In the midst of open enrollment, there’s a lot of consumer (and investor) focus on Medicare Advantage STAR ratings that were announced earlier this month.
STAR Ratings seem simple enough on the surface.
Plans are rated by the Centers of Medicare and Medicaid Services (CMS) on a scale of 1 (low) to 5 (high) based on a basket of measures that capture a Medicare Advantage health plan’s clinical performance and member experience.
But there’s far more to STAR ratings that most people know.
What Are STAR Ratings Anyway?
STAR ratings are a measure of plan quality.
They include objective and subjective measures in of member experience and performance across a basket of 44 measures in 9 categories including staying healthy; managing chronic conditions; member experience; member complaints; customer service; and drug plan customer service.
Star ratings have enormous financial implications for plans as CMS ties revenue to STAR ratings.
A high STAR rated plan is able to fuel added benefits like lower co-pays or total out of pocket costs; or richer supplemental benefits like better vision, dental, or transportation coverage.
The added benefits translate into higher growth and better member experience (and better long-term star ratings).
It also translates into higher payments to contracted providers (if they are in risk or performance-based contracts).
STAR Ratings Are Delayed Reflections Of Performance
STAR ratings are announced in early October every year in anticipation of the annual enrollment period and hold until the following year’s announcement.
But STAR ratings are a reflection of prior year clinical performance year and a consumer survey (CAHPS) that was administered several months before the rating is issued.
To make things even more confusing, STAR ratings influence payment a year after the rating year.
So for example— 2023 clinical performance and 2024 CAHPS survey performance influences the 2024-2025 STAR rating and will payments to plans (and associated benefits to beneficiaries) in 2026.
Confusing?
Uhm, yes.
The Effect of STAR Ratings On Payments
STAR ratings matter because CMS gives different payment amounts to plans based on their plans.
Up to 5% in additional quality bonus payments.
For a patient in Los Angeles County, California with a few illness with a 1.2 risk score, the difference between a 3 STAR rated plan and a 4.5 STAR rated plan is almost $140 in premium payments *every month.*
Annually this adds up to almost $1500 / year premium difference.
If a plan has 100,000 Members, that’s $150,000,000.
See why stock markets reacted to news that STAR ratings had declined significantly with some public companies?
The revenue hit alone is a big deal.
But there’s more.
Higher STAR ratings and revenues enable plans to offer richer benefits.
If a plan has lower revenues, they tend to slash benefits to maintain margins.
But what happens when benefits are cut?
Members have lower satisfaction with their plan
And STAR ratings remain low.
So low STAR ratings put plans at risk for a Darwinian death spiral unless they are willing to invest to maintain benefits.
Tough business? No doubt.
It’s why plans sometimes exit counties and states altogether only to restart plans a few years later.
A Five STAR Rating Comes With An Unexpected Bonus
While most plans can only sell to new members during annual enrollment period or when they first become eligible for Medicare, 5 STAR plans can sell year round.
The other type of plan that can sell year-round regardless of STAR rating is a special category of plans called special needs plans (SNPs).
These plans focus on people who are dually eligible for Medicare and Medicaid or have chronic diseases (C-SNPs) or are home or institution bound (I-SNP).
It’s important to know that 5 Star plans are not paid any differently than 4.5 STAR rated plans.
The STARS bonus payments and total revenue is exactly the same.
As a result, many high-performing plans aim for the 4.5 STAR rating and believe that the 5 STAR rating, while appealing, may not be worth the incremental effort entailed.
In the 2024-2025 rating period, only 7 plans achieved a 5 STAR rating nationally.
STAR Ratings Matter To Consumers…Sometimes
This annual enrollment period, we will see many seniors enroll in low-star rated plans.
It happens every year.
Why?
Low-star rated plans are often offered by big, recognizable brands.
Low-star rated plans often invest in gaudy benefits that attract members.
Low-star rated plans are often sold by a small fraction of powerful brokers who are swayed to sell them by incentives from plans.
