Star Ratings in Transition

Star Ratings are not just a quality metric. They are a financial instrument whose dollar value increases as the rate environment compresses. The 5% benchmark bonus for plans rated 4 stars or above can mean the difference between market viability and county exit in a 0.09% rate world. A plan that holds 4 stars has a revenue floor its competitors below that threshold do not. A plan that drops from 4 to 3.5 stars loses a revenue stream that no operational efficiency can replace. The CY 2027 proposed rule restructures the Star Ratings measure set, reverses the Health Equity Index reward, and solicits industry input on whether the entire Quality Bonus Payment structure should be reformed. Each of these changes alters the strategic calculus for quality investment at a moment when the margin available for that investment is at its narrowest.

The Current Star Ratings Architecture

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The Star Ratings system rates MA-PD contracts on a scale of 1 to 5 stars using a composite of up to 43 measures spanning clinical quality, patient experience (CAHPS surveys), health outcomes (HOS), access, complaints, and plan administration. CMS assigns each measure a weight, with outcome and patient experience measures weighted more heavily than process and administrative measures. Individual measure scores are converted to star levels using cut points that CMS recalculates annually based on the distribution of contract-level performance. The cut-point methodology means that a plan’s star rating reflects its performance relative to other plans, not against an absolute standard. A plan can improve its actual clinical performance and still drop a star level if the industry distribution shifted upward around it.

The weighting methodology translates individual measure stars into an overall contract-level rating through a weighted average that is then rounded. The rounding creates cliff effects: a contract with a weighted average of 3.49 receives 3 stars, while a contract at 3.50 receives 3.5 stars. The difference in weighted average is trivial; the difference in financial outcome can be tens of millions of dollars. The rounding dynamic means that a plan narrowly missing the cut point on two or three measures can lose a half star on the composite, triggering QBP loss across its entire enrolled population. Humana’s 2025 Star Ratings experience (MCR-04.01) demonstrated how narrow performance misses on individual measures can cascade into contract-level drops worth hundreds of millions in lost bonus revenue.

Star Ratings operate at the contract level, not the plan level. A parent company like UnitedHealth or Humana may operate dozens of MA contracts, each with its own Star Rating. The parent manages a portfolio of contracts with varying ratings, and its total QBP revenue is the sum of the bonuses across all contracts weighted by enrollment. A single contract’s Star Rating drop can affect hundreds of thousands of members’ benefit packages if the QBP loss reduces the rebate funding available for supplemental benefits.

The financial stakes are concrete. Plans rated 4 stars or above receive a 5 percentage-point increase to their county benchmark. In a county with a $1,100 monthly benchmark, that bonus produces $55 per member per month in additional benchmark-derived revenue. For a plan with 100,000 members in that county, the QBP is worth $66 million annually. Plans rated below 4 stars receive no bonus and operate at the base benchmark. The 3.5-to-4-star threshold is the single most consequential quality boundary in MA economics because it determines whether the plan receives the bonus or does not. There is no graduated bonus between 3.5 and 4; it is binary. A plan at 3.5 stars receives zero additional benchmark revenue. A plan at 4 stars receives 5%. This cliff creates enormous investment incentive for plans near the boundary and existential financial risk for plans that fall below it.

The QBP drives benefit design because the bonus funds the rebate that funds supplemental benefits. A 4-star plan bidding below its QBP-enhanced benchmark generates a larger gap, a larger rebate, and more funding for dental, vision, OTC, and other extras than an identical plan without the bonus. In a compressed rate environment, the QBP is not a nice-to-have. It is the margin that makes supplemental benefits possible. Plans without QBP in a 0.09% rate year face a choice between offering bare-bones benefits or accepting losses. Plans with QBP have room to maintain a benefit package that retains members and attracts new enrollment. The competitive gap between 4-star and below-4-star plans widens as the base rate compresses, because the bonus becomes proportionally more important when the base rate delivers less.

For CY 2026, approximately 67% of MA enrollees were in plans rated 4 stars or above, a slight increase from the prior year. Only 2% of membership was in 5-star plans, down from 8% in 2024. The concentration of enrollment in 4-star plans reflects both genuine quality performance and the financial incentive that QBP creates: plans invest heavily to reach and maintain 4 stars because the revenue at stake justifies the investment.

CY 2027 Changes

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The CY 2027 proposed rule restructures the Star Ratings measure set in ways that will alter the competitive dynamics of quality performance for years.

