A Crack in CMS’s Star Ratings System Is Turning Into a Courtroom Pile-On

Four Medicare Advantage insurers have now sued the federal government over the same grievance, and the number is unlikely to stay at four for long.

Elevance Health opened the door on July 2. SCAN Health Plan and Alignment Healthcare followed within days of each other last week, filing separate complaints in the U.S. District Court for the District of Columbia. All three make essentially the same argument: the Centers for Medicare & Medicaid Services fixed a flawed star-ratings methodology for one company and then declined to apply the same fix to everyone else, even though the underlying legal defect was identical.

That is not a small technical dispute. Star ratings determine how much extra money an MA plan receives from Medicare, and the sums involved are large enough to move a company’s annual earnings. Elevance says the agency’s refusal to recalculate cost it $115 million. SCAN puts its own loss at $125 million. Alignment claims $50 million. None of those figures has been tested in court, but they illustrate why insurers that would normally avoid suing their primary regulator are doing exactly that.

How a Single Lawsuit Turned Into an Industry-Wide Problem

The chain of events starts with Clover Health, a smaller insurer and physician-enablement company. Clover’s flagship MA plan dropped from 4 stars to 3.5 stars for 2026, a change the company said would cost it around $120 million in bonus payments. Clover sued in Georgia federal court last fall, arguing that CMS had improperly folded 20 separate measures into its calculation — some based on data the agency lacked legal authority to collect, others added without going through formal rulemaking.

In late May, a federal judge sided with Clover and ordered CMS to rerun its rating without the disputed measures. The ruling technically applied to Clover alone. But it exposed a structural problem: if the methodology was unlawful for one insurer’s contract, the same math had presumably produced unlawful ratings for every other MA plan rated under the same rules that year.

CMS had two options. It could wait to be sued contract by contract, or it could get ahead of the litigation by recalculating everyone’s scores at once. In June, the agency chose the second path, telling plans in a memo that it would voluntarily rerun 2026 star ratings — but only for contracts where the new number came out higher, and using a narrower version of Clover’s argument than insurers had hoped for.

CMS restored measures tied to data-collection authority — the piece of Clover’s case the agency seemed to concede outright — but kept in place ten measures that Clover had also challenged on separate procedural grounds, arguing those hadn’t been properly finalized through rulemaking. According to TD Cowen analyst Molly Turco, that split suggests CMS believes it can still win that second argument in court and simply isn’t ready to give up the ground voluntarily.

The practical effect, according to Turco’s analysis at the time, was that the recalculation barely moved the industry average. Clover got its relief; almost nobody else did. Had CMS extrapolated the full Clover methodology industry-wide, UnitedHealthcare’s average rating would have risen from 4.11 to 4.27 stars, worth an estimated $500 million, and Elevance would have gained roughly $25 million — figures dwarfed by what Elevance is now separately claiming in its suit over a different slice of the calculation.

Why Insurers Are Willing to Sue Their Own Regulator

Suing CMS is not something health plans do lightly. The agency oversees far more than star ratings — audits, network adequacy rules, marketing restrictions, enrollment periods — and insurers generally prefer to litigate quietly or negotiate rather than file a public complaint against the entity that approves their bids every year.

That calculus has shifted for two reasons. First, the money at stake has grown large enough to outweigh the relationship risk: industry analysts have long noted that a single half-star movement can be worth hundreds of millions of dollars to a large national plan, and even a mid-sized regional insurer can lose tens of millions from a fractional shift. Second, the Clover ruling created a template. Once a federal court agreed that CMS’s methodology was legally defective, every insurer with a plausible claim to the same defect gained a low-risk way to test it — the legal reasoning was already established, reducing the odds of an expensive loss.

SCAN and Alignment are both represented by Latham & Watkins, and their complaints lean on more than just their own contracts. Both cite years of criticism from the Medicare Payment Advisory Commission, the independent body that advises Congress on Medicare policy. MedPAC has argued for some time that the star ratings program is overly complex, does little to demonstrably improve care quality, and may be inflating what Medicare pays into the MA program overall. SCAN’s complaint goes further, describing the ratings system in blunt terms as having gone off track years ago.

