Humana Inc. shares plummeted the most in 15 years after the insurer suffered a drop in Medicare Advantage quality ratings, posing a drastic threat to revenue.

An annual review by the Centers for Medicare and Medicaid Services slashed the company’s quality ratings that drive bonus payments. The number of members in highly rated plans that generate extra revenue plunged to about 25% from 94% in the US government’s latest assessment, the company said Wednesday.

The shares tumbled as much as 24%, the most intraday since 2009, before paring the loss to 15% as of 10:44 a.m. in New York.

Humana said it believes CMS may have made errors in its calculations and has already appealed some of the ratings. If it stands, the result would be catastrophic for the Medicare-focused insurer. The company has seen profit squeezed by medical costs and tighter reimbursements from the government. Insurers get more money in future years for top-rated plans, so cuts to the ratings, known as stars, can sink revenue.

The star system assesses the quality of care and customer service for private Medicare health plans that now cover more than half of all people in the US program. It’s a high-stakes calculation that drove an estimated $11.8 billion in bonus payments to insurers this year, including $2.5 billion to Humana, according to health policy research group KFF.

Humana’s 2026 earnings could be hit by $9 a share if ratings on its main Medicare contract were to fall below the level that earns bonuses, a Jefferies analyst said last week. The company confirmed in a filing Wednesday that that contract, which covers almost half of Humana’s Medicare Advantage membership, had slipped in ratings for 2025.

The cut “is far worse than even bearish investors believed would be the outcome,” Mizuho’s Jared Holz wrote Wednesday in a note.

DELAYED IMPACT

The ratings aren’t expected to impact the company’s financial outlook for 2024 or 2025, Humana said, adding that it was “disappointed with its performance and has initiatives underway focused on improving its operating discipline and returning to an industry leading Stars position as quickly as possible.”

The cut adds to the hurdles faced by Chief Executive Officer Jim Rechtin, who took over in July. The shares had already lost 39% this year as of Tuesday’s close. That compares to a 20% increase in the S&P 500.

Insurers sometimes use additional revenue from highly rated plans to enrich member benefits and attract more sales. The impact on profits depends on how much Humana trims benefits to offset lower revenue, analysts from TD Cowen wrote. Humana is trying to rebuild profit margins in its Medicare plans to at least 3% by 2027.

Other companies have successfully challenged Medicare’s assessment of their quality ratings. Elevance Health Inc. and the nonprofit SCAN Health Plan last year sued CMS over how their ratings were assessed, ultimately recovering money that was at risk.

“Humana is exploring all available options to mitigate the expected 2026 revenue headwind related to its 2025 Star ratings in the event its challenges to the results are unsuccessful,” the company said in a statement.

TOUGHER BUSINESS

Medicare reviews plans each year ahead of the enrollment window that begins Oct. 15, setting new star ratings. So far there are few signs that any of Humana’s rivals suffered such a big hit.

While the official ratings files haven’t been released, some are visible on Medicare’s plan finder tool that helps consumers shop for coverage. Two large plans from CVS Health Corp. appeared to retain 4-star ratings on the website, Evercore ISI analysts said Wednesday in a note. CVS shares rose as much as 3.5% in New York.

The private Medicare Advantage program has long fueled US health insurers’ growth, but in recent years rising medical costs combined with policy changes have made it a tougher business. The Biden administration has limited reimbursements, cracked down on aggressive marketing and advertising, and curtailed some practices that insurers used to boost revenue.

Overall, payments from quality bonuses increased from about $3 billion in 2015 to almost $13 billion last year, according to KFF, as more people enrolled in Medicare Advantage and membership in highly rated plans increased. Overall ratings declined in 2024 after the expiration of pandemic-era policies that helped prop up some quality ratings.