Medicare Advantage Star Ratings and Your Wallet

Assigning Medicare Star ratings to Medicare Advantage plans is attempt by the government to neatly rate the quality of a Medicare Advantage (MAPD) plan.   Like most attempts to aggregate lots of information into a small rating system for easy public consumption, it’s flawed. Plan Star ratings should be one aspect of your Medicare insurance coverage decision.  However, it shouldn’t overshadow other considerations like price, network, MOOP or your prescription drug coverage.  Star ratings are important to you, because ultimately if your plan is rated 3 stars or below, it generally means you’ll pay more money for your policy or your benefits won’t be as rich as plans with 4 Stars or higher.    

The Centers for Medicare and Medicaid (CMS)  established a five star rating system in order to help consumers identify and educate the consumer as to the overall quality of their Medicare Advantage (MAPD) Prescription Drug Plan (PDP) plans.  

The star rating system is numbered from 1 to 5, with 5 being the best and 1 being lowest in terms of quality of service:

5 Stars- Excellent

4 Stars- Above Average

3 Stars- Average

2 Stars- Below Average

1 Star- Poor

Medicare Advantage Star Ratings

Medicare Advantage (MAPD) health plans are rated based on the following categories:

1) Staying healthy: screenings, tests and vaccines. CMS evaluates whether members of a particular health plan got various screening tests and vaccines and whether they got other check-ups that would go a long way in keeping them healthy.

2) The management of chronic conditions: individual health plans are graded on their ability to ensure that members with long term conditions got tests and treatments that helped in managing their chronic conditions.

3) The experience of beneficiaries with the plan: the CMS routinely surveys members to elicit their experiences with different health plans, and this is factored into the STAR rating that each health plan will get.

4) Members’ complaints: beneficiaries under a certain plan can lodge complaints if they encounter problems when using their plan. Medicare also routinely evaluates the health plan of the private insurance company to plot the plan’s performance and improvement over time.

5) Customer service: this includes how often members with appeals and other problems are handled by the health plan’s customer service.

Medicare Stars Rating Flawed?

I mentioned above the ratings system is flawed. I say that, because every year, CMS changes the rules and how they score health plans.  Think about it:  There are over 54 million people on Medicare.  Can you really break down plan ratings across the country in only one way?  Can you really break down these ratings into a neat 5 star sliding scale?  The obvious answer is no, and policy professionals and insurance companies quietly (and sometimes not so quietly) let CMS know about it.  Differences in geography, access to hospitals and doctors, income and even attitudes about what it means to be healthy mean the results are suspect and imperfect.

I won’t spend any more time here on the flaws, as plenty of people smarter than me have already done so.  If you’re a policy wonk and would like to check those out, you can click here, here, or here.


Medicare Advantage Star Ratings Affect Your Wallet

Here’s what it means for you, the consumer.  In a nutshell, when you join a Medicare Advantage plan the federal government (CMS)  pays insurance companies a set dollar amount for your care every month.  Plans rated 4 Stars or higher get more money from the government for everyone enrolled in the plan.  This money really adds up, quickly.  Let’s say there are 10,000 people enrolled in the same MAPD plan.  And let’s say, for the sake of argument, that insurance company gets $1,000 per month, on average, from the government for every person’s medical and prescription drug care.  That’s $10 Million dollars per month, or $120 Million dollars per year.  Yes, that’s a big number, but remember the Medicare Advantage plan is on the hook for all the medical and prescription drug care (from the healthy to the very ill) of those 10,000 members.

So, let’s say the plan achieves a Star Rating of 4 Stars.  The insurance company will earn an additional 5% on top of the $1000 they get for all 10,000 people on that same plan.  Quick math means that’s an additional $500,000 every month MORE that insurance company makes, and $6 Million dollars more a year.  Some of that can be profit for the insurance company, but the government mandates a portion of this money MUST be spent on making the Medicare Advantage plan’s benefits better.  That’s where your pocketbook comes in.

Since Medicare Advantage plans need to take a portion of that additional 5% and put it back into the actual insurance plan, they usually do so in two ways.

  1. Lower the plan’s monthly premium
  2. Make benefits richer.  (Ex. Lowering doctor’s copay from $10 to $5, lowering hospital copays, etc.)

Medicare Advantage plans get a Star rating every year.  So if you think about it, if you’re in a 3 Star plan instead of a 4 star plan over the course of 5 years, and those Star ratings remain the same all 5 years, you’re missing out.  Why?  Because remember, a portion of the money the 4 Star plan gets over those 5 years MUST be put back into lower premiums or better benefits.  After 5 years, the Medicare Advantage plan rated 4 Stars should essentially, be cheaper (both in premium or by having better benefits) than the 3 Star plan will.

