Shares of Humana (NYSE:HUM) experienced a notable decline during premarket trading on Friday following the release of the U.S. government’s finalized quality ratings for Medicare health and prescription drug plans for the year 2025. This drop reflects growing investor concerns about the company’s standing in the competitive Medicare market.
According to the Centers for Medicare and Medicaid Services (CMS), approximately 62% of individuals enrolled in Medicare Advantage prescription drug plans are associated with contracts that have received ratings of four stars or higher, indicating satisfactory performance. This is a significant decrease from the previous year, where the figure stood at 74%. The recent preliminary data revealed that only 25% of Humana’s members enrolled in plans with ratings of four stars or higher for the upcoming year—markedly lower than the impressive 94% recorded last year.
A critical factor contributing to Humana’s rating downturn was the reassessment of its H5216 contract, which was downgraded from 4.5 stars to 3.5 stars. This specific plan represents nearly 45% of Humana’s Medicare Advantage clientele, including over 90% of its employer group waiver plan members. The company noted that this drop in star ratings would have significant repercussions for its quality bonus payments in 2026, as the Centers for Medicare and Medicaid typically reward plans achieving four-star ratings or higher with quality bonuses.
Despite recent declines, Humana is actively pursuing appeals related to the quality ratings and has requested further information to ascertain the accuracy of the calculations used in evaluating its plans. However, Wells Fargo analysts suggested that the final ratings seemed consistent with Humana’s earlier statements, leading to speculation that the company’s appeals may not succeed, potentially resulting in legal action.
Wells Fargo further projected that these updated ratings could create a significant hurdle for Humana, estimating a negative impact of approximately $13.60—or 52.3%—on the company’s earnings per share for 2026. While this ratings decline may not affect Humana’s financial results or outlook for 2024 or 2025, the firm is proactively taking measures to address the anticipated impact on its revenue for 2026, particularly if its appeals do not bear fruit.
For investors and stakeholders closely monitoring the health insurance landscape, Humana’s current predicament underscores the complexities of navigating Medicare ratings and the critical importance of maintaining high-quality service to meet regulatory standards. The ramifications of these ratings will likely be a focal point for discussions surrounding Humana’s future positioning in the Medicare market.