Humana’s losing streak in court has extended into a second round, deepening the health insurer’s financial and reputational challenges just weeks before the U.S. government finalizes its next set of Medicare Advantage star ratings.
On Tuesday, U.S. District Judge Reed O’Connor in Fort Worth, Texas, upheld the government’s downgrade of Humana’s quality ratings for its Medicare Advantage plans — a decision that could cost the Louisville-based company billions in bonus payments. The judge ruled that the Centers for Medicare and Medicaid Services (CMS) “properly evaluated” Humana’s performance under federal standards, rejecting the company’s claims that the process was “arbitrary and capricious,” according to Reuters.
The case stems from a seemingly small issue with large financial consequences: three failed customer service calls that lowered Humana’s standing in the Medicare quality rankings. Those star ratings — which measure everything from customer service and preventive care to drug safety and chronic disease management — play a critical role in determining how much federal funding private insurers receive to manage Medicare plans.
Humana argued that its rating was unfairly cut after CMS auditors found three test calls by non-English-speaking beneficiaries had failed to reach a live representative through an interpreter service. CMS countered that Humana had “hung up on all three callers,” calling the company’s suit “an attempt to have a court absolve it of responsibilities for its own shortcomings in providing the barest minimum of customer service.”
Humana, which covers about 17 million Americans, said it is “committed to delivering meaningful improvements to our Star measurements and returning to top quartile performance as quickly as possible,” according to a company statement.
The ruling marks the insurer’s second courtroom loss this year after an earlier case was dismissed in July on procedural grounds. The company’s shares fell nearly 5 percent in New York following the decision – the stock is down around 12% over just this week. The decline was compounded by a new “sell” rating from Goldman Sachs, which projected a longer recovery for Humana’s Medicare and Medicaid businesses.
Capstone, a Washington policy firm, estimated earlier that up to $3 billion in bonus payments are at stake for Humana, depending on how its 2025 and 2026 ratings are calculated. Medicare Advantage star bonuses amounted to at least $12.7 billion industrywide this year, according to KFF, a nonpartisan health policy research group.
The financial implications are enormous. Higher-rated plans earn more government funding, which insurers can use to reduce premiums or expand benefits such as dental and vision care — key selling points in a competitive market where seniors increasingly shop based on perceived quality.
“Star ratings play a more consequential role in the payments for insurers’ plans than they do in beneficiaries’ decisions about which plans to enroll in,” Jeannie Fuglesten Biniek, associate director of Medicare policy at KFF, told the Financial Times. “Having a higher star rating allows you to have more dollars to spend on those benefits, and that seems to be a strategy that insurers have in terms of thinking about their competition in the market”.
Humana’s defeat bucks a recent trend. UnitedHealth Group, Elevance Health and SCAN Health Plan have all successfully challenged CMS’s ratings in similar suits over the past two years. In one 2024 case, UnitedHealth persuaded a federal judge to disregard a single disputed test call when recalculating its star ratings — a decision that lifted its stock 8 percent in a single day.
For insurers, the star ratings system has become a high-stakes battleground. Critics say it has grown overly complex, with more than 30 performance measures that may have only a tenuous link to patient outcomes. “It underscores the Byzantine nature of the star ratings system that you can have billions of dollars riding on whether a single call is dropped,” said Matthew Gillmor, director of equity research at KeyBanc, speaking to the Financial Times.
The ratings are a legacy of the Affordable Care Act and were intended to help Medicare beneficiaries compare plan quality. But they have also become a central lever of insurer profitability. The Paragon Health Institute, a conservative think tank, has urged policymakers to eliminate the system altogether, arguing that the bonuses “have a tenuous relationship with actual quality”.
Humana’s court losses now raise questions about how much latitude insurers should have in contesting administrative scoring — and how regulators can balance accountability with fairness. While the company may still appeal, the judgment signals a more assertive approach by CMS in defending its methodology.
For insurance executives and investors, the message is stark: in the Medicare Advantage market, even the smallest operational missteps — a missed call, a data entry error — can cascade into billion-dollar consequences.
