Humana, Aetna And Other Providers Enhance Revenue

March 12, 2018, Anna Wilde Mathews & Christopher Weaver, Wall Street JournalThe number in the corner of Upton Martin’s Medicare plan card from Humana Inc. changed twice over the past four years.  He didn’t think anything of it, and his coverage didn’t seem different in any way.

The changes, though, were evidence of a lucrative maneuver that has allowed Humana and other providers of Medicare Advantage plans to collect additional revenue from the federal government.

Medicare ranks privately managed plans such as Mr. Martin’s on a five-star quality scale and provides financial bonuses to providers of top-ranked plans.  Mr. Martin’s plan was set to be downgraded, which would have cost Humana its bonus.  So the company merged plans covering Mr. Martin and more than a million others into different contracts with higher scores.  That preserved the bonuses.

The shift boosted the ratings of those plans without requiring any actual improvement in their performance on customer service, health screenings and other quality measures.  Mr. Martin, a retired banker in Ashland, Va., says he hasn’t “noticed any changes at all.”

The tactic, known as crosswalking, adds millions of dollars in federal payments to the companies that sell Medicare Advantage policies.  For Humana, the shift is estimated to be worth nearly $600 million in revenue this year, according to JPMorgan Chase & Co. analysts.

Other large managed-care companies, including UnitedHealth Group Inc., Aetna Inc. andAnthem Inc., also engage in the practice, according to an analysis of federal data by The Wall Street Journal.  Insurers have used the maneuver to shuffle plans covering more members into higher-rated setups over the past few years—including around 1.45 million people for 2018.

The maneuver “is nothing more than gaming of the system,” says Paul Ginsburg, a professor at the University of Southern California and member of the Medicare Payment Advisory Commission, a federal watchdog agency that has been critical of the strategy.

The Journal’s analysis “shows us the magnitude of the problem,” says Gretchen Jacobson, an associate director at the nonprofit Kaiser Family Foundation, who reviewed the analysis.

The two-year budget deal signed into law last month included a provision expected to significantly reduce the practice.  Yet industry experts say that even after the change, which won’t affect payments until 2020, insurers will still be able to achieve some gains on quality scores—and bonuses—from crosswalking. 

“The window won’t be completely closed,” says Melissa Smith, a vice president at industry consultants Gorman Health Group .  “There will still be some circumstances in which it is profitable to crosswalk.”

A spokesman for the Centers for Medicare and Medicaid Services, which had proposed a change similar to the one in the budget package, says that the agency “reviews requests for contract consolidations based on current requirements.”  Last November, the Medicare agency proposed changing the methodology “so that we can address the continued increase in the number of Medicare Advantage beneficiaries being moved from lower Star Rating contracts that do not receive a quality bonus to higher Star Rating contracts that do receive a quality bonus.”

The bonus system was created by the 2010 Affordable Care Act.  The intention of the ratings was to provide guidance to people shopping for plans, and the payments were supposed to create additional incentive for providers to upgrade the quality of their offerings.  The system measures such factors as whether members get proper screenings and vaccines, and the quality of customer service provided by insurers.  Plans that win four or more stars are entitled to bonus payments.

The stars are applied to insurers’ contracts with the Medicare agency.  Each contract can contain dozens of plans covering thousands of members.  If plans in a low-rated contract are moved—or crosswalked—into a contract with a high rating, the high rating automatically applies to the newly added plans.

“There is no change in the nature of the plans offered,” wrote MedPAC, the Medicare watchdog agency, in a 2017 report.  The consolidations mean that seniors “will receive inaccurate information about the quality of care in [Medicare Advantage] plans available in their area,” the report said.

The higher rating could go down after a couple years when the Medicare agency updates its assessments of plans’ quality performance.  In some cases in the Journal analysis, an insurer has gained higher bonuses through crosswalking the same members more than once, including Mr. Martin, the Virginia retiree.

New crosswalks typically are made public in the fall, after they are approved by regulators, then take effect on Jan. 1, when the plans’ coverage starts.

Heading into 2016, UnitedHealth, the biggest Medicare Advantage insurer, merged plans covering 162,088 members, across more than 15 states including Indiana, Texas and Georgia, into a contract that had included just 1,729 members in Rhode Island and Massachusetts, who were enrolled in special plans for nursing-home patients.  Before the consolidation, the rating on the small contract was 4.5 stars.  The larger plans carried ratings of 3 and 3.5 stars—too low to get bonuses.

