Humana’s Medicare Advantage Dilemma Worsens Amid Precipitous Drop In 2025 Star Ratings

Humana’s Medicare Advantage headache is going from bad to worse.

The number of Humana members enrolled in top-rated MA plans next year is expected to plummet, threatening the insurer’s ability to bring in rebates and bonus payments — and throwing the company’s chances of turning a profit in 2026 into doubt.

Only 25% of Humana members will be in plans with quality ratings of four stars or above next year, down from 94% this year, Humana said in a securities filing on Wednesday.

The star rating system measures plan quality on a scale from one to five stars. Higher stars give insurers favorable positioning in the program in addition to lucrative bonuses. As such, insurers defend their stars fiercely, while investors watch warily for any changes.

Humana attributed its steep drop in stars for 2025 to “narrowly missing higher industry cut points on a small number of measures,” and said it is appealing certain results with the CMS. There are also actions the insurer can take to blunt the impact of the stars losses on its earnings, such as reducing benefits.

Still, Humana could face a hit ranging from $1 billion to $3 billion, according to various analyst estimates, hurting and even potentially wiping out the company’s bottom line. Humana reported a net profit of $2.5 billion last year.

Humana’s stock fell 11% over Wednesday’s trade to reach its lowest point since early 2020.

“Although our quality measures are still very high, performance improvements across the industry and CMS methodology changes have raised the bar for achieving 4- and 5- Star performance for many measures,” a Humana spokesperson said over email. “We have initiatives already underway to improve our performance for future Star ratings.”

The spokesperson declined to comment on the expected impact to Humana’s finances in 2026.

Meanwhile, large plans from other MA payers appear to have maintained their stars, according to an analysis of preliminary CMS data by Lisa Gill, a managing director at J.P. Morgan covering healthcare services. The CMS plans to officially release star ratings for 2025 around Oct. 10.

Humana’s plummeting stars continue a run of misfortune for the Kentucky-based payer.

More so than most of its peers, Humana — the second-largest MA provider in the U.S. — has struggled to contain rising costs in MA and been forced to roll back its plan offerings in a bid to preserve profits. The payer expects to lose hundreds of thousands of members as a result — and now, more of its members who remain will be in lower rated plans.

Potential mitigation

Humana is reeling from a one-two punch: the preliminary star ratings paired with existing cost challenges in MA.

Only 1.6 million of Humana’s more than 6 million MA members will be in plans with four stars or above next year, according to the 8-K.

One of Humana’s largest contracts that covers about 45% of its MA members dropped an entire point, from 4.5 to 3.5 stars, the insurer said.

Stars are integral for a payer’s financial success in MA because the CMS uses the ratings to determine two parts of a plan’s outlook: whether a plan receives a bonus, and a plan’s ability to bid against a higher benchmark rate.

Plans that receive four stars or above have their benchmark increased, giving them a competitive advantage in their markets, and receive a 5% quality bonus adjustment for the following year. As such, Humana’s lower stars next year will affect its finances in 2026.

Humana attempted to placate investors on Wednesday by noting that the CMS may have botched the stars calculations.

“Humana believes there may be potential errors in CMS’ calculation of certain of its results and industry threshold cut points,” the 8-K reads.

The insurer also said it is exploring “all available options” to mitigate the hit to its finances.

Humana held a meeting with sell-side investors on Wednesday and told them it is appealing calculations for three of the four impacted contracts, according to a note from J.P. Morgan’s Gill. According to analysts, those three contracts were one metric away from achieving a four-star rating.

The eventual extent of the impact on Humana depends on a few factors, including the success of appeals, MA rates for 2026, competitor positioning in the market and how else Humana decides to respond, analysts said.

The payer could reduce benefits to offset the premium loss, which would mitigate the impact on margins, TD Cowen analyst Ryan Langston wrote in a note Wednesday.

In the meeting with investors, Humana management said the insurer’s high concentration of lives in relatively few contracts left it exposed to swings in star ratings, and that it would work to diversify its contract exposure in the future, according to Gill.

Humana could also sue Medicare over the ratings, a maneuver that’s proved successful in the past from payers looking to get unfavorable ratings overturned.

The spokesperson for Humana did not comment on what other actions the insurer might take.

However, Humana said it would remain focused on achieving its 3% individual MA margin target, though “there is now more risk in its ability to full achieve this result by 2027,” the 8-K says.

“While management said it was too early to frame an impact on 2026 … it is an understatement to say that management’s margin targets in 2027 have a higher degree of difficulty now,” Gill wrote in a Wednesday note. “In our view it is unlikely that [Humana] would reach its target unless it is successful in improving its star ratings for 2027.”

Stars exacerbating existing pressures

In MA, the government reimburses payers a set rate for managing the care of Medicare seniors. Plans can offer more flexible benefits than those in traditional Medicare, which (along with heavy investments in marketing from insurers) has attracted a broad swath of seniors — more than half of all Medicare enrollees — to the plans.

The program used to be a dream for insurers. Prior to the coronavirus pandemic, reimbursement was high thanks to friendly regulators in Washington and membership was growing as more Americans aged into Medicare.

But MA insurers have struggled of late with mounting public relations and reimbursement challenges. Reports of plans limiting care for members, along with growing allegations of rampant upcoding, have attracted scrutiny from regulators and legislators in Washington.

Meanwhile, the Biden administration has decreased payment rates, tweaked how plans adjust for members’ risk and changed how star ratings are calculated. Industry experts say the changes will make it harder for payers to extract profits from the program.

And more MA beneficiaries have been going to the doctor and hospital than insurers expected, creating significant cost pressure. The higher utilization began last year and has continued into 2024, with little sign of slowing. Since actuaries set premiums well in advance of plans paying out for claims, the trend has cut into payers’ profits — in some cases significantly.

Humana, which brings in 86% of its premium revenue from MA alone, has been one of the hardest hit. The insurer posted $1.4 billion in net income in the first half of this year, down more than a third from the same period in 2023.

To protect profits, Humana and its peers in MA slashed their plans for 2025, cutting benefits and exiting underperforming markets. Plans appear to have focused cuts around supplemental benefits like over-the-counter and flex cards, which give seniors funds to spend on eligible items.

Humana, Elevance, Centene and CVS’ insurance arm Aetna all materially cut their over-the-counter benefits for 2025, according to investment bank TD Cowen — though Humana and Aetna did so the most. UnitedHealth, the largest MA payer in the country, was an outlier with stable over-the-counter benefits.

Overall, Aetna appeared to cut the most benefits, followed by UnitedHealth and Humana, according to a similar analysis by Leerink Partners. Elevance cut benefits the least.

MA enrollment opens Oct. 15 and will continue through Dec. 7.