By Healthcare Dive Editorial Staff
Published July 2, 2026
The integrity of the Medicare Advantage (MA) quality bonus program—a multi-billion dollar pillar of the privatized Medicare system—is facing an unprecedented legal crisis. Following a series of federal court rulings, the Centers for Medicare & Medicaid Services (CMS) has found itself in a precarious position, accused of applying inconsistent regulatory standards that have left major insurers crying foul. At the center of this latest firestorm is health insurance giant Elevance, which has filed a lawsuit against federal regulators, alleging that the agency’s recent "selective" recalculation of star ratings is legally indefensible.
The Main Facts: A Tale of Two Methodologies
The current dispute stems from the aftermath of a successful legal challenge brought by Clover Health. In November 2025, Clover sued the CMS after its primary health plan saw a sudden decline in its star rating—a metric that dictates the size of performance bonuses and serves as a key marketing tool for enrolling seniors. Clover argued that the CMS had overstepped its authority by incorporating 20 specific performance measures into its ratings without the necessary regulatory backing or sufficient data.
In May 2026, a federal judge in Georgia ruled in favor of Clover, ordering the CMS to recalculate the company’s rating while excluding those disputed measures. The CMS complied, but in doing so, it opted to extend a broader, yet distinct, recalculation process to the rest of the industry.
The core of Elevance’s complaint is that the CMS applied a "split-tier" methodology:
- For Clover: The agency removed all 20 of the contested measures.
- For all other MA plans: The agency selectively removed only a portion of the measures, while retaining others—including those involving consumer complaints, member retention, and customer service accessibility—that were not part of the initial legal dispute.
Elevance contends that this discrepancy is arbitrary and capricious. If a methodology is legally defective for one insurer, the company argues, it must be legally defective for all.
Chronology of the Dispute
- November 2025: Clover Health files a lawsuit against the Department of Health and Human Services (HHS) and CMS, challenging the inclusion of 20 metrics in its 2026 star ratings.
- May 2026: A Georgia federal judge sides with Clover, compelling the CMS to strip the contested measures from the insurer’s score.
- June 2026 (Early): CMS announces a proactive, industry-wide recalculation of 2026 star ratings to account for the legal fallout of the Clover decision.
- June 26, 2026: Elevance formally requests that CMS apply the same full-measure exclusion to its plans. CMS denies this request, citing a different administrative rationale for other insurers.
- Late June 2026: Elevance files a lawsuit in federal court, alleging that the CMS’s refusal to apply a uniform methodology violates the Administrative Procedure Act.
Supporting Data: The High Stakes of "Stars"
The Star Ratings program is more than a simple metric; it is the financial lifeblood of Medicare Advantage. High ratings (typically 4 stars or above) unlock significant federal bonus payments. According to data from the Kaiser Family Foundation (KFF), the federal government is projected to spend more than $13 billion on MA bonus payments in 2026. This figure remains staggeringly high, even as the proportion of beneficiaries enrolled in top-tier plans has actually decreased.
The financial pressure on insurers has reached a boiling point. MA profit margins have tightened as seniors utilize more expensive medical services, and regulators have simultaneously intensified their scrutiny of billing practices. For companies like Elevance, a fraction of a star can represent hundreds of millions of dollars in annual revenue, directly impacting share price and the ability to offer competitive premiums to beneficiaries.
Official Responses and the "Silent" Agency
As of July 2, 2026, the CMS has declined to provide a formal comment on the pending litigation. The agency’s silence is emblematic of a broader struggle to manage the program. Over the last three years, the CMS has been forced to recalculate payments for various insurers following a series of courtroom losses, reflecting a pattern of instability that policy experts warn is undermining the program’s credibility.
In its legal filing, Elevance was blunt in its assessment of the agency’s behavior: "CMS cannot rationally maintain that the same methodology is simultaneously legally defective (for Clover, necessitating recalculation) and legally sound (for all other MAOs, justifying no recalculation), absent some specific factual distinction… No material distinction exists."
Implications: Is the Star Rating Program Broken?
The legal battle between Elevance and the CMS brings long-standing structural concerns to the forefront. Critics and government watchdogs have long argued that the current star rating system is failing its primary objective: to improve quality of care. Research cited by groups such as the Medicare Payment Advisory Commission (MedPAC) suggests that the correlation between high star ratings and superior clinical outcomes is weak. Instead, the system is increasingly viewed as a mechanism that rewards administrative proficiency rather than patient health.
The "Gaming" Allegations
Beyond the ratings themselves, the industry is reeling from broader allegations of systemic overpayment. Earlier this year, the CMS narrowly avoided imposing a formal enrollment freeze on Elevance’s MA plans—a move that would have been a catastrophic blow to the company’s growth. The threat came after the agency flagged reimbursement claims that were not supported by adequate clinical data. Elevance avoided the sanction by agreeing to a massive repayment of hundreds of millions of dollars.
This backdrop of financial friction makes the current lawsuit particularly volatile. If the court finds in favor of Elevance, the CMS may be forced to once again adjust the 2026 ratings for the entire industry. Such a move would not only cost taxpayers billions in additional bonus payments but would also signal a total loss of regulatory control over the quality assessment process.
The Future of Medicare Advantage Regulation
The implications of this case extend far beyond the courtroom in Georgia. If the judiciary continues to strike down CMS methodologies, the agency may be forced to overhaul the entire quality bonus program from the ground up.
Observers note that the "star" system was designed for a different era of Medicare—one with fewer beneficiaries and less complex coding requirements. Today, with over half of all eligible Medicare beneficiaries enrolled in private plans, the fiscal impact of a "broken" rating system is a matter of national concern.
For now, the industry watches and waits. Insurers are balancing the need to remain in the good graces of the CMS while simultaneously using the courts to protect their bottom lines. Whether this legal strategy will yield long-term benefits or lead to a more restrictive regulatory environment remains to be seen. What is clear, however, is that the 2026 Medicare Advantage landscape is defined as much by litigation as it is by clinical care, creating a high-stakes environment where every point, and every dollar, is being fought over in court.
As the legal proceedings continue, stakeholders are calling for Congress to step in and provide legislative clarity to the star ratings program. Without a clearer mandate from lawmakers, the "regulation by litigation" cycle is likely to persist, leaving both patients and insurers in a state of perpetual uncertainty.
