Changes in Medicare Advantage (MA) Star Ratings can result in big changes in revenue for Medicare Advantage organizations (MAOs). This white paper examines how regional MAOs respond to these changes in revenue.
MAO contract-specific Star Ratings are based upon various metrics that measure an MAO’s performance and quality of care, and in turn determine what applicable increase, if any, is applied to the revenue they receive from the federal government. A Star Rating of 4.0 and higher results in an approximate 5% quality bonus payment (QBP) for the MAO. When a plan experiences a Star Rating reduction from 4.0 to 3.5 or lower, that MAO can find its federal revenue reduced by approximately 5%. These Star Ratings are applied during the MA bid development process to determine the estimated revenue the plan will receive in the upcoming year. So, for example, 2023 Star Ratings impacted the 2024 benefits and premiums that each MAO bid and went to market with in 2024.
All MAOs are confined by competitive pressures in their markets and, in most cases, they are unable or reluctant to make large benefit changes or premium changes in a single year. Changes also vary by MA plan type and the size of the MAO, or, for example, if the MAO is trying to maintain a $0 premium on specific plans. National plans1 are typically able to leverage economies of scale to ensure they can continue to offer competitive premiums and benefits. Regional plans, however, typically are not able to weather market pressures as well, such that they may be forced to increase member premiums or reduce benefits if they experience a significant change in their federal revenue.
This white paper examines regional plans’ benefit and premium changes resulting from revenue changes due to Star Rating changes by measuring the change in “value added” through benefits and premium. We did not evaluate rebate-only impacts in this paper, given the relatively lower revenue impact MAOs experience when they move between a 4.0 and 4.5 Star Rating or a 3.0 and 3.5 Star Rating.
Changes in value added, premium, and benefits are aligned with the star rating change
We reviewed 2021 through 2024 benefit and premium changes for plans with Star Rating changes that impacted the revenue they were able to bid in those years, and calculated the resulting three-year average of those changes for:
- Increased Revenue plans: Plans that saw their overall Star Rating move from 3.5 or lower to 4.0 or higher.
- Decreased Revenue plans: Plans that saw their overall Star Rating move from 4.0 or higher to 3.5 or lower.
- Maintained Revenue plans: Plans that did not cross the overall 3.5 to 4.0 Star Rating threshold and therefore did not change the QBP payment they were receiving.
The methodology section of our paper below further outlines how we defined each of these segments of the market.
We used a three-year average instead of analyzing any particular one-year change because there could be specific market dynamics that may have caused Increased, Decreased, or Maintained Revenue plans to react in certain ways. By analyzing the impacts over a three-year period, we smooth out any one-year “disruptions,” which we believe gives a more realistic sense of how changes in revenue result in regional MAO reactions in their plan designs.
Figure 1 shows the three-year average changes in premium, benefit value, and value added for 2021 through 2024, as well as the components of the benefit value, which is a measure of the richness of the benefits offered. We measured the changes for both Increased Revenue and Decreased Revenue plans, as compared to Maintained Revenue plans.
Figure 1: 3-year average annual PMPM changes for regional MA plans
On average, plans with decreased revenue still added over $10 per member per month (PMPM) in benefit value for their members, but also increased premium nearly $1 PMPM. Decreased Revenue plans, in order to stay competitive, will enrich benefits for members on average, but in order to do so may also charge a premium to maintain margin levels, due to the decrease in the QBP.
Maintained Revenue plans on average make small reductions to premium of around $0.60 PMPM, while Increased Revenue plans decrease premium more than $2 PMPM. Premium is perhaps the most visible driver of beneficiary shopping behavior. MAOs appear reluctant to increase premium if their revenue is holding steady, and only decrease it slightly even if their revenue is going up, preferring to enhance benefits instead.
Improving medical benefits is top of mind for Increased Revenue plans, adding over $11 PMPM of these benefits year over year. Maintained Revenue plans and Decreased Revenue plans both still find room to improve their medical benefits but to a lesser degree than Increased Revenue plans. Regional MA plans, on average, tend to prioritize medical benefit enhancements over drug benefit enhancements, Part B buy-down increases, and reductions in premium.
