Medicare Insurer Sues Trump Administration Over 2027 Star Ratings Methodology

Legal Dispute Over Medicare Star Ratings

A major Medicare Advantage insurer, Alignment Healthcare, is taking legal action against the Trump administration concerning its 2027 star ratings. The insurer asserts that the calculations made by federal regulators are unlawful, potentially costing the company significant financial losses.

Challenge Against CMS

Alignment Healthcare has filed a lawsuit against the Centers for Medicare & Medicaid Services (CMS), challenging recent Medicare Advantage quality ratings. The company’s complaint, lodged in a federal court in Washington, D.C., argues that CMS relied on measures that weren’t properly established through the formal rulemaking process required by Congress.

“Once again, CMS has used the same ten measures in calculating Alignment’s 2027 Star Ratings without first promulgating them ‘by regulation,’ as Congress expressly required,” Alignment stated in its legal filing.

CMS’s continued use of these disputed measures, which are already part of the legal challenge for the 2026 ratings, remains at the core of the dispute. The insurer fears the lower ratings could lead to a loss exceeding $200 million in payments by 2028.

Importance of Medicare Advantage Star Ratings

Medicare Advantage star ratings range from one to five stars. These ratings are crucial for both insurers and beneficiaries. They aid consumers in comparing the quality of different Medicare Advantage plans while influencing insurers’ eligibility for quality bonus payments.

Even a minor change in star ratings can have substantial financial impacts. Alignment noted, “The financial consequences from just a single half-star change in a plan’s overall Star Rating can easily amount to hundreds of millions of dollars for an individual plan.”

Recent Developments in Star Ratings

CMS released its 2027 star ratings on October 8. Alignment’s California HMO contract saw a reduction from four stars to 3.5 stars. Reports also indicate a sharp decrease in the proportion of Alignment members enrolled in plans with at least four stars, from 98% in 2026 to 25% in 2027.

“While it’s difficult to dismiss the lower rating without a closer examination of the underlying performance data, the substantial decline raises questions about whether the government’s evaluation process is consistent, transparent, and accurately reflects the quality of care beneficiaries receive,” commented Alex Beene, a financial literacy instructor.

Contention About Violation of Procedures

Alignment operates Medicare Advantage plans across five states. The insurer now seeks court intervention to overturn the 2027 ratings, advocating for a recalculation without the disputed measures. Alignment argues that CMS’s reliance on “technical notes” over formal rulemaking procedures breaches the Administrative Procedure Act.

A company spokesperson commented, “Our lawsuit seeks to ensure that the Star Ratings program operates as Congress intended and that Alignment is properly compensated for the care we provide.”

Previous Legal Challenges to CMS

Previously, a federal court in Georgia challenged CMS’s use of 20 measures for star ratings. Findings showed ten measures exceeded CMS’s statutory authority and another ten lacked procedural validity due to improper implementation.

“Its argument is that CMS used rating measures without following the legally required rulemaking process. That’s a serious question, but it doesn’t automatically mean the rating is wrong,” stated Michael Ryan, a finance expert.

CMS recalculated the 2026 ratings after legal proceedings. However, Alignment claims CMS continued using disputed measures for the 2027 ratings.

Implications for Medicare Beneficiaries

The lawsuit emphasizes grading methods and financial implications through the Medicare Advantage payment system. Star ratings are crucial for beneficiaries, helping them to compare plans, and influencing insurers’ quality-related federal payments.

“Ultimately, the greatest concern is for seniors who rely on these plans, as reductions in federal payments could eventually translate into fewer supplemental benefits and higher out-of-pocket costs,” Beene stated.

The Path Forward

Alignment is pushing for the complete recalculation of its 2027 star ratings. Financial ramifications are likely to extend to 2028 when affected payments would commence.

“A courtroom victory could restore an insurer’s bonus payments without proving patients received better care,” Ryan expressed.

The case underscores the distinction between financial disputes and actual healthcare quality assessments, striving for transparency and accountability in the star ratings process.

Newsweek has reached out to Alignment and CMS for further comments on the situation.