For Medicare Advantage (MA) plans, improving Star Ratings isn’t just about reaching the coveted 4-Star threshold—every step of Star Rating improvement is tied directly to a plan’s financial health. Even plans that fall below 4 Stars can benefit from increased revenue in multiple ways, and investments in quality improvement can start delivering returns almost immediately.
Beyond the 4-Star Goal: Understanding Incremental Gains
Many MA plans are laser-focused on achieving a 4-Star rating or higher. While that is a critical goal, it’s important to recognize that even incremental improvements generate financial benefits.
What many plans overlook is that as their Star Ratings improve—even if they remain below 4—CMS’s rate-setting system provides additional revenue. This means that investing in Star Ratings isn’t just about reaching 4 Stars; it’s about continuously improving to deliver better outcomes for members and unlock financial gains along the way.
Two Key Revenue Drivers for Star Performance
Improving Star Ratings translates into two significant sources of increased revenue, both of which need to be invested in enhancing member benefits:
1. The Quality Bonus
MA plans that achieve a 4-Star rating or higher receive a 5% Quality Bonus, a direct financial incentive for strong performance.
2. The Rate Rebate Advantage
Even for plans that haven’t reached 4 Stars, CMS rewards quality improvement through the Rate Rebate Advantage. This mechanism increases the portion of surplus funds that plans can reinvest in member benefits:
- Plans with a 3-Star rating receive only 50% of the difference between their base bid (for traditional Medicare benefits) and the county benchmark.
- Plans rated 3.5 or 4 Stars get 65% of the difference.
- Plans scoring 4.5 or 5 Stars retain 70% of the difference.
This structure means that even modest improvements in Star Ratings can result in meaningful financial gains that enhance plan offerings and competitiveness.
Illustrative Scenarios: Incremental Impact of Quality Bonus & Rate Rebate Improvements
Using national averages* we can give rough numbers on what the incremental financial impact is for each step of overall Star Rating improvement.
- Going from an overall Star Rating of 3 to 3.5 results in $5M in additional revenue per 10,000 members in the contract
- Going from an overall Star Rating of 3.5 to 4 results in $5.4M in additional revenue per 10,000 members in the contract
- Going from an overall Star Rating of 4 to 4.5 results in $2.1M in additional revenue per 10,000 members in the contract
As you can see, each step of improvement presents material financial impact that results in a healthier plan and more robust benefits for members. These gains also scale up with the number of lives covered by a plan. That means there is significant upside for larger contracts.
The Overlooked Value of the Rate Rebate Advantage
The Rate Rebate Advantage is a powerful but often underappreciated incentive designed by CMS to encourage continuous quality improvement. It represents a significant revenue stream that plans can use to enhance member benefits, even if they haven’t yet reached 4 Stars.
For plans that feel 4 Stars is out of reach in the short term, it’s important to recognize that achieving a 3.5-Star rating or higher already provides a financial edge over lower-rated competitors. This incremental advantage can make a tangible difference in a highly competitive Medicare market.
Small Wins Add Up: The Power of Incremental Improvement
A step-by-step approach to improving Star Ratings can be highly effective. Incremental gains allow plans to:
- Celebrate progress along the way
- Enhance member benefits with each improvement
- Strengthen financial performance year over year
By first targeting 3.5 Stars, plans unlock additional Rate Rebate revenue. Then, by striving for 4.0 Stars, they gain access to the Quality Bonus—further accelerating their financial and competitive growth.
How Lilac Software Helps Plans Optimize Star Performance
At Lilac Software, we’ve built a cutting-edge data analytics platform designed to help MA plans maximize Star Ratings and financial performance. Our system:
- Tracks and trends Star performance in real time
- Forecasts aggregate Star scores
- Projects revenue increases from both the Quality Bonus and the Rate Rebate Advantage
- Close care and drug adherence gaps with NCQA certified and PQA licensed engine
- Tools to more effectively manage operational and member satisfaction measures
- Insights into key factors affecting Star scores like Health Equity Index (HEI), Disaster and Categorical Adjustment Index (CAI)
By leveraging advanced analytics, MA plans can visualize their financial upside, celebrate every milestone, and keep leadership teams aligned on the path to 4 Stars and beyond.
The Bottom Line
Investing in Star Ratings improvement isn’t just about reaching 4 Stars—it’s a strategic financial decision that serves the dual mission of every health plan to serve members and deliver financial returns. Whether a plan is working toward its first 3.5-Star milestone or aiming to secure a Quality Bonus at 4 Stars, every step forward creates tangible value.
With the right tools and strategy, every win counts, and every investment in quality pays off.
*National Average assumptions are $1,160/month benchmark, 80% Medicare base bid, 1.2 average risk score
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If you want to explore how Lilac can help you, check out our Stars Solution page or start a conversation by reaching out to us via the form in this link.
