Humana (NYSE:HUM) shares were getting hit hard for the second day in a row today after falling by 12% in Tuesday’s session and hitting a 52-week low.
But Wednesday is turning out to be even worse for the health insurance and health services giant, with shares plunging over 20% at market open. The decline followed the company’s warning that recent changes to the federal government’s quality ratings for certain private Medicare plans could negatively impact its bottom-line in 2026.
According to the Centers for Medicare and Medicaid Services’ (CMS) preliminary 2025 Medicare Advantage ratings data, Humana has approximately 1.6 million members enrolled in its four-star and above plans for 2025, or about 25%, compared to 94% in 2024.
The CMS evaluates the quality of privately managed Medicare Advantage plans on a one-to-five star scale, with higher-rated plans receiving bonus payments that can significantly affect financial performance.
Humana acknowledged that the drop in ratings will reduce its quality bonus payments in 2026. The company attributed the lower ratings to narrowly missing key industry benchmarks in several areas. Furthermore, Humana suggested potential errors in CMS’s calculations and noted that it is appealing some of the results.
So, should investors be concerned? J.P. Morgan analyst Lisa Gill doesn’t foresee a worst-case scenario on the horizon.
“These data points are preliminary and in its release HUM indicates that it is working with CMS and appealing the process and believes that there may be potential errors in CMS’ calculation of certain parts of its results and industry threshold cut point,” Gill explained. “In addition, HUM can look for offsets via SG&A savings and emphasizing higher rated plans.”
That said, Gill admits that those measures are unlikely to completely counter the challenges resulting from about 70% of Medicare Advantage members moving out of 4+ star plans.
“We believe that HUM will need to speak to the general impact of the potential reduction in stars for 2026, as well as framing any steps to mitigate this headwind,” the analyst summed up.
All told, Gill rates HUM shares a Neutral, although she might as well have said Buy, considering her $396 price target factors in a one-year gain of 67%. (To watch Gill’s track record, click here)
The broader analyst consensus on Humana is mixed, with 6 Buys and 6 Holds, resulting in a Moderate Buy rating. Still, most analysts see the stock as undervalued, with an average price target of $387.75 implying a 65% return over the next year. (See Humana stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
