Medicare change sends Humana shares down 23% in one week, biggest drop since 2009

• Humana shares fell 23% in their worst weekly decline since 2020 and their biggest two-day decline since 2009.

• The drop comes as Medicare downgraded ratings for some of Humana’s health insurance plans.

• The move is expected to be a drag on the company’s revenue and customer base.

It’s been a tough week for Humana.

Shares of the health insurer have fallen 23% since the start of the week, marking the biggest weekly drop of 2020 and the biggest two-day drop in 15 years.

Shares rose about 2% on Friday to $246.80. They started the week at around $320 per share.

The tailspin comes as Medicare plans to cut several of Humana’s key health insurance plans, which will limit the additional revenue those plans get from government payments starting next year.

The news first circulated on Tuesday, and on Wednesday the company confirmed the news in a statement, sending the stock down 24% in the first five minutes of trading.

In those days, the stock fell 22%, its biggest two-day drop since the financial crisis of 2009. The stock is on track for its worst week of 2020.

Medicare quality ratings are critical revenue generators for Medicare Advantage insurers like Humana, which receive government bonus payments for higher star ratings. Lower ratings, on the other hand, discourage customers. Ratings are on a scale of one to five.

With the new ratings change, only 25 percent of Humana’s customers will now fall under its four-star or higher plans, down from 94 percent, the company said in a statement.

In a note on Wednesday, UBS analysts led by AJ Rice said Humana’s downgrades were the “worst-case scenario for stars.”

The company says it is working to regain its ratings and is calling for changes.

Bank of America analysts say the full recovery may take longer than expected, however. Analysts downgraded the stock on Wednesday, cutting their price target by 34% to $247.

They said Medicare Advantage plans could see more pressure if Democrats win the next election, which would hinder Humana’s recovery.

“The timing of the turnaround is far from guaranteed, especially if the election results in a Democratic win and MA plans are under pressure as they are proving here with smaller stars,” the analysts said, adding that Humana faces stiff competition with colleagues like UNH. .

“We believe there is a risk that HUM will lose market share,” the analysts said.

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