And seniors often don’t know the difference between low-star rated and high-star rated plans *until they get sick* and it is simply too late to make a change.
Brokers who sell members into low-rated plans often believe STAR ratings don’t tell the full story about plan quality.
Low-rated plans may serve minority populations that value qualities that aren’t captured by STAR ratings like ethnic specific physician networks or benefits.
Or they believe that STAR ratings will swing wildly based on a few data points that may not matter fully (more on this later).
Regardless, many new to understanding Medicare Advantage aren’t aware that high STAR ratings don’t necessarily translate into high growth rates.
Plans Manipulate STAR Ratings
With massive variation in star ratings, health plans often resort to unsavory, non-transparent tactics to bolster their ratings.
Here are a few:
Novation: plans will merge a low performing contract in one geography with a higher performing contract in another geography, blending the performance of a low-performing cohort of people with a higher performing cohort in another / overlapping geography. Star ratings may look higher to the public but there has been no fundamental improvement in performance.
Contract area expansion: a health plan will take a high-performing plan in one geography and file an expansion into a new geography (including one in which they already have a lower rated plan). This also reflects no fundamental improvement in performance—and deceives the public into thinking that a plan is better than it is.
These tactics are clever.
And can lead to transient “improvements” in star ratings that are hard to maintain.
But they also waste the taxpayer’s money because it is rewarding a plan for no *real* improvement in performance.
STAR Ratings Are Rounded.
A 3.74 rounds down to a STAR rating of 3.5.
3.76?
That rounds to a STAR rating of 4.0.
Small differences that are of questionable statistical significance can be massively meaningful to plan ratings — and the payments associated with those ratings.
Depending on your perspective, this brittleness either creates massive incentive for plans to do their best for Medicare beneficiaries day in and day out.
Or it creates a system that arbitrarily rewards small, statistically insignificant differences in performance.
You decide.
Plans Are Suing CMS Because A Lot Is At Stake
Last year, my company, SCAN Health Plan, sued the Centers for Medicare and Medicaid Services in federal court for two reasons.
The agency changed its methodology for setting cut points without laying out that methodology in the regulations governing the plan.
A judge ruled in our favor and STAR ratings were recalculated for the whole industry resulting in 60 plans receiving better star ratings and over $1.4B in payments affecting benefits for over 1m Medicare beneficiaries.
The second reason we sued is because we had a difference of opinion in how CMS scored a phone call it made by a secret shopper who required French translation services.
Because of the tight nature of the grading curve, a single phone call was the difference between a 0.5 STAR difference and over $250m in payments.
We believed the confusing way in which they secret shopper conducted herself resulted in the translation taking 34 seconds longer than the 7 minute standard dictated by CMS.
Because the judge ruled in our favor on methodology, he never ruled on the French phone call.
This year, several plans (Humana, United, and, now, Centene) are following the strategy we laid out in our lawsuit of contesting a single call and single measure—because A LOT is at stake for them.
Time will tell whether these efforts are successful.
Reform Is Needed
The brittle nature of STAR ratings and the fact that a single phone call can swing ratings (and payments) as much as they do is often very surprising to observers of the Medicare Advantage industry.
And probably the clearest indication that STAR ratings need to be reformed.
Maybe plans could be payed on a continuous curve rather than a “cliff” based on step changes in rounded STAR ratings.
Or perhaps we can begin to include more outcomes measures in STAR ratings.
If we get the ratings right, perhaps we can tier maximum broker commissions to STAR ratings.
And perhaps brokers will do what we expect them to—which is guide them to the highest rated plan in their markets.
And plans will then do more of what we want: do everything in their power to optimize their performance.
In the meantime, STAR ratings—imperfect as they are—are all we have.
And most observers of the industry would argue that while there may not be a huge difference between a 3 STAR plan and a 3.5 STAR plan—there is likely a huge qualitative difference between a 3 STAR plan and 4.5 STAR difference to which beneficiaries and brokers alike should be paying more attention.
