Falling Medicare Advantage Star Rating Will Cost CVS $1 Billion in 2024

CVS Health expects insurance revenue to fall to $1 billion next year after the largest Medicare Advantage plan reported a significant drop in star ratings, the company said in a report from the Securities and Exchange Commission on Thursday.

Insurance subsidiary Aetna enrolled 21% of its Medicare Advantage members in plans rated at least four stars in 2023, up from 87% the previous year. Medicare Advantage Plans must score four or five stars to receive maximum payment bonuses. Health insurance companies rely on these extra payments to offer additional benefits or not charge premiums.

Aetna attributed this to a one-star reduction in its largest contract, the Aetna National PPO, which covers 59% of the insurance company’s 3.2 million members. The company is working to place its members in multiple plans with approval from the Centers for Medicare and Medicaid Services, CVS Health said in a statement in an SEC filing.

CVS Health did not immediately respond to a request for an interview.

The company reported an 8.7% drop in net income to $2.1 billion in the first quarter due to expenses related to the acquisition of technology company Signify Health and Chicago-based primary care network Oak Street Health. Subsequently, CVS Health lowered its earnings forecast for this year. This month, CEO Karen Lynch told investors that internal numbers suggest star ratings will improve next year.

Aetna reported the second largest cut among major insurance companies this year among members of four- and five-star plans. Centene has experienced its biggest downturn, with less than 2% of Medicare Advantage members taking out highly rated policies this year. Insurance companies attributed the decline in industry ratings to the fact that CMS resumed more stringent ratings after relaxing them during the COVID-19 pandemic, as well as the increased importance of consumer experience in calculating points.

Going forward, CMS plans to halve the weight given to member experience and replace the “reward factor” that gives additional bonuses to consistently high-rated plans with a health equity index to help redress inequities.

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