Medicare Insurer Humana Plunges as Quality Ratings Slump, Threatening Revenue
In a devastating blow, Humana Inc.’s shares nosedived in premarket trading after the insurer revealed a sharp decline in crucial Medicare quality ratings, which could lead to a substantial revenue shortfall. The company’s Medicare plans, which cater to the elderly, saw a significant drop in four-star rated plans, plummeting from 94% to just a quarter of its members.
Humana attributed the slump to potential errors in calculations by the Centers for Medicare and Medicaid Services and has appealed some of the results. Despite this, the company’s shares tumbled 24% before the US markets opened, putting it on track for its largest decline since February 2009.
The impact of this rating slump could be catastrophic for Humana, which has already been grappling with squeezed profits due to rising medical costs and tighter government reimbursements. Insurers receive higher payments for top-rated plans, so a downgrade in ratings can significantly erode revenue. According to a Jefferies analyst, Humana could face a $9 per share earnings hit in 2026 if its main Medicare contract ratings fall below the bonus threshold.
Humana confirmed that its primary Medicare Advantage contract, covering nearly half of its membership, had slipped in ratings for 2025. The company is exploring options to mitigate the expected revenue headwind and has initiatives in place to improve its operating discipline and regain its industry-leading position.
Despite assurances that the ratings won’t impact its financial outlook for 2024 or 2025, Humana’s shares have plummeted 39% this year, significantly underperforming the S&P 500’s 20% gain. The new CEO, Jim Rechtin, faces an uphill battle in turning around the company’s fortunes. However, there is precedent for successfully challenging Medicare’s quality ratings, as seen in the cases of Elevance Health Inc. and SCAN Health Plan.
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