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(Bloomberg) — Humana Inc. has lost about half of its market value this year as the health insurer faced one disaster after another. In the wake of another major setback Wednesday, investors are growing impatient.
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The latest stumble focuses on crucial quality ratings that drive billions of dollars in revenue. After the Centers for Medicare and Medicaid Services slashed Humana’s scores, only about 25% of its members will be in highly rated plans that generate extra revenue, down from 94% previously.
Humana shares tumbled as much as 24%, their biggest drop in 15 years, before paring the decline.
Stephens analyst Scott Fidel called the news “a worst-case scenario” for Humana and estimated that $3 billion in revenue could be at risk. Leerink analysts led by Whit Mayo estimated that lower ratings may cost the company $1 billion in 2026 and will delay Humana’s plans to return to its target margins of at least 3% in its Medicare Advantage business by 2027.
Humana is the only large US health insurer that’s focused almost exclusively on Medicare. That links it more tightly to the fate of the program than other diversified rivals — an advantage for years that has recently become a headwind. Surprise jumps in medical costs and lower payments from the government have helped erode almost $30 billion from the company’s market value in 2024.
In the near term, the company is appealing to the CMS, which sets the ratings. It’s unclear how long that may take, but the payment cuts from the ratings hit won’t take effect until 2026. Other insurers have successfully challenged such judgments before, restoring favorable ratings before they damage revenue.
Either way, new Chief Executive Officer Jim Rechtin faces a yearslong path to recover the insurer’s earnings and win back the confidence of investors. Rechtin took over in July from Bruce Broussard, who over more than a decade at the helm had tripled Humana’s Medicare Advantage business and presided over a 400% gain in the company’s stock price.
Humana planned to hold private calls with investors Wednesday afternoon, a spokesperson said.
Humana’s diminished market value could also revive takeover interest from Cigna Group, particularly if a second Trump administration brings lighter antitrust regulation. Cigna is divesting its own much smaller Medicare business.
Mizuho’s Jared Holz said Wednesday that investors have been speculating whether Cigna would make another approach “but doubt a move will take place until the dust settles a bit more” for Humana.
The ratings, also known as stars, assess the quality of care and customer service for private Medicare health plans that now cover more than half of all people in the US program. It’s a high-stakes calculation that will drive an estimated $11.8 billion in bonus payments to insurers this year, including $2.5 billion to Humana, according to health policy research group KFF.
Humana said it was “disappointed with its performance and has initiatives underway focused on improving its operating discipline and returning to an industry leading Stars position as quickly as possible.” The ratings aren’t expected to impact the company’s financial outlook for 2024 or 2025, the company said.
Medicare reviews plans each year ahead of the enrollment window that begins Oct. 15. So far there are few signs that any of Humana’s rivals suffered such a big hit to their ratings.
While the official ratings files haven’t been released, some are visible on Medicare’s plan finder tool that helps consumers shop for coverage. Two large plans from CVS Health Corp. appeared to retain 4-star ratings on the website, Evercore ISI analysts said Wednesday in a note. CVS shares rose as much as 3.9% in New York.
–With assistance from Angel Adegbesan.
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