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Nov. 23, 2020, 2:24 p.m. EST

Do Medicare star ratings really matter?

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Key Takeaways:

In 2021, the average person will be able to choose from among nearly 50 different Medicare Advantage and Part D plans. Since many plans will have similar premiums, deductibles, and coverage options, you need more information to pick the best plan.

The Medicare star ratings system is a tool designed to help you evaluate and compare the overall quality of various Medicare plans. This information, along with costs, benefits, and provider network details, gives you deeper insight into the differences among Medicare plans so you can choose the best coverage for your needs.

The Centers for Medicare and Medicaid Services (CMS) first implemented the star rating system in 2008 as a way to help beneficiaries compare and select Medicare plans. By publishing performance information each year, CMS believed beneficiaries would be better equipped to choose a high-quality plan .

Although the original intent behind the star rating system was to help people make informed health insurance decisions , its use has expanded to determine how insurance companies are paid . The Affordable Care Act of 2010 included a framework of bonuses and rebates based on Medicare star ratings.

Insurers that meet or exceed quality benchmarks receive a bonus payment of up to 5%. They also qualify for rebates, which must be returned to plan members in the form of reduced premiums or expanded benefits . In other words, insurance companies and enrollees both benefit when a plan gets high marks in the Medicare star ratings system.

RELATED: To learn more about Medicare costs and coverage, call: 844-259-6504 .

Both Medicare Advantage and Part D prescription drug plans are scored using the star rating system. Plans are evaluated across different quality metrics, with top-performing plans receiving five stars. Plans that fail to meet minimum requirements receive one star. The metrics are different for Medicare Advantage and Part D plans, however.

Medicare Advantage plans are rated across five performance categories:

Four quality metrics are measured for each Part D plan:

Scores are not weighted by plan enrollment. This means plans that provide high-quality care to a larger number of members aren’t given a higher rating than plans with a smaller number of enrollees.

CMS also doesn’t consider the demographics and health characteristics of plan members. This means a plan with a high number of chronically ill members isn’t evaluated differently from a plan with a relatively healthy pool of enrollees.

There are advantages to enrolling in a 5-star Medicare plan. In addition to the promise of high-quality care and a positive member experience, members in a top-rated plan often have lower premiums and better benefits than lower-rated plans. This is because insurance companies are required to share their performance rebates with their enrollees.

The good news is performance rewards aren’t limited to 5-star plans. Plans with four or more stars are included in the bonus framework and also deliver high-quality care and an above-average member experience.

It’s not always possible to switch to a 5-star Medicare plan . In 2020, only 21 Medicare Advantage plans (about 5% of the total) and two Part D prescription drug plans nationwide achieved a 5-star rating.

The good news is you still have an excellent chance of finding a 4- or 4.5-star plan. According to CMS , 52% of Medicare Advantage plans and 30% of Part D plans achieved a 4- or 4.5-star rating in 2020. Over 80% of Medicare Advantage members are enrolled in a plan with four or more stars.

If you have access to a top-rated Medicare plan, you can use the 5-Star Special Enrollment Period to drop your current plan and enroll in a 5-star plan. This Special Enrollment Period can be used at any time during the year for both Medicare Advantage and Part D prescription drug plans.

If you don’t have access to a 5-star plan, you’ll have to wait until the fall Annual Election Period (October 15 through December 7) or the Medicare Advantage Open Enrollment Period (January 1 through March 31) to change your coverage.

If you are enrolled in a plan that consistently receives poor Medicare star ratings, you may qualify for a Special Enrollment Period (SEP) . The way this works is that Medicare sends a letter to all enrollees in plans that fail to achieve 3 or more stars three years in a row. If you receive this letter, you can take advantage of the SEP one time during the year to switch to a higher-rated plan.

RELATED: Find the right Medicare plan option for you here.

Medicare star ratings are a useful tool for finding the best Medicare coverage in your area. You shouldn’t get hung up on elusive 5-star rated plans. Although these plans are consistently excellent, they are not the only high-quality Medicare plans available to you.

A plan rated 4 or 4.5 stars generally provides a high level of care and customer satisfaction. In addition, you will likely have more choices when it comes to provider networks and other benefits because you have more plans to choose from.

For example, Kaiser has a number of 5-star Medicare plans, but they are not widely available and members are limited to approved providers in the Kaiser network. This means if your favorite doctor isn’t in the Kaiser network, you’ll have to switch providers. For this reason alone, you might be happier with the 4-star plan your doctor accepts.

Ultimately, you should consider Medicare star ratings as a baseline differentiator when you’re searching for Medicare plans. If you limit your search to plans with a 4-star rating or higher, you’ll likely find a cost-effective plan with the benefits and high quality of care you expect and deserve.

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