Medicare Advantage Giant Humana Reel After Rating Cuts

The Centers for Medicare and Medicaid Services (CMS) assigns a one- to five-star rating, It is based on criteria such as “how well the plan's network providers manage members' health care,” member satisfaction, and “plan administration,” which reflects how well the plan is being managed. High-valued plans offer large bonus payments to insurers, which can significantly impact their revenues.

“While our quality measures are still very high, performance improvements across the industry and changes in CMS practices have raised the bar for achieving 4- and 5-star performance for many measures,” Humana said in a statement emailed to The Washington Post on Wednesday. “We have already taken initiatives to improve our performance for future star ratings.”

Enrollment in Medicare Advantage has more than doubled since 2010, according to researcher KFF, with last year marking the first time that more than half of all eligible Medicare customers were covered by privately managed plans.

KFF estimates that Humana accounts for about 18 percent of the Medicare Advantage market, second only to UnitedHealthcare's 29 percent.

Humana attributed some of its problems to a pending rating cut for a plan that accounts for 45 percent of its Medicare Advantage membership, citing preliminary data released Tuesday by CMS that said the plan's rating is expected to drop from 4.5 stars to 3.5 stars in 2025.

Low rating for its primary Medicare Advantage The deal could take a big bite out of Humana's earnings in 2026 because it risks falling below the level that gives the company government exemptions. Such bonuses will give insurers at least $11.8 billion in payments this year, including $2.5 billion to Humana, KFF estimates. This is roughly equivalent to Humana's total net income for 2023.

Sarah James, a stock analyst at Cantor Fitzgerald, called Humana's drop-off in four- and five-star listings “shocking” and estimated it could affect about $3 billion in 2026 bonus funding for Humana.

“It will be very challenging to make up for the loss of bonus money, even with plan design cuts and potential premiums,” James wrote Wednesday. Analytics shared with posts.

Humana challenged the CMS assessment and appealed some of the findings, saying the regulator may have made mistakes in the calculations.

In June, CMS said it would recalculate the ratings for the 2024 ratings in light of two federal court cases questioning the regulator's methodology. The act will net millions more taxpayer dollars for insurers next year. CMS is expected to release star ratings for next year next week.

CMS did not immediately respond to The Post's request for comment.

The lower rating won't affect Humana's performance through 2026, but the company said it was “disappointed in its performance and has ongoing initiatives to focus on improving its operating discipline and returning to an industry leading star position as soon as possible.”

Shares of Humana fell more than 17 percent at one point Wednesday and were still down more than 11 percent in the afternoon. The stock is down nearly 50 percent year-to-date.