Some Medicare Advantage plans scored a 3.74 and were rounded to the “nearest half Star” based on Centers for Medicare & Medicaid Services (CMS) rules, so the plan was rated a 3.5. Conversely, other plans were scored 3.75 and were rounded to the nearest half Star of 4.0.
McKinsey also analyzed enrollment comparing 2014 and 2016. It documents impact of losing a 4+ rating. Results showed that contracts that lost a 4+ rating grew membership by 7.8% versus a 40.9% growth for contracts that retained the high rating.
It should be noted that those stellar plans that achieve a 5-Star rating can enroll members year round, while plans below 5 Stars can only enroll members during the traditional late fall open enrollment period.
The McKinsey analysis also revealed the correlation between low Star ratings and survival of plans. McKinsey analyzed all contracts that have left the market since 2013. The reasons for exit were either that coverage was terminated or contracts were consolidated. Analysis revealed that on a member-weighted basis:
- Over 90% of the contracts that left each year had fewer than 4 Stars
- Of 320 contracts that had fewer than 4 Stars in 2013, 46% were terminated or consolidated into other contracts by 2017
Beyond high Star ratings translating into higher enrollment, it has other financial implications. A Medicare Advantage plan’s Star ratings affect revenue in two ways.
- First plans (three years and older) are paid a base rate based on the county in which beneficiaries are enrolled. Plans with 4.0 Stars and higher receive a 5% quality bonus payment. Plans rated 3.5 Stars or less are only paid a base rate.
- Rebate percentage: Plans with higher Star ratings receive higher rebate percentages; the result is higher federal revenue. Plus, a higher rebate increases supplemental benefits for plans.
The bottom line is that 1/100th of a point can mean survival.