Meanwhile, MA plans with 3.5 stars or lower went from 60 percent enrollment in 2014 to only 39 percent in 2015. Plans receive star ratings in MA based on their performance on a series of quality measures. Star ratings are designed to help beneficiaries choose between plan options.

“The shift to higher star plans is a result of beneficiaries gravitating toward plans that have higher star ratings,” said Christine Harhaj, senior manager at Avalere. “In particular, plans with more stars receive higher payments from the Centers for Medicare & Medicaid Services (CMS), allowing them to offer additional benefits that are attractive to beneficiaries.”

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Under the Affordable Care Act, MA plans with 4 stars or higher receive Quality Bonus Payments (QBPs). QBPs increase payments by allowing plans to bid against higher county benchmarks and increasing the percentage of the difference between bid and benchmark that CMS returns to plans in the form of a rebate. Plans are required to use rebate dollars to fund extra benefits, like reduced cost sharing, an enhanced Part D benefit, or reduced Part D and Part B premiums.

Between 2012 and 2014, CMS used its demonstration authority to extend QBPs to 3 star and 3.5 star MA plans. However, now that the demonstration has expired, 3 and 3.5 star MA plans no longer receive higher benchmarks and increased rebates. This may make 3 and 3.5 star plans less attractive to beneficiaries, as these plans now have fewer dollars to leverage to offer more generous benefits.

As an example, if three plans in the same county with different star ratings submit bids that are all $900 per member per month (PMPM), each plan would receive different payments:

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“Paying for quality measures in Medicare Advantage creates important incentives for plans to improve how they deliver care, and helps guide beneficiaries as they shop for coverage,” said Dan Mendelson, CEO of Avalere. “The Medicare Advantage experience should serve as an example for other programs, including Medicare Part D and exchanges, looking to potentially link performance on quality measures with plan payment.”

Methodology

These findings are the result of an Avalere Health analysis using enrollment data released by CMS in February 2013 (reflecting January 2013 enrollment), February 2014 (reflecting January 2014 enrollment) and February 2015 (reflecting January 2015 enrollment).

1. These ratings summarize all Part C and Part D measures combined. Percentage of total enrollment calculation includes contracts that were too new to be measured or did not have enough data to calculate a rating.

2. Data does not include enrollment in employer and dual-eligible demonstration plans.

3. Previous year star ratings impact plans’ current year bids, and rebates in particular. Data reflect ratings published in October 2011 which affected CY2013 MA plan payments, October 2012 which affected CY 2014 MA plan payments, and October 2013 which affect CY 2015 MA plan payments.