Humana (HUM) shares are up about 15% this morning (trading at about $447) after the insurer said 95% of its Medicare Advantage members will be in plans rated four stars or higher for 2027.
A year ago, that figure was just 20%. J.P. Morgan analysts had expected 60% to 70%, so Humana cleared the top of that range by 25 points.
What Changed for Humana
Plans rated four stars or higher qualify for government bonus payments worth billions of dollars across the industry. The industry average for 2027 is about 71%, so Humana went from well below the pack to well above it. Evercore ISI’s Elizabeth Anderson credited gains in drug plan quality, health plan quality and readmissions.
There’s a catch, though. These ratings set bonus payments for 2028, not 2027.
Why Thin Margins Make This Huge
Humana’s EBIT margin has fallen from 4.3% in 2023 to 2.3% on an LTM basis.
At that level, Humana earns about two cents of EBIT per dollar of consolidated revenue. Plans rated four stars or higher generally qualify for a higher Medicare payment benchmark. The improved ratings strengthen Humana’s 2028 revenue outlook, but how much reaches profit will depend on medical costs, benefit spending and provider arrangements.
Management’s stated goal is an individual Medicare Advantage pretax margin of at least 3% in 2028, the same year these ratings affect bonus payments. That is a different measure from the consolidated EBIT margin above, but the ratings improvement strengthens the case for reaching it.
UnitedHealth and CVS Moved the Other Way
J.P. Morgan estimates UnitedHealth (UNH) will see its four-star share fall to about 67% from 81%, and CVS Health (CVS) to about 70% from 84%. CVS shares are down about 3% today.
Conclusion
Humana has cleared a major hurdle in its recovery and beat analysts’ ratings expectations. The bonus benefit arrives in 2028, while 2027 still carries the weaker prior ratings and plan exits affecting about 600,000 members. A 15% jump raises the stakes for execution.
The next test is whether better ratings turn into progress toward an individual Medicare Advantage pretax margin of at least 3% in 2028.
Want to track whether Humana’s margins actually turn the corner? You can chart its EBIT margin history and compare it with UnitedHealth and CVS on TIKR for free. Learn more here.
So what is Humana stock actually worth?
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