Medicare Star Ratings: The Surprising Truth
Now a standard in the health insurance industry, the Five-Star Rating System was designed to stimulate competition among plans with the goal of improving member service, facilitating informed decision-making, and ultimately, reducing healthcare costs. The Medicare star ratings are compiled using plan and beneficiary information collected in three surveys—HEDIS®, CAHPS®, and HOS—and administrative data.
For seven years, Medicare Advantage beneficiaries have had access to information about how plans perform in categories like helping members stay healthy, presenting drug prices clearly, and handling customer service inquiries. Now similar ratings are being used for plans on the state and federal health insurance exchanges.
The big question, however, is this: do Medicare star ratings really matter?
In the years since the Five-Star Rating System began, we’ve made a few observations that might surprise you.
1. Star ratings don’t have much of an impact on enrollment.
When CMS first started reporting star ratings, there was a lot of concern about how they would impact enrollment. Would beneficiaries turn up their noses at low-rated plans? Would they choose a pricier plan with a higher rating? Or would they ignore the ratings altogether?
As it turns out, a 2014 Kaiser Family Foundation study found that star ratings figure very little in beneficiaries’ plan choices. Cost (premiums and out-of-pocket costs), provider access, plan name recognition, customer service, and covered benefits all played a key role in which plans seniors chose. But not star ratings. While the number of beneficiaries in 4-star plans has nearly doubled over the past three years, that’s due in part to the increase in the number of 4-star plans. As well, many 4-star plans also have the cost and plan benefits seniors want.
At Healthx, we’ve found the same to be true for our clients. For example, one of our clients is the only 5-star plan in a major metropolitan area in the northeastern U.S. They continue to be successful, but they still didn’t attract as many members as a less expensive plan with lower star ratings.
The bottom line: people might not buy the really low-rated plans, but they don’t seek out the high-rated ones just because of ratings.
2. Plans are missing out on a huge revenue opportunity.
Beginning in 2012, CMS began awarding bonuses to plans receiving 4 or more stars. In addition, CMS offers larger rebates for highly rated plans that submit bids below the county or regional benchmark. These rebates allow plans to retain up to 70 percent of the difference between the benchmark and the plan bid to offer additional benefits or reduce cost sharing for beneficiaries.
With so much money at stake, why aren’t more plans attempting to earn the bonuses and rebates? Consider how even a small increase can have a huge impact.
Gaining even just half a star, from 3.5 to 4, could lead to tens of millions of dollars in additional revenue.
Of course, the challenge for health plans lies in what is being measured. Not only are they rated based on their own service, insurers also are held accountable for the care provided to their enrollees by physicians, hospitals, and other providers. That’s why many plans are investing in pay-for-performance and value-based reimbursement programs. But when you consider how much money is at stake, it’s surprising they aren’t doing a lot more.
3. Stars get lost in the shuffle.
While entire teams are working on HEDIS and other star rating initiatives, if you asked them what they’re focusing on they’d probably say “NCQA accreditation.” In recent years, NCQA accreditation has become a bigger focus for a lot of plans. After all, it’s a prerequisite to be included on the state and federal health exchanges. With the overlap between star ratings and NCQA, it’s easy to see why plans combine these efforts.
However, don’t overlook the value of targeting your Medicare population specifically. A little bit of effort can have a big impact on members’ health and experience—and on your bottom line.
So yes, Medicare star ratings matter, but not necessarily for the reasons you may think. Because of all that’s at stake, don’t let your star ratings get lost among other mandates and initiatives.
Dwight Klunzinger is Executive Vice President of Client Solutions at Healthx. He is responsible for overall client satisfaction for our healthcare payer clients, including Medicare and Medicaid plans.