Humana stock is slipping due to lower ratings for its Medicare Advantage plans

Humana (HUM) saw shares plunge Wednesday morning after it announced that Medicare's star rating resulted in lower enrollment for 2025 and will impact revenue in 2026. The changes will also affect the company's bonuses for 2026.

The stock is down about 15% at $235.75 per share, after falling more than 20% in premarket trading.

The Centers for Medicare and Medicaid Services (CMS) rates Medicare Advantage plans offered by commercial providers such as Humana on a scale of 1 to 5. Medicare Advantage plans are offered to eligible seniors age 65 and older and cover traditional Medicare Divide A and B.

CMS lowered the rating of its contract with Humana from 4.5 to 3.5 in 2024, and the individual ratings of its hundreds of plans also fell.

Humana has a reputation for being among the top-rated plans. Currently, 25%, or approximately 1.6 million, members are enrolled in plans rated four stars or higher.

Earlier this year, CMS's new ratings were expected to benefit many plans and push them higher after a recalculation.

Star ratings determine the level of reimbursement a plan receives and help members choose which plan to enroll in based on included offers and other metrics.

The official ratings will be published by CMS by October 10th. According to Reuters, Humana said it was awaiting appeals of certain decisions related to the ratings.

This is the second time this year that the company's stock has suffered from expected pressure on its Medicare Advantage plans.

Earlier this year, both Humana and CVS (CVS) said there would be benefit reductions and potentially fewer plans in the 2025 plan year due to pressure from CMS and increased utilization by seniors. Humana also lowered its annual profit outlook.

Most recently, CVS has been under pressure because of poor performance in its insurance division related to its use of Medicare Advantage.

Insurers typically try to spend around 80-85% of the premiums collected, which is known as the Medical Loss Ratio (MLR). Both companies reported higher-than-usual expenses this year. Humana said in its second-quarter results that the company increased its MLR to 89% in the first six months of 2024 from 86% in the first six months of 2023.

Likewise, CVS said its MLR was 90% for the first six months of 2024, compared to 85% for the first six months of 2023.

Anjalee Khemlani is the senior healthcare reporter at Yahoo Finance, covering all things pharma, insurance, care services, digital health, PBMs, and healthcare politics and policy. Of course, this also includes GLP-1. Follow Anjalee on most social media platforms @AnjKhem.

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