantage star ratings in 2021 and 2022. With the Covid emergency finally waning, CMS adjusted the ratings for 2023—and many insurers that saw their scores drop expect to see big hits to their bottom lines.

A 2022 McKinsey analysis estimated that “half of plans could see reduced ratings in rating year 2023 based on changes to the disaster provision.” CMS did not universally apply the provision that allowed insurers to use better performance scores for the 2023 rating year as it did in 2022. (CMS released ratings for 2023 in October 2022.)

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.

It also changed how the Consumer Assessment of Healthcare Providers and Systems (CAHPS) survey, which asks patients to evaluate their experiences with health plans, affects star ratings. CMS, for example, noted that the weight given to patient experience/complaints and access measures doubled for the 2023 star ratings.

CMS further implemented annual guardrails on changes in cut points—or ranges in which a contract’s score must fall on each quality measure to meet a certain star level—for non-CAHPS survey measures beginning in 2023.

McKinsey estimated that “more challenging cut points could separately drive $800 million in annual revenue impact to plans in rating year 2024.” Plans, it added, could preempt the negative effect by identifying “at-risk measures and deploying targeted initiatives.”

Insurers respond

CVS Health Corporation CEO Karen Lynch said in remarks at the 41st Annual JPMorgan Healthcare Conference in January that although the company’s national preferred provider organization (PPO) contract “fell to three-and-a-half stars after nearly a decade-long track record of performing at four stars or better,” it has “the right actions in place to restore” them.

That includes improving its CAHPS scores, which Lynch offered was the primary measure CVS “narrowly missed to hit [its] four-star threshold.”

“We also made progress in the last 60 days in advancing our efforts to diversify our national PPO contract, and have obtained the necessary regulatory approvals to move forward,” she added. “This will enable us to more effectively manage our Medicare business in the future.”

CVS noted in a regulatory filing that the decrease in the star rating for its Aetna National PPO, which has more than 1.9 million members, means it’s not eligible for CMS quality bonus payments related to 2024. The decline will not affect payments in 2023.

CVS execs said in November 2022 that they expect 2024 revenues to decline by $2 billion due to lowered 2023 star ratings and the loss of a pharmacy benefits contract with Centene, Becker’s reported at the time.

Leaders at managed care company Centene, meanwhile, announced in an October 2022 earnings call efforts to improve the company’s Medicare Advantage star ratings after some of its Wellcare plans dipped below three stars. CEO Sarah London said the results were “slightly worse” than expected, but Centene has “taken aggressive action to change [its] approach to the stars program.”

“When I say quality is a priority, I mean it,” she said. “Over the next three cycles, our goal is to achieve at least 60% of members in four-star plans.”

The leaders of Cetene and CVS are likely to further touch on the effects of the star rating changes when they brief investors on Q4 2022 earnings on Feb. 7 and Feb. 8, respectively.

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.