Insurers conduct layoffs following drop in Medicare Advantage star ratings

Insurance companies stand to lose as much as $1 billion due to a drop in star ratings in 2024.
article cover

Sakchai Vongsasiripat/Getty Images

· 4 min read

A number of large insurers are laying off employees to cut costs following a drop in Medicare Advantage star ratings, which can cost insurers a pretty penny.

The Centers for Medicare and Medicaid Services (CMS) phased out “disaster” provisions enacted during the Covid-19 pandemic to help insurers stay afloat, and this led to fewer plans earning the four- or five-star ratings needed to qualify for Medicare bonus payments, Healthcare Brew previously reported. The lack of added revenue can lead to steep pay cuts for insurers; CVS-owned Aetna expects to lose a maximum of $1 billion due to lower bonus payments, for example.

In response, insurers are conducting layoffs because they prefer “to find ways to take costs out of their own cost structure, including reducing headcount, and not really take much value away from their offerings as it relates to consumers,” Scott Fidel, managing director of healthcare services at investment bank Stephens, told Modern Healthcare.

Layoffs across the industry

UnitedHealthcare, the largest health insurer in the US by revenue, had a 3.9 average star rating in 2024, according to US News & World Report—slightly below the 4.04 industry average.

In August, parent company UnitedHealth Group conducted multiple layoff rounds that affected an undisclosed number of employees in the company’s Optum division, Becker’s reported.

UnitedHealth Group spokesperson Eric Hausman declined to comment on any link between the company’s star ratings and the layoffs, saying that UnitedHealthcare “continue[s] to have more people in four- and 4.5-star plans or higher than any other carrier in the industry and over half of [its] members are in a 4.5-star plan or higher. For 2024 star year ratings, 79% of [its] Medicare Advantage members are in four-star plans or higher.”

Andrew Witty, UnitedHealth Group’s CEO, said in the company’s latest earnings call on October 13 that 2023 has been “very heavily influenced by the change in the funding environment that was announced earlier in the year for Medicare Advantage.”

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.

Elevance Health, which claims to be the largest commercial insurer in the US, expects to lose $500 million in star rating bonuses in 2024, Gail Boudreaux, the company’s president and CEO, said in the latest earnings call on October 18. She added that the company is “disappointed” with its stars performance.

“We improved in about half of the star measures, but those were not enough to offset the impact of the heavily weighted measures and the higher cut points,” Boudreaux said.

Elevance also laid off an undisclosed number of employees in October, Healthcare Dive reported. The company paid a $700 million charge in part due to the job cuts, according to Reuters.

“The healthcare landscape is competitive, dynamic, and ever-changing, and it challenges us to drive solutions that will deliver transformational impact and value to those we are privileged to serve,” Elevance spokesperson Leslie Porras told Healthcare Brew. “As a result, we have made some adjustments to our resources to better position our company. However, these recent changes are limited in scope and will not impact our customers’ benefits, services, or interrupt any continuity in their access to care.”

Competitor Centene laid off 3% of its workforce, or 2,000 employees, in September in an attempt to lower costs, Reuters reported. Some of the company’s Wellcare plan ratings fell below three stars, which CEO Sarah London said was “slightly worse” than expected, Healthcare Brew previously reported.

After receiving the final star ratings results in October, London said in an earnings call that the results “certainly do not reflect the ambition of [the] organization.”

Centene didn’t respond to Healthcare Brew’s request for comment.

CVS laid off about 1.7% of workers (roughly 5,000 employees) in August, but company spokesperson Michael DeAngelis denied any link between the layoffs and the expected $1 billion loss in star rating bonuses. The layoffs were made “to reprioritize [the company’s] investments around care delivery and technology,” DeAngelis told Healthcare Brew.

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.