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.

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