Medicare Advantage Star Ratings: CMS Voluntary Redo and the Sector-Wide Litigation Battlefront

Medicare Advantage Star Ratings: CMS Voluntary Redo and the Sector-Wide Litigation Battlefront

The Medicare Advantage (MA) Star Ratings program—which dictates billions of dollars in lucrative Quality Bonus Payments (QBPs)—remains a highly volatile regulatory and legal battleground.¹² In Q2 2026, a series of dramatic judicial rulings, selective agency recalculations, and generous rate updates fundamentally altered the near-term margin-recovery outlook for the nation’s largest managed care organizations.

The Clover Health Ruling and CMS's Selective Recalculation

In late May 2026, a Georgia federal judge ruled in favor of Clover Health in its lawsuit against the Centers for Medicare & Medicaid Services (CMS). Clover had sued CMS in November 2025 after its largest plan's star rating slipped from 4 to 3.5 stars, costing the company approximately $120 million in bonus payments. The court agreed with Clover that CMS had included 20 improper measures in its calculations—10 based on data CMS lacked explicit statutory authority to collect, and 10 included without going through the proper administrative rulemaking channels.

On June 17, 2026, CMS issued a memo announcing a voluntary recalculation of the 2027 Quality Bonus Payment ratings (based on the 2026 Star Ratings) for certain contracts. However, the agency's recalculation was highly restrictive:

• Conceding Only on Data Sources: CMS recalculated scores only by removing measures where it conceded it lacked explicit statutory authority to collect data (such as customer service foreign language interpreters, complaints against the health plan, and member disenrollment rates).
• Fighting on Rulemaking: The agency refused to remove measures challenged on rulemaking grounds, signaling its intent to fight the broader administrative ruling on appeal.
• Minimal Impact for Peers: Because CMS did not apply the full Clover criteria to the entire industry, the recalculation resulted in virtually no change to average star ratings for other major insurers. If the full Clover criteria had been extrapolated to the industry, UnitedHealth Group's (UNH) average stars would have risen from 4.11 to 4.27 (a $500 million benefit), and Elevance Health's (ELV) would have moved from 3.9 to 3.92 (a $25 million benefit).

This selective recalculation is highly likely to spur a fresh wave of lawsuits from major insurers before the next round of Star Ratings is released in October 2026.

The 2027 MA Rate Notice: A Massive $13 Billion Lobbying Victory

While the Star Ratings recalculation provided limited immediate relief, the industry secured an extraordinary victory in the finalized Calendar Year (CY) 2027 Medicare Advantage Rate Announcement, released on April 6, 2026.

Following a massive lobbying push by the Better Medicare Alliance and major insurers, CMS under the Trump administration completely reversed its initial proposal:

• The Rate Reversal: In January 2026, CMS proposed a meager 0.09% average payment increase for CY 2027. In the final rule, CMS locked in an average rate increase of 2.48%—representing a $13 billion cash injection to plans compared to the $700 million originally planned.
• Stripping Risk Model Recalibration: The primary driver of this increase was the decision to strip the proposed risk adjustment model changes (risk model recalibration) from the final rule, which would have forced insurers to use more recent diagnosis and spending data.
• Risk-Adjusted Yield: When factoring in member demographics and acuity through risk adjustment, the average payment increase for plans is projected to be 4.98%.
• Political Considerations: Regulators were highly motivated to avoid further disruptive plan exits and benefit cuts for the 35 million seniors on MA ahead of the November 2026 midterm elections.

Combined with another regulation finalized in early April 2026 set to send $19 billion more to MA plans over the next decade through star ratings adjustments, these developments have provided a powerful tailwind for the sector, driving a massive recovery in managed care stocks like Humana (HUM) and UnitedHealth (UNH).