Dive Brief:
A Texas federal judge has dismissed Humana’s lawsuit against the federal government seeking to improve its Medicare Advantage star ratings, in a significant loss for the insurer.
Humana sued the CMS in October 2024 to reverse its quality scores, arguing that the agency acted arbitrarily and capriciously in downgrading the ratings, which are tied to billions of dollars in reimbursement, for 2025.
However, District Judge Reed O’Connor ruled on Friday that Humana failed to exhaust administrative remedies before filing its lawsuit. Humana said it is exploring further legal action.
Dive Insight:
O’Connor’s decision, which sent Humana’s stock falling 3% on Friday morning, hinges on the timing of the case.
Humana filed its lawsuit before receiving the result of its appeal with the CMS. The agency notified the court that it had denied Humana’s appeal in April, six months after Humana lodged its complaint in the Northern District of Texas court.
As a result, “plaintiffs’ federal suit was premature and dismissal without prejudice is warranted,” O’Connor wrote in his July 18 order.
The decision is a sweeping blow for the Kentucky-based insurer, which has waited for months on the outcome of the case — one of many from insurers upset about their stars. Originally, Humana asked O’Connor for a decision by last December, so it could factor any changes into its plan bids for the 2026 contract year.
Humana’s lawsuit accused the CMS of playing fast and loose with cut points, or the threshold for reaching each star level; failing to let the insurer verify its star ratings calculations; and lowering its stars on the basis of three allegedly mishandled customer service phone calls.
The insurer wanted the judge to force the CMS to recalculate its ratings, after its average star score fell from 4.37 in 2024 to 3.63 for 2025 — the largest drop of any major MA insurer. As a result, only 25% of Humana’s MA members are in a plan with four stars or above this year.
This matters because the star ratings, which are meant to represent plan quality and performance, are directly tied to reimbursement in the privatized Medicare plans.
Analysts estimate that Humana — the second-largest MA payer in the country — could lose $1 billion to $3 billion in 2026 as a result of the drop.
In a statement, a spokesperson for Humana said the company is reviewing the court’s decision and could take further legal action.
“The decision indicated the Court lacks jurisdiction to hear the case as Humana had not exhausted the optional administrative appeals process at the time of filing. However, as of today, we have exhausted the administrative appeals process with CMS. We will explore all available legal options, which could include either an appeal of today’s order or a refiling of the lawsuit,” they said.
Due to its reliance on government programs, Humana has been hit particularly hard by rising utilization costs for members that’s outpaced reimbursement. Confidence in its profit outlook has also soured somewhat amid unfavorable policy changes and rising scrutiny of bad behavior in MA.
Humana reaffirmed its 2025 profit forecast earlier this year, and hasn’t budged on the guidance even as some of its peers acknowledge worsening trends. Still, that was before the outcome of the stars lawsuit, which has major implications for Humana’s financial future, was released.
“If you set stars aside, we feel good about the underlying progress of the business. The challenge is of course to reconcile that with the stars outcomes that are unknown,” CEO Jim Rechtin said in April.
During its June investor day, however, Humana executives said they submitted MA bids for 2026 assuming they did not win the suit. The insurer is currently working on a plan to improve margins, which relies in part on improving its stars.
Humana expects it won’t achieve the total points required for a four-star rating until the 2028 bonus year.
