CMS Star Ratings Overhaul Sends $18.6B to MA Insurers: Actuarial Analysis of the CY 2027 Final Rule

From modeling star ratings distributions across the top 20 MA insurers, the 11-measure reduction compresses the scoring range enough to push borderline 3.5-star plans above the 4.0 bonus threshold. That mechanical effect, combined with the Health Equity Index reversal, is worth billions in aggregate quality bonus payments. CMS itself quantifies the decade-long impact at $18.56 billion, representing 0.21 percent of total Medicare payments to private health plans over the period. The figure substantially exceeds the $13.2 billion estimate from the November 2025 proposed rule, and it arrives at a moment when MA insurers need the relief most: Humana printed a 93.1 percent medical loss ratio in Q4 2025, CVS/Aetna hit 94.8 percent in the same quarter, and even UnitedHealth's more favorable 83.9 percent Q1 2026 MBR only looked good relative to a consensus that had been reset downward. The star ratings overhaul does not fix the MA cost problem, but it gives plan actuaries materially more revenue to work with when building their 2027 bids.

$18.6B

Estimated additional payments to MA plans, 2027-2036 (CMS)

Star Ratings measures removed from scoring, phased 2028-2029

63.5%

MA membership in 4+ star plans for 2026, down from 64.1% in 2025

What CMS Changed: The 11 Removed Measures in Detail

CMS published the CY 2027 MA and Part D final rule (CMS-4207-F) on April 2, 2026, with separate rate announcement finalization on April 6. The rule takes effect June 1, 2026, with most provisions applicable to coverage beginning January 1, 2027. The star ratings changes phase in across two measurement years, affecting the 2028 and 2029 Star Ratings respectively.

The agency removed 11 measures it characterized as focused on administrative processes or areas where high performance and minimal variation make it impossible for beneficiaries to distinguish plan quality. The removals fall into two tranches:

Effective for the 2028 Star Ratings (3 measures)

Measure ID	Measure Name	Part	Rationale
C19	Statin Therapy for Patients with Cardiovascular Disease	C	Topped out; minimal variation across plans
C33	Call Center: Foreign Language Interpreter and TTY Availability	C	Administrative process; subject to litigation
D01	Call Center: Foreign Language Interpreter and TTY Availability	D	Administrative process; subject to litigation

Effective for the 2029 Star Ratings (8 measures)

Measure ID	Measure Name	Part	Rationale
C07	SNP Care Management	C	Process-based; limited quality differentiation
C24	Customer Service	C	Administrative; high baseline performance
C25	Rating of Health Care Quality	C	Duplicative with other quality measures
C28	Complaints about Health Plan	C	Administrative process measure
C29	Members Choosing to Leave the Plan	C	Influenced by factors outside plan control
C31	Plan Makes Timely Decisions about Appeals	C	Process-based; subject to litigation
C32	Reviewing Appeals Decisions	C	Process-based; subject to litigation
D02	Complaints about Drug Plan	D	Administrative process measure

CMS also proposed removing two additional measures: Members Choosing to Leave the Plan (D03, Part D) and Medicare Plan Finder Price Accuracy (D07, Part D). The Diabetes Care: Eye Exam measure, which was proposed for removal, was retained in the final rule after commenters argued it remains a meaningful clinical quality indicator.

The call center measures are particularly notable because UnitedHealthcare and Humana, the two largest MA carriers, had each filed suits alleging CMS was applying these measures unfairly. Removing them eliminates the scoring risk those carriers faced from ongoing litigation while simultaneously reducing administrative burden across the industry.

The Health Equity Index Reversal

The Biden administration finalized the Health Equity Index (HEI) reward factor, originally termed "Excellent Health Outcomes for All," for inclusion in the 2027 Star Ratings. The mechanism was designed to incentivize improved performance for enrollees with specified social risk factors by rewarding plans that achieved high measure-level scores for that subset of the population.

CMS reversed course in the CY 2027 final rule, citing high performance across all enrollees and measures as justification for maintaining the longstanding reward factor methodology that has been in place since 2009. The historical reward factor encourages consistently high performance for all enrollees across all quality measures without segmenting by social risk factors.

Commenters supporting the reversal raised two practical concerns. First, smaller regional plans and those operating in non-Medicaid expansion states argued the HEI would structurally disadvantage them because their enrollee populations include higher concentrations of dual-eligible and low-income beneficiaries whose outcomes are harder to move. Second, plans expressed concern that the data infrastructure required to accurately segment and report performance by social risk factors would impose disproportionate costs on mid-size carriers.

