Humana Shares Advance Following 2026 Medicare Advantage Star Ratings Disclosure

Humana Discloses 2026 Medicare Advantage Star Ratings

Humana Inc. (HUM) shares advanced between 3% and 7% on Thursday, following the company's disclosure of its preliminary 2026 Medicare Advantage (MA) Star Ratings. The health insurer reported that approximately 20% of its current MA members, totaling about 1.2 million individuals, are enrolled in plans rated 4 stars and above for 2026. This translates to an average Star Rating of 3.61, consistent with the company's 2025 average MA Star Rating. Notably, the percentage of members in 4.5-star plans increased to 14% for 2026, up from 3% in 2025.

Star Ratings Decline Amidst Regulatory Shifts

The 2026 ratings represent a significant reduction in high-rated plan enrollment for Humana, with only 20% of members in 4-star or above plans, down from 25% in 2025 and a substantial 94% in 2024. This trend highlights the impact of recent regulatory changes by the Centers for Medicare and Medicaid Services (CMS), which introduced stricter thresholds and cut points for quality metrics, making it more challenging for insurers to achieve higher scores. These changes have been a key factor in the broader Healthcare Sector as companies contend with revised performance benchmarks.

Market Reaction and Investor Confidence

Despite the clear decline in the percentage of members in highly-rated plans, Humana's (HUM) stock gained ground. This market reaction suggests that investors had largely anticipated a more adverse outcome. The muted impact and subsequent rise in share price indicate a measure of relief and potential confidence in Humana's ability to navigate the challenging regulatory landscape. For comparison, UnitedHealthcare (UNH), another major player in the MA market, recently disclosed that approximately 78% of its MA enrollees would be in 4-star or above plans for 2026, a figure that remained largely consistent with its 2025 performance, leading to a 9% rise in its stock.

Strategic Reorientation and Financial Implications

Humana anticipates that the reduced star ratings will lead to billions of dollars in revenue losses from 2024 to 2025, with further compounding financial impacts for 2026. In response, the company has announced a strategic reorientation, shifting its primary focus from star ratings to broader clinical outcomes and member experience. CEO Jim Rechtin emphasized clinical excellence as the anchor of Humana's strategy, with increased investments in primary care, preventive services, and value-based care models, notably through its CenterWell primary care business. This pivot has already shown results, with its value-based care model demonstrating an 11.6% reduction in emergency room visits and a 7.2% decline in hospital admissions among MA members.

Furthermore, Humana is undertaking operational restructuring, including exiting low-performing markets, which is projected to result in a loss of approximately 550,000 MA members by 2026. This strategic contraction aims to enhance profitability and reallocate resources to higher-performing regions. The company affirmed its 2025 earnings guidance of approximately $13.77 in diluted earnings per common share (EPS), or approximately $17.00 in adjusted EPS, consistent with earlier disclosures.

Expert Perspective

Market analysts have observed the broader impact of CMS adjustments. Regarding the similar disclosure from a peer, J.P. Morgan analyst Lisa Gill noted,

"Our biggest takeaway is that we aren't seeing a material upward shift in stars similar to last year."

This sentiment underscores the pervasive difficulty insurers face in achieving and maintaining high star ratings under the current regulatory framework, lending context to Humana's challenges and strategic responses.

Outlook and Forward Strategy

Humana expressed confidence in its ability to return to "Top Quartile" results for its 2027 MA Star Ratings, citing tactical operational improvements implemented during the final months of the 2026 measurement period. The company is also initiating a Medicare Advantage contract diversification strategy starting with the 2026 Annual Election Period on October 15, 2025. This strategy is expected to significantly increase the percentage of members enrolled in contracts rated 4 stars and above for 2027.

Additionally, Humana remains confident in its 2026 Individual MA pricing and benefit design. The company anticipates doubling its individual MA pre-tax margin in 2026 (excluding Stars) and expects a return to membership growth. With a Beneish M-Score of -2.43, indicating a low likelihood of financial manipulation, and a beta of 0.44 suggesting lower volatility than the broader market, Humana's long-term strategic initiatives are aligned with its multiyear financial planning, as detailed at its recent Investor Conference. Valuation metrics, including a P/E Ratio of 19.56, P/S Ratio of 0.25, and P/B Ratio of 1.68, suggest a potentially attractive investment opportunity for long-term investors.