Federal Medicare Advantage quality bonuses will reach nearly $13 billion this year, study finds

Annual bonus payments from the federal government to Medicare Advantage insurers have increased every year since 2015 and will reach at least $12.8 billion in 2023, a new KFF study found.

To encourage Medicare Advantage plans to compete for enrollees based on quality, the Affordable Care Act established a quality bonus program that increases payments to plans based on a five-star rating system. Plans may, but are not required to, use the additional payments to cover the cost of supplemental benefits, including reduced cost sharing, services not covered by traditional Medicare and rebates against the Part B and/or Part D premiums. Among the key findings of the study:

• Federal spending on Medicare Advantage bonus payments has increased nearly 30%, or $2.8 billion, since 2022.
• Most Medicare Advantage enrollees (85%) are in plans that are receiving bonus payments in 2023.
• The average bonus payment per enrollee is highest for employer- or union-sponsored Medicare Advantage plans ($460) and lowest for special-needs plans ($374).
• Bonus payments vary substantially across insurers, with UnitedHealthcare receiving the largest total payments ($3.9 billion) and Kaiser Permanente receiving the highest payment per enrollee ($523).

The average bonus per enrollee varies across types of plans and historically has been lowest for special-needs plans and highest for group employer- and union- sponsored plans. Relatively low bonus payments for special-needs plans, which enroll higher-need and more vulnerable beneficiaries, and higher bonus payments for employer plans that tend to provide retiree health benefits to higher income beneficiaries, raise potential concerns about the implications of the quality bonus program for equity.

Quality indicators for Medicare Advantage were established to help consumers make informed decisions when choosing among Medicare Advantage plans and encourage plans to compete based on quality. However, the Medicare Payment Advisory Commission and others  have argued that the star ratings incorporate too many measures, do not adequately account for social risk factors and may not be a useful indicator of quality, because star ratings are reported at the contract rather than the plan level.

Read more: Expanding Medicare Advantage could address ‘fragmented’ care for dual-enrolled individuals

“As of 2023, more than half of eligible Medicare beneficiaries are enrolled in a Medicare Advantage plan and enrollment is projected to continue to grow throughout the next decade,” the study report concluded.

“Understanding the effects of the quality rating system and associated bonus payments, including the implications for Medicare spending and beneficiary premiums, will be increasingly important as Medicare Advantage enrollment continues to climb.”