Humana Medicare Advantage Dilemma Worsens Amid Steep Drop in 2025 Star Ratings

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The Humana Medicare Advantage headache keeps getting worse.

The number of Humana members enrolled in top MA plans next year is expected to drop, threatening the insurer’s ability to bring in discounts and bonus payments — and casting doubt on the company’s chances of turning a profit in 2026.

Only 25 percent of Humana members will have plans with quality ratings of four stars or higher next year, down from 94 percent this year, Humana said in a securities filing Wednesday.

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

Humana attributed its steep drop in stars for 2025 to “the lack of higher industry cut points for a small number of measures” and said it was pulling some results with CMS. There are also actions the insurer can take to reduce the impact of star losses on its earnings, such as reducing benefits.

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

Humana shares fell 11% in Wednesday’s trading, hitting their lowest point since the start of 2020.

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

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

Meanwhile, large plans from other MA payers appear to have held their stars, according to an analysis of preliminary CMS data by Lisa Gill, a managing director at JP Morgan who covers healthcare services. CMS plans to officially release the 2025 star ratings around October 10.

Humana’s waning stars continue a string of woes for the Kentucky payer.

More than most of its peers, Humana — the second-largest US provider of MA — has struggled to contain rising costs in MA and has been forced to cancel plan offerings in an attempt to preserve profits. The payer expects to lose hundreds of thousands of members as a result — and now, more of its remaining members will be in lower-quota plans.

The story continues

Potential mitigation

Humana reeling from one-two punch: Preliminary star ratings associated with 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 higher next year, according to the 8-K.

One of Humana’s largest contracts, which covers about 45 percent of its MA members, dropped a full point from 4.5 to 3.5 stars, the insurer said.

The stars are critical to a payer’s financial success in MA because 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 more have their benchmark raised, giving them a competitive edge in their markets, and receive a 5% quality bonus adjustment for the following year. As such, Humana’s lower stars next year will hurt its finances in 2026.

Humana tried to reassure investors on Wednesday, noting that CMS may have miscalculated the stars.

“Humana believes there may be potential errors in CMS’s calculation of certain industry cutoff results and points,” the 8-K said.

The insurer also said it was exploring “all available options” to mitigate the impact on its finances.

Humana held a meeting with sell-side investors on Wednesday and told them there were attractive valuations for three of the four affected contracts, according to a note from JP Morgan’s Gill. According to analysts, the three contracts were one measure away from achieving a four-star rating.

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

The payer could cut benefits to offset the loss of premiums, which would soften the impact on margins, TD Cowen analyst Ryan Langston wrote in a note on Wednesday.

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

Humana could also sue Medicare over the ratings, a maneuver that has proven successful in the past by payers seeking to get unfavorable ratings overturned.

Humana’s spokesman did not comment on what other actions the insurer might take.

However, Humana said it will remain focused on achieving its 3% stand-alone margin goal, although “there is now more risk in its ability to fully achieve this result by 2027,” the 8-K says.

“While management has said it is too early to determine an impact on 2026 … it is an understatement to say that management’s margin targets in 2027 have a greater degree of difficulty now,” Gill wrote in a Wednesday note. “In our view, (Humana) is unlikely to achieve its target if it fails to improve its star ratings for 2027.”

Stars exacerbating existing pressures

In MA, the government reimburses payers at a set rate for managing Medicare senior care. The plans can offer more flexible benefits than traditional Medicare, which (along with heavy marketing investments from insurers) has drawn a wide range of seniors — more than half of all Medicare enrollees — to the plans.

The program was a dream for insurers. Before 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 increasing public relations and reimbursement challenges. Reports of plans limiting member care, along with growing allegations of rampant upcoding, have caught the attention of regulators and lawmakers in Washington.

Meanwhile, the Biden administration has lowered payout rates, changed how plans adjust for member risk and changed how star ratings are calculated. Industry experts say the changes will make it harder for payers to profit from the program.

Even more MA beneficiaries went to the doctor and hospital than insurers expected, putting significant pressure on costs. Higher usage began last year and has continued through 2024 with little sign of slowing. With actuaries setting premiums well in advance of claims plans paying out, the trend has reduced payers’ profits – in some cases significantly.

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

To protect profits, Humana and its MA peers scaled back their plans for 2025, cutting benefits and exiting underperforming markets. The plans appear to have discounts centered around additional benefits, such as over-the-counter and flexible cards, which give seniors funds to spend on eligible items.

Humana, Elevance, Centene and CVS’s insurance arm Aetna have substantially reduced their over-the-counter benefits by 2025, according to investment bank TD Cowen — though Humana and Aetna have done so the most. UnitedHealth, the nation’s largest MA payer, was an outlier with stable nonprescription benefits.

Overall, Aetna appears to be cutting benefits the most, followed by UnitedHealth and Humana, according to a similar analysis by Leerink Partners. Cutting in elevation benefits the least.

MA registration opens on October 15th and will continue until December 7th.