CMS proposed adding one new measure: Depression Screening and Follow-Up, a Part C measure for the 2029 Star Ratings based on the 2027 measurement year. The measure assesses whether beneficiaries received depression screening and, if the screening was positive, whether follow-up care was documented. Operationalizing the measure requires plans to ensure their contracted provider networks conduct standardized depression screening at wellness visits, document the results in encounter data, and arrange follow-up for positive screens. Plans that have invested in behavioral health integration, care management programs for depression, and EHR-based screening prompts are better positioned than plans whose behavioral health infrastructure is limited to network adequacy for mental health providers. The measure aligns with the behavioral health emphasis across the CMMI model portfolio, including the ACCESS digital health model and MAHA ELEVATE (MCR-01.04, MCR-01.06), signaling that CMS views behavioral health quality as a measurable accountability standard, not an aspirational goal.

CMS proposed removing 12 measures from the Star Ratings, including SNP Care Management, Call Center foreign language interpreter and TTY availability for both Parts C and D, Complaints about the Health/Drug Plan for both parts, Medicare Plan Finder Price Accuracy, Diabetes Care Eye Exam, Statin Therapy for Patients with Cardiovascular Disease, and Members Choosing to Leave the Plan for both parts (MCR-02.05 provides the full list and rationale). CMS’s stated reasoning is that many of these measures have uniformly high performance across contracts, meaning they do not differentiate quality in a way that helps beneficiaries choose plans or drives quality improvement.

The removal of high-performing administrative measures eliminates the ratings floor that many plans depended on. Plans whose overall Star Ratings were buoyed by near-perfect scores on administrative and process measures, which required compliance infrastructure rather than clinical excellence, lose that buffer. The remaining measures weight more heavily toward clinical outcomes, patient experience (CAHPS), and health outcomes (HOS). Press Ganey’s analysis estimated $1.3 billion in lost QBP dollars when the measure removals are applied to 2026 Star results. CMS’s own simulation found that 25% of contracts would lose a half star and one contract would lose a full star. By the 2029 Star Ratings, CAHPS and HOS measures are projected to compose nearly 40% of total Star weight. The voice of the member, captured through patient experience surveys, becomes the dominant factor in determining which plans receive the quality bonus.

The simplification trajectory has a second-order effect on Star Rating volatility. Fewer measures means each remaining measure carries more weight in the composite calculation. A plan that underperforms on one or two high-weight measures can drop below the 4-star threshold even if its performance on other measures is strong. The variance of Star Ratings outcomes increases as the measure count decreases, meaning plans face greater year-to-year unpredictability in their ratings. This volatility interacts with the multi-year investment horizon for quality improvement: a plan that invests in CAHPS improvement today will not see the results in Star Ratings for two to three years because of the measurement-to-payment lag, and by the time the results appear, the measure weights or cut points may have shifted.

CMS proposed reversing the Health Equity Index reward, choosing not to implement the equity incentive it had previously finalized for the 2027 Star Ratings and instead continuing the historical reward factor that credits plans for year-over-year improvement across all measures (MCR-02.05). Plans that invested in equity-focused infrastructure, including SDOH screening programs, disparity-reduction initiatives, and data systems designed to stratify quality performance by demographic subgroup, lose the financial incentive that was supposed to reward those investments. The reversal does not require plans to dismantle equity programs, but it removes the Star Ratings mechanism that made those programs financially justifiable. Over time, programs that do not connect to a revenue stream tend to lose internal support and funding, which means the HEI reversal’s long-term effect may be a gradual deprioritization of health equity work within MA plan quality departments (MCR-03.03).

The QBP Reform Signals

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CMS paired the CY 2027 proposed rule with a Request for Information on whether the Quality Bonus Payment structure should be fundamentally reformed. The RFI is not a proposal, but it opens significant strategic territory.

The options CMS is exploring include flattening the bonus structure so that plans receive graduated bonuses rather than a binary 4-star cliff, changing the star threshold at which the bonus activates, adjusting the 5% bonus percentage, and possibly developing a CMMI Innovation Center model that delinks QBP from the MA bid cycle to allow bonuses to reflect more current performance. CMS noted that the current system creates a lag of up to three years between measurement and financial impact, which dulls the quality incentive signal. A plan that improves its CAHPS scores in 2027 will not see the financial benefit in its QBP until the 2029 payment year.

