Humana (HUM) saw its stock dive Wednesday morning after announcing Medicare’s star ratings resulted in lower enrollment for 2025 and will impact revenue in 2026. The changes will also impact the company’s bonuses for 2026.

The stock is trading down about 15%, at $235.75 per share, after sliding more than 20% in premarket trading.

The Centers for Medicare and Medicaid Services (CMS) rates Medicare Advantage plans offered by commercial providers, like Humana, on a scale from 1 to 5. Medicare Advantage plans are offered to eligible seniors aged 65 and older and cover traditional Medicare Parts A and B.

CMS lowered the rating of the contract with Humana to 3.5 from 4.5 in 2024, and the individual ratings of its hundreds of plans have also decreased.

Humana has had a reputation for being among the top-rated plans. It currently has 25%, or about 1.6 million members, enrolled in four-star or higher plans.

Earlier this year, CMS’s new ratings were expected to benefit many plans, moving them higher after a recalculation.

Star ratings determine what level of reimbursement a plan will receive and help members choose which plan to enroll in based on offerings included and other metrics.

The official ratings will be released by CMS by Oct. 10. Humana said it is awaiting appeals on certain decisions related to the ratings, according to Reuters.

This is the second time in the year the company’s stock has taken a hit from the expected pressure on Medicare Advantage plans.

Earlier this year, both Humana and CVS (CVS) indicated that the 2025 plan year would see cuts to benefits, and potentially fewer plans, due to the pressures from CMS as well as increased utilization by seniors. Humana also guided down for its annual earnings outlook.

Most recently, CVS has faced pressure for underperformance of its insurance unit tied to Medicare Advantage use.

Insurers typically try to spend about 80%-85% of premiums collected, known as medical loss ratio (MLR). Both companies have reported higher-than-usual spend this year. Humana said in its second quarter earnings that the company saw its MLR increase for the first six months of 2024 to 89% from 86% in the first six months of 2023.

Similarly, CVS said its MLR for the first six months of 2024 was 90%, compared to 85% in the first six months of 2023.

Anjalee Khemlani is the senior health reporter at Yahoo Finance, covering all things pharma, insurance, care services, digital health, PBMs, and health policy and politics. That includes GLP-1s, of course. Follow Anjalee on most social media platforms @AnjKhem.

Click here for in-depth analysis of the latest health industry news and events impacting stock prices



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