(Bloomberg) — Humana Inc. (HUM) shares plummeted in premarket trading as as the insurer disclosed a drop in crucial Medicare quality ratings that threatens to drastically reduce revenue.
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About a quarter of members in plans that Humana manages for the US Medicare program for the elderly were in four-star rated plans, down from 94%, Humana said Wednesday. The company said it believed there may be potential errors in calculations by the Centers for Medicare and Medicaid Services and that it had appealed some of the results.
The shares fell 24% before US markets opened. If that holds into regular trading Humana will be set for its biggest fall since Feb. 23, 2009.
The result is catastrophic for the Medicare-focused insurer if it stands. Humana has already has seen profits squeezed by medical costs and tighter reimbursements from the government. Insurers get more money in future years for top-rated plans, so cuts to the ratings, known as stars, can sink revenue.
Humana could see an earnings hit of $9 a share hit in 2026 if ratings on its main Medicare contract fell below the level that earns bonuses, a Jefferies analyst said last week. The company confirmed in a filing Wednesday that that contract, which covers almost half of Humana’s Medicare Advantage membership, had slipped in ratings for 2025.
“Humana is exploring all available options to mitigate the expected 2026 revenue headwind related to its 2025 Star ratings in the event its challenges to the results are unsuccessful,” the company said in a statement.
Humana said the ratings were not expected to impact the company’s financial outlook for 2024 or 2025, but that 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.”
Shares in Humana were down 39% so far this year as of Tuesday’s close. That compares to a 20% increase in the S&P 500.
The drop in quality ratings adds to the hurdles faced by Humana Chief Executive Officer Jim Rechtin, who took over in July. Other companies have successfully challenged Medicare’s assessment of their quality ratings.
Elevance Health Inc. and the nonprofit SCAN Health Plan last year sued CMS over how their ratings were assessed, ultimately recovering money that was at risk.
—With assistance from Angel Adegbesan.
(Updates shares, analyst comment from third paragraph.)
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