Insurers Sue to Bolster Revenue Amid Medicare Payment Squeeze

Medicare managed care plans, already facing declines in government reimbursements, are increasingly asking courts to help them boost payouts from a bonus payment program that’s under scrutiny from program watchdogs.

Private Medicare Advantage insurers Humana, UnitedHealth Group, Centene, and a subsidiary of Blue Cross Blue Shield of Louisiana have sued the Department of Health and Human Services in recent weeks to contest their 2025 “star ratings,” which determine how much they’ll receive in 2026 from the MA Quality Bonus Payment program.

The stakes are enormous, with hundreds of millions of dollars in play for plans that earn at least four of a possible five stars on a list of quality measures. Medicare Advantage plans received an estimated $16 billion in quality bonus payments in 2023, according to the Medicare Payment Advisory Commission. That could fall to $15 billion this year, the commission predicts, due to recent changes in how plan performance is measured and expiring pandemic-era policies that previously boosted the ratings.

As the Centers for Medicare & Medicaid Services phases in lower Medicare Advantage reimbursement rates and seniors’ increased care usage hikes plan spending and reduces profit margins, the bonus payments have become a critical revenue source for the managed care plans, which now cover more than half of program beneficiaries.

“The lawsuits underscore the challenges health plans are facing with high utilization and general uncertainty about whether this trend will continue,” said Duane Wright, a senior analyst at Bloomberg Intelligence.

“If they win, then there’s upside of hundreds of millions of dollars. If they lose, it’s the cost of using resources to rebuild their ratings without certainty as to whether it will lead to a quick turnaround,” Wright said.

Plans can use the payments to lower the cost of outpatient and prescription drug coverage or to pay for supplemental benefits not covered by traditional Medicare, like vision, hearing, and some dental benefits.

“Star Ratings help ensure a consistent high standard of care,” said a statement from Rebecca Buck, senior vice president of communications for the Better Medicare Alliance, which advocates for MA plans. “Seniors should feel empowered to choose the plan that works best for them, and Star Ratings are just one of many tools that help beneficiaries make informed decisions about their health.”

Concerns Over Bonus Program

The bonus program has irked the commission and other Medicare watchers who say it’s a poor barometer of plan quality and a prime contributor to Medicare’s spiraling costs.

Unlike quality incentive programs in traditional Medicare, Medicare Advantage quality bonuses aren’t budget neutral but are financed by added program dollars, said David Lipschutz, co-director of the Center for Medicare Advocacy.

“I think the plans are scrounging to protect their profits and this is one of the ways that they maximize their profits. But it’s had limited utility for the program and, according to independent analyses, it hasn’t improved quality,” said Lipschutz.

Roughly 40%—or 209—of MA plan contracts that provide prescription drug coverage in 2025 have a rating of four stars or higher, making them eligible for bonus payments, the CMS reported.

That’s down from 242 in 2024. Only seven plans received a five-star rating, down from 38 in 2024. Meanwhile, the average star rating for these plans fell to 3.92 in the 2025 ratings, down from 4.07 in 2024.

The “relaxed quality reporting rules” during the Covid-19 pandemic boosted the average star rating from 4.04 in 2021 to 4.37 in 2022, the commission reported. Likewise, the share of enrollees in five-star plans went from 5% in 2021—before the rule change—to 27% in 2022 and 22% in 2023. It’s expected to fall to 7% in 2024 after reverting to pre-pandemic rules.

‘Arbitrary and Capricious’

The lawsuits by Humana and HMO Louisiana Inc. claim the CMS acted in an “arbitrary and capricious” manner, violated federal law, and used flawed methodology to calculate and downgrade their 2025 star ratings. They’ve asked the courts to order the agency to redetermine their 2025 quality scores and star ratings.

The UnitedHealthcare and Centene lawsuits—along with the Humana lawsuit—claim the CMS wrongly downgraded their star ratings due to poor performance by the insurers’ telephone call center staff. Centene claims it will lose an estimated $73 million due to the lower ratings. Centene and UnitedHealthcare also asked the courts to order the CMS to recalculate their quality scores and star ratings.

The recent complaints follow the template of successful lawsuits this year by SCAN Health and Elevance Health Inc. .

The SCAN and Elevance suits claimed the CMS erred in calculating their star ratings, violated the Administrative Procedure Act, and wrongly penalized the insurers for similarly disputed call center episodes. Elevance said revenue could drop by $500 million in 2025 because of its lower ratings; SCAN said it faced a $250 million decline.

In June, the CMS notified all MA plans that it would recalculate their 2024 star ratings based on the SCAN and Elevance challenges.

Zing Health Inc. sued the HHS in March to reverse a plan termination and sanctions that were allegedly based on the insurer’s flawed 2024 star ratings. After the CMS said it would reverse the termination and sanctions in June, Zing filed an amended complaint citing reputational harm and seeking additional relief. The suit seeks a statement from the CMS about “its errors” that would be posted on the agency’s website and in local newspapers.

Not all plan sponsors are complaining.

In a press release, Aetna, a CVS Health company, said 88% of its enrollees are in MA plans with drug coverage rated four stars or higher next year. And 68% of these enrollees are in 4.5-star plans.

The results reflect “our efforts to continuously improve how we serve our Medicare Advantage members and help keep them healthy,” CVS Health President and CEO Karen S. Lynch said in a statement.