Medicare quality bonus payments to drop in 2024 after years of gains

After years of steady increases, health insurers will witness a decline in federal bonus payments granted for their Medicare Advantage plans in 2024, health research organization KFF said in a recent report.

Medicare’s quality bonus program can make or break a health insurer’s financial outlook, as investors of Humana (HUM) saw this week. Introduced as part of the Affordable Care Act of 2010, it offers additional payments to MA operators based on a five-Star Ratings system.

Shares of Louisville, Kentucky-based Humana (HUM) reached a new 52-week low on Wednesday after the company disclosed headwinds related to a sharp drop in members enrolled in its top-rated MA plans.

KFF’s report coincides with several legal challenges faced by the Centers for Medicare & Medicaid Services (CMS) over the reliability of the Star Ratings system.

Early this week, UnitedHealthcare, the insurance arm of UnitedHealth Group (UNH), became the latest to file a lawsuit over Star Ratings calculations.

Their concerns followed the recent expiry of COVID-19 pandemic-era policies that had temporarily boosted Star Ratings of certain plans and increased industrywide bonus payments to an estimated $12.8B in 2023.

However, in 2024, the bonus payments are expected to reach $11.8B, indicating an ~8% decline from a year ago as plans’ Star Ratings worsened with the expiry of pandemic-era policies. Still, federal spending on MA bonuses in 2024 is expected to exceed the annual bonus payments granted for every year between 2015 and 2022.

Detailing company-specific performances, KFF noted that the level of Medicare Advantage members enrolled by individual companies tends to determine the size of their bonus payments.

UnitedHealthcare (UNH) and Humana (HUM), representing nearly 50% of MA enrollments, are projected to receive the highest share of bonus payments, claiming $3.4B and $2.5B, respectively.

Among other listed insurers, CVS Health (CVS) and Centene (CNC) are projected to receive $1.1B and $34.8M, respectively. Meanwhile, Blue Cross Blue Shield plans, including Elevance Health’s (ELV) Anthem BCBS, are set to receive $1.7B in bonus payments in 2024.