Part B buy-down improvements are aligned with the type of revenue increase the plan is receiving on average, but with much less emphasis relative to medical and drug benefits. While MAOs find improving Part B buy-downs attractive to prospective membership, the focus of benefit enhancements is generally medical benefits, as noted above. Drug benefits, all else equal, do not seem to be an area of focus relative to Star Rating changes, as all of the plan types identified tended to improve drug benefits at similar levels over the time period studied.
Increased Revenue plans experience high annual enrollment growth. Maintained and Decreased Revenue plans experience annual growth below Increased Revenue plans. It is a positive note for Decreased Revenue plans that not only have they not experienced enrollment decreases, they have actually increased their enrollment at slightly higher rates than Maintained Revenue plans, on average. While this paper does not address or review the impact of Star Rating changes on margins, it is likely that Decreased Revenue plans may reduce margin in favor of continued membership growth until they are able to achieve a 4.0+ Star Rating. Increased Revenue plans, however, see a larger increase in their overall membership growth when given the opportunity to enhance their plan designs through QBP revenue increases.
While Increased Revenue plans offered additional benefits beyond the amounts of Maintained Revenue and Decreased Revenue plans, it does not appear that MA beneficiaries are basing their choice of plan solely on the Star Rating and associated benefits of lower cost sharing and reduced premium, as shown by the membership increases in Figure 1. This is important to note because it emphasizes the change in Star Rating and the resulting changes in benefit and premium offerings that are not the only drivers for beneficiaries to enroll in a particular plan. Other drivers may include a plan’s breadth of network, brand affinity, and ability to drive market share.
Decreased revenue regional plans appear to see a need to continually improve plan offerings despite downward revenue impact
Figure 2 shows that, in the last four years, approximately 90% of Increased Revenue regional plans have increased year-over-year value added, relative to 83% to 87% of Decreased Revenue plans, excluding 2022 to 2023. Even though a lower proportion of Decreased Revenue plans increased value added relative to Increased Revenue plans, 83% to 87% of plans increasing value added is still the vast majority of plans. This indicates that these plans view producing attractive product offerings as key to attracting members to enroll in their plans. By continuing to invest in their plans, this is most likely a contributing reason why Decreased Revenue plans experienced double-digit annual enrollment growth over the past four years.
It is important to note that the average Star Ratings between the 2022 and 2023 payment years increased across the country; The Centers for Medicare and Medicaid Services (CMS) implemented provisions to not penalize organizations because the data period used for these ratings was during the height of the COVID-19 pandemic.2 Because of these market dynamics, only one regional MAO contract experienced a lower QBP between the 2022 and 2023 bid years, and this small sample size is leading to the result of 100% of those contracts increasing value added. While the sample size is larger for Increased Revenue plans in the same year, the market dynamics are still in play, which may be driving the 100% value in Figure 2.
Figure 2: Percentage of regional MA plans that increased or decreased value added, by year
For Increased Revenue regional plans, the results tend to be similar to the PMPM value added changes in that the vast majority of Increased Revenue plans increased their value added. The results are somewhat muted in 2023 to 2024, as in 2024, for the first time, most general enrollment plans adopted a more cautious approach to their plan offerings and did not improve benefits to the same level as in prior years.3 This may be due to the looming impacts of the Inflation Reduction Act (IRA), MA benchmark revenue pressures, and risk model changes, as well as Star Rating methodology changes, which are discussed in more detail below.
Increased Revenue plans focus on improving key supplemental benefits
For each segment of Maintained, Increased, and Decreased Revenue regional plans, there are three takeaways that emerge upon review of the three-year averages:
- Decreased Revenue plans tend to slightly increase cost sharing or number of days of facility benefits—inpatient, skilled nursing facility (SNF), home health—while Increased Revenue plans tend to slightly enrich these benefits.
- All segments continue to enrich professional services benefits, such as primary care physician (PCP) and specialist copays. Ensuring members have little to no barriers to care for these types of services is important for plans trying to build robust care management and risk score diagnosis tracking.
