The Centers for Medicare & Medicaid Services (CMS) is recalculating 2026 Medicare Advantage star ratings for insurers following a court loss over its methodology. Only plans that see their ratings increase will be allowed to resubmit bids for next year, according to a memo from regulators. This change could benefit some insurers, as star ratings directly influence bonus payments and competitive positioning in the privatized Medicare program.
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Analysts at TD Cowen noted that the recalculation likely won’t significantly alter average star ratings for most insurers outside Clover Health, which initiated the lawsuit. Clover’s rating dropped from 4 to 3.5 stars in 2023, costing the company about $120 million in bonuses, according to the suit. The CMS had included 10 measures based on data it lacked authority to collect and another 10 without proper rulemaking, the lawsuit claimed.
A Georgia federal judge ruled in Clover’s favor in May, ordering the CMS to recalculate its rating without the disputed measures. However, the ruling initially applied only to Clover. Experts suggested the decision could prompt broader legal challenges, as the methodology underpinning star ratings appeared destabilized. The CMS opted to voluntarily recalculate ratings for all plans instead of waiting for potential lawsuits.
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In its memo, the CMS stated it would recalculate the 2027 Quality Bonus Payment (QBP) ratings using only data it had explicit legal permission to collect. Measures such as complaints against health plans, member attrition, and availability of foreign language interpreters were removed. TD Cowen analyst Molly Turco noted the CMS seemed to concede on data source issues but retained measures that Clover had challenged for rulemaking deficiencies.
Insurers have increasingly challenged star ratings as Medicare Advantage profits have declined due to rising healthcare costs and stricter reimbursement rules. This marks the third year CMS has recalculated payments after legal disputes. While the agency plans to appeal the Clover ruling, it emphasized the recalculation does not preclude future legal action.
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Star ratings remain a critical factor for insurers, as they determine bonus payments and rebate opportunities. Watchdogs have raised concerns about the program’s effectiveness, citing research suggesting it does not improve plan quality and may inflate taxpayer spending.
