The 2027 Star Ratings Replace the Reward Factor With the Health Equity Index

A bonus the industry had learned to count on

Since 2009, the Star Ratings have quietly topped up contracts whose performance was both high and stable. The reward factor added as much as 0.4 stars to a summary or overall rating, and because quality bonus payments hinge on crossing the 4-star line, that increment was often the difference between earning the 5% benchmark bonus and missing it. Plans built strategies around protecting it. CMS’s rationale for retiring it is straightforward: program-wide performance has risen and stabilized to the point where paying extra for consistency no longer buys improvement, and no adjustment in the methodology specifically rewarded closing the gap for enrollees with social risk factors. The April 2023 final rule (CMS-4201-F) therefore sunsets the reward factor after the 2026 Star Ratings and, from 2027, redirects that 0.4-star headroom toward a different question entirely: how well a contract serves its poorest and most disabled members.

How the index is built

For each Star Ratings measure that qualifies, CMS isolates the contract’s enrollees with social risk factors, defined as those receiving the low-income subsidy or dually eligible (LIS/DE) or living with a disability, and asks how the contract’s performance for that subset compares with every other contract’s. Rank in the top third and the measure contributes +1; the middle third contributes 0; the bottom third, -1. Each contribution is multiplied by the measure’s Star Ratings weight, summed, and divided by the total weight of eligible measures, which yields an index between -1 and 1. A measure only counts if it is statistically reliable for the subset (reliability of at least 0.7 across two years of data, with denominator minimums met), and a contract only receives an index at all with at least 500 enrollees and half its measures eligible.

The reward then passes through an enrollment gate. A contract whose SRF share sits at or above the contract-level median earns the full scale, up to 0.4 stars at an index of 1; between half the median and the median, the scale is capped at 0.2; below half the median there is no reward at any score. The increment is added after the categorical adjustment index and improvement measures but before rounding to the nearest half star, which means a few hundredths of a star can still tip a contract across a bonus threshold. Two design choices deserve more attention than they have received. Tercile ranking makes the HEI a tournament rather than a test: a contract is graded against other contracts, not against a fixed bar, so industry-wide improvement moves the terciles and buys no one anything. And the enrollment gate makes membership mix a ratings input for the first time, which quietly rewards serving the populations the index is designed to protect.

Where the money moves

CMS scored the swap in its own regulatory impact analysis, and the direction is unambiguous. Replacing the reward factor with the HEI is projected to save the Medicare Trust Funds $670 million in 2028, the first payment year it touches, rising to $1.05 billion in 2033, $5.12 billion across the decade. Savings to the Trust Funds are, read from the industry’s side of the ledger, quality-bonus dollars leaving the program. Simulating the change on 2020 and 2021 ratings data, CMS found 7 MA-PD contracts (1.7%) would gain half a star while 54 (13.4%) would lose one, and contracts serving the most dual-eligible members fared comparatively better: 17% of D-SNP contracts saw their overall rating fall, against 22% of contracts generally. The median SRF share in that simulation was 41.6%, the reference point in the simulator above. High-performing contracts with affluent, healthy membership, the reward factor’s most reliable beneficiaries, are the design’s intended payers.

The first window is already shut

The 2027 HEI is calculated from the 2024 and 2025 measurement years. Both are over. Nothing a plan does between now and the October 2026 publication changes its first HEI score, which makes the immediate task diagnostic rather than remedial: stratify every Star measure by SRF status, reconstruct where the contract likely sits against the terciles, and model the reward (or its absence) into 2028 bid assumptions before the ratings arrive. The durable task is the rolling window. The 2028 HEI draws on 2025 and 2026, and the 2026 measurement year is happening now; a gap closed for a dual-eligible member this quarter is already an HEI input. That is the operational shift the index forces. Plans have long tracked measure rates in aggregate, but the HEI pays on the stratified rate, and a plan that cannot see its LIS/DE and disabled performance measure-by-measure today is competing in a tournament it cannot watch. Our quality portal builds exactly that view: measure-level performance stratified by the populations the HEI scores, tracked continuously rather than reconstructed after the ratings publish.

Sources

• Federal Register, “Medicare Program; Contract Year 2024 Policy and Technical Changes” (CMS-4201-F), April 12, 2023: HEI mechanics, reward factor sunset, and regulatory impact analysis. federalregister.gov
• 42 CFR 422.166(f)(3) and 423.186(f)(3): the codified HEI reward. ecfr.gov
• CMS-4201-F regulatory impact analysis (Trust Fund savings, contract-level simulation, median SRF enrollment), via the final rule as published at govinfo. govinfo.gov

Mechanics and impact figures are drawn from the CMS-4201-F final rule text and its regulatory impact analysis, cross-checked across the Federal Register and govinfo publications of the same rule. The 41.6% median and the gain/loss counts come from CMS’s simulation on 2020-2021 ratings data and are illustrative rather than predictive; actual medians and terciles are computed fresh each rating year. Confirm current-year parameters against the 2027 Star Ratings Technical Notes when CMS publishes them.