Humana loses bid to challenge downgrade to US Medicare 'star' ratings
U.S. District Judge Reed O'Connor in Fort Worth, Texas, dismissed the lawsuit against the U.S. Department of Health and Human Services after finding that Humana had failed to exhaust all of its out-of-court options to challenge the ratings.
Humana had alleged in its complaint that 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.
Shares of Humana were down about 3.4% lower in early afternoon trading. Shares of other insurers, including UnitedHealth (UNH.N), opens new tab and Centene (CNC.N), opens new tab, were also down between 1.5% and 3.5%.
As of Friday, Humana had finished the administrative appeals process and would explore all available legal options, including either an appeal of the ruling or a refiling of the lawsuit, a spokesperson for the company said in a statement.
A representative for HHS said the agency does not comment on pending litigation.
Despite the negative share reaction, analysts said the decision was widely expected. Mizuho analysts viewed the ruling as priced into Humana's 2026 earnings estimates and in line with the long-term growth forecast the company shared last month.
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.
Humana sued HHS in November, after CMS finalized and released the 2025 star ratings. 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.
As part of its ratings calculations, CMS uses test calls to an insurer's customer service numbers to check compliance. In its lawsuit, Humana claimed CMS improperly lowered the star ratings for at least a dozen of its largest plans based on just three such calls, two of which were disconnected because of internet connectivity problems.
In dismissing the lawsuit, the judge in Texas said federal law requires insurers like Humana to seek reconsideration of their ratings through an administrative process at HHS before filing a lawsuit. Humana had sued before that process was complete, he said.
The judge dismissed the lawsuit without prejudice, meaning the claims could be filed again.
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