AM Best downgrades Humana Health of Puerto Rico credit ratings
The agency cites operating losses and financial instability in the Medicare Advantage program.
AM Best has downgraded the credit ratings of Humana Health of Puerto Rico Group subsidiaries, citing weakened financial stability and persistent operating losses. The Financial Strength Rating (FSR) was reduced from B++ (Good) to B+ (Good), while the Long-Term Issuer Credit Rating (ICR) dropped from “bbb” to “bbb-.” The outlook has shifted to negative.
The affected entities, Humana Insurance of Puerto Rico Inc. and Humana Health Plans of Puerto Rico Inc., reported significant losses in the Medicare Advantage (MA) segment. These included a net loss of $63.9 million in 2023 and an additional $16.4 million for the first three quarters of 2024.
These deficits have severely impacted the group’s surplus and risk-adjusted capitalization despite capital contributions of $30 million each in 2023 and 2024 from the parent company, Humana.
AM Best indicated further financial support will be necessary to maintain compliance and operational stability.
Humana Inc. and most of its subsidiaries maintain solid credit ratings, with an FSR of A (Excellent) and a Long-Term ICR of “a” (Excellent). This reflects strong cash flows, diversified revenue and enterprise risk management.
Humana’s financial flexibility is supported by mechanisms such as subsidiary dividends, a commercial paper program and access to borrowing through the Federal Home Loan Bank of Cincinnati.
The parent company’s continued support of its Puerto Rico operations demonstrates its commitment to sustaining market presence despite challenges, the credit rating agency stated.
Medicare Advantage challenges
Humana’s Puerto Rico operations depend heavily on the Medicare Advantage program, which has been impacted by rising medical costs and regulatory pressures. Recent adjustments to payment rates and Star Ratings bonuses by the Centers for Medicare and Medicaid Services (CMS) have further strained margins and financial stability.
These challenges reflect broader difficulties for insurers reliant on government health programs. The concentration in Medicare Advantage and Medicaid leaves such entities vulnerable to regulatory changes and economic pressures, requiring sustained support from parent companies, AM Best stated.
“Humana Health Group generates most of its premium base from MA, but premium income is also sourced from Medicaid managed care and supplementary lines, including dental and vision. Effective 2023, Humana exited the commercial market,” AM Best explained.
