- Federal spending on Medicare Advantage bonus payments has risen every year since 2015, and will reach at least $12.8 billion this year — an increase of nearly 30% from 2022, according a new KFF analysis.
- Rapid growth in bonus payments has implications for Medicare spending and beneficiary premiums, especially since spending on the bonuses has grown faster than MA enrollment overall, researchers said.
- UnitedHealthcare — the biggest MA insurer — will receive the largest total payments at $3.9 billion. Kaiser Permanente has the highest per-enrollee bonuses at $523.
The star ratings system was established by the Affordable Care Act over a decade ago in a bid to get plans to compete over quality. Star ratings are used to determine two parts of a plan’s MA outlook: whether a plan receives a bonus, and a plan’s ability to bid against a higher benchmark rate.
Plans that receive four stars or above receive a 5% quality bonus adjustment for the following year and have their benchmark increased. Bidding against a higher benchmark rate and higher rebate percentages give plans a competitive advantage with respect to benefit offerings and plan value.
MA bonus payments have increased sharply, more than quadrupling from 2015 to 2023, according to the KFF.
Bonus payments by firm largely track the distribution of MA enrollment. UnitedHealthcare and Humana together make up almost half of overall MA enrollment, and are expected to receive 49% of total bonus payments this year.
Kaiser Permanente, which has virtually all its enrollees in a plan that receives bonus payments with a quality rating of at least four stars, has the highest per-enrollee bonus.
Meanwhile, Centene has the lowest per-enrollee bonus of $251. The payer has 55% of enrollees in a plan that will receive bonuses this year.
UnitedHealthcare and Humana will receive lion’s share of MA bonuses, compared to other plans
Meanwhile, Humana CEO Bruce Broussard said lower star ratings for its competitors should help it bring in new members as they shop between plans.
Insurers are waiting to see final star ratings for 2024 when the CMS releases them in October.
The star ratings system has been criticized for not being a useful indicator of true quality at the plan level and not accounting for social risk factors — something the CMS moved to address in a recent rule finalizing a health equity index award in stars beginning in 2027.
Rising MA bonuses are likely to place further stress on the Medicare program, which faces growing financial pressure. A key trust fund that pays hospitals and post-acute care providers, and covers some of the cost of private MA plans, is expected to run out of money by 2031.
And the bonuses aren’t the only aspect of MA that’s sparking concern over potential overspending.
An analysis by the Committee for a Responsible Federal Budget suggests that MA plans might be overpaid by between $810 billion and $1.6 trillion over the next decade. That’s due in part to upcoding, a practice where MA plans manipulate risk adjustment scores to make beneficiaries appear sicker than they are, allowing them to recoup higher payments from the government.
Regulators have said they’re working on strategies to pare back fraud and abuse in MA, including potentially changing the risk adjustment formulas to curb upcoding.
Major insurers in the MA program have been sued for fraudulent coding, including UnitedHealth, Humana, Elevance and Kaiser Permanente.