Humana announced a downward revision of its 2026 adjusted profit per share forecast to at least $9, significantly lower than analysts' estimates of $11.92. The company attributed this conservative outlook to the impact of lower Medicare Advantage Star Ratings, which are expected to pressure profits by $3.5 billion in 2026. This news led to a more than 3% drop in the company's shares.
Despite beating first-quarter earnings expectations with adjusted earnings of $10.31 per share on revenue of $39.65 billion, Humana maintained its full-year 2025 adjusted profit outlook of at least $9 per share. The reported earnings forecast for the full year was actually lowered from at least $8.89 per share to at least $8.36 per share, reflecting charges related to a multiyear transformation program. This unwillingness to raise guidance, while competitors did, disappointed investors, causing shares to tumble as much as 7.4% in early trading.
The decreased Star Ratings for 2026 directly impact bonus compensation from federal authorities, leading to smaller payments. CEO Jim Rechtin acknowledged that while medical utilization aligned with internal projections, the difference between the company’s healthcare spending and government reimbursement rates has widened. Morningstar analyst Julie Utterback noted that the market likely anticipated higher forward guidance following the strong quarterly performance, while Cantor analyst Sarah James flagged potential difficulties for the company in the second half of the year.
Humana anticipates significant growth in its individual Medicare Advantage membership, projecting about a 25% increase from the previous year, with approximately 45% of members expected to enroll in plans rated four stars and above. The insurer's first-quarter insurance division benefit ratio was 89.4%, better than its internal forecast and Wall Street's expectation. However, Humana projects this ratio to increase to slightly above 91% in the second quarter, indicating upcoming cost pressures. Federal regulators are also investigating Humana's billing practices, with findings of excessive payments and coding issues, further impacting profit margins.
The Centers for Medicare & Medicaid Services' announcement of a mere 0.09% increase in Medicare Advantage payments for 2027, significantly below the 4% to 6% growth anticipated by analysts, also added to investor concerns across the insurance sector. Humana's stock has fallen 31.8% year-to-date, reflecting the broader challenges faced by the healthcare insurance industry due to persistent cost pressures, stricter government oversight, and more restrictive payment policies.
