Humana, one of the largest providers of Medicare Advantage plans in the US, has seen its stock plummet to its lowest level in over a decade after a significant reduction in the rating of one of its most popular plans.
The Centers for Medicare and Medicaid Services (CMS) announced that a key Humana plan, which covers nearly half of the company’s Medicare Advantage members, would see its rating drop from 4.5 stars to 3.5 stars for 2025. This rating cut has caused concerns about the company’s future revenue and profitability.
On Wednesday, Humana’s shares dropped by as much as 22.4%, wiping out nearly $4 billion from its market value. The company disclosed that only 1.6 million members, about 25% of its Medicare Advantage customers, will be enrolled in plans rated 4 stars or higher for 2025, compared to 94% in 2024. These ratings, provided by CMS, play a crucial role in determining insurers’ government bonuses, which can significantly impact revenue.
Analysts have expressed concerns about how the downgrade will affect Humana’s financial outlook. According to Sarah James of Cantor Fitzgerald, the company could lose nearly $3 billion in bonus payments by 2026 due to the ratings drop. Additionally, the lower rating could hurt Humana’s enrollment numbers and profit margins in the coming years.
Humana has attributed the rating cut to narrowly missing the stricter CMS performance thresholds. The company also indicated that it is appealing certain aspects of the CMS ratings and reviewing potential errors in the federal agency’s calculations.
Despite the setback, Humana emphasized that its overall quality measures remain strong and stated that it has initiatives underway to improve its star ratings for future years. While the 2025 ratings will not affect earnings until 2026, the downgrade poses a significant risk to Humana’s long-term revenue and bonus payments.
The news adds to Humana’s recent struggles, including increased healthcare costs and lower-than-expected payments from the government. As a result, the company’s stock has dropped by nearly 50% in 2023. Analysts expect CMS to release the finalized star ratings for 2025 in mid-October, which will provide further insight into the challenges facing the insurer.
The Washington Post and Reuters contributed to this report.
