(Bloomberg) — Humana Inc. investors haven’t suffered this badly since the global financial crisis 15 years ago.
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The health insurance company’s stock price fell 22% on Tuesday and Wednesday alone, the first decline since February 2009. And the stock continued to fall, with its worst week since 2020 and levels last seen in March of the same year.
It all started on Tuesday when the stock market sparked speculation that Humana would lose its high-quality ratings for some of the major plans in the U.S. Medicare program it manages. By early Wednesday morning, a week before the government released its official Medicare ratings, the company confirmed the rumors were true. As a result, only about a quarter of members are participating in highly rated plans that generate additional revenue, down from 94% previously, Humana said.
The company’s stock price plunged on the news, dropping as much as 24% in the first five minutes of trading on Wednesday, its biggest intraday decline since February 23, 2009. At the peak of Wednesday morning’s decline, Humana stock had lost a third. Significantly increase your market value in just two sessions. By the end of the day, it had recouped some of its losses.
Overall, this is a “worst-case scenario” that has come true, said UBS analyst AJ Rice.
Quality ratings, also known as “star ratings,” range from 1 to 5 and help drive billions of dollars in revenue for Medicare Advantage insurers. The more stars you have, the more lucrative bonus payments your plan will receive from the government, but the fewer stars you have, the harder it will be to attract new customers.
A rating downgrade would be devastating for Humana, as the company’s business is primarily focused on Medicare. The hit to future earnings could reach as much as $23 per share in 2026, Bank of America analysts led by Joanna Gadzuk said, adding, “That would mean 2026 earnings would be close to zero.” “become”. Gajuku, who also rates the stock as a sell, said this could further delay the company’s return to profitability.
Wall Street lowered its price target in response to Humana’s approval of Medicare’s decision, and at least four analysts downgraded their ratings on the company’s stock. Still, the Street consensus is for a 42% upside from current levels to $342 over the next 12 months. Additionally, of the 27 analysts covering Humana, 10 are buys, 15 are holds, and only two are sells.
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Insurers have already seen unexpectedly high medical costs and stricter government reimbursement this year. Perhaps unsurprisingly, investors are fleeing the troubled insurance company, leading to a loss of nearly half of its market value, which has grown from around $56 billion in early 2024 to now. It has fallen to about $29 billion.
rippling fear
Concerns about declining star ratings, which are crucial for Medicare Advantage plans, are spreading across the health insurance industry. The government does not release official star ratings, but some appear on Medicare’s plan search tool, which helps consumers shop for insurance.
That led to a surge in Clover Health Investment Corp. on Wednesday, as some of the health insurer’s 2025 Medicare Advantage plans received higher quality ratings. Also, two large CVS Health Corp. plans appear to maintain four-star ratings on their websites, Evercore ISI analyst Elizabeth Anderson wrote in a note Wednesday. . The pharmacy chain’s stock has since risen.
Meanwhile, UnitedHealth Group sued the U.S. government this week, claiming its quality rating was unfairly downgraded after a single customer service call.
The regulator is expected to announce the official results around October 10th.
Meanwhile, the cloud surrounding Humana is spreading to other related companies. Shares of Agilon Health Inc., which operates a platform for family physicians that treat Medicare patients, fell 20% on Tuesday, Wednesday and Thursday, the worst three-day decline in six months. The company counts Humana among its key payment partners.
“We were surprised by the sudden drop in star ratings,” BTIG analyst David Larsen, who has a neutral rating on Agilon, said in a research note Thursday. “If Humana’s ratings and bonus payments decline this drastically, we fear that other payers will face even greater pressure.”
–With assistance from John Tozzi and Brandon Harden.
(Updates stock prices, analyst data, and chart details.)
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