- Not unsurprisingly, plans at all revenue levels value investments in supplemental benefits and about 70% of the investments in medical benefits year-over-year go toward continually investing and enhancing the richness of these benefits.
Looking to 2025 bid decisions based on 2024 Star Ratings
Looking ahead to the 2025 bid year, MAOs will face additional revenue pressures, one of which is decreased average Star Ratings. The 2024 Star Ratings, which are used for the 2025 payment year (PY), incorporated the deletion of Tukey outliers. This was a revision to the methodology that CMS used to develop the cut points for the Star Rating measures not associated with the Consumer Assessment of Healthcare Providers and Systems (CAHPS).4 This revised methodology increased the cut points for many of the measures and was a large reason for the decrease in average Star Ratings across the country.
Figure 3 shows the count of regional contracts each year that increased, maintained, or decreased their QBPs. The figure shows that regional contracts will maintain approximately the same distribution of Increased Revenue plans (about 5%) and Decreased Revenue plans (about 15%) comparing 2023 to 2024 and 2024 to 2025. Although the distribution of the change in Star Ratings does not materially shift heading into 2025, 15% of contracts losing their QBPs is a meaningful portion of all regional contracts. This loss of QBPs will present revenue headwinds that regional plans will need to manage. They will need to have strategies to mitigate or overcome these revenue challenges.
Figure 3: Count of regional MA contracts that increased, maintained, or decreased their QBPs, by year
Due to the revenue headwinds MAOs are facing in 2025 from decreased Star Ratings and the other items noted above (MA benchmarks increasing at slower rates than medical trend, continued phase-in of the CMS-Hierarchical Condition Category [HCC] risk score model, impacts of the IRA and the Rx-HCC risk score model, etc.), all plans will need to determine how to prioritize resources to address these headwinds. For regional plans, while these items are important to emphasize in their business projections, it is critical to maintain at least a 4.0 Star Rating, as loss of the 5% QBP in a climate of headwinds could impair the ability of regional MAOs to offer richer benefits and therefore impact plan growth.
Actions today impact payments beyond 2025
Beyond the 2025 bid year, there are additional impactful finalized Star Rating methodology changes, which include a reduction to the weights of member experience measures (moving from 4x to 2x weights for PY 2027) and the introduction of the Health Equity Index (HEI) reward factor (in PY 2028). There is also a proposal to increase the Improvement measures hold harmless provision threshold in the Star Rating calculation from 4.0 stars to 5.0 stars. CMS projects savings for the federal government from each of these changes,5 which means less federal revenue paid to MAOs.
Even though the impacts to MA payments due to the changes to the member experience measure weights and the HEI reward factor do not impact plans until PY 2027 and PY 2028, respectively, both of these methodological changes will be largely based on MAO performance during calendar year (CY) 2024 (the performance impacting HEI will be measured over both CY 2024 and CY 2025). Therefore, it is critical that MAOs have a strategy in place right now to be able to maximize their Star Ratings going forward.
MAOs should begin this strategic work by understanding how these two finalized methodological changes would change their Star Ratings in a “current state” (assuming no performance changes to measures). MAOs can analyze whether the change in member experience measure weights indicates favorable or unfavorable movement in their aggregate Star Ratings. For HEI impacts, in late 2023 CMS provided MAOs contract-specific HEI simulation results based on CY 2022 performance. MAOs should review these simulations to understand their performance on each of the included measures and whether they would currently be projected to lose any (or all) of their reward factor.
MAOs can then start to assess what changes may need to be made to continue to be successful, such as changes to plan offerings, operational changes to be able to improve certain measure results, etc. Financial and staff resources are finite, so MAOs must ensure their strategic plan prioritizes and allocates available resources as efficiently as possible to still be able to maximize their Star Ratings.
Methodology
To perform these analyses, we relied on detailed information on MA benefits, premiums, and enrollment as released by CMS. Enrollment used to calculate weighted averages is from February of each year. Information on plans’ profit margins is not publicly available. Therefore, we did not evaluate how plans may have adjusted margin to achieve their benefit and premium changes.
