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Another way insurance regulation benefits health insurers — not patients

Shoot for the moon, and you may land among the Medicare Advantage stars.

We’ve written many times about how profitable Medicare Advantage plans have been for insurance companies. In part, it seems because they are excellent at taking regulations intended to benefit consumers and managing to turn them into profits benefiting shareholders.

How, you ask?

One way is through the infamous Medicare Advantage star ratings, which are based on quality results and consumer satisfaction. Essentially, insurance companies are incentivized to improve these factors because “higher ratings” means “bigger bonus.”

This has been particularly beneficial during the COVID-19 pandemic, because the Centers for Medicare & Medicaid Services (CMS) relaxed their qualifications for ratings, meaning carriers saw boosted ratings — and bigger bonuses.

Though intended to provide relief during the pandemic, it ultimately left insurance companies swimming in reward without the commensurate benefit for their members. “The result [of CMS’s relaxed rules] was a record number of insurers gaining higher scores on the program’s five-point scale, and a corresponding increase in federal spending on bonuses,” according to a Modern Healthcare article. In other words, insurers got more for doing less.

And these bonuses aren’t just petty cash. Medicare Advantage plans are expected to receive an estimated $10 billion. And forget regular earnings, this is in bonuses alone. For context, 2022’s bonuses are more than triple what they earned in 2015.

BCBSNC is one of the carriers that saw a big boost in their star ratings, and therefore may see a reduction as the rules tighten back up. However, Blue Cross and Blue Shield of North Carolina (BCBSNC) expects to achieve “high performance” in the program this year, also according to the article.

Thankfully, CMS will be tightening their rules — and their purse strings — now that COVID-19 is winding down. Even so, insurance companies have likely gotten used to this extra cash, so watch them seek higher rate increases as CMS returns their ratings qualifications to normal.

We’d bet money on it.

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