Medicare Advantage plans have become an integral part of the U.S. healthcare system, enrolling more than half of eligible Medicare beneficiaries. These plans, offering additional benefits beyond traditional Medicare, receive financial incentives through the Medicare Advantage Quality Bonus Program. In 2024, at least $11.8 billion will be awarded to plans as part of this initiative, which is tied to their performance on a star rating system.
The Quality Bonus Program, introduced under the Affordable Care Act (ACA), aims to enhance competition among Medicare Advantage plans based on quality rather than just cost. However, while the star rating system is designed to reward high-performing plans, the methodology and distribution of bonus payments have raised questions about fairness and equity in the system.
Understanding the Star Rating System
The star rating system for Medicare Advantage plans is a key component of the Quality Bonus Program. It evaluates the performance of plans on a range of measures, including customer service, management of chronic conditions, and preventive care services. Plans that receive at least four stars (out of five) are eligible for bonus payments.
These bonuses are calculated based on the difference between a plan’s bid (its estimated cost of providing services) and a benchmark set by the federal government. In addition to receiving higher payments, plans in “double bonus” counties, characterized by historically high Medicare Advantage enrollment, can receive an even greater percentage increase.
Despite its intentions, the star rating system has faced criticism. The Medicare Payment Advisory Commission (MedPAC) and other experts have pointed out that the ratings may not adequately reflect quality, as they do not account for social risk factors and are reported at the contract rather than the individual plan level.
Key Trends in 2024 Medicare Advantage Bonus Payments
Federal Spending on Medicare Advantage Bonuses
In 2024, Medicare Advantage bonus payments will total at least $11.8 billion, marking a slight decline from $12.8 billion in 2023. This decrease follows the expiration of COVID-19-related policies that temporarily boosted star ratings for some plans. Nevertheless, the 2024 total is still significantly higher than any year before 2023, underscoring the rapid growth in federal spending on these bonuses.
Between 2015 and 2024, spending on Medicare Advantage bonus payments grew by over 400%, from $3 billion in 2015 to its current level. This increase has coincided with a doubling of Medicare Advantage enrollment, from 16 million in 2015 to 33 million in 2024.
Enrollment in Bonus-Receiving Plans
In 2024, 72% of Medicare Advantage enrollees (24 million people) are in plans receiving bonus payments. While this is a slight decrease from the 85% observed in 2023, it is consistent with the percentage seen in 2022 (75%). These bonus payments are distributed based on star ratings from the previous year, meaning the expiration of pandemic-era policies impacted the payments for 2024.
Distribution of Bonus Payments Across Plan Types
Bonus Payments for Employer-Sponsored Plans
Employer- and union-sponsored Medicare Advantage plans consistently receive higher bonus payments per enrollee compared to other plan types. In 2024, the average bonus per enrollee for these plans is $456, compared to $345 for individual plans and $330 for special needs plans (SNPs). This disparity arises because employer-sponsored plans typically achieve higher star ratings, making them more likely to qualify for bonuses.
Bonus Payments for Special Needs Plans
Special needs plans, which serve higher-need, vulnerable populations, including a significant portion of Black and Hispanic beneficiaries, receive the lowest average bonus payments per enrollee. This has raised concerns about the equity of the quality bonus program, as higher-income beneficiaries in employer-sponsored plans are receiving larger bonuses than lower-income beneficiaries in SNPs.
Impact of Bonus Payments on Equity
The distribution of bonus payments in 2024 highlights potential inequities in the Medicare Advantage system. While employer-sponsored plans, which serve higher-income retirees, receive the highest average bonuses, special needs plans serving vulnerable populations receive less funding. This raises important questions about whether the quality bonus program is effectively promoting equity in healthcare.
Bonus payments are intended to encourage plans to improve quality for all beneficiaries, but the current distribution may be widening the gap between higher- and lower-income populations. Policymakers may need to consider adjustments to ensure that vulnerable groups benefit equally from the Medicare Advantage program’s financial incentives.
Bonus Payments by Firm
In 2024, the two largest players in the Medicare Advantage market—UnitedHealthcare and Humana—are expected to receive half of the total bonus payments. UnitedHealthcare is projected to receive $3.4 billion in bonuses, while Humana will receive $2.5 billion. Other major firms, including Blue Cross Blue Shield (BCBS), CVS Health, Kaiser Permanente, and Centene, will also receive substantial payments.
Kaiser Permanente stands out with the highest average bonus per enrollee at $516, while Centene will receive just $32 per enrollee due to its lower star ratings. The variation in bonus payments across firms reflects differences in plan quality and performance.
Conclusion
In 2024, Medicare Advantage plans will receive at least $11.8 billion in bonus payments through the Quality Bonus Program, which rewards high-performing plans based on their star ratings. While federal spending on bonuses has grown significantly over the past decade, questions remain about the program’s impact on equity and the distribution of funds across different plan types.
As enrollment in Medicare Advantage continues to grow, it is crucial to assess whether the quality bonus program is achieving its intended goals of promoting competition based on quality and improving outcomes for all beneficiaries, regardless of income or social risk factors.
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FAQs
1. What is the Medicare Advantage Quality Bonus Program?
A. The Medicare Advantage Quality Bonus Program rewards plans with high performance based on a star rating system, encouraging competition based on quality.
2. How much will Medicare Advantage plans receive in bonus payments in 2024?
A. Medicare Advantage plans will receive at least $11.8 billion in bonus payments in 2024, down slightly from $12.8 billion in 2023.
3. Why are some plans receiving higher bonus payments than others?
A. Plans with higher star ratings, such as employer-sponsored Medicare Advantage plans, tend to receive higher bonus payments compared to plans like special needs plans.
