By John Meyer, consultant in financial affairs – Eurasia Business News, October 2, 2024. Article n°1249.

Humana Inc. has faced a 20% decline in its stock value in morning trading, following the announcement of lowered Medicare star ratings for its plans. This development is expected to have a profound impact on the company’s revenue projections for 2025 and beyond.

On October 1, the Centers for Medicare and Medicaid Services (CMS) downgraded Humana’s overall contract rating from 4.5 stars to 3.5 stars for 2025. This change is particularly alarming as it affects a substantial portion of Humana’s Medicare Advantage plans, with only about 25% of its members now enrolled in plans rated four stars or higher, a sharp decline from over 90% in the previous year.

The stock price reacted dramatically, plummeting by approximately 24% during premarket trading and settling around a 15% drop during regular trading hours, marking one of the largest single-day declines for the company since 2009. As of the latest reports, Humana’s shares were trading at around $235.75, significantly impacting its market capitalization, which dropped by nearly $11.66 billion over two days.

Implications for Revenue and Operations

The downgrade in star ratings is expected to lead to reduced enrollment projections and lower revenue forecasts for 2026. Higher-rated plans typically receive more funding through government bonuses, so this downgrade poses a serious risk to Humana’s financial health. Analysts predict that if the ratings remain unchanged, Humana could face a hit of up to $9 per share in earnings by 2026.

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In response to these challenges, Humana has indicated that it is exploring various options to mitigate the anticipated revenue losses, including potential appeals against the CMS ratings decisions. The company has expressed disappointment with its performance and suggested that there may be inaccuracies in how the ratings were calculated.

Future Outlook

CMS is expected to release official star ratings by October 10, which will confirm whether these preliminary findings hold true. If Humana’s appeals are unsuccessful, the company may need to implement significant operational changes to regain its competitive standing in terms of star ratings. Historically, Humana has been recognized for offering high-quality Medicare plans, and there is hope among analysts that it can recover from this setback in subsequent years.

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In summary, Humana’s recent stock plunge reflects serious concerns regarding its Medicare Advantage plans’ performance metrics and their implications for future revenue streams. The company’s ability to navigate this challenge will be crucial as it seeks to restore investor confidence and improve its operational metrics moving forward.

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© Copyright 2024 – Eurasia Business News. Article no. 1249.