Humana's Profit Forecast Falls Short Amid Medicare Advantage Challenges

Humana has announced a projection for its annual profits that falls below Wall Street's expectations, primarily due to anticipated consequences from lower quality ratings of its Medicare Advantage plans. The health insurer anticipates that these AI-driven authorization delays could affect financial performance significantly, leading to a 7% drop in its shares during premarket trading. This highlights how critical star ratings are in shaping Humana’s revenue, as lower ratings can result in lost government bonus payments, impacting overall financial health.

The quality of Medicare Advantage plans is essential for Humana, given that they derive a significant portion of revenue from these offerings to individuals aged 65 and over, or those with disabilities. Julie Utterback, an analyst at Morningstar, observed that while a reduction in 2026 earnings predictions wasn't unexpected, an uptick in membership could pressure profit margins more than anticipated due to regulatory compliance requirements and the cost structures associated with new members. Humana forecasts a 25% increase in Medicare Advantage membership for 2026, with expectations that 45% of these plans will achieve 4-star ratings or higher, positioning Humana prominently against competitors.

For 2026, Humana projects an adjusted profit per share of at least $9, falling short of the $11.92 analysts had forecasted, as per LSEG data. Humana's cautious predictions reflect the current industry's dynamic, regulatory landscape requiring strategic risk management to navigate ongoing cost pressures. To bolster profitability, Humana is repricing plans and adjusting benefits to align with regulatory compliance and industry trends. The company reported a quarterly medical cost ratio of 93%, consistent with analyst expectations, and a slightly improved fourth-quarter adjusted loss of $3.96 per share against the predicted $4.01 loss. These measures underscore Humana's commitment to strategic underwriting and claims management to optimize its financial standing amidst evolving industry challenges.