CMS measures the quality of Medicare Advantage plans with a five-star system. While the validity and weighting of these “quality” measures can be debated, as well as whether they are meaningful to or well understood by consumers, CMS uses them to reward MA plans in a significant way. A report from Leavitt Partners looks at the relationship between star ratings and monthly premiums that beneficiaries pay to the plans. (Leavitt Partners Brief) Plans with high star ratings get a rebate, which gets higher as the rating goes up. MA plans with star ratings of 4 or above get a rebate of around $500. The plans must use this to either provide more benefits or reduce premiums; either of which could make them even more attractive to beneficiaries. The Leavitt analysis focused on the relationship between star rating and monthly premium and on what those plans with high star ratings and rebates seemed to be using the extra money for. At a gross level, there is a relationship under which higher-rated plans have higher premiums. but since there are a significant number of zero premium plans, the analysis had to be enhanced. A zero premium plan was associated with higher out-of-pocket limits, more enrollees, being a special needs plan and being an HMO plan. Zero premium plans were also much less likely to have a drug benefit. Having a higher star rating was negatively associated with the likelihood of being a zero dollar plan, which itself suggests that high-rated plans aren’t using the rebates to lower premiums.
While higher ratings were associated with higher premiums, the relationship was not linear. For each point increase in star ratings, there was lower increase in the premium. Going from 4 to 5 stars, for example, had a much smaller effect than going from 3 stars to 4. It appears that plans with high ratings and therefore more revenue from CMS are using the extra revenue to provide more benefits. They may also be sending more of the revenue to providers. Many high-rated plans are staff models or have tight capitated relationships with providers. To the extent that beneficiaries rely on star ratings in making purchase decisions, high-rated plans may feel less incentive to lower premiums, while low-rated ones may believe they need lower premiums to attract members.