Health insurance provider Humana has initiated a lawsuit against the United States government following a dispute over three disconnected customer service calls. This legal challenge could have financial implications reaching into the billions of dollars, highlighting the significant weight placed on the Medicare star rating system.
Key Takeaways
- Humana is suing the U.S. health department over a lowered Medicare star rating, which was affected by three failed test calls for foreign-language support.
- The lower rating could result in a revenue loss estimated at $3 billion for the company.
- Medicare star ratings directly influence billions of dollars in federal bonus payments to insurance companies annually.
- The lawsuit follows a similar case where UnitedHealth successfully challenged a rating downgrade over a single dropped call.
The Dispute Over Three Phone Calls
The core of the legal conflict centers on Humana's performance in a customer service audit conducted by the Centers for Medicare & Medicaid Services (CMS). CMS uses a comprehensive set of metrics to assign star ratings, which range from one to five, to insurers offering Medicare Advantage plans.
One of these metrics evaluates the accessibility of foreign-language interpreter services for customers. To achieve a top score in this category, CMS required a 100% success rate. According to court documents, three test calls placed to Humana's service line, intended to connect with a third-party interpreter, were unsuccessful.
Government's Position
In its court filings, CMS stated, "Humana hung up on all three callers." The agency characterized the lawsuit as an attempt by the insurer to avoid accountability for what it described as a failure to provide "the barest minimum of customer service to Medicare beneficiaries."
Humana, which provides health plans to approximately 17 million Americans, has requested a court ruling by October 15, 2025. The timing is critical as CMS prepares to release its 2026 star ratings in the coming weeks. The company has not provided public comment on the ongoing litigation.
High Stakes of the Medicare Star Rating System
The star ratings are more than just a quality score for consumers; they are a critical driver of revenue for insurance companies. Plans that achieve four or more stars are eligible for substantial bonus payments from the federal government. These funds can be used to offer more competitive plans with lower costs or expanded benefits, such as dental and vision care.
Massive Bonus Payments
According to research from KFF, a non-profit health policy group, the government paid out $12.7 billion in bonus payments to insurance companies this year based on these ratings. This figure is more than four times the amount distributed in 2015.
The financial impact of a rating downgrade can be severe. When CMS announced its last round of star ratings in October 2024, Humana's shares fell by 12% after the company revealed disappointing results. Policy analysis firm Capstone and financial services company Wells Fargo have both estimated that Humana’s lower rating could reduce its revenue by as much as $3 billion.
"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.
Gillmor also noted that taxpayers might prefer to see health outcomes, such as cancer screening rates, carry more weight in the ratings than administrative tests like customer service calls.
A Complex System Under Scrutiny
The star rating program was established as part of the Affordable Care Act, signed into law by President Barack Obama. It was designed to help seniors and individuals with disabilities evaluate and compare Medicare plans. However, with approximately three dozen different metrics contributing to the final score, the system's complexity is a frequent point of contention.
Critics argue that this complexity allows insurance companies to challenge unfavorable ratings in court by focusing on minor technicalities. "The [companies] are using the complications in order to achieve the higher stars through the courts," explained David Mohler, a vice president at Capstone.
Furthermore, some experts question the system's effectiveness for consumers. Jeannie Fuglesten Biniek, an associate director on Medicare policy at KFF, suggests the ratings have a greater impact on insurer payments than on consumer choices.
"Star ratings play a more consequential role in the payments for [insurers] plans than they do in beneficiaries’ decisions about which plans to enrol in," she stated. According to Fuglesten Biniek, insurers strategically use the bonus dollars from high ratings to fund supplemental benefits and gain a competitive edge in the market.
Legal Precedents and Industry Pushback
Humana's legal challenge is not the first of its kind. In November 2024, rival insurer UnitedHealth Group won a similar court case against CMS. That dispute also hinged on a single test phone call that the agency claimed was dropped. A judge sided with UnitedHealth and ordered CMS to recalculate its 2025 star rating for the plan in question without factoring in the failed call.
The positive outcome had a noticeable effect on the company's standing. Earlier this month, UnitedHealth's shares jumped 8% in a single day after it disclosed that approximately 78% of its members are expected to be in plans with four or more stars next year.
Calls to Eliminate the System
Some organizations advocate for a complete overhaul. The Paragon Health Institute, a conservative-leaning think tank, has recommended eliminating the star system altogether. In a 2024 report, the institute argued, "Given the tenuous relationship between star ratings and actual quality, quality bonus payments should be eliminated."
As insurers like Humana and UnitedHealth increasingly turn to the courts to contest their ratings, the debate over the system's fairness, complexity, and overall purpose continues to grow. The outcome of Humana's case could set another significant precedent for how the multi-billion dollar Medicare Advantage market is regulated and evaluated.
