After an already brutal year for its Medicare Advantage business, major health insurer Humana said it’s taken a hit to its health plan quality ratings that threatens to wipe away billions in revenue.
Humana disclosed in a securities filing Wednesday that just 25% of its Medicare Advantage members will be in plans rated four stars or higher next year — down from 94% of members in 2024 — after the federal government downgraded one of the insurer’s major contracts to a 3.5-star rating from 4.5 stars. About 45% of Humana’s 6.2 million Medicare Advantage members were in that contract, the company said.
The blow has major implications for the federal payments Humana will receive in 2026 to manage insurance benefits for seniors. Humana’s stock $HUM plunged 16% on Wednesday.
Each year, CMS rates Medicare Advantage plans on a one- to five-star scale, with one being the lowest performance and five being the highest. Plans that score four or more stars receive a 5% bonus to their payment rates that they can use to invest in extra benefits or lower cost sharing to attract more members.
Scott Fidel, an analyst at investment firm Stephens, estimated that Humana could lose at least $3 billion in revenue in 2026. Whit Mayo at Leerink Partners wrote Wednesday that Humana could face a $1.9 billion headwind before any actions to offset the decrease.
A Humana spokesperson declined to comment on the potential impact to revenue, but said the company is “exploring all available options to mitigate the expected 2026 revenue headwind.”
In its filing, Humana said it is disappointed in its performance and is working on improving star ratings by focusing on member and provider engagement, customer experience and technology to support operations. The insurer said it believes there may be potential errors in how CMS calculated its scores and has appealed certain results.
Humana has struggled all year with rising medical costs that have eaten into its bottom line — a problem that’s plagued many Medicare Advantage insurers. The longtime lucrative market has lost some of its shine as seniors have sought more care than insurers anticipated, the federal government has cracked down on certain billing practices and payment rates have lowered. Humana and other insurers, including CVS, have shut down some health plans and reduced benefits for 2025 to bolster their profits.
Humana’s stock price is down 50% year to date.