𝗣𝗮𝗿𝘁 𝟯 — 𝗧𝗵𝗲 𝗔𝗖𝗔 𝗜𝗻𝗳𝗹𝗲𝗰𝘁𝗶𝗼𝗻: 𝗛𝗼𝘄 𝗠𝗟𝗥 𝗥𝘂𝗹𝗲𝘀, 𝗦𝘁𝗮𝗿𝘀 𝗥𝗮𝘁𝗶𝗻𝗴𝘀, 𝗮𝗻𝗱 𝗥𝗶𝘀𝗸 𝗔𝗱𝗷𝘂𝘀𝘁𝗺𝗲𝗻𝘁 𝗟𝗼𝗰𝗸𝗲𝗱 𝗣𝗮𝘆𝗲𝗿𝘀 𝗜𝗻𝘁𝗼 𝘁𝗵𝗲 𝗧𝗿𝗮𝗽
By 2010, health plans had already cycled through two decades of demand-side strategies: utilization controls in the 1980s–1990s, and claims-based analytics in the 2000s. Neither produced durable economics.
The Affordable Care Act was supposed to reset the trajectory. Instead, it institutionalized the treadmill.
The MLR Rule: Guardrails That Missed the Point
The Medical Loss Ratio (MLR) rule set fixed thresholds (80% for individual/small group, 85% for large group) requiring plans to spend most premium revenue on clinical care and “quality improvement.”
The logic was straightforward: limit administrative profit-taking and force reinvestment into care.
But in practice:
Plans redirected enormous resources into projects that qualified as “quality” under CMS definitions — Stars infrastructure, vendor-driven gap closure, and member engagement programs.
These activities consumed billions but rarely bent underlying cost trends.
Worse, the rule created an administrative ceiling that squeezed operational flexibility while doing little to change the economics of chronic disease.
The discipline was supposed to come from spending thresholds. What it created was entrenched administrative inflation.
𝗦𝘁𝗮𝗿𝘀 𝗥𝗮𝘁𝗶𝗻𝗴𝘀: 𝗜𝗻𝗰𝗲𝗻𝘁𝗶𝘃𝗲𝘀 𝗧𝗵𝗮𝘁 𝗗𝗶𝘀𝘁𝗼𝗿𝘁𝗲𝗱 𝗦𝘁𝗿𝗮𝘁𝗲𝗴𝘆
The ACA tied Medicare Advantage profitability to Stars Ratings and Quality Bonus Payments (QBP). The intention was to link revenue to performance.
Plans responded rationally:
- They built entire Stars departments dedicated to HEDIS gap closure, medication adherence, and CAHPS survey improvement.
- Vendors proliferated, offering point solutions to incrementally boost scores.
- Billions were spent each year, much of it duplicative, all chasing marginal gains in ratings.
But this strategy was brittle. When CMS raised the cut points in 2025, ratings dropped precipitously. Infrastructure designed for scoring couldn’t adapt, because it was never designed to produce structural improvement.
Stars became the most expensive distraction in payer history, chasing optics while margins eroded.
𝗥𝗶𝘀𝗸 𝗔𝗱𝗷𝘂𝘀𝘁𝗺𝗲𝗻𝘁: 𝗥𝗲𝘃𝗲𝗻𝘂𝗲 𝗣𝗿𝗼𝘁𝗲𝗰𝘁𝗶𝗼𝗻 𝗪𝗶𝘁𝗵𝗼𝘂𝘁 𝗢𝘂𝘁𝗰𝗼𝗺𝗲𝘀
Risk adjustment was the third leg of the stool. Properly designed, it should balance payments across populations with different risk profiles.
But under ACA-era incentives, it became a revenue protection mechanism:
- Plans invested heavily in retrospective chart reviews, home assessments, and HCC optimization programs.
- Provider workflows were repurposed around diagnosis capture rather than prevention.
- The system rewarded documentation intensity, not improved clinical outcomes.
- Margins were protected, but only on paper. The economics were fragile because they depended on coding, not health.
𝗧𝗵𝗲 𝗧𝗿𝗮𝗽 𝗗𝗲𝗳𝗶𝗻𝗲𝗱
Taken together, the ACA reforms entrenched demand-side behaviors:
- MLR cemented administrative inflation.
- Stars locked payers into score-chasing.
- Risk adjustment incentivized documentation over prevention.
This was the inflection point where health plans stopped experimenting and started entrenching. The treadmill became business model.
𝗪𝗵𝘆 𝗜𝘁 𝗠𝗮𝘁𝘁𝗲𝗿𝘀 𝗳𝗼𝗿 𝗟𝗲𝗮𝗱𝗲𝗿𝘀 𝗧𝗼𝗱𝗮𝘆
Margins in Medicare Advantage and Medicaid managed care are under unprecedented pressure. Utilization is up. Benchmarks are tightening. Administrative overhead is higher than ever.
And yet, the dominant strategies in play are still the same ACA-era tools: MLR projects, Stars campaigns, and risk adjustment programs. Executives know the economics don’t add up. But the treadmill keeps running.
The ACA didn’t fail because it was poorly intentioned. It failed because it doubled down on demand-side levers that could never scale into sustainable economics.
The way forward isn’t to optimize the treadmill. It’s to step off it and build a supply-side engine that creates new inputs, real-time risk visibility, and economics that hold regardless of how CMS redraws the lines.
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