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 1970’s. 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 percent in 2004. Analyses project MA enrollment to exceed 50 percent 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.
In response, the nation’s largest commercial payers, including UnitedHealth Group, Aetna, Anthem, and Humana, are aggressively expanding their MA offerings.
But this expansion has increased competition, making it essential for plans to employ new strategies to differentiate their value to beneficiaries and providers, and preserve adequate enrollment.
MA’s rising star
Increasing a plan’s MA star ratings is a key way to attract new enrollees, expand market share and increase revenue. Developed under the ACA, the MA star ratings scale measures how well plans perform in these categories:
1. Staying healthy: screenings, tests, and vaccines
2. Managing chronic (long-term) conditions
3. Member experience with the health plan
4. Member complaints, problems getting services, and choosing to leave the plan
5. Health plan customer service
Each fall, Medicare assigns plans an overall star rating ranging from 1 to 5 stars, with five representing the highest level of performance. This rating score offers a way for enrollees to compare performance among plans. In addition, per member per month (PMPM) rates paid by Medicare vary based on certain star rating thresholds. Plans that are rated 3.5 stars or less are paid a base rate based on the county in which it enrolls beneficiaries. However, if the plan increases the rating to 4 stars or more, the plan is paid a 5 percent bonus in addition to the base rate. Plans achieving a 5-star rating can also enroll members throughout the year, while plans below 5 stars can only enroll members during the late fall annual election period. Beyond the added bonus payment, a 3 to 4-star improvement can also generate 134 percent more value to its members in extra benefits through more generous rebates.
Furthermore, a recent analysis from Navigant shows the additional impact of MA star ratings improvements on plan enrollment and revenue. According to the analysis of 500 MA contracts:
- For plans with 3 or less stars, a 1-star rating improvement could, on average, lead to a year-over-year 8 percent to 12 percent increase in plan enrollment.
- Improving from a 3-star to 4-star rating could increase revenue between 13.4 percent and 17.6 percent.
Payer-provider collaboration key to increasing star ratings
As MA plans look to achieve star rating improvements, they must consider the role of providers. Strong star ratings are partially a result of contracting with providers that invest time and resources into closing care gaps to improve care quality and satisfaction. Therefore, plans should proactively seek collaborative arrangements with providers to share the financial benefits of quality and efficiency improvements, ultimately leading to greater plan satisfaction and quality among all involved.
Recently, payers faced ambivalence from providers about joining MA networks because participation did not offer additional revenue opportunities. Moreover, value-based models were only beginning to be negotiated broadly in commercial and MA areas. Now, given the shift to value and comparatively less attractive commercial revenue streams which have flattened or eroded in recent years, providers may be more receptive to considering participating in MA networks under value-based arrangements.
MA plans rely on sufficiency of enrollment to maintain their ongoing viability. Increases in star ratings can have an immediate effect on the MA plans’ bottom line through growth in enrollment, revenue and market share. Ratings improvements can also drive increased rebates that plans can use to enhance benefits, increasing the likelihood of beneficiary re-enrollment or new beneficiaries joining the plan.
MA plan attractiveness is correlated not just with cost but also with providers in the network, enrollee satisfaction and quality. Improving star ratings requires payers to enhance collaboration with providers through value-based MA arrangements, which helps promote clinical and financial alignment between the organizations. Such partnerships can offer significant opportunities for providers to share in improved plan performance, and for MA plans and their managed care organizations to achieve the highest possible ratings.
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