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TD Cowen, Jefferies slash ratings of insurer Humana to “Hold”

by October 7, 2024
written by October 7, 2024

Investing.com — Insurer Humana (NYSE:HUM)’s overall recovery has become “too complicated” after data last week showed that the proportion of its memship enrolled in four-star Medicare plans and above for next year fell sharply, according to analysts at TD Cowen.

Humana is a major seller of government-backed Medicare Advantage plans, which are designed for adults aged 65 and older.

Preliminary figures from the Medicare Advantage Star Ratings, a measure of the performance of health and prescription drug plans carried out by the Centers for Medicare and Medicaid Services, found that 25% of Humana’s members had signed up for plans that had ratings of 4 stars or above in 2025 — down from 94% in the prior year.

Much of this decrease was due to the rating of Humana’s H5216 contract being lowered to 3.5 stars from 4.5 stars, the company said in a regulatory filing on Wednesday. The plan contains roughly 45% of Humana’s Medicare Advantage customers, including more than 90% of its employer group waiver plan members, it added.

“The decline in Stars performance for 2025 will impact Humana’s quality bonus payments in 2026,” the firm flagged. The Centers for Medicare and Medicaid typically awards a quality bonus to health plans that achieve 4 stars or higher.

Humana noted that details on the 2025 star ratings are expected to be formally released by the Centers for Medicare and Medicaid Services, or CMS, “on or around” Oct. 10. It said the downgrade stemmed from its plans “narrowly missing higher industry cut points on a small number of measures,” adding that it believes the CMS committed possible calculation errors.

The group has outstanding appeals related to some of the results and has requested additional information to ensure the accuracy of the threshold calculations, it said.

However, Humana said it was “disappointed with its performance and has initiatives underway focused on improving its operating discipline and returning to an industry leading Stars position as quickly as possible.” The drive is projected by Humana to improve bonus payments “in 2027 and beyond.”

In a note on Monday downgrading their rating of Humana to “Hold” from “Buy”, the TD Cowen analysts flagged that “[a]bsent successful appeal efforts, recovery of normalized margins may be pushed beyond 2027.”

Analysts at Jefferies, who also cut their outlook for Humana to “Hold” from “Buy”, said they think the decision will put Humana’s Medicare Advantage business “to the test.”

The ratings decline is not expected to impact Humana’s financial resutls or outlook for this year or 2025, but the company said it is taking steps to “mitigate” an anticipated headwind to its 2026 revenue should its appeals prove unsuccessful.

In July, Humana said demand for medical care was higher than projected in the second quarter, stoking investors’ fears that a recent spike in medical costs for health insurers may not soon abate.

Medical costs have been jumping industry-wide since late 2023, when older adults began to catch up on health procedures delayed by the COVID-19 pandemic. Payments from the government for managing healthcare for Medicare members have been sluggish as well.

This post appeared first on investing.com
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