Taking Stock of Medicare Advantage: Quality Reporting and Quality Bonuses

Medicare uses a five-star rating system to inform the public about the quality of private Medicare Advantage plans and to provide the plans with financial incentives to perform well. The stars are based on more than 40 measures that track whether enrollees are receiving appropriate preventive care and how well their chronic diseases are controlled. The composite score, which is published on the Medicare Plan Finder website, also includes administrative measures, such as a plan’s timeliness in responding to appeals of coverage decisions, and enrollees’ plan ratings.

The star ratings play an outsized role in determining a plan’s future. Plans that fail to achieve three or more stars for three consecutive years can be terminated. The ratings also affect payment levels: plans with four or more stars can submit their bids to deliver Medicare benefits against a higher benchmark, typically 5 percent higher than projected local spending in the fee-for-service program. High-performing plans in urban counties where fee-for-service spending is low and Medicare Advantage enrollment is high do even better. They are eligible for a “double bonus” that can increase the benchmark by as much as 10 percent. In 2021, these quality bonuses reached $11.6 billion — accounting for more than 3 percent of federal payments to Medicare Advantage plans that year.

The star-rating system also affects the size of the rebates that plans receive when their bids fall below a county-level benchmark. Because rebates are used to subsidize premiums, reduce copayments and deductibles, or finance enhanced benefits (such as vision and dental), plans that get higher rebates enjoy a competitive advantage in attracting new enrollees.

Given the importance of the Medicare Advantage star-rating system, we asked experts to reflect on what is working well and which reforms may be needed.

Making Star Ratings More Meaningful

Many experts agreed that while the star ratings help beneficiaries screen out the lowest-performing plans, they don’t help them discern how well plans serve people like themselves. It’s also hard for beneficiaries to assess access to care and quality of care in local markets. That’s because Medicare Advantage companies are allowed to combine the quality scores of plans operating in different states and those serving different types of enrollees (e.g., plans that focus on people with serious chronic illnesses or disabilities and those that don’t). This practice also makes it difficult for federal regulators to assess trends in plan performance over time.

Stars ratings also are largely focused on care processes, such as cancer screenings, rather than treatment outcomes, like hypertension control, and they rely heavily on plan-reported data that can be prone to error. One study found some Medicare Advantage plans underreported hospital readmissions by failing to report the initial admission, contributing to higher star ratings than warranted.

The experts we talked to noted that the measures reflect the state of quality measurement today. Still, they saw several ways the star-rating system could be improved. Officials with the Centers for Medicare and Medicaid Services (CMS), for example, could place greater weight on clinical measures and less on customer service metrics, to keep the focus on areas consumers can’t judge for themselves. CMS also could set absolute performance targets, and reward plans that make progress rather than limiting rewards to those with four or more stars.

Should Star Ratings Factor in Nonmedical Risks?

We asked experts whether quality measurement in Medicare Advantage plans should be adjusted to account for the fact that some enrollees face more social and economic barriers in accessing medical care and adhering to treatment recommendations. One saw merit in doing so, saying it would reduce any incentive plans have to focus on populations whose needs may be easy to address; another worried that adjusting plan ratings for enrollees’ social risks might lower the bar for performance. One alternative would be to be track quality for different populations and use the data to target additional payment to plans and providers serving enrollees with complex needs. CMS has sought input on a proposed Health Equity Index that would track and reward plans that do well at reducing disparities for socially disadvantaged beneficiaries.

Are Quality Bonuses Worth the Price?

The quality bonus program in Medicare Advantage is expensive. Since 2015, it has paid out $47.5 billion in additional plan payments, offsetting cuts imposed by the Affordable Care Act. The payouts dwarf those in pay-for-performance programs of traditional Medicare and commercial insurers; some plans earn as much as $55 per member per month in bonus payments, more than 10 times what some other incentive programs offer. The quality bonus program also isn’t budget neutral or cost saving like incentive programs in traditional Medicare.

Several of the experts we spoke with consider the quality bonuses unjustifiably expensive and ineffective. Studies have found that neither the single nor double bonuses are associated with improvements in quality. There’s also evidence to suggest awarding these bonuses may be exacerbating racial disparities, because Black Medicare Advantage beneficiaries are less likely than white beneficiaries to live in counties with below-average fee-for-service spending or historically high Medicare Advantage enrollment, two criteria for qualifying for double bonuses.

Most experts thought the public reporting of star ratings was enough to incentivize plans to invest in quality improvement, obviating the need for additional payments based on performance.

Does Medicare Advantage Outperform Traditional Medicare on Quality?

How does Medicare Advantage compare to the traditional, fee-for-service program when it comes to quality of care? The experts pointed to robust evidence that hospitalizations are lower for enrollees in Medicare Advantage, but the reasons are unclear. They also acknowledged the difficulty of making head-to-head comparisons: researchers have much more information on health care service use for people in traditional Medicare than those in Medicare Advantage. Medicare Advantage does have the Health Outcomes Survey, which offers a longitudinal view of the health status of enrollees, including functional outcomes and emotional well-being.

One of the experts noted that CMS could compare the two programs by looking at outcomes for patients with complex medical needs who would ostensibly benefit from the case management services Medicare Advantage plans provide. Other important research topics include the factors driving disenrollment from Medicare Advantage plans as patients become sicker, and how plans’ prior-authorization requirements affect quality of care.

Moving Forward

With enrollment in Medicare Advantage enrollment on the cusp of overtaking that in the traditional Medicare program, answering these and other questions will become increasingly important. Establishing the relative value of these two programs — both in terms of quality and cost — will help ensure that Medicare is not only serving beneficiaries well but is financially sustainable long into the future.