Humana regains four stars on its biggest Medicare contract while Alignment slips to 3.5

A government scorecard that most retirees glance at once a year moved two health insurers sharply on Thursday. The Centers for Medicare & Medicaid Services published its 2027 Medicare Advantage and Part D star ratings, and the results reversed the recent fortunes of Humana and Alignment Healthcare.

Humana's largest Medicare Advantage contract recovered to 4 stars from 3.5. Humana shares had closed the regular session at $387.12, down 2.4%, then jumped by double digits once the ratings were digested: Investing.com reported a gain of 16.5%, while other coverage put the after-hours rise at about 13%. Alignment Healthcare, which had been an industry standout, saw its biggest contract downgraded and its stock tumble more than 20%, according to Investing.com.

Why a half star matters

Medicare Advantage plans are rated from 1 to 5 stars on measures that include clinical outcomes, customer experience and plan administration. Contracts that reach at least 4 stars qualify for quality bonus payments, which add to the federal funding an insurer receives. That threshold is why the difference between 3.5 and 4 stars carries so much financial weight.

The ratings released Thursday affect bonus payments in 2028. They also appear on the Medicare Plan Finder that seniors use to compare coverage during open enrollment, which begins October 15 and runs through December 7.

Humana's comeback

For Humana, the result closes a difficult chapter. Two years ago, its share of members in plans rated 4 stars or higher fell from more than 90% to about 25%, a drop that cut into the bonus payments it could collect and weighed on its earnings outlook. Humana said at the time it had narrowly missed thresholds on a small number of measures.

Analysts at Leerink Partners called Humana "the clearest positive big winner" in their analysis of the 2027 data. Leerink estimates about 96% of Humana's members will be in plans rated 4 stars or higher for 2027, up from 42% this year, based on June enrollment. The stock had already risen about 50% this year heading into the release, according to the same coverage.

Alignment's setback

Alignment Healthcare disclosed in a regulatory filing that its California HMO contract, which carried a 4.0-star rating for 2026, is expected to be rated 3.5 stars for 2027. The company says that contract serves approximately 75% of its health plan membership.

The company also said it expects to keep a 4.0-star or higher rating in each of its six other eligible plans, including three plans rated 4.5 stars. It said the change will not affect revenue in 2026 or 2027, but will affect quality bonus payments in fiscal 2028, and that risk-sharing arrangements with providers should offset part of that impact. Alignment said it is pursuing all options to reduce the potential financial effect.

The industry picture

Across the program, CMS said about 37% of Medicare Advantage prescription drug contracts that will be offered in 2027, or 188 contracts, earned four stars or higher. Fifteen plans earned the top 5-star rating, down from 22 last year, according to Healthcare Finance News.

Star ratings are recalculated every year, and CMS notes that year-to-year changes are normal because the cut points shift with overall performance. For insurers, though, the annual release has become one of the most closely watched events on the calendar, because bonus payments can be the difference between thin and healthy margins in Medicare Advantage.

What to watch

The first question is whether the extended-hours moves hold in regular trading Friday as analysts update their models. For Humana, investors will look for management commentary on how much of the restored bonus eligibility flows through to 2028 earnings, and on its plan offerings for the coming enrollment season.

For Alignment, the focus is on the size of the 2028 bonus gap and how much the company can recover. Insurers can also seek reconsideration of individual measures, and companies have challenged ratings in past years. Other Medicare Advantage carriers' detailed ratings breakdowns, along with third-quarter earnings later this month, should fill in the rest of the picture for the sector.