Medicare Advantage Insurer Humana Faces Financial Headwinds as Star Ratings Plummet
Humana, the second-largest Medicare Advantage (MA) provider in the US, is bracing for a significant financial blow as its star ratings for 2025 are expected to plummet. Only 25% of Humana’s MA members will be enrolled in top-rated plans next year, down from 94% this year, according to a recent securities filing. This steep decline in star ratings could result in a loss of up to $3 billion for the insurer, potentially wiping out its bottom line.
The star rating system, which measures plan quality on a scale of one to five stars, is crucial for insurers to receive favorable positioning in the program and lucrative bonuses. Humana attributed the drop in stars to narrowly missing industry cut points on a small number of measures and is appealing certain results with the Centers for Medicare and Medicaid Services (CMS).
While Humana’s stock fell 11% on the news, the insurer is exploring options to mitigate the financial impact, including reducing benefits and appealing the star ratings. Analysts estimate that Humana could face a hit ranging from $1 billion to $3 billion, depending on the success of its appeals and other factors.
Humana’s struggles with MA come as the program faces increasing scrutiny from regulators and legislators over allegations of limiting care for members and rampant upcoding. The Biden administration has also decreased payment rates and changed how star ratings are calculated, making it harder for payers to extract profits from the program.
The insurer’s high concentration of lives in relatively few contracts has left it exposed to swings in star ratings, and it plans to diversify its contract exposure in the future. Humana remains committed to achieving its 3% individual MA margin target, but analysts believe it will be challenging to reach this goal without improving its star ratings.
As MA enrollment opens on October 15, Humana and its peers will need to navigate the changing landscape of the program, which has become increasingly challenging for insurers to profit from.
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