Humana's Declining Medicare Advantage Star Ratings: A Looming Threat to Financial and Competitive Resilience

Humana Inc. (HUM) has faced a significant erosion in its Medicare Advantage (MA) star ratings for 2026, raising concerns about its long-term financial stability and competitive positioning in a sector where quality metrics directly influence revenue. The Centers for Medicare & Medicaid Services (CMS) star ratings, which determine bonus payments and market appeal, have slipped for Humana, with only 20% of its members enrolled in 4-star or higher plans in 2026, down from 25% in 2025 and a stark contrast to the 94% recorded in 2024, according to a Yahoo Finance article. This decline, coupled with legal disputes over CMS's recalibration of rating methodologies, underscores a precarious juncture for the insurer.

The Financial Toll of Lower Star Ratings

The star ratings system is a financial linchpin for MA providers. Plans rated 4 stars or higher qualify for quality bonus payments, which can add up to 5% of the federal benchmark payment rate. For Humana, the drop in high-rated plans threatens to erode these incentives. Analysts estimate in an Unmeego analysis that the decline could reduce 2026 earnings by up to $23 per share, a material hit for a company that relies heavily on MA for revenue. UnitedHealthcare, by contrast, has maintained 78% of its members in 4+ star plans, a figure that has remained stable year-over-year and provides it with a buffer against such volatility, according to a NoahAI analysis.

The financial stakes are further amplified by CMS's decision to implement the Tukey outlier deletion methodology in 2025, which removed extreme low-performing outliers from calculations, effectively raising the bar for high ratings. This adjustment disproportionately penalized insurers like Humana, which had previously relied on outlier data to boost scores. The resulting legal battles-Humana's appeal was denied in April 2025-highlight the regulatory uncertainty now embedded in the system, as reported by Healthcare Finance News.

Operational Challenges and Strategic Responses

Humana's operational struggles are evident in its 2026 performance. While the company noted a 14% increase in members enrolled in 4.5+ star plans compared to 3% in 2025, this progress is overshadowed by the broader decline in 4+ star enrollment. The insurer attributes this to "operational improvements" made in the final months of the 2026 measurement period but has not provided concrete metrics to substantiate these claims, according to a GuruFocus report. Meanwhile, UnitedHealthcare has leveraged its scale to stabilize performance, emphasizing HMO plans and supplemental benefits like dental and vision care to retain members; this strategy was also noted in the NoahAI analysis mentioned above.

Humana's response includes a contract diversification strategy aimed at shifting more members into high-rated plans. However, this approach faces headwinds. The company's 2026 financial guidance remains unchanged at $17.00 in adjusted earnings per share, suggesting confidence in mitigating the revenue impact. Yet, this optimism clashes with the reality of a market where 600,000 UnitedHealthcare enrollees are exiting low-performing markets in 2026, a move that underscores the industry's shift toward profitability over expansion, as reported by Fox Business.

Competitive Positioning in a Shifting Landscape

The MA sector is undergoing a strategic realignment, with competitors like UnitedHealthcare and Anthem (operating under BCBS) prioritizing high-performing plans and geographic consolidation. UnitedHealthcare's 78% 4+ star enrollment in 2026 positions it as a leader in a market where quality is increasingly tied to financial sustainability. Anthem, meanwhile, has maintained a 3.5–4.0 star range in 2025, with performance varying by state, but lacks the scale to challenge the top-tier players, according to a MedicareGuide list.

Humana's reliance on MA-accounting for over 60% of its revenue-leaves it vulnerable to systemic risks. The company's 2026 ratings align with its 2025 average of 3.61 stars, but this consistency masks a broader trend: the average MA-PD star rating has fallen from 4.37 in 2022 to 3.92 in 2025, as shown in a CMS fact sheet. This decline reflects not just Humana's struggles but a sector-wide recalibration driven by CMS's stricter methodologies.

Long-Term Risks and Strategic Imperatives

The long-term risks for Humana are twofold. First, the financial volatility of the star ratings system-exacerbated by legal disputes and methodological shifts-complicates long-term planning. Second, the company's ability to retain members hinges on its capacity to offer competitive benefits, which are now constrained by lower bonus payments. For example, Humana's 2026 plans include dental, vision, and hearing benefits, but these may become less attractive if rivals like UnitedHealthcare continue to expand their supplemental offerings, according to Fierce Healthcare.

To mitigate these risks, Humana must accelerate its operational improvements and invest in technology to close care gaps. The company's focus on preventive care and chronic disease management is a step in the right direction, but it needs to demonstrate measurable progress in 2027 to regain top-quartile status. Failure to do so could force further retrenchment, mirroring the strategies of competitors who have scaled back operations in low-performing markets, as detailed in a Healthcare Dive article.

Conclusion

Humana's declining star ratings for 2026 highlight a critical inflection point for the insurer. While the company remains optimistic about 2027, the financial and operational challenges it faces are emblematic of a sector grappling with regulatory uncertainty and rising performance standards. Investors must weigh Humana's strategic responses against the broader industry trends, particularly the growing dominance of UnitedHealthcare and the sector's shift toward profitability over growth. For now, the road to recovery is fraught with risks, and the 2027 ratings will be a pivotal test of Humana's resilience.