Jefferies Upgrades Humana on Medicare Advantage Star Rating Diversification

Jefferies has upgraded Humana's stock rating based on the company's strategic diversification in its Medicare Advantage (MA) portfolio. This upgrade reflects Humana's progress in increasing the quality mix of its MA plans, particularly through enrollment in higher Star Rated plans which are recognized for better quality and service. According to Jefferies, this strategy is expected to substantially improve Humana's profitability by 2026 and 2027, with projected earnings per share rising significantly above consensus estimates. Despite anticipated margin pressures from new member acquisitions and value-based contracting, the overall risk-reward profile is positive with expected gains in MA membership. Humana projects a 21% membership growth in Medicare Advantage by 2026, fueled by strong market share acquisition and reduced attrition. The company aims to capture about 35% of new industry applications, translating into approximately 2.4 million new members, although this will be partially offset by losses due to attrition and mortality. A related development is Humana's ongoing legal challenge against CMS regarding a reduction in Star Ratings significant enough to impact bonus payments exceeding $1 billion. This dispute emphasizes the importance of Star Ratings in the competitive landscape of MA plans and their direct impact on financial incentives. The broader market trend illustrates insurers' focus on Star Ratings as a critical driver of enrollment and profitability, providing an impetus for diversification and quality improvements across Medicare Advantage offerings. Overall, the story underscores the intersection of regulatory dynamics, quality measures, and strategic portfolio management in shaping the future financial performance of Medicare Advantage providers like Humana.