Reading the Stars in Medicare in 2014-2015

Whatever you may think of, CMS is killing it on the Medicare Star Ratings Quality Demonstration.

As we move into the final year of CMS’s historic and controversial $8.5 Billion Quality Demonstration, we see clear evidence that quality incentives are working, plans are making major investments to improve their ratings, and quality is improving across the industry. One thing we can be sure of in uncertain times: proven performance-based payment systems like MA Star Ratings will spread to Medicaid, the exchanges, and commercial accounts in the next 3-4 years under banners of transparency and accountability.  $8.5 Billion in a $3 Trillion industry seems infinitesimal, but Stars are moving the industry in ways outsize to their impact.

Many industry experts giggled at the Affordable Care Act ‘s (ACA) provision allowing MA plans to earn up to 5% additional reimbursement from the government for quality metrics based on the CMS star system, and 10% in double bonus (mostly rural) counties. The Star ratings system was, at the time, a laughable ranking barely 2% of beneficiaries paid any attention to. Not anymore.  In 3 years, CMS has evolved Stars to an increasingly sophisticated carrot and stick for quality improvement, with massive financial implications for payers.

To date, each half-star rating equated to roughly $50 per member per month in bonus payments. For 2014, we estimate the enrollment weighted-average increase to plan paymentst from Star bonuses is approximately 4.75% and 3.3% in 2015.  Anything below 4 Stars in 2015 means no bonus and a major financial headwind for plans.  With MA plans seeing roughly 5% margins, 2014 being the worst year of MA reimbursement cuts from the ACA, and 2015 meaning the end of bonuses for plans below 4 Stars, plans are making significant investments to improve their ratings.

There was clear evidence that Stars incentives are working: 52% of MA plans are now at 4 Stars, up from around 37% of all MA plans. The average member weighted ranking for 2013 is 3.86, up from 3.7 in 2012. The biggest chunk of MA enrollment is now in 3.5 Star-rated plans: 30% or 4.4 million. There are now 16 5-Star rated plans up from 3 this year.

While tremendous progress is being made on Stars, GHG’s analysis of the data also shows what a long, hard journey these performance metrics present to health plans. We have much improving to do in managing conditions like osteoporosis and mental health, where most plans scored badly. And the data shows a need to continually improve the service model, like providing interpreters, managing member complaints and coverage disputes.

MA plans in qualifying counties, mostly rural, can receive a “double bonus,” the payment impact of which is significant. There are about 4 million MA members in double bonus counties, roughly 27% of the total MA population. Double bonus counties add about 100 basis points to payments across the entire MA program.

5-Star rated MA and Prescription Drug-only plans can enroll members year-round in 2014, rather than just during the annual enrollment period. This is a major strategic advantage for Star leaders, but one that few have taken full advantage of yet — and that’s about to change. With big nationals finally attaining the honor, they’ll be ready and hustling all year.

CMS has been very clear that it reserves the right to terminate MA contracts that are below 3 Stars for 3 consecutive years, citing its authority in an April 2012 final rule which became effective this year.  About a half-million Medicare beneficiaries are enrolled in plans with less than 3 stars.


Interested in seeing how your Plan’s performance compares to others in your market?  Download GHG’s Star Ratings Database that combines the CMS-issued 2014 Star Ratings with those over the program’s history from 2008 on.

Hear from GHG Stars experts Jane Scott and Deb Devereaux on October 29th.  GHG and AISHealth team up to present a 90 minute webinar: “Inside the 2014 Star Ratings for MA and Part D: Trends and their implications.”  Register now >>

Want to hear more from John?  Decision-makers from Health Plans and Provider Organizations are invited to join GHG for a free webinar on November 19th: “The future of the Government sponsored health care.”  Register for this free event now >> 

John Gorman
John Gorman

Under John's leadership, Gorman Health Group has become the leading professional services and solutions firm for government-sponsored health care, providing thought leadership and expert strategic, operational, and technology-based solutions. Read more

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