Humana Stock Slides After Second Lawsuit Over Medicare Bonuses Fails
Court ruling reinforces cuts to Medicare Advantage bonus payments, amplifying financial headwinds for the health insurer.
Shares in Humana Inc. (HUM) came under renewed pressure after the health insurer lost its second legal challenge aimed at reversing a downgrade in its Medicare Advantage quality ratings, a move that locks in significant cuts to future government bonus payments. The decision from a Texas federal court marks another setback for Humana, which has been battling to mitigate the financial fallout from the reduced ratings.
The lawsuit was a critical effort to overturn the Centers for Medicare & Medicaid Services' (CMS) decision that led to a sharp decline in Humana's Star Ratings for its Medicare Advantage plans. These ratings are a key determinant of , and the downgrade has created what one analyst described as a potential '$2 billion to $3 billion profit headwind' for the company's 2026 earnings.
The core of the issue stems from the percentage of Humana's Medicare Advantage members enrolled in plans rated four stars or higher plunging from approximately 94% to just 25% for the 2025 plan year. This dramatic drop directly impacts profitability and Humana's ability to offer competitive benefits, a cornerstone of its market strategy.
Following the court's decision, Humana's stock fell by as much as 4.8%, reflecting investor concern over the sustained financial pressure. This decline continues a difficult period for the company's shares, which have been battered by the ratings news over the past year. The initial lawsuit's dismissal in July 2025 had previously sent the stock down as much as 4.5%, highlighting the market's sensitivity to the bonus payment dispute.
In response to the mounting financial pressures, which include not only the ratings downgrade but also rising healthcare costs, Humana is taking defensive measures. The company has announced plans to in hundreds of counties, a strategic retreat that is expected to result in the loss of several hundred thousand members next year.
While the legal defeat is a significant blow, the outcome was largely anticipated by Wall Street analysts, with much of the negative impact already priced into earnings projections, according to some market commentary. However, the ruling solidifies the financial challenges ahead as Humana navigates a tougher regulatory and competitive landscape for its most critical business segment. The company is still able to pursue administrative appeals, but the represent a clear victory for federal regulators and a continuing headwind for the insurance giant.