Buzz around Humana: Rating Decline Puts Insurer to the Test

The recent developments surrounding Humana raise questions. Analysts from TD Cowen expressed concerns that the company's recovery is too complex. The reason: the number of Humana's Medicare Advantage members opting for four-star plans or better has significantly decreased. Medicare Advantage, Humana's flagship product, targets those over 65 years old. According to preliminary analyses of the Medicare Advantage Star Ratings conducted by the Centers for Medicare and Medicaid Services, the number of four-star members for 2025 dropped from 94% to 25%. Humana attributes the decline to the downgrade of an important contract from 4.5 to 3.5 stars, which covers nearly half of its Medicare clients. This development affects the bonus payments Humana could receive in 2026 for the quality of its services. Further details on the ratings are expected around October 10. Humana suspects calculation errors and has filed appeals to ensure the correctness of the ratings. Nevertheless, the company is disappointed with its performance and has initiated measures for improvement. These initiatives aim to stabilize bonus payments by 2027 and beyond and to regain a leading market position. Both TD Cowen and Jefferies have downgraded Humana's rating from 'Buy' to 'Hold'. The financial forecasts for 2025 remain unchanged; however, any unsuccessful appeals could impact future revenue. As early as July, Humana warned that the demand for medical treatments had risen more than expected. The recent trend of increased healthcare costs could persist, exacerbated by pandemic-related delays in medical procedures. Additionally, government payments for Medicare services are delayed, further constraining the financial leeway.