From tracking Star Ratings methodology changes over the past decade, the HEI reversal follows a familiar pattern: CMS proposes a structural reform, the industry raises implementation feasibility concerns, and the final rule reverts to the status quo. The practical effect here is that quality bonus eligibility remains determined by overall plan performance rather than stratified subpopulation performance, which preserves the current competitive dynamics between large national insurers and smaller regional carriers.

New Depression Screening and Follow-Up Measure

Against the backdrop of 11 removals, CMS added one new clinical measure: Depression Screening and Follow-Up for Part C. The measure applies beginning with the 2027 measurement year and will first appear in the 2029 Star Ratings.

The measure tracks two distinct rates. The first is the percentage of eligible MA plan members who were screened for clinical depression using a standardized instrument. The second is the percentage of members who screened positive and received follow-up care within 30 days. CMS will display these rates separately but will average them to determine the Star Rating for the measure.

For plan actuaries, the Depression Screening measure creates a new cost center in the behavioral health integration budget. Plans that lack established behavioral health screening workflows will need to invest in clinical infrastructure, provider training, and care coordination capacity before the 2027 measurement period begins. Plans with existing integrated behavioral health models, particularly those with embedded psychiatry or psychology services, will likely score well on this measure with limited incremental spend.

The two-rate averaging methodology matters for scoring. A plan could screen 95 percent of eligible members (strong rate one) but achieve only 60 percent follow-up within 30 days (weaker rate two), producing an average score that may not clear the threshold for 4 or 5 stars. The 30-day follow-up window is operationally tight, especially for plans in rural service areas where behavioral health provider networks are thin.

How $18.6 Billion Flows Through the Quality Bonus Mechanism

The Star Ratings system is not merely a report card. It is the gating mechanism for quality bonus payments (QBPs) that directly increase the benchmark rates CMS uses to calculate MA plan revenue. Understanding how the $18.56 billion estimate works requires walking through the QBP mechanics.

MA plans with an overall Star Rating of 4.0 or higher receive a 5 percent increase to their county-level benchmark. Plans rated 3.5 stars or above in certain qualifying counties may receive a 3.5 percent increase under a separate urban floor bonus. The 5 percent bonus for 4+ star plans is the primary revenue driver, and it is calculated before the plan's rebate percentage is applied.

In 2025, federal spending on MA quality bonus payments totaled at least $12.7 billion, according to KFF, averaging $372 per enrollee. Roughly 75 percent of MA enrollees were in plans receiving some form of bonus payment. Since 2015, cumulative bonus spending has exceeded $87 billion.

The $18.56 billion impact estimate from the star ratings changes reflects CMS's projection that removing 11 low-variance and administrative measures will shift the scoring distribution upward. When measures on which nearly all plans score well are removed from the calculation, the remaining measures carry greater weight, and plans that performed adequately on removed measures but excelled on retained clinical measures see their overall scores increase. The net effect is that more plans cross the 4.0-star threshold.

Why the Final Rule Estimate Exceeds the Proposed Rule

The proposed rule estimated the star ratings impact at approximately $13.2 billion over the same 10-year window. The final rule's $18.56 billion figure is $5.4 billion higher for two primary reasons.

First, CMS refined its modeling of the scoring compression effect. Removing measures that had minimal variation reduces the effective scoring range, which mechanically pushes more plans above integer thresholds. The proposed rule underestimated the number of contracts at the 3.5 to 3.99 margin that would cross into bonus territory.

Second, the Health Equity Index reversal contributed to the higher estimate. Under the proposed rule, the HEI reward would have redistributed some bonus payments away from plans that scored well overall but poorly on subpopulation metrics. Reverting to the historical reward factor means the full bonus amount flows to any plan clearing the 4.0-star threshold, without the offset that the HEI would have created.

Star Ratings Distribution: Who Gains the Most

The 2026 Star Ratings released in October 2025 provide the baseline against which the overhaul's effects will compound. The current distribution reveals which insurer archetypes benefit most from scoring compression.

Metric	2025	2026	Change
Average overall Star Rating	3.65	3.66	+0.01
Membership in 4+ star plans	64.1%	63.5%	-0.6 pts
Plans earning 5 stars	7	18	+11
Enrollment in 5-star plans	~2%	2.3%	+0.3 pts

The average rating of 3.66 is barely below the 4.0 bonus threshold. The concentration of plans in the 3.5 to 3.99 range means that even a modest upward shift from measure removal could move a significant number of contracts into bonus eligibility.

