Bruce Japsen writes in Forbes about a beneficial provision of the health care reform law: the quality ratings system for Medicare Advantage plans (and Part D prescription drug plans.) Health insurance companies that contract with Medicare to offer comprehensive Medicare Advantage plans, which seniors can opt into instead of traditional Medicare, are rated by a quality rating system designed to guide seniors to better medical care choices and service.

To score well, the health plans are rated on a variety of things such as how quickly they process claim or whether they hear an appeals process quickly, and various outcomes measures outlined at the end of this post.

Good News About Medicare Advantage Plan Quality Improvement

Some good news has been announced by U.S. Secretary for Health and Human Services Kathleen Sebelius and officials from the Centers for Medicare and Medicaid Services (CMS): Medicare Advantage Plans are scoring better on quality ratings, with more of them hitting four- and five-star ratings on the five-star scale.
This is good news for the insurers because the system will allow them to both market their ratings publicly and get bonus payments next year from the federal government ranging from 3 to 5 percentage points. The ratings are a critical way that health plans such as UnitedHealth GroupHumana, Aetna and others attract and retain consumers.

It’s good news for seniors because they will now have access to 127 four- or five-star Medicare Advantage plans that provide benefits to 37% of the Advantage programs enrollees in 2013. This is up from 106 four or five star plans this year, which serve 28% of seniors in Advantage plans. Jonathan Blum, deputy administrator and director, Center for Medicare, says:

We are seeing tremendous quality jumps. We want to reward and incent overall quality improvement.

ACA Incentives Drive Excellence

The Affordable Care Act lowers payments to Medicare Advantage plans by more than $140 billion over the next decade to gradually bring their costs in line with traditional Medicare. In the meantime, bonus payments are paid to outstanding plans to can help the plans make up for the loss of support, and this is seen as a key reason that the health plans are improving.

An Overview of the Scoring System

Here is a brief overview of the criteria used to determine the scores from All about Medicare Advantage’s (star) quality ratings:

  • Quality scores are based on 53 performance measures that are derived from plan and beneficiary information collected in three surveys and administrative data on plan quality and member satisfaction.
  • CMS assigns quality ratings at the contract level, rather than for each individual plan. Every Medicare Advantage plan covered under the same contract receives the same quality rating.
  • CMS groups the individual quality measures into five domains: (1) staying healthy: screenings, tests, and vaccines; (2) managing chronic conditions; (3) ratings of health plan responsiveness and care; (4) health plan member complaints, appeals, and choosing to leave the health plan; and (5) customer service.
  • 59% of 2010 Medicare Advantage plans received quality ratings; accounting for 85% of all beneficiaries in Medicare Advantage plans, based on 2009 enrollment.
  • Ratings are positively correlated with:
    • Not-for-profit status
    • Duration of plan experience in Medicare
    • Being an HMO (as opposed to a PFFS and PPO plan)
    • Operating in an urban area
    • County-level Medicare Advantage penetration
    • Median household income
    • Number of plans in an area

Determination of Incentives

ACA incentive provisions are as follows:

  • Plans with higher quality ratings will receive higher rebates:
    • 70% rebate for plans receiving 4.5 or 5 stars;
    • 60% percent rebate for plans receiving 3.5 or 4 stars;
    • 50% rebate for plans receiving 3 stars or fewer.
    • Plans with 4 or more stars will also receive bonus payments (i.e., additional amounts added to the plan’s benchmark), and in certain counties, will receive double bonuses.
  • Bonuses are doubled for plans offered in counties with all the following characteristics:
    • Lower than average Medicare fee-for-service costs
    • A Medicare Advantage penetration rate of 25% or more as of December 2009
    • A designated urban floor benchmark in 2004.
    • In 2012, Medicare Advantage plans in 210 counties will qualify for double bonus payments
  • In 2012, all small or low-enrollment plans will receive quality bonuses, and rebates of 70% of the difference between the bid and the benchmark. The Secretary of Health and Human Services is required to establish a method for computing quality ratings for small plans for 2013 and subsequent years.
  • All new plans (offered by organizations that did not have a Medicare Advantage contract in the previous 3 years) will receive quality bonuses (1.5% in 2012, 2.5% in 2013, and 3.5% in 2014) and rebates of 65% of the difference between the bid and benchmark in 2012 and subsequent years.