After the merger, the larger contract—using the Medicare number of the smaller one—still rated 4.5 stars.  The bonuses applied to the combined enrollment of about 164,000, along with new members who signed up that year.  The move resulted in at least an additional $63.7 million flowing to UnitedHealth, the Journal calculated, based on the membership of the plans at the end of 2015.

For 2016, UnitedHealth moved plans with 624,973 members at the end of the prior year into higher-bonus contracts, according to the Journal’s analysis, and it did the same thing the next year for plans with 594,016 members.

UnitedHealth said that Medicare Advantage members “benefit from being moved into higher-performing plans in numerous ways, including through greater benefit and premium stability.”  It said that “any business benefit that comes from consolidating Medicare Advantage membership to fewer contracts is short-lived if the underlying quality fails to improve,” adding that 78% of its Medicare membership is in highly rated plans.

Heading into 2015, Aetna moved plans with 157,767 enrollees into contracts eligible for higher bonuses, according to the Journal’s analysis, and it repeated the process a year later with another 110,704 members, then yet again the following year for 85,797.  Anthem executed a similar maneuver for 2018, affecting plans with 133,352 enrolled.

Aetna said contract consolidation isn’t “a critical component of our Medicare Advantage business,” and that some of its moves were tied to efforts to simplify contract structures. Anthem said it has consolidated some plans “so that more of our consumers could benefit from our highest quality offerings,” and that it had done so only when it was “confident that our plans were well positioned to provide our consumers with consistent, high-quality care for many years to come.”

In October 2016, Humana warned investors that its star bonuses were set to fall sharply effective in 2018, partly because of downgrades tied to the results of a Medicare audit. It said the drop-off did “not accurately reflect the company’s actual performance under the applicable Star measures.”  Humana’s shares dropped by around 5% on the day of the disclosure, wiping out around $1.4 billion in market capitalization.

Last August, the company said it had been able to eliminate nearly the entire shortfall by working to “rationalize contract structures.”  For 2018, Humana crosswalked 1.27 million beneficiaries into higher-bonus contracts, effectively dealing with the problem, more than twice the prior largest one-year total for an insurer, according to the Journal analysis.

JPMorgan Chase analyst Gary Taylor, who estimated the loss of star bonuses could cost Humana around $600 million in revenue for 2018, said the crosswalking erased nearly all of that projected shortfall.  The star bonuses are supposed to help plans pay for extra benefits, and they play a vital role in making plans more attractive to seniors and ensuring growth, analysts said.  “There are very few things that would be more important to the success of your Medicare Advantage business than those star ratings,” Mr. Taylor said.

More than half of the Humana members whose plans were moved for 2018 were in one large contract known as H6609.  That contract had been highly rated, and other plans had previously been consolidated into it, raising Humana’s bonuses and swelling its enrollment to 791,260 by last year.  Then federal regulators said H6609 was slated to drop to 3.5 stars and get no bonuses in 2018.

The company poured all of those members, including Mr. Martin, into a different contract known as H5216.  Until the end of December, that four-star contract had included only about 50,000 members.  The latest available data, published by Medicare in February, shows the contract now has 1.14 million enrollees, and Humana gets bonus payments for all of them.

Mr. Martin, whose plan had been moved once before, says he doesn’t object.  The 73-year-old says he chose his plan because it was a preferred-provider organization that offered more options for health-care providers.

Humana said all its consolidations “were reviewed and approved by CMS in accordance with applicable rules and regulations, and were undertaken to avoid significant reductions in benefits, increases in premiums, and disruptions in health-care coverage for our members, and for investments in our network of value-based providers.”

Crosswalking will become less attractive to insurers under new rules written into the budget package.  For payments starting in 2020, the quality rating after a consolidation will be a weighted average of all the merged contracts.  That will make it impossible to raise the scores of giant contracts by merging them into far smaller ones.

The averages likely will need to be rounded to the nearest half star to calculate bonuses.  That is one reason companies may still be able to bolster their payments when they slot lower-performing contracts into even slightly larger ones with better scores, industry experts say.

Write to Anna Wilde Mathews at and Christopher Weaver at

Appeared in the March 12, 2018, print edition as 'Insurers Game Medicare Bonuses.'