What QBP reform would mean depends on which direction CMS moves. If the bonus percentage drops from 5% to 3%, plans at 4 stars lose approximately $30 to $40 per member per month in benchmark-derived revenue in a moderate-benchmark county. That loss directly reduces rebate funding and compresses supplemental benefits further. If the threshold drops from 4 to 3.5 stars, the bonus becomes accessible to plans that currently do not receive it, which would broaden the competitive field but dilute the financial advantage that current 4-star plans hold. If both change simultaneously, a graduated bonus of 2% at 3.5 stars and 4% at 4.5 stars, for example, the entire quality investment calculus restructures. Plans currently investing to reach 4 stars may find the marginal return on that investment reduced. Plans currently stuck at 3.5 may find a new revenue pathway that changes their viability analysis.

Industry response to the RFI is split. AHIP and national carriers generally favor maintaining or increasing the QBP to offset rate compression, arguing that the bonus is what makes MA quality investment financially rational. Regional nonprofits with strong Star Ratings favor maintaining the current structure because it rewards their performance profile. Plans below 4 stars favor restructuring toward graduated bonuses that would give them partial access to the bonus revenue they currently cannot reach. The tension is between plans that benefit from the current cliff structure and plans that are excluded by it.

MedPAC’s position adds a critical dissenting voice. MedPAC has found that the Star Rating system does not provide a reliable basis for evaluating quality across MA plans in meaningful ways and has concluded that the quality bonus program leads to unwarranted bonus payments estimated at approximately $15 billion annually. MedPAC’s view is that the QBP inflates MA payments above FFS without producing proportional quality improvement, and that the bonus should be reduced or eliminated as part of broader MA payment reform. Whether CMS moves toward MedPAC’s position or toward the industry’s position through the RFI process will shape MA economics for the rest of the decade.

Stars as Strategic Lever

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For plans operating near the 3.5/4.0 boundary, the quality investment decision is the highest-stakes capital allocation question in the current environment.

The investment required to move from 3.5 to 4 stars is substantial. It typically involves multi-year programs targeting specific measures: CAHPS improvement through member experience redesign, gaps-in-care closure through outreach and care management, medication adherence programs, chronic disease management infrastructure, and complaints reduction through service operations improvement. The timeline from investment to Star Rating impact is two to three years because of the measurement-to-payment lag. A plan that launches a CAHPS improvement initiative in January 2026 is investing based on an expectation that the initiative will produce survey results in 2027, which will be reflected in 2028 Star Ratings, which will affect 2029 payment. The plan is spending current capital on a benefit it will not receive for three years, in an environment where current capital is scarce.

The measure volatility problem compounds the investment risk. A plan can invest heavily in CAHPS improvement and still drop below 4 stars if CMS changes the measure weights, removes a measure on which the plan performed well, or shifts cut points in a direction that raises the performance bar. The 2025 Star Ratings cycle demonstrated that even carriers with substantial quality infrastructure can lose star levels through narrow cut-point misses on a small number of measures, a risk that no amount of investment eliminates entirely because the cut points are set relative to the industry distribution, not against absolute performance targets.

The rate compression interaction makes the QBP simultaneously more valuable and harder to fund. In a 0.09% rate environment, the 5% benchmark bonus represents a proportionally larger share of total plan margin than it does in a 5% rate environment. A plan that holds 4 stars in a compressed rate year has a competitive advantage that is difficult for below-4-star competitors to overcome through any other mechanism. But a plan that loses 4-star status in a compressed rate year faces a compounded financial hit: lower base rate and no quality bonus simultaneously. The double impact can push a plan from marginal profitability to exit-level losses in a single year.

This dynamic makes quality investment arguably the highest-return use of scarce plan capital in 2026 and 2027. The alternative uses, benefit enrichment, premium reduction, and market expansion, all depend on the rate environment for their return. Quality investment depends on clinical and operational execution for its return, which is something the plan controls directly. A dollar invested in CAHPS improvement that produces a half-star increase yields years of QBP revenue. A dollar invested in supplemental benefits that the rate environment cannot sustain yields one year of enrollment followed by a benefit cut. The strategic logic points toward quality as the priority, but the execution risk and time horizon make it a bet that requires organizational commitment most plans under financial pressure find difficult to sustain.

Related Reading

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MCR-02_05 CY 2027 Proposed Rule: Star Ratings, C-SNP RFI, and the HEI Reversal MCR-03_03 Medicare Equity: What the HEI Reversal Signals and What Remains MCR-12_01 The MA Plan Landscape Under Pressure: UnitedHealth, Humana, CVS/Aetna, Elevance, and the Regional Plans