Humana stock gained 13% in after hours trading Thursday after the federal government released new ratings data on Medicare Advantage plans, showing that Humana achieved a four-star rating on a key contract closely watched by Wall Street.

Ahead of the release, the insurer was looking to make a comeback on the 2027 ratings of its Medicare Advantage plans. The results were expected to test the stock that has soared about 50% this year.

As seniors begin to shop for Medicare health coverage this month, the rating system is meant to help them compare the quality of plans, on a scale of one to five stars.

For insurers and Wall Street, star ratings are an incredibly important metric because they determine quality bonus payments to insurers from the government. Plans rated four stars and above are eligible for the bonuses. This year alone, those bonus payments are expected to total more than $13 billion in aggregate.

At Humana, "getting the quality bonus payment back on some of their large contracts is empirical to the margin recovery story," Leerink Partners analyst Whit Mayo told Barron's in an interview this week. "That's the primary investment thesis for investors."

The challenge for Humana started two years ago, when the insurer saw a ratings drop, and went from having more than 90% of its members in a plan rated at least four stars, down to about 25%. At the time, Humana said it had narrowly missed thresholds on a small number of measures used to calculate stars. That reduction impacted Humana's ability to collect bonuses this year.

When the 2026 ratings were announced last year, the results continued to show a gap between Humana and industry peers. According to a Leerink analysis, Aetna parent CVS Health had 85% of members in plans with four or more stars and UnitedHealth Group had 82% of members in such plans.

While Humana initially calculated about 20% of membership would be in a four-star plan or higher in 2026, that figure rose to 45%, the company told investors in February.

Improving the ratings wasn't going to be an overnight fix. Stars are based on 40-some criteria that encompass patient experience surveys and a range of care metrics.

Humana has aimed for a boost in the soon-to-be announced 2027 star ratings, which translate to bonus payments in 2028. During Humana's last earnings call in July, CEO James Rechtin said he felt good about the company's "operational progress," adding that the company was driven "to be closing every single gap we possibly can..."

The insurer is "very focused on consumer engagement," said Mayo. Efforts to lift ratings are "probably one of the most important initiatives that Humana has had for two years."

A question for Wall Street was just how much the company needed to improve this time around, particularly when it came to one of its largest Medicare Advantage contracts, known as H5216. That contract ultimately moved up to a four-star rating, new data show.

"I feel strongly they'll show improvement," Mayo told Barron's in an interview before the 2027 data release. "I'm less convinced they'll be able to flip that big contract" to four stars. But Humana may not need to achieve a four-star rating in that contract for 2027 in order to satisfy the average investor, Mayo added.

Humana stock gains have surpassed UnitedHealth, which is up about 12% this year, and CVS Health, up nearly 11%.