Humana plunges after warning of a decline in sales in 2026 due to lower star ratings

In a regulatory filing this morning, Humana states: “Based on preliminary 2025 Medicare Advantage – MA – Star Ratings data provided by the Centers for Medicare and Medicaid Services (CMS) and as of October 1, 2024 in the CMS plan Finder was available, Approximately 1.6 million, or 25% of its members, are currently enrolled in Humana's plans rated 4 stars and above for 2025, down from 94% in 2024. A key driver of these results was that contract H5216 went from a 3.5-star rating to a 4.5-star rating in 2024. H5216 includes approximately 45% of Humana's MA members, including more than 90% of the Employer Group Waiver Plan Membership – Group MA. The decline in Stars performance for 2025 will impact Humana's quality bonus payments in 2026. Details of the 2025 Star Rating are expected to be officially released by CMS on or about October 10th. Based on the company's review of preliminary data provided by CMS, it was determined that the decline in star ratings was due to narrowly missing higher industry thresholds on a small number of measures. Humana understands that errors may occur in CMS' calculation of certain outcomes and industry-specific thresholds. The Company has outstanding appeals related to certain results and has requested additional information to ensure the accuracy of the threshold calculations. The Company intends to continue to work with CMS on these matters to ensure that star ratings are accurate and representative of plan quality. Despite ongoing appeal efforts, the company is disappointed with its performance and has initiatives underway aimed at improving its operational discipline and returning to an industry-leading star position as quickly as possible. These initiatives are expected to impact the performance of all key measures and result in improved bonus payments in 2027 and beyond. Areas of focus include improving member and provider engagement strategies, improving customer experience, and strengthening technology integration to support operational excellence. The company will provide further details on these initiatives in the coming months to further improve its operational efficiency. Humana is evaluating all available options to mitigate the expected decline in revenue in 2026 associated with its star ratings in 2025 if its challenges to the results are unsuccessful. The results of 2025 Stars are not expected to have any impact on the Company's financial results or prospects for 2024 or 2025. Additionally, the company remains focused on achieving its individual MA margin target of “at least 3 percent,” although there is now greater risk in its ability to fully achieve that outcome by 2027. “Finally, the company is focused on achieving its full potential by focusing on continuous improvement and leveraging its differentiated capabilities to improve the health of its customers and increase long-term shareholder value.” Falling 12% to close at $279.45, shares are expected to have fallen another 22% to $219.29 in premarket trading on Wednesday.