Humana hit by troubling Medicare Advantage change
This is what could happen next to Humana shares.
The very last thing any investor wants to hear are the words "worst-case scenario."
And yet that develop into the term analysts at Stephens used on Oct. 2 to explain Humana's current situation, after the health insurer said a lower-performance rating for a widely used Medicare insurance plan hurt enrollments for 2025 and will potentially hit revenue and bonus payments in 2026.
Don't omit the move: Subscribe to TheStreet's free on a each and every day basis newsletter
Shares of the Louisville, Ky., company were down nearly 18% sooner or later check. Humana's stock is down 50% year-to-date.
Humana said in a Securities and Exchange Commission eight-K filing disclosing preliminary 2025 Medicare Advantage Famous person results that simplest about 25%, or roughly 1.6 million, of its members were in Four+ Famous person plans for plan year 2025 or payment year 2026, compared with about ninety four% world wide the prior year.
"The company has outstanding appeals related to certain results and has requested additional information to ensure accuracy of threshold calculations," Humana said world wide the filing. Humana
TheStreet Pro: Humana's longer term picture 'no longer encouraging'
As well, the corporate said that it intended to continue to interact with the Centers for Medicare and Medicaid Services "on these matters to ensure Famous person ratings are accurate and representative of plan quality."
Humana said that a significant driver of the outcomes develop into the Medicare Advantage PPO plan H5216 decreasing to a three.5-celebrity rating from a Four.5-celebrity rating in 2024.
Related: Analysts revisit Humana stock price targets amid Medicare Advantage hit
H5216 contains about forty five% of Humana’s MA membership, including greater than 90% of its employer group waiver plan membership. The decline in Stars performance for 2025 will have an effect on Humana’s quality bonus payments in 2026, Humana said.
The Famous person ratings, on a scale of 5, determine reimbursement levels and can sway enrollees as they make a selection plans.
Famous person-rating details for 2025 are expected to be formally released by the agency on or around Oct. 10.
In August, TheStreet Pro's Bruce Kamich raised concerns about Humana's shares, noting that "world wide the short run, it looks like HUM can bounce a chunk, on the alternative hand the longer-term picture is no longer encouraging."
Stephens downgrades Humana stock
Stephens downgraded Humana shares to equal weight from overweight with a price target of $250, down from $400, after the disclosure.
This represents "a worst-case scenario result," the firm said, adding that the reduction develop into driven by Humana "narrowly missing higher industry cut points on a smaller selection of measures."
Though no longer expected to have an effect on the 2024/2025 earnings outlook, the resulting Famous person ratings add significant risk to Humana's ability to attain target individual Medicare Advantage margins of "as a minimum three%" by 2027, the firm said. Stephens estimates the revenue at-risk at greater than $three billion for 2026.
Related: CVS considers harsh changes amid declining profits
Wolfe Research analyst Justin Lake said weakness in Humana shares develop into "first and foremost not easy to keep up in mind." Early focal point develop into on benefits, which looked reasonably conservative, after which on the corporate's lack of Famous person Rating mention in its 2025 Medicare Advantage press free up, on condition that the corporate did note in its 2024 free up that it develop into the industry leader on Stars.
“[Everything] came into focal point world wide the afternoon,” when it became clear that investors had potentially found a strategy to "back into" 2025 Famous person ratings the usage of the CMS planfinder web page, Lake said.
Analyst cites Famous person Rating confusion
Using a workaround to get an early view on Stars is “unproven at best,” on the alternative hand the firm found which have to this approach to backing into 2025 Famous person results prove predictive, it should possibly indicate that Humana may even see a “startling” 67% deterioration in membership in Four Famous person plans for 2025 after analyzing ninety four% of total membership.
Wolfe has an outperform rating on Humana shares.
More Health Care:
- Four Hidden Dangers in Retirement
- Most state attorneys general agree social media is a difficulty
- Is Pet Insurance Worth It?
Barclays said that Humana and Alignment Healthcare (ALHC) traded down amid Medicare Advantage celebrity rating confusion, TheFly reported.
The selloffs were brought on by brought on by concerns around 2025 Famous person Ratings affecting 2026 plan revenue, driven by what can have been a potential technical glitch on the Medicare Plan Finder web page, the firm said.
When the Medicare Advantage Plan Finder web page goes reside, it displays essentially the most updated Famous person Rating for each and every plan. Since CMS has no longer released 2025 Stars, the online page shows "Famous person Rating: Coming Soon" for this year's plans, Barclays said.
Filtering plans by stars indicates Humana's largest contract H5216 and Alignment's H3815 contract now no longer hold Four-celebrity ratings, whereas CVS Health's (CVS) two large contracts H5521 and H5522 remain above Four stars, the firm said.
Following the market's Oct. 1 market close, it remained unclear whether the Plan Finder web page is a reliable indicator of stars, per Barclays. The firm's analysis of the 650 plan documents released for CVS signals the corporate is well positioned to toughen its margins.
Humana set to report Q3 on Oct. 30
Humana is scheduled to report third-quarter earnings on Oct. 30.
The company beat Wall Street’s 2nd-quarter earnings expectations in July, but its shares tumbled after Humana cited higher-than-expected inpatient admissions and declined to lift its full year guidance.
Humana as a substitute affirmed its full-year EPS of about $Sixteen, which CEO James Rechtin said “prudently assumes that the higher inpatient costs will continue similtaneously we work to mitigate that pressure.”
In January, Humana lowered its EPS guidance to about $Sixteen for the year, down from its previous estimate of about $25.
"The headline nowadays is that our 2nd quarter results exceeded expectations," he told analysts. "We feel good about where we're at midyear, but we did experience some medical cost pressure world wide the quarter."
Related: The 10 best investing books, per our stock market pros
What's Your Reaction?
