Investors in Humana Inc. are facing their toughest challenge since the global financial crisis 15 years ago. The health insurer’s stock price plummeted 22% in just two days, a feat not seen since February 2009. The downward trend continued, resulting in the worst week for shares since 2020, bringing them back to levels last seen in March of that year.
The turmoil began with speculation circulating in the stock market that Humana was at risk of losing high-quality ratings on some of the major plans it oversees for the US Medicare program. By Wednesday morning, a week before the official Medicare ratings release, the company confirmed the rumors. This revelation meant that only a quarter of its members would be in highly rated plans generating additional revenue, down from the previous 94%.
This news triggered a sharp decline in share prices, with a 24% drop within the first five minutes of trading on Wednesday, marking the largest intraday decline since February 23, 2009. By Wednesday morning, Humana had lost a third of its market value in just two sessions but managed to recover some of the losses by the end of the day.
UBS analyst AJ Rice described the situation as a “worst-case scenario” unfolding. Quality ratings, also known as “star ratings,” play a crucial role in driving revenue for Medicare Advantage insurers. Plans with higher star ratings receive government bonus payments, making it easier to attract new customers.
For Humana, a downgrade in ratings would be catastrophic given its focus on Medicare. Analysts predict a potential profit hit of up to $23 per share in 2026, almost wiping out earnings for that year. The impact could also delay the firm’s margin recovery, according to Bank of America analysts led by Joanna Gajuk, who holds a sell-equivalent rating on the stock.
Following Humana’s confirmation of the Medicare rating decision, Wall Street analysts slashed price targets and downgraded ratings for the shares. Despite this, the consensus is for the stock to reach $342 within the next year, a 42% increase from current levels. Of the 27 analysts covering Humana, 10 recommend buying, 15 suggest holding, and only two advise selling.
The company has already faced unexpected spikes in medical costs and tighter government reimbursements this year, leading to a significant loss in market value. The fear of declining star ratings has also affected other players in the health insurance industry.
Regulators are expected to announce official star ratings around October 10, with the uncertainty casting a shadow over Humana and its partners in the industry.
–With assistance from John Tozzi and Brandon Harden.