Alignment Healthcare has filed a federal lawsuit against the Centers for Medicare & Medicaid Services (CMS), alleging the agency incorrectly determined its 2027 Medicare Advantage star ratings after the percentage of its members in plans rated four stars or higher fell from 100% to 25%, according to Fierce Healthcare. The insurer filed the suit Friday, Oct. 9, in federal court in Washington, D.C.
Member Impact and California Contract Changes
For Alignment members in California, Arizona, Nevada, North Carolina, and Texas, the ratings directly affect quality bonus payments in 2028, though their 2027 benefits remain unchanged. The company’s largest contract, a California HMO serving roughly three-fourths of its members, slipped from four stars to 3.5 for 2027, Healthcare Dive reported. Six other eligible contracts retained four-star or higher ratings.
The lawsuit alleges CMS violated the Administrative Procedure Act by setting key measure details through “technical notes” rather than formal notice-and-comment rulemaking. It also references a May ruling in a separate case involving Clover Health, where a federal judge in Georgia found 20 measures used in 2026 ratings improper. CMS then recalculated 2026 scores, but Alignment alleges the agency set aside only 10 of those measures. The government has appealed the Clover ruling.
These allegations remain unverified pending court action. “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,” the company stated. Alignment has previously challenged star ratings in court and declined to comment further on legal arguments.
Financial Consequences and Industry Statistics
The four-star line matters because plans at or above it earn quality bonus payments and can offer larger rebates, which often fund extra benefits such as lower copays, dental coverage, or reduced premiums. A TD Cowen analyst estimated Alignment could lose over $170 million in 2028 revenue, with its shares dropping more than 20% after ratings were released. Nationwide, only 37% of Medicare Advantage plans with drug coverage earned four stars or higher in 2027, though 71% of enrollees fell into such plans, CMS reported.
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Industry-Wide Shifts and New CMS Measures
Ratings swung sharply across the industry. Humana said about 95% of its members will be in plans rated four stars or higher for 2027, a steep rebound from 2026, while UnitedHealth and CVS saw declines. The average enrollment-weighted rating slipped to 3.99 from 4.01, and five-star contracts dropped to 15 from 22. CMS introduced new measures, including tracking combined opioid and benzodiazepine use, and increased weight for patient-reported health outcomes. Experts quoted by Healthcare Dive said changes like these made high ratings harder to reach.
Analysts warn that lost bonuses could lead some insurers to trim benefits or raise premiums in 2028. Over 3 million beneficiaries faced plan terminations or county changes for 2027, requiring new coverage options, Healthcare Dive reported. Star ratings appear in Medicare’s online comparison tool, influencing many seniors’ decisions alongside their adult children.
Ratings alone do not determine coverage suitability. A 3.5-star plan, the middle range nationally, does not indicate whether specific doctors, hospitals, or prescriptions are covered. Seniors with multiple chronic conditions should prioritize network access and total drug costs. Before Dec. 7, beneficiaries can compare plans on Medicare Plan Finder, reviewing premiums, out-of-pocket limits, provider networks, and drug coverage. Free, unbiased counseling is available through each state’s State Health Insurance Assistance Program, known in California as HICAP.
Beneficiaries should review their Annual Notice of Change, outlining 2027 costs and benefits, as that document is a better guide to next year’s expenses than a star score. Each Medicare Advantage member should also have received this notice describing changes for 2027.