That framing matters strategically. It lets each insurer argue not just “we deserve more stars” but “the whole system CMS is defending is already acknowledged, including by Congress’s own advisers, to be broken” — a harder position for the agency to defend in front of a judge.

A Rebate Program Under Structural Strain

Star ratings sit inside a broader argument about whether Medicare Advantage, as currently designed, is costing the government more than it should. CMS paid out more than $12.7 billion in quality bonus payments in a recent year, according to estimates from the health policy research organization KFF, and MedPAC has separately estimated MA overpayments in the tens of billions of dollars annually when compared with what traditional Medicare would have cost for the same beneficiaries. Star ratings are one lever in that system: plans that clear the 4-star threshold get meaningfully richer bonus payments, which in turn lets them offer more generous supplemental benefits to attract enrollees, which in turn strengthens their competitive position for the next bidding cycle.

That feedback loop is precisely what critics point to when they argue the program doesn’t function as a quality measure so much as a payment mechanism that happens to be dressed up as one. It’s also why this dispute is unlikely to end with the Clover, Elevance, SCAN and Alignment cases. CMS has faced successful legal challenges over star ratings methodology in multiple recent years, for different insurers and different technical defects each time — a pattern that has already forced recalculations more than once before this latest round. The agency has also indicated it intends to fight the underlying Clover decision itself, filing for reconsideration and reserving the right to appeal, which means the legal question of whether the challenged measures were properly authorized is still unresolved even as more insurers file claims that assume Clover was rightly decided.

What to Watch Next

A few threads are worth tracking over the coming months:

Whether CMS appeals the Clover decision. If a higher court reverses it, the SCAN, Alignment and Elevance suits lose their legal foundation. If it’s upheld or the agency’s motion for reconsideration fails, expect additional insurers to file similar claims before 2027 stars are released in October.

Whether CMS settles rather than litigates each case individually. Recalculating ratings contract by contract through litigation is administratively costly for the agency; at some point, a broader settlement or a rulemaking fix may be cheaper than fighting a growing docket of near-identical lawsuits.

Whether Congress or CMS moves on structural reform. MedPAC’s recommendations for simplifying the ratings methodology predate this litigation wave, and repeated court losses on technical grounds could give the agency more incentive to overhaul the program rather than keep patching it lawsuit by lawsuit.

The scale of the money involved. With three companies alone claiming a combined $290 million in disputed bonus payments for a single rating year, the cumulative exposure across the full MA market — dozens of national and regional carriers — could run into the billions if courts continue to side with plaintiffs.

None of this changes what beneficiaries experience day to day; star ratings disputes are fought over bonus payments and bidding advantages, not benefit design in the current plan year. But the outcome will shape how generous MA supplemental benefits can be in future years, and it adds to a mounting body of evidence — audits, MedPAC reports, and now repeated litigation — that the star ratings system as built is not holding up well under legal scrutiny.

Sources:

1. Healthcare Dive, “‘The system is undeniably broken’: More insurers sue CMS over Medicare Advantage stars,” July 13, 2026
2. Healthcare Dive, “CMS recalculates Medicare Advantage stars after Clover lawsuit loss, but not a freebie for plans,” June 18, 2026
3. Healthcare Dive, “Elevance sues CMS after Medicare Advantage stars recalculation,” July 2, 2026
4. Healthcare Dive, “Medicare Advantage bonuses will exceed $13B this year, KFF finds,” July 2, 2026
5. KFF, Medicare Advantage Quality Bonus Payments estimates
6. Georgetown Law Center’s Health Policy Litigation Tracker, entries for SCAN Health Plan v. HHS and Alignment Healthcare v. HHS
7. TD Cowen analyst commentary (Molly Turco), as reported by Healthcare Dive