Alignment Healthcare, Inc. expects its California HMO health plan contract, H3815, to receive a 3.5-star rating for the 2027 rating year following the release of 2027 Star Ratings by the Centers for Medicare & Medicaid Services (CMS) on October 8, 2026. This represents a decline from the 4.0-star rating the plan held for the 2026 rating year and affects approximately 75% of the company's health plan membership.
The company attributes the performance drop primarily to higher industry cut points and a decline in specific triple-weighted measures within the Health Outcomes Survey and Part D prescription drug plans. CMS also retroactively eliminated bonus calculations related to the Excellent Health Outcomes for All Index, a move Alignment states reduced the impact of its prior investments aligned with CMS objectives. The company expects to retain a 4.0-star or higher rating in each of its six other eligible plans, including three that achieved 4.5-star ratings.
Financially, Alignment does not expect the 2027 Star Ratings results to impact revenue for fiscal years 2026 or 2027. However, the change in Star Ratings performance will affect quality bonus payments for fiscal year 2028. The company projects that risk sharing arrangements with providers will offset a portion of this impact and is actively pursuing options to mitigate potential financial effects in 2028.
In response to the ratings, Alignment intends to pursue administrative appeals challenging certain CMS calculations and expects to commence litigation against specific Star Ratings measures and methodologies it deems inconsistent with applicable law and CMS statutory authority. The company plans to implement enterprise-wide initiatives to enhance member and provider engagement, expand care gap closure programs, and provide additional quality oversight. Management believes these actions will position H3815 to return to at least a 4.0-star rating in future rating years.
Alignment noted that approximately 50% of its membership joined the company within the last two years. The company expects embedded earnings growth within this existing membership base to support its margin trajectory over the coming years. The filing, signed by Christopher Joyce, Chief Legal & Administrative Officer, was submitted to the U.S. Securities and Exchange Commission on October 8, 2026.