Managed Care Stocks: Winners and Losers from the New Medicare Advantage Star Ratings

In advance of the Medicare open enrollment period starting Oct. 15, the Centers for Medicare & Medicaid Services, or CMS, released its star ratings for Medicare Advantage, or MA, plans offered by private insurers. At first glance, we do not anticipate changing our fair value estimates for any managed care organization, or MCO, based on this new data. However, even as overall MA ratings largely stabilized after a big drop last year, there were some clear winners and losers that could affect market sentiment.

Those enrolling plans rated 4 stars and above represented about 74% of MA enrollees this year, up from 72% last year. Humana HUM stood out, with 94% of its enrollees currently in 4-star plans or above. Because of this continued outperformance, we expect Humana to continue to steal market share.

After a dismal performance last year, CVS Health’s CVS ratings improved substantially. It only modestly trailed Humana, with 87% of its enrollees in 4-star plans and above—up from just 21% last year. This big reversal put CVS back in line with its previous scoring and suggests last year’s scores were a fluke. Importantly, these new scores remove a hurdle for MA marketing in 2024 and bonus payments in 2025.

On the negative end of the spectrum, Elevance Health’s ELV ratings dropped, with just 34% of enrollees in 4-star plans or above. This was down substantially from 64% last year, with Elevance highlighting weak survey results and tougher cutoffs, which CMS cited as reasons for reducing its rating. Overall, these weak results could create a headwind for Elevance as the firm pursues its goal of 12%-15% annual earnings growth. Management has already said it may need to control costs and repurchase shares to meet that goal, all while investing in the MA market to improve ratings in future years.

The MA star ratings for UnitedHealth UNH, Cigna CI, and Centene CNC did not change much. However, investors should note a few things. Given its mildly higher ratings than the broader MA market, UnitedHealth may be able to slightly outpace the overall market growth in 2024. Centene continues to have room for improvement since less than 1% of its members were in plans rated 4 stars or above, but its 3- or 3.5-star plans increased significantly, reflecting some progress in management’s strategy to increase enrollment in 3.5-star plans to 85% by October 2025.