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Humana (HUM) exceeded EPS expectations for 3Q25 and reaffirmed its FY25 adjusted EPS guidance of approximately $17.00, but the stock is diving lower due to lowered GAAP EPS guidance and concerns about future Medicare Advantage (MA) plan ratings and bonuses.

• HUM’s FY25 GAAP EPS guidance was lowered to approximately $12.26 from prior guidance of $13.77, driven by expectations for a significant decline in the number of higher-rated MA plans in 2025, which will reduce 2026 CMS quality bonus payments and negatively impact revenue, cash flows, and operating results next year.
• A key factor behind this risk is a recent U.S. judge’s decision against HUM’s challenge to the 2025 CMS MA plan star ratings, where higher-rated plans receive substantially larger payments, often worth hundreds of millions to billions annually.
• The Insurance segment benefit ratio for 3Q was 91.1%, in line with prior guidance of "just above 91%" and up from 89.9% a year earlier. This rise in medical benefit ratios echoes a broader industry trend seen among competitors like UnitedHealth (UNH), Cigna (CI), CVS Health (CVS), and Centene (CNC), largely due to rising medical cost inflation, increased care utilization, and pricing pressures.
• On a more positive note, HUM now expects a decline of approximately 425,000 Medicare Advantage members for 2025, an improvement compared to its prior forecast of up to 500,000 members, supported by stronger retention and sales mix changes.

Briefing.com Analyst Insight:

HUM delivered a solid EPS beat for 3Q25 and maintains confidence in its full-year adjusted EPS outlook near $17. However, investors are concerned by the lowered GAAP EPS guidance and the headwinds expected in 2026 due to the decline in high-star Medicare Advantage plans and consequent reduced CMS bonuses. The court ruling against HUM's challenge of its plan ratings intensifies this risk. Rising medical benefit ratios reflect industry-wide cost pressures but are expected to stabilize over time. The improved membership decline forecast and initiatives to enhance retention provide some offsetting positives, but uncertainty around quality ratings and their financial impact loom large. Overall, while operational execution remains strong, these macro headwinds suggest near-term caution for the stock.