Introduction
Medicare Advantage (MA) plans, offered by private insurers, are evaluated each year by the Centers for Medicare & Medicaid Services (CMS) using a star rating system. These ratings, which range from one to five stars, significantly impact the quality bonuses that insurers receive. Elevance Health, one of the largest healthcare insurers in the U.S., has recently filed a lawsuit against CMS, challenging what it views as inconsistencies and statistical variances in the star rating system. This legal action, filed on October 31, is part of a broader industry response, as several insurers have taken CMS to court over perceived flaws in the rating methodology.
The Medicare Advantage Star Rating System
How Medicare Advantage Star Ratings Work
CMS’s star rating system is an evaluation framework used to measure the quality of Medicare Advantage plans. These ratings, assigned annually, are based on multiple metrics, including customer satisfaction, management of chronic conditions, and preventive care. Medicare Advantage plans with ratings of four stars or higher qualify for quality bonus payments from CMS, which can be used to enhance benefits, lower premiums, and invest in member services.
Financial Incentives Linked to Star Ratings
The star rating system directly influences insurers’ financial performance. Plans achieving four stars or higher receive substantial quality bonuses, which can significantly enhance their competitive positioning. For insurers like Elevance Health, even a small miss in ratings can mean a loss of millions in potential revenue, making accuracy in the rating process essential.
Elevance Health’s Lawsuit Against CMS
Grounds for Elevance Health’s Legal Challenge
In its lawsuit, Elevance Health argues that CMS’s star rating methodology is “fraught with statistical variance.” The company claims that one of its Medicare Advantage contracts narrowly missed the four-star rating by a margin as slim as 0.0004 points, with a final score of 3.749565. CMS’s decision to round star ratings to the sixth decimal place, or millionth, led to Elevance’s rating being rounded down, which the company considers an arbitrary decision.
Impact of Star Ratings on Financial Bonuses
By missing the four-star threshold, Elevance Health estimates it will lose at least $375 million in quality bonuses. These bonuses are crucial for maintaining and enhancing plan quality, as they fund expanded services, help lower member costs, and increase overall plan value. Missing this cutoff affects Elevance’s financial health and potentially impacts the resources available to members.
Rounding Practices: Elevance’s Claims of Arbitrary Decisions
A key point in Elevance Health’s lawsuit is CMS’s choice to round star ratings to the sixth decimal place. Elevance argues that this level of precision is unreasonable and lacks transparency. The company’s legal team asserts that the rounding methodology lacks consistent rationale, especially when the difference in ratings could have such a significant financial impact. Elevance claims this approach is “arbitrary and capricious” and seeks a court ruling to invalidate the rounding methodology used by CMS.
Similar Lawsuits from Other Medicare Advantage Insurers
Industry-Wide Legal Actions Over CMS’s Rating Methodology
Elevance Health is not the only insurer to challenge CMS over the star rating methodology. Several other Medicare Advantage providers have also filed lawsuits, each focusing on different aspects of the rating process that they consider problematic.
Humana and Blue Cross Blue Shield of Louisiana
Challenges to the Star Rating Methodology
Humana and Blue Cross Blue Shield of Louisiana have also brought legal challenges against CMS, citing issues with the cut points that determine ratings. These insurers claim that changing cut points each year creates unpredictability, making it difficult for insurers to consistently achieve high ratings. They argue that CMS’s adjustments to cut points lack transparency, complicating their ability to accurately assess and plan for quality improvements.
Centene and UnitedHealthcare’s Secret Shopper Complaints
Disputes Over Secret Shopper Calls
Centene and UnitedHealthcare, two other major players in the Medicare Advantage market, have taken issue with CMS’s inclusion of “secret shopper” phone calls as a factor in determining star ratings. Both insurers allege that some of these calls were not properly connected to their call centers, leading to inaccurate evaluations. They argue that CMS’s reliance on unverified call data unfairly impacts their ratings, further questioning the fairness of the rating system.
2025 Star Rating Changes and Increased Cut Points
Higher Cut Points for 2025 and Industry Impact
For the 2025 plan year, CMS has increased the cut points, or thresholds, that determine star ratings for various performance metrics. This change has resulted in a decline in the average star rating, which dropped from 4.07 in 2024 to 3.92 in 2025. The shift means that insurers must now perform at a higher level to meet the same star rating standards as before, putting added pressure on plans to improve their quality scores.
Conclusion
Elevance Health’s lawsuit against CMS highlights ongoing concerns within the insurance industry about the accuracy, fairness, and transparency of the Medicare Advantage star rating system. As more insurers challenge CMS in court, the agency faces growing pressure to review and potentially revise its methodologies to address these concerns. The outcomes of these cases could have a significant impact on the future of Medicare Advantage ratings, quality bonuses, and the overall approach to evaluating plan performance.
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FAQs
Q1: Why are Medicare Advantage star ratings important for insurers?
Ans: Medicare Advantage star ratings determine eligibility for quality bonus payments, which help insurers enhance plan benefits, reduce premiums, and fund additional services.
Q2: What is Elevance Health challenging in its lawsuit?
Ans: Elevance Health is challenging CMS’s star rating methodology, particularly the decision to round ratings to the sixth decimal place, which it argues cost it a four-star rating.
Q3: How much does Elevance Health stand to lose from this rating?
Ans: Elevance estimates it will lose at least $375 million in quality bonuses due to narrowly missing the four-star rating threshold.
