On Friday, a federal judge in Texas dismissed a lawsuit brought by Humana seeking to reverse the U.S. government’s reduction in it’s star ratings for Medicare bonus payments. Humana losing star ratings is a big setback that lead to its share price falling by 7.5% before paring losses.
The ruling was passed in favour of the government, allowing a downgrade of Humana’s Medicare quality ratings that may impact the company’s profits in 2026.
Humana Medicare lawsuit dismissed
U.S. District Judge Reed O’Connor in Fort Worth, Texas called Humana’s federal court claim “premature” because the company hadn’t exhausted all the administrative procedures over the decision. The lawsuit was dismissed “without prejudice,” which means Humana could file the court case again. “Plaintiffs can seek review, just not until the end of the administrative appeal process,” the judge wrote.
Humana loses star ratings
As per the complaint filed by Humana, the lower ratings could cause it to lose customers and potentially billions in bonus payments from the government, which would have been used to reduce premiums and increase benefits for its members.
Earlier in April, Humana lost an administrative appeal with the Centers for Medicare and Medicare Services. As per the court filing, the company argued that the administrative decision should invalidate one of the government’s arguments for dismissing the suit.
In October, Humana filed a lawsuit challenging how the US Medicare program calculated the quality ratings, known as stars, for Humana’s plans. The company suffered a surprise downgrade in its star ratings in October that sent shares plunging.
The lawsuit challenged the way the ratings were calculated and asked for an order directing CMS to set aside Humana’s 2025 ratings and recalculate them.
Stock update
The share price of Humana was down about 3.4% lower in early afternoon trading. Other insurers stock, UnitedHealth and Centene, were also down between 1.5% and 3.5%. Also Elevance Health Inc. stock fell as much as 7.6%, while Molina Healthcare Inc. shares dropped by 5.6%.
What are the options for Humana
Humana has finished the administrative appeals process and would explore all available legal options. This would be either an appeal of the ruling or a refiling of the lawsuit.
Importance of star rating for Humana
Humana is one of the largest providers of Medicare Advantage plans in the U.S., which are funded by the Medicare health insurance program for seniors and some disabled people but administered by private insurers.
The U.S. Centers for Medicare and Medicaid Services, which is part of HHS, issues star ratings for the plans, from one to five stars, to help beneficiaries choose.
Plans with higher star ratings receive higher payments from the government if they keep costs below certain targets. Those bonus payments can be worth hundreds of millions or billions of dollars.
