Radar on Medicare Advantage

As Humana Inc. pursues a Star Ratings lawsuit against the federal government with an estimated $3 billion in quality bonus revenue at stake, a new filing maintains that three disconnected calls should be excluded from the calculation of certain measures. In what one analyst called the “strongest counter-argument that CMS has made in any of the Medicare Stars lawsuits,” the Trump administration’s Feb. 7 response to Humana’s prior motion for summary judgment argued that Humana’s case is vastly different from other Stars-related legal challenges.    

Prior to CMS’s October release of the 2025 Star Ratings, Humana disclosed that the percentage of members enrolled in highly rated plans would plummet from 94% to 25% in 2025 — which it attributed to “narrowly missing higher industry cut points on a small number of measures,” including call center measures. Humana appealed the measures via the administrative process, then sued the federal government after the publication of the Star Ratings, claiming it was “denied an opportunity to determine why the measure-level cut points moved so suspiciously in the 2025 scores” and that the agency “refused to share information necessary for Humana to verify the agency’s work in time to make corrections.” Humana alleged that CMS violated the Administrative Procedure Act (APA) by failing to follow its own regulations when administering the ratings.

Following presidential directives to root out sources of financial waste and trim the federal workforce, an untold number of HHS firings occurred from Valentine's Day through President’s Day within agencies including CMS, the FDA and the U.S. Centers for Disease Control and Prevention, according to news reports. By midweek, LinkedIn feeds were inundated with federal jobseekers, including at least a dozen from the CMS Center for Medicare and Medicaid Innovation (CMMI). At the same time, eight recently fired inspectors general, including notable Medicare Advantage watchdog Christi Grimm, sued the federal government and President Donald Trump asserted new authority over rulemaking and enforcement.

As the new administration digs around for ways to cut costs, two recent studies highlight the drivers of overpayment in Medicare Advantage and suggest potential reforms. In one, researchers suggest that excluding the top 10 diagnosis groups from the Medicare Advantage risk adjustment model would slash billions in overpayments and level the playing field between MA and original, fee-for-service (FFS) Medicare. And a separate analysis proposes applying different coding intensity reductions based on individual MA organizations’ level of upcoding.

MA plans report diagnosis codes more thoroughly than FFS, leading to higher risk scores and, consequently, higher payments — a practice known as coding intensity. Critics have held that coding intensity creates a significant discrepancy in payments between MA and FFS, and they say it raises concerns about the fairness and sustainability of the MA program. The Medicare Payment Advisory Commission (MedPAC) estimates that as a result of coding intensity, MA plans were overpaid by more than $50 billion in 2024 alone. 

Despite a solid year of elevated medical cost trends that resulted in financial losses, recent guidance and commentary from two leading Medicare Advantage insurers sparked cautious optimism from the investment community. Reporting preliminary results from the 2025 Annual Election Period (AEP) that were largely in line with expectations, both CVS Health Corp. and Humana Inc. indicated that softening their competitive positioning in exchange for manageable growth will aid in margin recovery.

For the quarter ending Dec. 31, 2024, CVS Health reported adjusted earnings per share (EPS) of $1.91, which represented a year-over-year decline of 44% but came in well above Wall Street’s projections of 91 cents. The Health Care Benefits segment, which houses Aetna’s insurance business lines, reported a medical loss ratio (MLR) that was slightly better than expected at 94.8% for the quarter and 92.5% for the full year. That was higher (worse) than the 2023 MLR of 86.2%, when elevated medical cost trends had not yet fully materialized.

The return of Donald Trump to the White House has reenergized proponents of Medicaid work requirements, a controversial but popular policy during Trump’s first term. While a handful of states have already signaled that they want to resurrect their work requirements programs, which typically apply to the Medicaid expansion population, a new bill introduced in the House of Representatives, known as the Jobs and Opportunities for Medicaid Act, calls for a federal Medicaid work requirement. Sponsored by Rep. Dan Crenshaw (R-Texas) and supported by Sens. John Kennedy (R-La.) and Eric Schmitt (R-Mo.), the bill would require “able-bodied” adults without dependents who receive Medicaid benefits to work or volunteer for at least 20 hours per week.