Shares of Humana declined approximately 2% during Wednesday's trading session following the company's revised 2026 profit forecast, which fell short of Wall Street expectations. The health insurer attributed the downward revision to a substantial financial impact from reduced Medicare Advantage quality scores.
Financial Impact of Star Ratings
Humana now anticipates 2026 adjusted earnings of at least $9 per share, well below the consensus analyst estimate of $11.92. The company specifically cited a $3.5 billion headwind resulting from lower Medicare Advantage star ratings, which directly affect government bonus payments. These quality ratings, ranging from one to five stars, play a crucial role in determining supplemental funding from federal programs.
Despite the profit pressure, the insurer expects approximately 25% growth in individual Medicare Advantage membership for 2026. Currently, about 45% of its members are enrolled in plans rated four stars or higher. Chief Financial Officer Celeste Mellet emphasized that the lower plan ratings will significantly affect profitability next year.
Industry Context and Analyst Perspective
The announcement comes amid ongoing uncertainty about Medicare reimbursement rates, with a final decision on 2027 payment rates expected in April. Morningstar analyst Julie Utterback noted, "While reduced 2026 earnings expectations for Humana were anticipated, the magnitude of membership growth appears likely to compress margins more than the market had projected."
For the fourth quarter, Humana reported an adjusted loss of $3.96 per share, slightly better than the $4.01 loss analysts had forecast. The company's medical cost ratio reached 93%, essentially matching projections.
Humana has been adjusting plan benefits and increasing premiums to protect margins amid persistently high medical costs across the healthcare sector. CEO Jim Rechtin commented, "Medicare Advantage exists at the intersection of U.S. fiscal pressures and a program that remains highly popular with seniors. We will adapt our strategy once the final rate notice is issued."
Investors are now focused on two key developments: April's final Medicare Advantage payment update for 2027, and any forthcoming details about Humana's plan pricing and benefit adjustments for the next enrollment cycle. The company's ability to manage medical costs while navigating regulatory changes will likely determine its performance through 2026.
