TD Cowen and Jefferies Downgrade Insurer Humana to “Hold” Rating

Investing.com — Insurer Humana’s recovery has become increasingly complex following recent data indicating a significant decline in the percentage of its members enrolled in Medicare plans rated four stars or higher for the upcoming year, as highlighted by analysts at TD Cowen.

Humana is a prominent provider of government-supported Medicare Advantage plans, tailored for adults aged 65 and older. Preliminary data from the Medicare Advantage Star Ratings, which assess the performance of health and prescription drug plans, revealed that only 25% of Humana’s members had enrolled in plans with ratings of four stars or higher for 2025, a sharp drop from 94% the previous year.

The company reported that this decline primarily resulted from the rating of its H5216 contract being reduced from 4.5 stars to 3.5 stars. This contract encompasses approximately 45% of Humana’s Medicare Advantage members, including over 90% of its employer group waiver plan participants.

The analysts noted that the decline in star ratings for 2025 is likely to affect Humana’s quality bonus payments in 2026, as the Centers for Medicare and Medicaid Services typically grants quality bonuses to health plans that achieve ratings of four stars or higher.

Humana has indicated that the official details regarding the 2025 star ratings are expected to be released by the Centers for Medicare and Medicaid Services around October 10. The company attributed the downgrade to “narrowly missing higher industry cut points on a small number of measures” and suggested that possible calculation errors by the CMS may have occurred.

The organization is currently in the process of appealing some of the results and has requested further information to verify the accuracy of the threshold calculations. Despite this, Humana expressed disappointment with its performance and is implementing initiatives to enhance its operational discipline and aspire to regain a leading position in quality ratings as soon as possible. The company anticipates that these efforts could positively impact bonus payments in 2027 and beyond.

In a recent note, TD Cowen analysts downgraded their rating on Humana from “Buy” to “Hold,” warning that, without successful appeals, the recovery of normalized margins may be postponed beyond 2027. Similarly, analysts at Jefferies have lowered their outlook for Humana to “Hold” from “Buy,” suggesting that these developments will challenge Humana’s Medicare Advantage business.

While the ratings decline is not expected to influence Humana’s financial results for this year or 2025, the company is taking measures to mitigate potential negative impacts on its 2026 revenue if their appeals are unsuccessful.

In July, Humana reported that demand for medical care exceeded expectations in the second quarter, raising concerns among investors that a recent surge in medical costs for health insurers may persist. Medical expenses have been rising across the industry since late 2023, coinciding with older adults resuming health procedures that had been postponed due to the COVID-19 pandemic. Additionally, reimbursement rates from the government for managing healthcare for Medicare beneficiaries have also been slow.