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Humana's CEO James Rechtin expressed confidence that the company is on the right track to achieve better star ratings, and expects a return to growth in its Medicare business, he said during the third-quarter earnings call on Wednesday.
The insurer logged $195 million in profit in the third quarter.
That profit is down from the $480 million achieved in Q3 2024, but overall earnings for the first three quarters are up due to a strong first half of the year. Overall revenue fell just short of $2 billion so far this year, a slight increase from last year.
Rechtin said the company was "disappointed but not surprised" by its most recent star ratings performance, and that the results were consistent with the company's baseline planning scenario.
The projections on star ratings come weeks after Humana lost a second lawsuit against the Centers for Medicare and Medicaid Services, challenging that agency's star rating methodology.
Operational gains in Q4 2024 carried over into this year, which is still yielding positive financial results, Rechtin said. And while Humana will not provide more visibility into its numbers until after the hybrid season – the period when health plans collect medical records from providers to supplement claims data for performance measurement – is complete in Q2 of next year, the company projected confidence that it would turn things around.
"We know we're on the right track to achieve top stars results by 2028," Rechtin said.
WHAT'S THE IMPACT
Humana expects a return to growth in its Medicare business, focusing on "lifetime value" and delivering the kind of experience that drives retention.
"We'll take as much growth as we can from retention and new sales, but will slow new sales if the volume risks impacting the patient experience," Rechtin said.
The insurer didn't give specific numbers about sales targets, because what the company can absorb will be dependent on the new channel mix, Rechtin said. Channel mix refers to the specific combination of distribution methods it uses to market, sell and deliver its insurance products to consumers.
“Channel mix is greatly improved compared to prior years," said Rechtin.
Humana lowered its full-year earnings outlook due to continuing headwinds in the Medicare Advantage market, according to Seeking Alpha. However, it reported better-than-expected financials for Q3 after its revenue improved during the quarter.
Revenue in the third quarter hit $32.2 billion, up from the $28.7 billion it raked in during Q3 2024. Revenues through the first three quarters are up to $93.6 billion, an increase from the $85.4 billion posted through the first nine months of 2024.
Humana reaffirmed its expectation of $17 in earnings per share for the full year.
THE LARGER TREND
Preliminary data from last fall showed only about 25% of Humana's members are enrolled in Medicare Advantage plans rated with 4 stars or higher, down from 94% in 2024, according to Marketwatch.
As the main reason for the ratings dip, Humana cited a drop in ratings for its H5216 plan, which fell from 4.5 to 3.5 stars. The plan contains about 45% of the insurer's Medicare Advantage membership and 90% of its employer group waiver plan membership.
In its original lawsuit, Humana argued there were potential errors in CMS' calculations of its results and industry cut points. The company's reduction in star ratings was driven by narrowly missing higher industry cut points on a small number of measures. This cost the company more than $1 billion in bonuses that are given to plans that score 4 stars or higher.
In a decision handed down in July, the court said that at the time of filing the lawsuit, Humana "did not exhaust the administrative appeals process." Humana did appeal to CMS to improve the former's Medicare Advantage star ratings, but CMS rejected that appeal.
Humana's second lawsuit was simpler and didn't fixate on cut points, instead focusing on CMS' handling of three customer service phone calls. An Accuracy & Accessibility Study, in which CMS call "surveyors" place test calls to evaluate centers' compliance with regulatory requirements, lowered the star ratings for at least a dozen of Humana's largest plans on the basis of just three phone calls that were handled by CMS in a manner inconsistent with the agency's own regulations, Humana said.
In the decision rejecting Humana's second lawsuit, Judge Reed O'Connor disagreed, saying the CMS' determinations on those calls were not arbitrary, and that a no-callbacks policy did not violate federal law.