Oct. 14--When Aetna announced its $37 billion purchase of Humana in July 2015, it said the merger "brings together two companies with leading percentages of membership in Medicare plans rated four stars or higher."
This week, Humana acknowledged that with the newest ratings, 37 percent of its members are in Medicare Advantage plans rated four stars or higher -- down from 78 percent a year ago.
The Centers for Medicare and Medicaid Services, known as CMS, issues the ratings about the privately run Medicare Advantage insurance plans offered as an alternative to traditional Medicare. It also rates prescription drug plans, known as Medicare Part D. Five stars is the highest rating available.
Aetna, on the other hand, increased the proportion of its members in plans rated four stars or higher, from 87 percent to 91 percent.
As Aetna explained, as it publicized its scores: "Medicare Advantage plans are rated on how well they perform on five different categories: staying healthy, managing chronic (long-term) conditions, member experience with the health plan, member complaints, and health plan customer service. Medicare Advantage and Medicare prescription drug plans are also rated on how well they perform on four additional categories: drug plan customer service, member complaints, member experience with drug plan and drug safety."
The ratings of the plans are important for several reasons -- people shopping for Medicare Advantage providers use them in making the decisions, and the federal government provides bonus payments to companies with higher ratings.
Bloomberg News, reporting about Humana's downgrade, quoted Chris Rigg, an analyst with Susquehanna Financial Group. "If Humana cannot successfully mitigate the issue with CMS, it will be at a material enrollment disadvantage relative to its peers," he wrote in a research note.
Aetna even talked about the ratings in the terms of its purchase agreement. The deal required that Humana and its subsidiaries maintain budgets dedicated "to the maintenance and improvement of their respective Medicare star ratings."
However, the deal did not say that Aetna could back out without owing a breakup fee if CMS downgraded ratings.
Cigna's Medicare Advantage plans have been barred from signing up new customers by CMS, as a sanction for the way it was running the program. Its star ratings also suffered. Only 20 percent of its Medicare Advantage customers are in four-star or higher plans after the latest recalculation. Before the sanction, it was 67 percent.
Both Cigna and Humana are asking regulators to reconsider the ratings.
"We will work fully with CMS through their process to ensure that they have the information and analysis needed to calculate final stars ratings that more accurately reflect our performance," Cigna wrote Wednesday to investors.
The ratings downgrades hurt both Humana's and Cigna's stock prices. Humana was trading at $178.59 at the end of the day Tuesday, and closed at $169.48 Thursday. Cigna closed at $121.21 Thursday, and was trading at $125.08 late Tuesday.
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