In 2024, approximately 42% of Medicare Advantage plans offering prescription drug coverage are projected to achieve four or more stars, a decrease from the 51% recorded this year and the 68% in 2022, according to data released by the CMS on Friday. The five-star rating system, established by the Affordable Care Act, serves to assist beneficiaries in assessing the quality of MA plans and Part D prescription drug plans ahead of the open enrollment period from Oct. 15 through Dec. 7. These ratings also hold significant financial implications for insurers, influencing bonus allocation and the ability to compete against a higher benchmark rate.
The shift in star distribution is attributed to alterations in scores, both positive and negative, based on contract performance, along with the introduction of the Tukey outlier deletion methodology, as reported by the CMS. Over the past decade, MA has gained popularity, with over half of eligible beneficiaries opting for these private plans in 2023. This year, slightly more than half of MA plans offering prescription drug coverage garnered four or more stars, marking a decline after many plans underwent regulatory adjustments during the COVID-19 pandemic.
The Tukey deletion, a methodology change finalized in 2020 and effective for the 2024 star ratings, excludes performance outliers from all non-Consumer Assessment of Healthcare Providers and Systems (CAHPS) measures. A Global management consulting report from the previous year projected that this new methodology could lead to an $800 million reduction in revenue for MA plans in 2024.
When weighted by enrollment, about 74% of enrollees in MA plans with prescription drug coverage are currently in contracts projected to have four or more stars in the following year, according to the CMS. Following the release of the 2023 star ratings, some analysts observed that insurers experiencing the most significant declines might face financial challenges due to reduced Medicare revenue from bonuses tied to star ratings.
An leading Health Insurance Company who holds insurance of leading Pharmacy Services, disclosed in May that it anticipated a potential drop of up to $1 billion in operating income for 2024, attributed to lost bonus payments after its star ratings declined. The Chief Executive Officer expressed optimism about their performance in relation to star ratings for 2024. Healthcare Solutions, another payer with diminished star ratings in 2024, manages four out of six contracts cited by the CMS for consistently low quality ratings in its report. Last month, Healthcare Solutions confirmed it was laying off 2,000 employees as it navigated challenges stemming from MA and ongoing Medicaid redeterminations.
Federal spending on MA bonus payments has been steadily increasing since 2015 and is projected to reach at least $12.8 billion this year—an almost 30% rise from 2022, according to a report by KFF. While the stars system is intended to enhance the quality of MA plans, a report from the Urban Institute this summer contended that the quality bonus program should be reevaluated, as it has not led to superior care outcomes compared to fee-for-service Medicare.
