Medicare Advantage star ratings trigger stock jumps, lawsuit

The Centers for Medicare and Medicaid Services (CMS) released 2027 star ratings for Medicare Advantage (MA) plans on Oct. 8, ahead of the open enrollment period’s Oct. 15 start date.

These one- to five-star quality ratings affect payers’ reputations among enrollees and investors and determine quality bonus payments, which policy and research nonprofit KFF projects will surpass $13 billion in 2026. Though this makes up just 2.3% of all MA payments, top payers see hundreds of millions or billions more in revenue than they would without the quality bonus program, per KFF.

The ratings didn’t shift much on average: CMS estimates that 37% of Medicare prescription drug contracts (188) that will be offered in 2027 earned four or more stars, compared to 44% in 2026 (229). Still, as they have in the past, the ratings rocked some payers’ stock prices and sparked litigation against the federal government.

A legal challenge. The latest litigation came from Alignment Healthcare, which has over 235,000 MA members, according to its suit.

Alignment filed a lawsuit in DC District Court against the Department of Health and Human Services, CMS, and the two agencies’ respective heads on Oct. 9, requesting rating recalculations for four of its contracts. The suit challenges CMS’s ratings methodology, alleging CMS’s star determination is “unlawful” and in violation of its own governing statute. Alignment claims that its lower star rating “deprives” the company of “well over $200 million of statutorily mandated payments.”

Alignment previously sued CMS in July 2026 in an attempt to get its 2026 star ratings recalculated. The lawsuit is still in progress.

In both cases, the company points to a Georgia federal judge’s May 2026 ruling that CMS must recalculate 20 measures for another MA insurer, Clover Health. Clover alleged in its suit that 10 measures were based on data that CMS wasn’t authorized to use for this determination and 10 were “invalid” because CMS didn’t follow public notice and comment rulemaking procedure before adding them.

CMS recalculated Clover’s star ratings without those 20 metrics in June. For other insurers’ plans, it removed the 10 measures that were tied to the claims of unauthorized data use, plus some additional measures. Alignment is arguing CMS should also have removed the 10 measures that were ruled as not having followed proper procedure. 

“The relief being sought is consistent with the relief Alignment is seeking in its stars litigation case filed in July 2026. Alignment believes certain measures and methodologies used by CMS are inconsistent with applicable legal requirements and do not accurately compensate Alignment for the quality of care delivered to our members,” Alignment spokesperson Jerry Slowey told Healthcare Brew in an emailed statement.

A CMS spokesperson told Healthcare Brew the agency does not comment on matters pending litigation.

Riding the stock roller coaster. The 2027 prescription drug contract ratings are based on 43 weighted performance metrics focused on care access, quality improvement, and patient outcomes, including enrollees’ readmission rates and preventative screening rates.

The ratings can heavily impact stock prices.

In 2025, Humana, for instance, saw its stock plummet after membership in MA plans with four or more stars fell from 94% to 25%. That percentage slipped further to 20% for 2026. But for 2027, 95% of Humana members will be in plans with four or more stars, the company said in an Oct. 9 press release. This follows several years of efforts by the payer to bump ratings back up.

Reuters reported that shares in the company rose 15% in premarket trading after star ratings were announced.

Already facing a rocky financial year, Alignment saw its stock fall 20% in premarket trading after star ratings were announced, from $8.71 at close on Oct. 8 to $6.93 at the market’s open on Oct. 9, though it rebounded to $8.23 by closing time on Oct. 14.