The star system that Medicare uses to rate the quality of Medicare plans has itself become a star player in recent debates about the impact of the Patient Protection and Affordable Care Act of 2010 (ACA) on Medicare.

The Centers for Medicare & Medicaid Services (CMS) rates Medicare Advantage and Part D prescription drug plans using a variety of measures of quality of care, member experience and plan administration.

Plans can receive a rating of one to five stars, with a five-star rating indicating that the plan offers excellent quality to its members.

The ACA adds some weight to the star ratings for Medicare Advantage plans by awarding bonus payments and larger rebates to plans that achieve higher-quality ratings.

Competitive Edge For Five-Star Plans
First, it’s important to have some background on five-star plans -- how they have risen in the limelight for the Medicare program.

Health-care reform was designed to phase in reductions in federal payments to Medicare Advantage plans to bring the average payment per enrollee more in line with those for Original Medicare.

The Medicare Payment Advisory Commission (MedPAC) has been reporting for years that federal payments per enrollee are higher for Medicare Advantage plans than for enrollees in original, fee-for-service Medicare. For instance, MedPAC projected that Medicare Advantage payments per enrollee would be 114 percent of comparable fee-for-service spending in 2009, the year before ACA passed into law.  MedPAC is an independent congressional agency that advises Congress on issues affecting the Medicare program.

The ACA provides for bonus payments to Medicare Advantage plans that receive four or more stars.

Just as the new bonuses were about to take effect in 2012, however, the CMS launched a demonstration project that extends the bonus payments to plans that score three or more stars. This demonstration project continues through 2014. The CMS demonstration also increases the amount of the bonus payments and scales them to the plan’s rating. Meaning: The higher the plan rating, the larger the bonus.

Plans must use the bonus payments to provide extra benefits to enrollees, such as vision care or lower cost sharing. Thus, bonuses potentially give plans a competitive advantage because they can offer more attractive benefit packages.

Plans that earn the highest rating of five stars not only get the highest bonuses, they also gain an additional reward: They can market to and enroll new members throughout the year.

What The Five-Star Enrollment Period Means To Your Clients
Placing more emphasis on five-star plans—the CMS created a new Medicare special enrollment period in 2012 for plans that earn a quality rating of five stars.

Your clients who have Medicare can switch to a plan with a five-star quality rating if a plan is available in their area, and they don’t have to wait until Medicare’s annual open enrollment period (Oct. 15 – Dec. 7) to do so.

They can switch to a five-star plan at any time from Dec. 8 through Nov. 30. But they can only use the special enrollment period one time during the year. If they make the switch to a five-star plan, they must remain in the plan through the plan year unless they qualify for a different special enrollment period.

Your clients who already have Medicare Advantage can switch to a Medicare Advantage plan with a five-star rating if one is available in their area.

Clients who use Original Medicare can also switch to a five-star Medicare Advantage plan. Your clients can also join a Medicare Cost plan, available in certain areas, with a five-star rating.

Part D plans also are included in the five-star special enrollment period. (However, bonus payments don’t apply to Part D prescription drug plans.)

This means that your clients who get their drug coverage through a Part D plan also could use the special enrollment period to enroll in a five-star Part D plan if there is a five-star plan in their area.

Five-Star Caveats And Considerations
There are some additional considerations that mean this process is not as simple as it may seem and could require a Medicare specialist’s insight before making these choices.

One caveat: If your client moves from a Medicare Advantage plan that has drug coverage to one that does not, she may have to wait until the next annual enrollment period to get drug coverage. She also may have to pay a late-enrollment penalty. An exception exists for people who enroll in a five-star private fee-for-service (PFFS) plan or five-star cost plan—they are permitted to enroll in coordinating Part D coverage.

There are also special rules for people who switch from a Medicare medical savings account (MSA) plan to a Medicare Advantage plan.

Another special enrollment period was added in 2013 for low-performing plans. So individuals on a plan with three stars or fewer for three consecutive years have options. Plans available to your clients could include those with three stars or higher, or those with no rating (i.e., they are too new and unrated).

Next Step For Clients – To Switch Or Not?
The biggest limitation on the five-star special enrollment period is that only a small number of plans receive this top rating.

The National Council on Aging reports that 19 Medicare contracts received a five-star rating for 2014. You may have clients who do not have access to a five-star Medicare Advantage or Part D plan. There are many service areas (even many states) with no five-star plans at all.

The critical question for your clients: Is it worth it to switch to a five-star plan? As with most things, the answer is, “It depends.”

The quality rating is one thing to take into account when choosing a plan. But the rating system alone does not tell you if a plan is a good match for your client’s specific health-care needs.

For example, a Part D prescription drug plan with a five-star rating may not be the best plan for your client if it doesn’t cover a needed drug or if it charges a high co-pay for a crucial drug they use.

But if they are not happy with their coverage because premiums increased unexpectedly, or their doctor left the plan’s network—they may want to use this opportunity to review their options.

The bottom line is that your client should select the plan that provides the best coverage of the care and drugs she needs, while fitting her health-care budget. If the five-star plan is a better match for your client’s needs than what she has now, a switch may be to her advantage.

Turn Quality Ratings to Your Clients’ Advantage
In the wake of the ACA, Medicare quality ratings have taken on greater weight. Plans now have compelling incentives to achieve higher scores on Medicare’s measures of quality.

As you discuss health-care planning with your clients who have Medicare, you can promote their awareness of the growing importance of plan ratings. Begin by helping your clients to take notice of the ratings—anything below 3.5 stars could be an area for concern.

Your clients can make a more informed choice of Medicare plans if they understand how plans are rated and can assess whether plans with higher ratings are offering more benefits or greater value. Educating your clients about the five-star special enrollment period is a way to start this discussion.

Paula Muschler is operations manager of the Allsup Medicare Advisor, a nationwide Medicare plan selection service that helps financial advisors guide their clients to the Medicare plans that best match their needs and preferences. Allsup Medicare Advisor is an unbiased, flat fee-based Medicare plan selection service that serves as a trusted resource for financial advisors and seniors. Allsup Medicare specialists can work with your clients one-on-one to assess their needs, research their Medicare options and help them choose cost-effective coverage that protects their health and retirement savings. Financial advisors may contact (888) 220-9678 or go to FinancialAdvisor.Allsup.com for more information.