A federal court has delivered a substantial setback to insurance giant Humana, solidifying a regulatory action that is projected to cost the company hundreds of millions in lost government bonuses.
U.S. District Judge Reed O’Connor in the Northern District of Texas ruled in favor of the Centers for Medicare & Medicaid Services (CMS), rejecting Humana’s legal challenge to its recently announced 2025 star ratings. This judicial endorsement of the CMS evaluation system underscores the increasing regulatory scrutiny facing Medicare Advantage insurers and their operational standards.
The core of the dispute centered on a specific customer service metric. Humana’s lawsuit argued that its overall rating was unfairly reduced to 3.5 stars following a secret-shopper style audit of its phone support for members with limited English proficiency. During the test, three out of five calls failed—two calls were dropped before an interpreter could join, and one line remained entirely silent. The company contended that the methodology, which included a policy of not redialing after a dropped test call, was flawed and arbitrary.
However, Judge O’Connor found the government’s position legally sound, stating that CMS acted within its authority and did not act in a “arbitrary or capricious” manner. The court determined that the ability to provide consistent, accessible customer service, including for non-English speakers, is a valid and critical measure of plan quality.
This ruling reinforces CMS’s power to enforce standards that directly impact consumer experience and equity in the massive Medicare Advantage marketplace, which now serves a majority of Medicare beneficiaries.
The financial implications for Humana are immediate and severe. Medicare Advantage plans with four stars or higher qualify for lucrative bonus payments from the government, funds that are often reinvested to lower premiums and enhance benefits for members. A 3.5-star rating places Humana below this crucial threshold, potentially forfeiting billions in additional revenue over the coming year. The market reacted swiftly to the news, with Humana’s stock experiencing a notable decline following the court’s decision, reflecting investor concerns over the company’s future profitability in its core business segment.
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