About a quarter of Medicare beneficiaries are in managed care plans offered by private insurance companies. Under this program, Medicare Advantage, the private insurers submit bids reflecting how much money they think they'll need to offer benefits over the course of the year. If their bids come in below a certain benchmark value, they're given extra money by the federal government--effectively a subsidy. Obviously if the benchmark value is too high, more bids will come in below it and more subsidies will be paid out to the private insurers. For most of Medicare Advantage's 15-year history those benchmarks have indeed been too high, to the delight of participating private insurers. And so the value of the extra subsidies has been substantial. Obamacare is bringing the benchmarks back down, reducing the extra subsidies to the private insurers. But it included provisions that lowered them less for higher quality plans, as identified by plan rating on a 5-star scale. The higher quality--4 or 5 star--Medicare Advantage plans would get special bonuses by which they wouldn't see their benchmarks fall as far as other plans. Back in April, there was an unflattering GAO report on a 3-year, nationwide demonstration project in which the feds accelerated and expanded the bonus program. Under the demonstration, Medicare Advantage plans getting 3 or more stars (instead of the 4 or more specified in the statute) would be eligible for bonuses. The stated goal of the so-called MA Quality Bonus Payment Demonstration was to "test whether a scaled bonus structure would lead to larger and faster annual quality improvement for plans at various star rating levels compared with what would have occurred under PPACA." At the time I suspected it was yet another of the boondoggles for the advantage of participating private insurers that Medicare Advantage has become famous for and I advocated terminating the demonstration: It turns out I might have been a little too hasty in agreeing with GAO that the bonus demonstration should be ended. It does seem to be rather quickly encouraging quality improvement along all of the metrics used to evaluate the quality of the plans and across plans of all star ratings. Medicare Advantage Bonus Payment System Is Effective, Reports Find - California Healthline At the very least, it's an interesting new wrinkle to the story.