Louise Norris

What Health Plan Star Ratings Mean for Employers

Health plan star ratings are debuting in the health insurance exchanges nationwide this fall. Similar to the existing star rating system for Medicare Advantage plans, this update will give individuals and small businesses an additional metric to compare health insurance options.

How exactly should employers use this information? Here’s what you need to know.

The History of Star Ratings

The Affordable Care Act includes a requirement (detailed in Section 1311(c)(3) and (c)(4)) for a rating system that helps shoppers in each state’s exchange see how quality, price and enrollee satisfaction compare among available health plans.

The Centers for Medicare and Medicaid Services (CMS) have been working on implementing the rating system for several years, and the ratings have already been piloted in some states. As of 2019, health plan star ratings make an appearance in five states that use HealthCare.gov (Michigan, Montana, New Hampshire, Virginia and Wisconsin) and in eight state-run exchanges (California, Colorado, the District of Columbia, Maryland, Minnesota, New York, Rhode Island and Washington).

In August, the CMS announced a fall 2019 rollout for the program nationwide, with star ratings set to be displayed on each state’s exchange by Nov. 1. Health plan star ratings aren’t available for new insurers or those with low enrollment, though. According to the CMS, a lack of a rating does not mean that a plan is low quality.

Insurers are responsible for submitting quality data and enrollee satisfaction data (obtained by an Department of Health and Human Services-approved enrollee survey vendor) to the exchange as a condition for certification. Ratings are calculated for member experience, medical care and plan administration. Those elements all combine together — with medical care given the greatest weight — into one overall rating for each product. The system uses a five-star scale: The highest-quality plans earn five stars, while the lowest get one star.

Each insurer receives a rating for each of its unique products, such as HMOs and PPOs, but all of the plans within that product will have the same rating. Ratings are based on relative performance among all of the products. That means that within each product, there will always be some plans with low scores, some with high scores and lots in the middle.

Nationwide, 185 products received ratings for the 2019 plan year, and these results will be displayed as of the fall of 2019 (underlying data is available in a public use file). Ninety-five percent of the products received three or more stars, although only 19% received five stars.

How Can Businesses Use the Rating System?

The health plan star ratings have two purposes. First, the rating system is designed to improve transparency and help consumers make educated health plan choices. Second, it’s meant to improve health care quality by encouraging insurers and health care providers to strive for high rankings.

The health insurance exchanges are mostly used by individuals to buy their own health care coverage. However, in some areas small employers also make use of them when they obtain coverage for their employees through the Small Business Health Options Program (SHOP).

The availability of SHOP plans depends on where the business is located. Some state-run exchanges have robust SHOP markets for small businesses, but SHOP-certified plans are only available in a handful of areas in the states that use HealthCare.gov.

For example, if you use HealthCare.gov’s small business tool and enter a zip code for Cook County, Illinois, you’ll get a result that says SHOP plan are not available in your area. But entering a zip code for Loudon County, Virginia (a suburb of Washington, D.C.), shows several available plans — all of which already have star ratings displayed, as Virginia is one of the states where the rating system debuted early. The overall star rating is displayed in the upper right corner; click on the name of the plan and then scroll down to the second section (under the section that displays pricing and out-of-pocket costs) to see the star ratings for the three subcategories.

In areas where SHOP plans are available, employers will be able to see how the available plans stack up against each other in terms of member satisfaction, medical care (which includes monitoring health conditions and providing basic health services) and plan administration (which includes customer service and other measures of how well the plan is run). These can be valuable metrics as you determine which health plan will provide the best overall quality and value. Especially if you’re deciding among multiple plans with similar premiums and out-of-pocket costs, star ratings can help tip the scale.

And, since the overall quality rating includes scores for three subcategories, employers can use them to base their choices on the metrics that are most important to their own employees. Get feedback from your employees to find out what factors they think make for a quality health plan.

Although there are many areas of the country with no SHOP-certified plans — and thus no star ratings available for small business health plans — the star rating system could still be valuable for employers. If you’re considering introducing a health reimbursement arrangement to reimburse employees for the cost of individual market health insurance (whether via a qualified small employer health reimbursement arrangement or, as of 2020, an individual coverage HRA), it will be useful to know how available individual market plans in your area stack up against each other. Familiarity with the rating system will also prepare employees to make better plan selections.

The new star rating system is another step on the path to improved transparency and quality in the health care system, and it’s geared specifically toward small businesses and individuals who purchase their own health insurance. Take advantage of this tool to harness data that would otherwise be difficult to find, and make comparing health insurance easier.

This content is provided solely for informational purposes. It is not intended as and does not constitute legal advice. The information contained herein should not be relied upon or used as a substitute for consultation with legal, accounting, tax and/or other professional advisers.

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