Humana Inc. shares plummeted the most in 15 years after the insurer suffered a drop in Medicare Advantage quality ratings, posing a drastic threat to revenue.
About a quarter of members in plans that Humana manages for the US Medicare program for the elderly were in four-star rated plans, down from 94%, Humana said Wednesday. Higher rated plans generate bonus payments to insurers. The company said it believed there may be errors in calculations by the Centers for Medicare and Medicaid Services and that it had appealed some of the results.
The shares fell 22% when markets opened in New York, the most since 2009.
The result would be catastrophic for the Medicare-focused insurer if it stands. Humana has already has seen profits squeezed by medical costs and tighter reimbursements from the government. Insurers get more money in future years for top-rated plans, so cuts to the ratings, known as stars, can sink revenue.
The ratings assess the quality of care and customer service for private Medicare health plans that now cover more than half of all people in the program. It’s a high-stakes calculation for insurers that drove an estimated $11.8 billion in bonus payments to insurers this year, including $2.5 billion to Humana, according to health researcher KFF.
Earnings Hit
Humana could see an earnings hit of $9 a share in 2026 if ratings on its main Medicare contract fell below the level that earns bonuses, a Jefferies analyst said last week. The company confirmed in a filing Wednesday that that contract, which covers almost half of Humana’s Medicare Advantage membership, had slipped in ratings for 2025.
The cut to ratings “is far worse than even bearish investors believed would be the outcome,” Mizuho’s Jared Holz wrote Wednesday in a note.
The ratings aren’t expected to impact the company’s financial outlook for 2024 or 2025, Humana said, adding that it was “disappointed with its performance and has initiatives underway focused on improving its operating discipline and returning to an industry leading Stars position as quickly as possible.”
The cut adds to the hurdles faced by Humana Chief Executive Officer Jim Rechtin, who took over in July. Other companies have successfully challenged Medicare’s assessment of their quality ratings. Elevance Health Inc. and the nonprofit SCAN Health Plan last year sued CMS over how their ratings were assessed, ultimately recovering money that was at risk.
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