HomeMarket NewsDecline in Medicare Advantage Plans with Highest Star Ratings Raises Concerns for...

Decline in Medicare Advantage Plans with Highest Star Ratings Raises Concerns for Investors

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The latest data from the Centers for Medicare & Medicaid Services (CMS) reveals a concerning trend in the Medicare Advantage market. The percentage of Medicare Advantage contracts with prescription drug coverage (MA-PD) that received four or more Star ratings has seen a decline, dropping to 42% in 2024 from 51% in 2023 and 68% in 2022. This decline raises concerns among investors and traders who are closely monitoring the performance and prospects of these plans.

The CMS’s annual star ratings report, released ahead of Medicare’s open enrollment period starting on October 15, provides valuable insights into the quality and performance of MA-PD contracts. Approximately 74% of people are currently enrolled in MA-PD contracts that earned four or more stars for the 2024 rating year, indicating a decrease in the availability of top-performing plans.

The decline in plans with the highest star ratings can be partly attributed to adjustments made by the CMS over the years. In 2023, the removal of a disaster provision that was implemented to help plans cope with the COVID-19 pandemic resulted in a decline in plans with the highest star ratings. This year, a statistical adjustment has contributed to the decline, potentially causing an annual revenue impact of $800 million to plans in the 2024 rating year, as estimated by consulting firm McKinsey.

The Impact on Managed Care Players

Managed care players in the Medicare Advantage market, such as UnitedHealth Group (NYSE: UNH), Humana (NYSE: HUM), Elevance Health (NYSE: ELV), CVS Health (NYSE: CVS), Centene (CNC), Cigna (CI), and Alignment Healthcare (ALHC), are closely affected by these star ratings. MA plans with a rating of four or five stars are eligible to receive bonus payments, which can significantly impact the financial performance of these companies.

For example, CVS Health, the owner of Aetna health insurance plans, projected a significant impact on its 2024 operating income due to the decline in Medicare Advantage members in plans with star ratings of at least four. This decline raises concerns for investors in CVS Health, as the company estimated a $800 million to $1 billion impact on its operating income.

Elevance Health also experienced a decline in the percentage of its MA enrollees in plans with ratings of four stars or higher. The drop from 64% to 34% for the 2024 rating year raises concerns among investors about the company’s financial performance and competitive position in the Medicare Advantage market.

The Importance of Star Ratings for Investors and Consumers

Star ratings are a crucial tool for investors and consumers to make informed decisions about their healthcare options. Higher star ratings indicate a higher level of performance and quality in the health and drug services offered by these plans. The decline in plans with the highest star ratings highlights potential challenges in the market and calls for a closer examination of the factors contributing to this trend.

Investors and traders interested in the financial markets and the Medicare Advantage sector should closely monitor these star ratings and their impact on the performance of managed care players. Understanding the implications of declining star ratings can help investors make more informed decisions regarding their investment portfolios.

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