How have quality‑based rebate adjustments under the ACA affected market concentration among high‑rated MA plans?
Executive summary
Quality‑based rebate adjustments under the ACA increased financial rewards for high‑rated Medicare Advantage (MA) plans, enabling those plans to offer richer benefits or lower premiums and thereby making them more attractive to beneficiaries [1] [2]. Empirical research and government analyses show this mechanism has plausibly increased the market share of higher‑rated plans in many areas, but the net effect on market concentration is ambiguous and mediated by local benchmark rules, “double‑bonus” county designations, and broader payment changes that also affect entry and exit [1] [3] [4].
1. How the quality‑adjustment works — money follows stars
The ACA tied a plan’s rebate percentage to its star rating so that 4.5‑star and above plans retain a larger share of the difference between their bid and the benchmark (up to 70%), while lower‑rated plans retain a smaller share (as low as 50%), giving high‑rated plans extra dollars for benefits or lower premiums [1] [5]. CMS also layered on quality bonus payments to benchmarks and created “double‑bonus” treatment for some counties, further magnifying financial advantages for plans that earn high stars in those areas [2] [1].
2. The direct competitive channel — rebates increase attractiveness and share
Because rebates must primarily be used to reduce premiums, cost sharing, or add benefits, plans that retain larger rebates can translate higher star scores into consumer‑facing value propositions that attract enrollees, a dynamic the Congressional Budget Office explicitly says encourages higher‑rated plans to expand market share [1]. Urban Institute and other analyses similarly document that the quality bonus program was designed to boost plan appeal and that higher rebate percentages are a mechanism through which plan quality can increase market share [2] [4].
3. Evidence on market structure — suggestive but not definitive
Studies and descriptive analyses show variation: some work finds that areas facing larger payment reductions under the ACA experienced plan exits and reduced offerings—implying that payment changes reshaped the supply side—and other research links rebate levels to enrollment responses in earlier years, used to predict ACA impacts on high‑ and low‑spending regions [6] [7]. At the same time, authors who study competition and quality caution that the relationship between plan quality and market concentration is “somewhat ambiguous,” since incentives to increase quality can both expand successful firms and spur competitive responses from rivals [3].
4. Macro trends and unintended consequences — payments, bids, and concentration
More recent analyses document that since ACA implementation the interaction of benchmarks, quality bonuses, and rebates has contributed to divergent trends—total payments to MA plans have modestly increased even as bids fell relative to traditional Medicare—suggesting payment rules, including quality adjustments, have altered competitive dynamics and may have contributed to concentration among plans that capture the rebate advantage [4] [8]. MedPAC and others flag that almost all plans now bid below benchmarks and that rebate dynamics have become a growing driver of plan offerings and competitiveness [9] [10].
5. Moderators, caveats, and policy tradeoffs
The magnitude of concentration effects depends on local benchmark generosity, county quartile adjustments, double‑bonus county designations, and how CMS adjusts star measures and payment formulas over time; these knobs can amplify or blunt the competitive advantage that rebates deliver to high‑rated plans [2] [11]. Analysts also warn the program is upside‑only (no penalties for low performers) and has been criticized for overpaying plans or creating incentives to game metrics—factors that complicate attributing market concentration purely to quality‑based rebates [2] [1].
6. Bottom line — a plausible driver, not an iron law
Quality‑based rebate adjustments under the ACA created a credible financial pathway for high‑rated MA plans to grow share by converting star scores into tangible member benefits, and multiple government and academic analyses confirm this mechanism likely increased market share for those plans in many markets [1] [2] [4]. However, the empirical record does not deliver a single causal verdict: the relationship between quality‑linked payments and concentration is context‑dependent and intertwined with benchmark rules, local market structure, and other payment adjustments, so policy reforms that change any of those elements could materially alter the concentration outcome [3] [6].