National Carriers vs. Regional Plans

National carriers with diversified plan portfolios stand to gain the most in absolute dollar terms because they have the most contracts sitting near the 4.0 threshold. UnitedHealthcare, with the largest MA enrollment, has the highest number of contracts in the 3.5 to 3.99 range simply by virtue of scale. Each contract that crosses into bonus territory generates a 5 percent benchmark increase across all enrolled members in that contract.

Humana presents the most dramatic case. The company disclosed that only 20 percent of its MA members are in 4+ star plans for 2026, down from higher levels in prior years. Its Q1 2026 earnings showed profit declines driven directly by reduced quality bonus payments. For Humana, the scoring compression from the 11-measure removal could be worth hundreds of millions annually if it pulls even a few large contracts above the 4.0 line.

Regional plans face a more mixed picture. Carriers with contracts already at 4.0 or above see no incremental bonus from the measure removal; they are already receiving the 5 percent increase. Plans below 3.5 stars may see some scoring improvement but are unlikely to jump a full star level from measure removals alone. The primary beneficiaries are mid-size plans with contracts clustered in the 3.5 to 3.99 range, where the scoring compression has the largest marginal effect.

MLR Pressure: Why the Timing Matters

The $18.6 billion arrives at a moment when the MA industry's cost structure is under severe strain. Medical loss ratios across the major carriers have been running well above historical norms since mid-2025.

Carrier	Q4 2025 MLR/MBR	Q1 2026 MLR/MBR	Context
UnitedHealth	88.9%	83.9%	Q1 beat drove guidance raise to $18.25 EPS
Humana	93.1%	See guidance	Star ratings headwind; $9/share adj. EPS target
CVS/Aetna	94.8%	See guidance	Record high; barely break-even before admin costs
Industry composite	91.8% (Q3)	Varies	Up ~300 bps from prior year Q3

The MLR pressure stems from multiple converging factors. The CMS-HCC V28 risk adjustment model transition, which phases in through 2025 and 2026, reduced risk scores for many diagnoses, effectively cutting per-member revenue. Medical trend has been running at 7 to 10 percent annually, driven by pharmacy costs (particularly GLP-1 medications), post-pandemic utilization rebound, and outpatient procedure mix shifts. The combination of lower risk-adjusted revenue and higher claims costs compressed margins across the industry.

The star ratings overhaul does not directly address MLR. It works on the revenue side through quality bonus payments, not the cost side. But for plans operating at 90+ percent MLR, the incremental revenue from crossing the 4.0-star threshold can be the difference between a sustainable contract and one that requires benefit reductions or market exit. A 5 percent benchmark increase on a contract with 100,000 members and a $1,000 monthly benchmark translates to $60 million in additional annual revenue before rebate sharing.

Interaction with the 2.48 Percent Base Rate Increase

The star ratings changes operate alongside, not within, the separate CMS CY 2027 rate announcement that finalized a 2.48 percent average effective growth rate. That rate announcement, covered in our prior analysis, represented a massive swing from the 0.09 percent proposed in the January 2026 advance notice.

The two policy actions are additive for plan actuaries building 2027 bids. The 2.48 percent base rate increase lifts benchmarks for all plans. The star ratings changes selectively increase benchmarks for plans that cross or maintain the 4.0-star threshold. A plan actuary at a contract currently rated 3.75 stars faces a compounding scenario: the base rate increase provides 2.48 percent revenue growth, and if the scoring compression pushes the contract to 4.0 stars, the quality bonus adds another 5 percent on top of the higher base.

That combined effect is precisely why CMS's $18.56 billion estimate is not a simple multiplier on the rate increase. The star ratings impact is modeled as an incremental shift in the distribution of contracts receiving bonus payments, layered onto whatever base rate is finalized independently.

Risk Adjustment: The Chart Review Exclusion

The CY 2027 final rule also addressed risk adjustment, though through a more restrained mechanism than the star ratings overhaul. CMS finalized the exclusion of diagnosis information from unlinked chart review records (CRRs) from risk score calculations, with an exception for beneficiaries who switch between MA organizations.

Unlinked CRRs are diagnosis codes submitted to CMS that are not associated with a specific beneficiary encounter or service. A 2019 HHS Office of Inspector General study found that MA organizations almost always used CRRs to add rather than delete diagnoses, and that unlinked CRRs resulted in an estimated $2.7 billion in potential overpayments in 2017 alone. Nearly 58 percent of MA contracts submitted unlinked CRRs in 2022.

The financial impact runs in the opposite direction from the star ratings changes. CMS estimates the chart review exclusion will decrease MA payments by approximately 1.53 percent, or over $7 billion, in 2027. For plans that relied heavily on retrospective chart reviews to supplement encounter-based risk scores, this represents a material revenue reduction that partially offsets the star ratings windfall.

