(Bloomberg) — Humana Inc. investors haven’t had a hard time. Nothing this bad since the global financial crisis 15 years ago.
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The health insurer’s stock price fell 22% on Tuesday and Wednesday alone, which last happened in February 2009. It continued to decline, with shares suffering their worst week since 2020 and putting them at a level last seen in March of that year.
It all started on Tuesday, when speculation swirled on the stock market that Humana would lose high-quality ratings on some of the major plans it runs for America’s Medicare program. By early Wednesday morning, a week before the government was scheduled to release its official Medicare ratings, the company confirmed the rumors were true. As a result, only about a quarter of its members will be in highly rated plans that generate additional revenue, down from 94% previously, Humana said.
The news sent its shares into disarray, falling as much as 24% during the first five minutes of Wednesday trading, the largest intraday decline since February 23, 2009. At the height of the Wednesday morning selloff, Humana lost a third of its shares. of its market value in just two sessions. It recovered some of that decline by the end of the day.
Overall, this “worst-case scenario” would have come true, according to UBS analyst AJ Rice.
Quality ratings, also referred to as “star ratings,” range from one to five and help generate billions of dollars in revenue for Medicare Advantage insurers. More stars allow plans to receive lucrative government bonuses, while fewer stars can make it more difficult to attract new clients.
For Humana, a low rating would be disastrous because its business is primarily focused on medical care. Future earnings could reach as much as $23 per share in 2026, “which would almost wipe out 2026 earnings,” according to Bank of America analysts led by Joanna Jajok. This could also push the company’s margin recovery further, according to Gajuk, who has an equivalent rating of sell on the stock.
Wall Street responded to Humana’s confirmation of the Medicare decision by lowering their price targets for the stock, and at least four analysts lowered their ratings on the stock. However, the consensus on the street is for the price to reach $342 in the next 12 months, a 42% jump from current levels. Of the 27 analysts covering Humana, 10 have buy ratings, 15 have hold, and only two have sell ratings.
The insurer has already seen sudden jumps in medical costs and tougher reimbursements from the government this year. Perhaps unsurprisingly, investors fled the struggling insurer, losing nearly half of its market value, which has fallen from about $56 billion at the start of 2024 to nearly $29 billion now.
Fear rippled
Concerns about lower star ratings, which are essential for Medicare Advantage plans, are spreading throughout the health insurance industry. While the government has not released its official star ratings, some appear on the Medicare Plan Finder tool that helps consumers shop for coverage.
This led to a jump in Clover Health Investments Corp. on Wednesday, as some of the health insurer’s Medicare Advantage plans for 2025 appear to have received higher quality ratings. Two large plans from CVS Health Corp. They maintain four-star ratings on the site, Evercore ISI analyst Elizabeth Anderson wrote in a note on Wednesday. Shares of the pharmacy chain subsequently rose.
On the other hand, UnitedHealth Group Inc. It sued the US government this week, claiming that its quality rating had been unreasonably lowered after a single customer service phone call.
Organizers are expected to announce the official results on or around October 10.
Meanwhile, the cloud is spreading over Humana to other related companies. Shares of agilon health Inc., which operates a platform for primary care doctors who treat Medicare patients, lost 20% on Tuesday, Wednesday and Thursday, their worst three-day streak in six months. The company counts Humana among its major payment partners.
“We were surprised by the sharp decline in star ratings,” BTIG analyst David Larsen, who holds a neutral rating on agilon, wrote in a research note Thursday. “We are concerned that if Humana sees such a significant decline in ratings and bonus payments, other payers may face further pressure.”
– With assistance from John Tozzi and Brandon Harden.
(Updated details regarding stock data, analysts and chart.)
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