Medicare Advantage Bonuses Will Exceed $13B this Year, KFF Finds
Medicare is spending more on quality bonuses despite fewer enrollees in eligible plans — a concerning trend putting more stress on Medicare’s coffers that could amplify calls for reform. The quality bonus program, which was established by the Affordable Care Act in 2010, offers extra payments to MA plans with ratings of four stars or above, along with competitive advantages in the annual bidding process.
Insurers argue the program incentivizes them to improve customer engagement, education and outcomes, while giving seniors a helpful tool to compare between plans during Medicare’s sign-up period. But the quality bonus program has faced sticky criticism from budget hawks and health policy researchers worried that the U.S. isn’t getting enough bang for its buck.
MedPAC, a group of experts that advises Congress on Medicare policy, and other researchers have found that the star ratings system is overly complex and isn’t a useful indicator of plan quality. The research has spurred calls to reform the bonus schema or throw it out entirely. Ending the program would save the federal government almost $100 billion over a decade, the Congressional Budget Office estimated in 2018 — almost certainly an undercount of actual savings given skyrocketing MA enrollment since that estimate was made, KFF said.
The quality bonus program accounts for just about 2% of the $574 billion in payments that are expected to go to MA plans this year. But spending in the program has skyrocketed since it started more than a decade ago, as more seniors opted into MA, attracted by the broader array of benefits and cheaper monthly premiums, according to KFF.
Currently, more than half of all Medicare enrollees, or some 35 million seniors, are enrolled in the privatized program, in which the government pays insurers a per-member, per-month fee for overseeing beneficiaries’ care.
Growth in underlying Medicare spending, which underpins payments to MA plans, has also driven up quality bonus payments, according to KFF.
That’s despite fewer seniors enrolling in plans actually eligible for bonuses, after years of declines in average star ratings following the coronavirus pandemic — and largely no change this year after regulators made it more difficult to reach the highest scores.
Cutting costs in the quality bonus program is an area of consideration for policymakers as Medicare’s finances become increasingly precarious. A key trust fund underpinning the program, which provides insurance to about 70 million senior and disabled Americans, is set to run out of money in 2033 without congressional action.
However, the CMS this spring finalized changes to the star ratings system that are actually set to send another $18 billion to insurers over the next decade. And after losing a court case with MA insurer Clover Health, regulators were forced to recalculate 2026 star ratings (which affect bonuses in 2027) in a way that resulted in higher scores for some participants.
Meanwhile insurers, which are laser-focused on improving MA margins after a difficult few years in the program, are likely to lobby heavily against any changes to quality bonuses.