The estimated value of the Part C and Part D benefits is evaluated using Milliman’s internal pricing models, including the 2024 Milliman Medicare Advantage Competitive Value Added Tool (Milliman MACVAT®), which is available for external license, calibrated to county-specific 2024 FFS costs with consistent medical management and population base assumptions for each county. This information is used in conjunction with plan-specific benefits, premiums, and benchmark revenue by county released by CMS to determine the value added for each plan.
The plans were grouped into Increased Revenue, Decreased Revenue, and Maintained Revenue groupings by analyzing the changes to their Star Rating used in each bid year:
- Increased Revenue plans: Plans that saw their Star Rating move from 3.5 or lower to 4.0 or higher. This includes plans that went from a new contract or low enrollment indicator (which are paid at a 3.5% QBP) to a 4.0 or higher Star Rating.
- Decreased Revenue plans: Plans that saw their Star Rating move from 4.0 or higher to 3.5 or lower. This includes plans that went from a low enrollment indicator to a 3.5 or lower Star Rating.
- Maintained Revenue plans: Plans that did not cross the 3.5 to 4.0 star threshold and therefore did not change the QBP payment they were receiving. This includes plans that maintained a low enrollment status.
- When analyzing year-over-year impacts, contracts that did not exist or were identified by CMS as a new contract in either of those two bid years were excluded from that analysis. The total number of regional contracts in Figure 3 above increases over each bid year because the data includes only regional contracts active in bid year 2024, meaning fewer of these contracts are excluded for not existing in each subsequent year.
This analysis excludes all U.S. territories and all special needs plans (SNPs), Prescription Drug Plans (PDPs), private fee-for-service (PFFS) plans, medical savings accounts (MSAs), Medicare-Medicaid Plans (MMPs), the Program of All-Inclusive Care for the Elderly (PACE), Part B-only, and Cost plans.
Caveats, limitations, and qualifications
The information in this paper is intended to describe changes and trends in the Medicare general enrollment market. It may not be appropriate, and should not be used, for other purposes.
We relied on publicly available enrollment and premium data from the Centers for Medicare and Medicaid Services (CMS) and the Milliman MACVAT® to support the data presented in this paper. If this information is incomplete or inaccurate, our observations and comments may not be appropriate. We reviewed the data for reasonability but did not audit the data.
Milliman has developed certain models to estimate the values included in this paper. The intent of the models was to estimate the value added of services above traditional Medicare for 2024 and Medicare Advantage prescription drug (MA-PD) plans, as well as summarizing all benefits offered in the MA-PD market from 2021 through 2024. Milliman has reviewed the models, including their inputs, calculations, and outputs, for consistency, reasonableness, and appropriateness to the intended purpose and in compliance with generally accepted actuarial practice and relevant Actuarial Standards of Practice (ASOP).
Julia Friedman and Philip Nelson are members of the American Academy of Actuaries and meet the qualification standards of the American Academy of Actuaries to render the actuarial opinion contained herein.
1 Centene/WellCare, CIGNA, CVS/AETNA, Elevance Health Inc., Humana, Kaiser, and UnitedHealth Care were identified as national players for this analysis due to their total enrollment counts. All other MAOs are identified as regional plans.
2 Rogers, H., Smith, M.H., Nelson, P., & Yurkovic, M. (October 2023). The Future Is Now: 2024 Star Ratings Release. Milliman White Paper. Retrieved April 4, 2024, from https://www.milliman.com/en/insight/the-future-is-now-2024-star-ratings-release.
3 Friedman, J.M. & Yeh, M. (January 16, 2024). State of the 2024 Medicare Advantage Industry: General Enrollment Plan Valuation and Benefit Offerings. Milliman White Paper. Retrieved April 4, 2024, from https://www.milliman.com/en/insight/state-of-the-2024-medicare-advantage-industry-general-enrollment.
4 Rogers, H. et al. (October 2023), The Future Is Now, op cit.
5 Rogers, H., Smith, M.H., & Yurkovic, M. (October 2023). Future of Medicare Star Ratings: The Reimagined CMS Bonus System. Milliman White Paper. Retrieved April 4, 2024, from https://www.milliman.com/en/insight/future-of-medicare-star-ratings-reimagined-cms-bonus-system.