SMAR Daily Industry News

Humana's Star Rating Recovery Boosts Potential $4.8B Bonus

Humana reported third-quarter revenue of $41.2 billion, up from $32.6 billion a year earlier, and an insurance segment benefit ratio of 93.7%, beating its own guidance of just above 94%. The company also lifted its full-year adjusted earnings per share outlook to at least $9.50 from at least $9.00.

The improved financial picture follows a two-year reset after a sharp decline in Medicare Advantage star ratings. A year ago only 20 percent of Humana’s members were in plans rated four stars or higher, a drop that management said would create a $3.5 billion net revenue headwind. By the 2027 CMS star rating release, Ninety-five percent of members were in four-star-or-higher plans, restoring eligibility for quality bonus payments.

Humana’s health services arm, CenterWell, added nearly 147,000 primary-care patients year-to-date—a 30 percent increase—and generated $7.2 billion in revenue, up from $5.9 billion in the prior quarter. The company also announced a joint venture with HPS, now part of BlackRock after a 2025 acquisition, replacing earlier partnerships with Welsh, Carson, Anderson & Stowe. The new arrangement lowers Humana’s cost of capital and removes a put option that would have required funding in 2027, freeing balance-sheet capacity ahead of expected star-bonus payments.

Membership growth has been a key driver. Individual Medicare Advantage enrollment rose roughly 25 percent over 2025, adding about one million members during the annual enrollment period. New members tend to have higher benefit ratios, contributing to a 260-basis-point year-over-year increase in the benefit ratio, which rose from 91.1 percent. The surge widened the gap between premium revenue and medical costs, especially as older, higher-acuity beneficiaries used care more frequently than modeled.

Analysts at Evercore ISI estimate the restored star ratings could generate approximately $4.8 billion in government bonus payments for Humana in 2028, though the ultimate earnings impact will depend on how much of that funding Humana reinvests in member benefits and provider arrangements. CEO Jim Rechtin said the company is “increasingly driving financial and operating performance toward being ‘ahead’ of our plan,” and noted that early enrollment activity during the annual enrollment period, which runs through December 7, is ahead of expectations.

Humana’s broker strategy also shifted during the rating collapse. The carrier stopped paying commissions to brokers on roughly one-third of its products, a move that contributed to a 21 percent decline in enrollment in affected plans between mid-2025 and January 2026, according to a Health Affairs study. While the company credited “really strong relationships with our broker partners” for recent outperformance, it has not publicly committed to restoring those commissions. CMS set the 2027 fair market value for initial Medicare Advantage commissions at $725 per member per year in most states, with renewals at $363, leaving the future of broker compensation uncertain.

Why it matters

The rating rebound and potential $4.8 billion bonus could reshape Humana’s profitability and influence broker commission practices that affect plan recommendations.

FAQ

What was Humana’s third-quarter revenue?
Humana posted $41.2 billion in revenue for the third quarter ended September 30.

How did Humana’s Medicare Advantage star ratings change?
Ninety-five percent of Humana’s members are now in plans rated four stars or higher for 2027, up from 20 percent a year earlier.

What potential bonus could the improved ratings generate?
Evercore ISI estimates the improved ratings could generate approximately $4.8 billion in government bonus payments for Humana in 2028.

What happened to Humana’s broker commissions?
Humana stopped paying commissions to brokers on roughly one-third of its products, contributing to a 21 percent decline in enrollment in those plans between mid-2025 and January 2026.

Source: Insurance Business America. See the original source for full details.