Annual bonus payments from the federal government to Medicare Advantage insurers have increased every year since 2015 and will reach at least $12.8 billion in 2023, a new KFF study found.

To encourage Medicare Advantage plans to compete for enrollees based on quality, the Affordable Care Act established a quality bonus program that increases payments to plans based on a five-star rating system. Plans may, but are not required to, use the additional payments to cover the cost of supplemental benefits, including reduced cost sharing, services not covered by traditional Medicare and rebates against the Part B and/or Part D premiums. Among the key findings of the study:

• Federal spending on Medicare Advantage bonus payments has increased nearly 30%, or $2.8 billion, since 2022.
• Most Medicare Advantage enrollees (85%) are in plans that are receiving bonus payments in 2023.
• The average bonus payment per enrollee is highest for employer- or union-sponsored Medicare Advantage plans ($460) and lowest for special-needs plans ($374).
• Bonus payments vary substantially across insurers, with UnitedHealthcare receiving the largest total payments ($3.9 billion) and Kaiser Permanente receiving the highest payment per enrollee ($523).

The average bonus per enrollee varies across types of plans and historically has been lowest for special-needs plans and highest for group employer- and union- sponsored plans. Relatively low bonus payments for special-needs plans, which enroll higher-need and more vulnerable beneficiaries, and higher bonus payments for employer plans that tend to provide retiree health benefits to higher income beneficiaries, raise potential concerns about the implications of the quality bonus program for equity.