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 (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.
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.
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.
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.
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.
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Author Bio: Ben started Prepare for Medicare in 2014 to help people help people get objective answers to questions about Medicare. He’s held leadership roles at numerous Fortune 500 Medicare health insurers in product development, sales, marketing and strategy for over 20 years.