By Sriparna Roy and Bhanvi Satija
(Reuters) -Humana's shares fell as much as 22.4% on Wednesday, as the health insurer said enrollments in its top-rated Medicare insurance plans dropped sharply, casting a cloud over the company's 2026 revenue and bonus payments.
The sell-off wiped nearly $4 billion from the company's market value after it said the quality rating of one of its plans, which accounts for nearly half of its Medicare Advantage (MA) memberships, fell to 3.5 down from 4.5 last year.
Based on preliminary 2025 MA star ratings data, the company estimates only a quarter of its members, or 1.6 million people, will remain enrolled in 2025 for its 4+ rating plans that cover Americans aged 65 years or older, compared with 94% in 2024.
The star ratings, given by the Centers for Medicare and Medicaid Services (CMS), can sway enrollees' choice of plan and determine government's reimbursement levels.
Humana (NYSE:HUM) believes the ratings cut was driven by a narrow miss on the higher industry thresholds, set by the CMS, on some measures.
"This represents a worst-case scenario result," said Stephens analyst Scott Fidel, who downgraded the stock to "equal weight" from "overweight".
Humana said "there may be potential errors" in the federal agency's calculation of some results, and it was exploring all options to mitigate a hit from the ratings cut to its 2026 revenue.
Oppenheimer analyst Michael Wiederhorn said the rating cut could reduce Humana's bonus payments by about $3 billion and significantly hurt enrollments and margins in 2026.
Like other health insurers, Humana has been battling with elevated costs due to higher demand for medical care, and lower-than-expected payments from the government for managing healthcare for these members.
Humana said while the 2025 rating will not impact earnings in 2024 or 2025, there was a significant risk to its ability to achieve a previously set target of "at least 3 percent" MA margins by 2027.
Shares of the company, which have fallen 46.2% so far this year, closed nearly 12% lower at $246.49 after hitting a four-year low of $213.31 on Wednesday.
Star rating details for 2025 are expected to be released by the agency on or around Oct. 10.