Star ratings are the single biggest financial lever in the Medicare Advantage system. Plans rated 4 stars or higher unlock bonus payments from the federal government, keep a larger share of their revenue, and gain enrollment advantages that lower-rated competitors don’t have. In 2024 alone, quality bonus payments to high-rated plans exceeded $11.8 billion. For insurers, the difference between 3.5 stars and 4 stars can mean hundreds of millions of dollars in annual revenue.
How Bonus Payments Work
The Centers for Medicare and Medicaid Services (CMS) rates every Medicare Advantage plan on a scale of 1 to 5 stars, based on dozens of quality measures covering clinical outcomes, patient experience, and customer service. Plans that hit 4 stars or above become “bonus eligible,” meaning CMS increases their benchmark payment, the base amount the government pays per enrollee. That extra money gives high-rated plans more to spend on benefits, marketing, or profit margins.
Reaching that 4-star threshold is harder than it sounds. Across the industry, plans were rated 4 stars or higher in only 42% of the years observed, according to research published in JAMA Health Forum. Ratings fluctuate year to year, so even plans that hit the mark one year may drop below it the next, losing their bonus eligibility and the revenue that comes with it.
Higher Ratings Mean Bigger Rebates
Beyond bonus payments, star ratings also determine how much of the “rebate” a plan gets to keep. Here’s the background: Medicare Advantage plans submit a bid to CMS estimating what it will cost them to cover a typical enrollee. When a plan bids below the government benchmark (which most do), it keeps a percentage of the difference. That percentage is directly tied to star ratings:
- 3 stars or below: the plan keeps 50% of the difference
- 3.5 to 4 stars: the plan keeps 65%
- 4.5 to 5 stars: the plan keeps 70%
This creates a compounding advantage. A 4.5-star plan bidding the same amount as a 3-star plan walks away with 40% more rebate money. Plans typically reinvest rebate dollars into extra benefits like dental coverage, vision care, gym memberships, or lower out-of-pocket costs. Those richer benefits attract more enrollees, which generates more revenue, which funds further quality improvements. Lower-rated plans get caught in the opposite cycle: less rebate money, thinner benefits, and a harder time competing for members.
The 5-Star Enrollment Advantage
Plans that earn a perfect 5-star rating get an exclusive perk: a special enrollment period that runs nearly the entire year, from December 8 through November 30. During this window, any Medicare beneficiary can switch into a 5-star plan outside the normal open enrollment season. Most plan switches are restricted to the annual enrollment period in the fall, so this year-round access gives 5-star plans a significant competitive edge in attracting new members. Enrollees in a 5-star plan can also use this period to switch to a different 5-star plan if they choose.
How Ratings Influence Enrollment
The connection between star ratings and enrollment is real but complicated. One study of first-time Medicare enrollees found that a one-star increase in a plan’s score was associated with a 9.5 percentage point increase in the likelihood of enrollment. That’s a substantial effect, suggesting that at least some beneficiaries treat stars as a meaningful quality signal when comparing options.
But other research tells a more nuanced story. A Kaiser Family Foundation survey found that beneficiaries shopping for a plan prioritized cost, access to their preferred doctors, familiarity with the insurance company, and whether specific services or drugs were covered. Star ratings didn’t carry much weight in their decision-making. This makes sense: most people choose a health plan based on whether their doctor is in network and what they’ll pay each month, not a quality score they may never have seen.
For plans, though, the indirect enrollment effects matter just as much as the direct ones. Higher star ratings generate more bonus and rebate money, which funds richer benefits and lower premiums, which attract members who might never look at the star rating itself. The stars drive enrollment even when consumers aren’t consciously choosing based on them.
What Gets Measured
Star ratings are calculated from roughly 40 individual measures grouped into categories like staying healthy (screenings, vaccinations), managing chronic conditions (diabetes control, blood pressure management), member experience (how easy it is to get care, how well the plan communicates), and customer complaints and appeals. Each measure gets a weight, and some carry more influence than others. For the 2025 ratings, CMS tripled the weight of the hospital readmissions measure, signaling that keeping people out of the hospital after discharge is a growing priority.
Patient experience surveys account for a meaningful chunk of the overall score. These surveys ask members about wait times, how well their doctors communicate, and whether the plan’s customer service was helpful. Plans invest heavily in improving these scores because even small changes in survey results can shift a plan’s overall rating across the 4-star threshold, where the financial stakes are highest.
Why Plans Invest So Heavily in Stars
The financial incentives are designed to create a quality competition, and they work. Plans spend millions on care coordination programs, chronic disease management, member outreach, and customer service improvements specifically to protect or improve their star ratings. Some plans assign dedicated teams to track individual quality measures in real time throughout the year, flagging when a metric is trending downward so they can intervene before the annual measurement period closes.
The stakes are especially high for large national insurers operating dozens of contracts across different regions. A single contract dropping from 4 to 3.5 stars can cost a plan tens of millions in lost bonus payments and reduced rebates. Multiply that across several contracts and the financial impact rivals the cost of a major business unit. This is why star ratings show up in earnings calls, investor presentations, and strategic plans at every major Medicare Advantage insurer. They aren’t a regulatory afterthought. They are the core financial engine of the program.