Dive Brief:
Humana is suing the HHS in a bid to reverse a precipitous drop in its valuable Medicare Advantage star ratings that could cause the payer to lose out on billions of dollars in revenue.
The lawsuit filed Friday in a Texas district court accuses federal regulators of acting in an arbitrary and capricious manner when calculating Humana’s quality scores for 2025.
Humana is asking the judge to vacate its scores and force the government to recalculate the ratings by mid-December, so the payer can factor any changes into plan bids for the 2026 contract year.
Dive Insight:
More insurers are going to the mat to defend their MA stars after regulators raised the bar for reaching the highest scores, causing the number of highly rated plans to drop for next year.
Overall, the decrease was mild: About 40% of MA plans with prescription drug coverage will earn four or more stars in 2025, a dip from 42% this year, according to CMS data released earlier this month.
However, the impact on Humana has been anything but mild.
Humana’s average star rating fell from 4.37 this year to 3.63 next year — the largest drop of any major MA insurer, according to an analysis by HealthScape, a subsidiary of healthcare consultancy Chartis.
Only 25% of Humana’s MA members will be in a plan with four stars or above next year, down from 94% this year.
Analysts estimate that Humana — the second-largest MA payer in the country — could lose $1 billion to $3 billion in 2026 as a result. That’s because (along with serving as a measure of plan quality that can entice new members,) star ratings give plans a competitive advantage in bidding and are tied to generous bonuses from the federal government.
Humana has already appealed its results to the CMS. But now, the Kentucky-based payer is taking to the courts to reverse the changes, following a well-trod path for insurers displeased with their star ratings.
MA star ratings, which run from one to five stars, are calculated based on a myriad of metrics representing member outcomes, patient experience, medical access and more. Humana’s lawsuit hinges on recent CMS changes to the threshold for reaching each star level. Those thresholds, called cut points, are used to divide the distribution of scores on measures into numerical stars. As such, small increases to the cut points can result in significant changes to a plan’s star ratings.
Regulators allow plans to help verify their star ratings before the scores are released publicly. During that preview period, Humana saw that the cut points for several measures moved “abruptly and substantially upward,” “suspiciously” lowering insurers’ scores, according to the lawsuit.
More than one dozen of Humana’s plans received lower stars because of the higher cut points, the payer said.
Humana also accused the CMS of not giving the insurer a chance to verify regulators’ calculations, in a break with historical norms.
The CMS also lowered star ratings for some of Humana’s largest plans on the basis of three phone calls testing the performance of its customer service call centers that regulators allegedly mishandled, according to the suit.
Humana is joined in the litigation by Americans for Beneficiary Choice, an association that represents brokers and the organizations that employ them. ABC said it is concerned with the proper functioning of star ratings in helping beneficiaries shop between plans.
“If the agency develops its methodologies and undertakes its calculations in a black box while refusing to allow MA organizations and other third parties to validate its work, neither regulated plans nor Medicare beneficiaries and their third-party agents and brokers will be able to rely with any confidence on the agency’s reported results — least of all in years like this, when the agency’s calculations take substantial and unexplained swings that align more readily with the agency’s interest in reducing payments than actual plan quality,” the lawsuit reads.
A Humana spokesperson said the insurer decided to take legal action “after careful consideration” and “in the best interest” of its members.
The case was filed in the Northern District of Texas before Judge Reed O’Connor, who has a long history of siding with the private sector against the government in cases of alleged regulatory error or overreach — including in healthcare.
Five other lawsuits have been filed this year alone challenging the CMS’ star ratings methodology. Two brought by Elevance and Scan Health Plan led a court to require the CMS to recalculate 2024 star ratings altogether, benefiting dozens of insurers.
UnitedHealth has also filed a suit similar to Humana’s, arguing its star ratings were unfairly dinged over one customer support call.
The lawsuits come as payers hustle to batten down the hatches amid turbulence in MA. Along with less-than-favorable regulatory changes, insurers have struggled with rising medical costs as seniors in the privately run Medicare plans use more healthcare than expected.
Humana has been particularly hard hit, posting $1.4 billion in net income in the first half of this year, down more than a third from the same period in 2023.
The value of Humana’s stock has almost halved over the past year
$HUM price at close, Oct. 21, 2023 to date
Along with paring back plan benefits and looking for other avenues to cut costs, Humana is once again exploring a potential merger with payer rival Cigna, reopening talks from late last year that stalled amid investor uncertainty, according to Bloomberg.
Humana posts third quarter earnings on Oct. 30.
