Health insurers under pressure as analyst sees risk to star ratings

Shares of health insurers with Medicare Advantage such as Humana (HUM) and Alignment Healthcare (ALHC) are under pressure on Monday amid a report by Leerink saying that it has obtained a look “at the soon-to-be published cut points that drive the performance for plans’ Star ratings.” The firm believes the Medicare Advantage backdrop “remains challenged with 62% of the 2025 cut points increasing,” and sees Elevance Health (ELV) likely facing the least risk and Alignment Healthcare, Humana, CVS (CVS), and UnitedHealth (UNH) looking most at risk “perhaps in that order.”

2025 STARS: Leerink says it has obtained a look at the soon-to-be published cut points that drive the performance for plans’ Star ratings. The firm highlights that 62% of the cut points moved higher which, if plans don’t see similar movement higher in their performance, could elevate the risk that Star ratings could decline. In fact, many cut points moved by the maximum allowable change of 5 points based on guardrails, it adds. Leerink believes Elevance Health likely faces the least risk and Alignment Healthcare, Humana, CVS, and UnitedHealth looking most at risk perhaps in that order.

STARS LIKELY TO BE CHALLENGED: The most important point is that over 60% of the cut points increased or improved vs. 2024, the firm says. This underscores a fact given the relative framework of Stars how the overall industry saw broad improvement, but also underscores the increased competitiveness and risk that plans could slip further in 2025 after a very challenged 2024 performance year. It’s conceivable there is much less risk than indicated in this simulated analysis, but also highlights risk that should plans not improve on Stars, there could be additional challenges in 2025, Leerink argues.

The firm estimates that nearly all plans would see risk to most large “H contracts,” with Elevance faring perhaps the best. Elevance has only 2 of its top 5 contracts potentially seeing a half-turn reduction in its Stars scores on just over 20% of its membership. However, UnitedHealth could potentially see all 5 of its top H contracts decline making up 50% of its membership, Leerink notes. In fact, UnitedHealth could potentially see one plan lose a full point, going from a 4 to a 3 on 7.5% of its total membership.

Humana could see material risk to its top contract that houses 44% of its membership going from a 4.5 to potentially a 3.5-Star rating. Humana faces potential risk to 4 of its top 5 contracts with nearly 70% of its membership impacted from a reduction in Star scores, the firm points out. Leerink also notes that Alignment Healthcare would face a negative revision down to 3.5 from 4 on its top contract with 86% of its membership. Finally, CVS would likely face risk to its two largest contracts, including one with a third of its membership potentially loses a full point to 3.5 from 4.5.

PRICE ACTION: In morning trading, shares of Humana dropped almost 4% to $344.77, Unitedhealth’s stock has slipped about 1% to $591.79, and CVS has slid 3% to $56.19. Also lower, Alignment Healthcare dropped almost 6% to $8.95.