The Takeaway

Do Star ratings really matter?  Sure.  They matter because they give an overall indication as to the quality and customer experience of a given Medicare Advantage plan.  Is there a significant difference between a 3 Star plan and a 4 Star plan, from the consumer’s standpoint or experience?  No.  There are flaws, to be sure and the “rules” insurance companies must abide by change every year.  The real impact to YOU, the CONSUMER is that higher-performing MAPD plans that receive 4 Stars or higher are paid more from the federal government.  Half (or more) of that additional money MUST be put back into benefits or lower insurance policy premiums, which in the long run, is better for you and you wallet.  

Why Choose a Medicare Advantage Plan?

Medicare Advantage plans (MAPD) have exploded in popularity since re-introduced around a decade ago.  Is it the best plan for you? What makes these plans so popular?

It’s no secret prescription drug costs are rising much faster than inflation, and overall health spending is up.  Every year, it seems the government raises the Medicare Part B premium, Medicare Supplement (Medigap) and Medicare Part D (PDP) plans cost more, too.  Although I assume by now you already know what a Medicare Advantage plan is (click here if you don’t for a primer) there are very distinct reasons why according to Kaiser Family Foundation 31% of all seniors are now enrolled in a Medicare Advantage plan.

Medicare Advantage plans come in 3 flavors.

  1.  PPO – “Preferred Provider Organization” – you can use doctors and hospitals in and out of the plan’s network.
  2. HMO – “Health Maintenance Organization” – you cannot use doctors out of the plan’s network
  3. HMO-POS – “Health Maintenance Organization – Point of Service” – while rare, these plans let you go out of the plan’s network, often requiring a referral from a doctor who is in the network.

So, why choose a Medicare Advantage Plan?

Combined Medical and Drug Coverage

Remember the acronym in the first sentence?  Medicare Advantage is the same thing as an “MAPD.”  That stands for Medicare Advantage Prescription Drug.  By far the biggest reason people enroll in these plans is because they get their medical coverage and their prescription drug coverage all in one plan, with one company.  It doesn’t matter if you’re at the pharmacy, in your doctors office or at the hospital; one card in your wallet is all you need.

Premiums Are Inexpensive (or $0!)

The number of plans available to you varies depending on where you live.  Cities get more choices, rural areas only a few.  Generally, the availability of these plans increase where there are more people in a geographic area who have Medicare.  For most of you, there are usually multiple insurance companies in your area offering $0 premium MAPD HMO plans.  They can afford to not charge you a premium, because they’re getting reimbursed from the government for your care and prescription drugs.  You can usually find HMO plans with better benefits for an additional premium ranging between $19-$40 per month.  PPO plans are available too, although typically there are fewer options and they’re more expensive at $30-$150 per month, depending on the plan.

Limit Out-of-Pocket Costs

Original Medicare Part A and Part B have significant drawbacks to them, and never cap the amount of money you can potentially spend should you get really sick.  Click here for a post I wrote a while back on this subject.  MAPD plans have a feature called the MOOP.  MOOP stands for Maximum Out OPocket.  Medicare mandates MAPD plans pay 100% of your medical care after a maximum of $6,700 out of your pocket in a calendar year.  Many plans have a lower MOOP and this is a KEY factor you should be shopping for, by the way.  The lower the MOOP, the better for you.

Low Co-pays for Doctor Visits and Prescriptions

Medicare Advantage insurance companies want you to see your primary care physician, and as soon as possible.  While that might not make much sense on the surface, it does if you have a medical condition.  If you have a medical condition and the doctor notes it in his or her chart, the insurance company can file for additional reimbursement from the government for your care.  Good for them.  All this really means to you is your doctor copays on a Medicare Advantage are low (usually $5-20 per visit, sometimes $0!).  Insurance companies also want to make sure you’re taking your prescriptions.  That’s right!  If you don’t, they get dinged in the wallet by the government in a variety of ways.  That’s why prescription drug copays are generally less expensive on MAPD plans than they are on Medicare Part D (PDP) plans.

Extra Benefits Not Offered by Medicare

The government allows Medicare Advantage plans to offer some bells and whistles to their plans to sweeten the deal for potential buyers.  Many, but not all plans offer built-in dental coverage, vision insurance, hearing aid coverage and even an over-the-counter purchasing allowance.  You get none of those items I just mentioned on Original Medicare, Part D or a Medicare Supplement plan.  If you were actually able to find a dental plan to purchase outside of an MAPD plan, I’d a) be amazed and B) tell you not to buy it because it’s not worth the money.  More on that in another post.

There you have it.  Four pretty good reasons to elect a MAPD plan for your Medicare coverage… low (or no) premiums, a limit on your yearly financial exposure, low co-pays for doctors and prescriptions and some dental, vision and other “freebies” thrown in for good measure.