Humana Eats a Medicare Star, Loses a Billion-Dollar Tooth

Pour one out for Humana guys. A federal judge in Texas slammed the door on its lawsuit against the Centers for Medicare & Medicaid Services (CMS), leaving the insurer’s Medicare Advantage ratings in the gutter… and its future bonus payments in a bodybag. 

(Source: Giphy) 

In short, shares of Humana tumbled -7.5% on the news, as Wall Street realized that “we’ll see you in court” didn’t exactly pan out. The court ruled the company jumped the gun and filed before exhausting all its admin-level appeal options… a.k.a. bureaucracy’s version of “do not pass Go, do not collect $2 billion.” The issue is that CMS downgraded Humana’s average star rating from a high flying 4.37 to a limp bizkit 3.63, literally rug pulling the insurer’s bonus eligibility in the process. 

(Source: Stocktwits) 

Now for those who may not realize how big this is… well, it’s massive. Being downgraded from 4.37 to 3.63 isn’t anything like going from a 5-star restaurant, to a 3-star. Why? Well because in Humana’s case, those stars are tied to billions in reimbursement. And now, only 25% of Humana’s members are in four-star or better plans. That’s like telling grandma she got downgraded to Spirit Airlines Healthcare. Analysts estimate this could cost Humana anywhere from $1 billion to $3 billion in 2026 alone. Ooof. 

(Source: Healthcare Dive) 

The company, naturally, isn’t done lawyering up. A spokesperson said they’re “reviewing the court’s decision” and may either appeal or refile now that they’ve completed the CMS appeals process. However, it gets worse. While Humana was busy taking the L, the rest of the health insurer space also caught a body blow… thanks to a Wall Street Journal report that Obamacare plan premiums could rise by up to 18% next year. Molina Healthcare dropped -5%, Elevance Health slid -5.4%, and Centene followed suit with a -4.08% fallout. All of this comes at a time when sentiment around Medicare Advantage is already wobbling. Utilization rates are spiking, government scrutiny is rising, and the political winds around healthcare subsidies are blowing harder than a CPAP machine on meth. 

To be fair, Humana tried to put a brave face on it, insisting their underlying business is solid and that 2028 is when they expect to claw their way back to a four-star rating. That's four years of hoping CMS forgets about those allegedly bungled customer service calls that helped tank their score. Yes, really. This might all stem from three bad Karen phone calls. For now, Humana’s strategy is margin recovery through “operational improvement” and cost discipline… but we all know what that really means: 

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As for investors, Humana’s courtroom flop and star-rating faceplant should be a wake-up call for healthcare investors living in the fantasy that regulatory risk is just a footnote. When your whole model depends on Uncle Sam's bonus system, you better have your act and your friggin’ call center together. Humana’s earnings forecast is still intact for now, but this ruling throws serious shade on its ability to maintain growth momentum. 

(Source: Giphy) 

Meaning, if you’re long Humana shares,  the next few quarters are going to require patience, a strong stomach, and maybe a Plan B for 2026. Meanwhile, the broader managed care sector is dealing with its own mini-meltdown. Translation: the stars have fallen… and they can’t get back up (for now). For now, keep your eyes on this story and place your bets accordingly, friends. Until next time… 

At the time of publishing, Stocks.News does not hold positions in companies mentioned in the article.