A federal judge has rejected a lawsuit from health insurance company Humana that challenged the government's 2025 quality ratings for its Medicare Advantage plans. The ruling upholds a lower rating that could cost the company millions of dollars in federal bonus payments and sent its stock price down.
The decision, delivered by U.S. District Judge Reed O'Connor in Fort Worth, Texas, sided with the Centers for Medicare & Medicaid Services (CMS), concluding that the agency's evaluation methods were appropriate. Humana had argued that the rating process was flawed, leading to a reduction that could impact its competitiveness and member benefits.
Key Takeaways
- A U.S. District Judge ruled in favor of the federal government in a lawsuit brought by Humana.
- The case centered on the 2025 star ratings for Humana's Medicare Advantage plans.
- The lower ratings could prevent Humana from receiving millions in government bonus payments.
- Humana's stock price fell 3.6% following the court's decision.
- The company is now considering further legal action in response to the ruling.
Court Upholds Government's Rating Methodology
The legal dispute focused on the so-called "star ratings" system, a key quality measure for Medicare Advantage plans. On Tuesday, Judge Reed O'Connor affirmed that the U.S. Department of Health and Human Services (HHS), which oversees CMS, acted properly in its assessment of Humana's plans.
Humana filed the lawsuit in July, claiming its 3.5-star rating was unfairly determined and could lead to significant financial and reputational damage. The company sought a court order to have its 2025 ratings recalculated.
However, the court found that the government's evaluation process was not, as Humana argued, "arbitrary or capricious" under federal law. This ruling effectively validates the methodology CMS used to assign the ratings for the upcoming year.
Understanding Medicare Advantage Star Ratings
Medicare Advantage plans are private health insurance options for seniors and some disabled individuals, funded by the federal Medicare program. Each year, CMS rates these plans on a scale of one to five stars based on factors like customer service, patient care, and operational efficiency. These ratings are designed to help beneficiaries compare plans during open enrollment.
Significant Financial Implications for Humana
The star ratings system is directly tied to a lucrative government bonus program. Plans that achieve a rating of four stars or higher are eligible for substantial bonus payments. These funds are often used by insurers to offer lower premiums, reduce out-of-pocket costs, or add extra benefits like dental and vision coverage.
By failing to secure a higher rating, Humana stands to lose access to what could amount to hundreds of millions of dollars. The company stated in its lawsuit that these potential losses would directly impact its ability to provide enhanced benefits to its members.
The financial stakes are high for major insurers like Humana, which is one of the largest providers of Medicare Advantage plans in the United States. A lower rating not only affects bonus payments but can also make a plan less attractive to potential customers, leading to a loss of market share.
Dispute Centered on Customer Service Evaluation
At the core of Humana's legal challenge was a specific component of the evaluation process. The company contested the way CMS tested its telephone support services for beneficiaries with limited English proficiency.
Humana argued that this test unfairly penalized its plans and was a primary driver of the reduced rating. According to court filings, HHS defended the test as a fair and necessary measure of a plan's accessibility to all its customers, regardless of their primary language.
Judge O'Connor's ruling supported the government's position, finding that the guidance used to evaluate these customer service calls was legally sound. This was not Humana's first attempt to challenge the ratings; an earlier lawsuit was dismissed because the company had not first exhausted all available administrative appeal options.
Humana Weighs Next Steps
In response to the ruling, Humana has indicated that it is not abandoning its fight. A spokesperson for the company confirmed that it would explore all available legal options.
"The company remains committed to delivering meaningful improvements to our Star measurements and returning to top quartile performance as quickly as possible."
The insurer's statement highlights its focus on regaining a higher-star status, which is critical for both its financial performance and its competitive standing in the crowded Medicare Advantage market. Meanwhile, a spokesperson for HHS stated that the agency does not comment on active litigation.
