Impact of Star Ratings on Medicare Advantage Plan Success

Richard Bajner, Eric Meinkow, Janet Munroe, and James R. Smith in Becker’s Hospital Review

The ongoing uncertainty around the Affordable Care Act’s (ACA) individual market has contributed to financial losses for commercial payers, and an exodus of some from that market.

In response to this and the growing baby boomer population, many private payers are expanding or shifting their focus to Medicare Advantage (MA).

The private version of the federal Medicare program, MA has served beneficiaries since the 1970s. Whereas the federal government pays for Medicare benefits under traditional Medicare coverage, MA plans are offered by private payers that contract with Medicare to provide MA benefit plans. Medicare pays the contracted payer to cover and administer benefits; in turn, plans negotiate with local and regional healthcare providers to deliver services to enrollees.

MA presents a win-win-win for Medicare enrollees, payers, and providers: 

  • For enrollees, MA plans are often a less expensive, less confusing option compared to traditional Medicare. 
  • Payers like these plans since premiums, which can average around $1,000 per member per month, are largely paid by the government, ensuring a steady revenue stream. 
  • Providers enjoy a MA plan benefit design that strongly favors clinically integrated networks with their focus on quality of care and in-network utilization, and offers a potential revenue stream above traditional Medicare and other commercial revenue sources. MA also offers providers flexibility in accepting risk through value-based plans with no downside risk, to higher-risk offerings (partial and full capitation).

Thus, it’s no surprise that MA plans are increasing in popularity, with approximately one-third of all Medicare enrollees – about 20 million Americans – choosing these plans, up from 13% in 2004. Analyses project MA enrollment to exceed 50% market penetration by the end of 2025. And while the share of traditional Medicare benefit inpatient spending fell by one-third between 2006 and 2016, spending on MA plans doubled.

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