As our analysis of the CMS rate reversal detailed, the risk adjustment model itself was not updated in this rule. CMS retained the 2024 CMS-HCC model rather than transitioning to a new version, and deferred questions about incorporating MA encounter data and AI-based modeling approaches to future rulemaking through a request for information.

Actuarial Implications for 2027 Bid Strategy

For plan actuaries submitting June 2027 bids, the combined effect of the star ratings overhaul, the 2.48 percent base rate increase, and the chart review exclusion creates a complex optimization problem. The key assumptions that need revisiting fall into four categories.

Quality Bonus Assumptions

Plans should model two scenarios for each contract: one where the contract maintains its current star level under the new measure set, and one where scoring compression pushes it to the next integer threshold. The difference in revenue between a 3.5-star and a 4.0-star contract is large enough to change the bid-to-benchmark ratio and the resulting benefit package. Actuaries who have historically assumed stable star ratings in their multi-year projections need to build in the measure removal effect starting with the 2028 Stars (2026 measurement year).

MLR Projections

The additional revenue from star ratings improvements flows directly to the numerator of the MLR calculation. A plan projecting an 89 percent MLR under current star ratings might project 85 percent under an improved rating, holding claims costs constant, simply because the benchmark increase expands the revenue base. This has implications for Part D direct and indirect remuneration (DIR) fee structures and for the minimum MLR threshold that CMS enforces.

Reserve Adjustments

Plans that anticipate crossing the 4.0-star threshold should consider whether their IBNR and premium deficiency reserve calculations reflect the higher anticipated revenue. The star ratings improvement takes effect on a known schedule (2028 or 2029 Stars, depending on the measure), which gives actuaries a concrete timeline for modeling the revenue step-up. However, the scoring compression is probabilistic, not guaranteed, so conservative reserve assumptions should account for the possibility that a contract remains below 4.0 even after the measure removals.

Behavioral Health Investment

The new Depression Screening and Follow-Up measure creates a direct cost-revenue linkage. Plans that invest in behavioral health infrastructure to score well on this measure may see the cost recovered through improved overall star ratings and the resulting quality bonus. Plans that ignore the measure risk losing star-level ground precisely when the removed measures were creating a scoring tailwind.

What the Overhaul Does Not Fix

The $18.6 billion headline, while significant, should not obscure three structural problems in the MA program that the star ratings overhaul leaves unaddressed.

Medical trend above rate increases. Even with the 2.48 percent base rate increase, medical trend is running at 7 to 10 percent. The star ratings windfall provides additional revenue to plans that cross the 4.0-star threshold, but plans below that threshold receive no star-related relief. The gap between cost growth and rate growth remains the dominant financial challenge for the industry.

V28 risk adjustment compression. The ongoing CMS-HCC V28 transition continues to reduce risk scores for many diagnoses. The chart review exclusion adds further downward pressure. Together, these risk adjustment changes partially offset the star ratings gains. Plan actuaries need to model the net effect across all three policy changes, not the star ratings change in isolation.

Benefit sustainability. Plans in competitive markets have used quality bonus revenue to fund supplemental benefits, including dental, vision, hearing, and transportation. If star ratings improvements are temporary (because the scoring compression stabilizes after a few years), plans that commit to richer benefit packages funded by bonus revenue may face difficult benefit reduction decisions in subsequent years. The prudent actuarial approach is to treat the star ratings windfall as a multi-year revenue shift, not a permanent increase, and to reserve a portion of the gain against future scoring volatility.

The Health Equity Tracking Gap

Removing the Health Equity Index leaves CMS without a Star Ratings mechanism specifically designed to incentivize equity-focused outcomes. While the decision responds to legitimate industry concerns about implementation feasibility and competitive fairness, it also removes the primary policy lever CMS had for encouraging MA plans to invest in outcomes for enrollees with social risk factors.

Patterns we have seen in prior Star Ratings cycles suggest that voluntary equity reporting, without a financial incentive attached to it, produces inconsistent data quality and limited behavioral change. Plans that already invest in community health worker programs, food insecurity screening, and social determinants of health interventions will continue doing so for operational reasons. Plans that do not will have less financial motivation to start.

This matters for actuaries because social risk factors are correlated with claims cost volatility. Plans serving higher proportions of dual-eligible enrollees, low-income subsidy recipients, and members in underserved communities tend to have wider confidence intervals around their medical cost projections. Without an HEI-style incentive, the industry has less collective pressure to improve the data and interventions that could narrow those confidence intervals over time.

CMS Star Ratings Overhaul Sends $18.6 Billion to MA Insurers Over the Next Decade