Medicare's New Winners and Losers

A government quality rating can determine billions in future payments for health insurers, and this year's results have reshuffled the competitive landscape.

Humana just pulled off a remarkable recovery, while several major competitors are losing ground. With Medicare enrollment underway, five insurers face a new battle over membership, medical costs, and future profitability.

A Quality Rating Worth Billions

Medicare Advantage insurers receive federal payments to provide healthcare coverage for millions of Americans.

But not every insurer receives the same financial treatment.

The Centers for Medicare & Medicaid Services assigns plans quality ratings ranging from one to five stars. Plans earning at least four stars qualify for additional government bonus payments, creating an important financial incentive to improve performance.

And this year's ratings delivered a major surprise.

Humana announced that 95% of its Medicare Advantage members are enrolled in plans rated four stars or higher for 2027, up from about 20% in 2026.

That's an extraordinary turnaround for one of the industry's largest Medicare insurers.

Meanwhile, the broader industry hasn't improved nearly as much.

Approximately 71% of Medicare Advantage prescription drug plan members are enrolled in contracts receiving four stars or higher, according to CMS.

UnitedHealthcare has roughly 68% of its members in highly rated plans, while CVS's Aetna sits around 70%.

Elevance Health is considerably further behind at approximately 47%, while Centene has less than 10%.

The financial implications are significant, although the newly announced ratings determine quality bonus payments in 2028 rather than immediately.

What's Driving It

Medicare Enrollment Is Underway

The annual Medicare enrollment period began October 15 and runs through December 7.

During this period, seniors can compare available plans and choose their coverage for 2027.

Higher ratings provide a competitive advantage because consumers often weigh quality alongside premiums, benefits, and provider networks.

Insurers with better ratings can attract customers, improve retention, and eventually receive larger government payments.

For Humana, the improvement could strengthen its competitive position after several difficult years of rising medical costs and reimbursement pressure.

But more members don't automatically translate into higher profits.

Medical Costs Remain the Biggest Challenge

Health insurers operate on relatively thin underwriting margins, making medical cost management critical.

Humana's second-quarter Insurance segment benefit ratio reached 91.2%, meaning approximately 91 cents of every premium dollar went toward medical benefits.

UnitedHealth reported a third-quarter medical care ratio of 88.4%, while CVS's insurance business posted 91.3%.

Centene's third-quarter health benefits ratio reached 92.7%.

These companywide ratios aren't perfectly comparable because each insurer serves a different mix of customers and programs.

Still, they demonstrate how sensitive insurance profitability is to medical spending.

Even a one-percentage-point improvement in the share of premiums spent on claims can substantially affect earnings.

The Chain Reaction

Medicare quality ratings improve → insurers qualify for future bonus payments → competitive positioning strengthens → membership and retention potentially increase → better reimbursement supports plan economics → medical cost management determines profitability

The risk is that rising healthcare utilization or aggressive pricing eliminates the financial benefits of improved ratings.

What's Working

Aetna Is Showing Signs of Recovery

CVS Health's latest results provide encouraging evidence that medical cost pressures are becoming more manageable.

Its third-quarter insurance medical benefit ratio improved to 91.3% from 92.8% a year earlier.

Adjusted operating income in the Health Care Benefits segment nearly tripled to $912 million.

The company also announced plans Wednesday to separate its retail pharmacy business from its insurance and healthcare services operations by the first half of 2028.

That restructuring could give investors a clearer view of Aetna's underlying profitability.

Profitability Is Improving Unevenly

Elevance Health also reported improving performance, with its third-quarter benefit expense ratio declining 70 basis points to 90.6%.

The company raised its full-year adjusted earnings guidance to at least $29 per share.

But stronger operating results don't necessarily mean stronger Medicare quality ratings.

That distinction is central to this opportunity. Some insurers are improving profitability today, while others are positioning themselves for better reimbursement several years from now.

What to Watch

Humana reports third-quarter results Friday, providing another test of medical costs, membership growth, and profitability.

Watch management's expectations for 2027 enrollment, benefit pricing, and the financial implications of improved quality ratings.

The strongest signal would be sustained membership growth alongside improving medical cost ratios, rather than growth achieved by sacrificing margins.