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Employees say:"The remote-first policy is the absolute best thing about Humana. Our team does an excellent job at fostering community and connection in a remote workspace and I absolutely love the flexibility associated with remote work. It has truly made work-life balance more manageable and makes me a more productive and satisfied worker."

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GPTW Health Care Large 2023-Humana

Employees say: 
 
"Commitment to equality, not only in their associates but their members-specific needs also. This creates a secure, safe place to work that eliminates a lot of stress in personal and career life."

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F500-2023-042-Humana

The health insurance company that serves tens of millions of customers in the U.S. reported fiscal year 2022 revenue of $92.9 billion, up 10% from the previous year, thanks in part to growth in membership and premiums from its Medicare Advantage plans. 
<ul> 
 	<li>Humana announced plans in February 2022 to reinvest $1 billion into its core business, specifically its Medicare Advantage plan.</li> 
 	<li>In May 2022, Humana’s CenterWell Senior Primary Care and the investment firm Welsh, Carson, Anderson &amp; Stowe announced a joint venture to develop and operate primary care clinics for Medicare patients, the second such JV between the two partners.</li> 
 	<li>In 2023, Humana anticipates strong growth from its privately run Medicare Advantage program due to high retention and a projected expansion in new members.</li> 
 	<li>Humana has climbed 10 spots on the Fortune 500 list in the last four years.</li> 
</ul>

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F500 2022-Humana

Founded in 1961, Humana is the fifth-largest health insurance company by membership in the U.S., offering coverage for over 20 million Americans. The company’s revenue grew to $83.1 billion in 2021, a 7.7% increase in revenue from 2020. Much of that growth was driven by Humana’s Medicare Advantage programs, which enroll roughly 5 million people; the company projects that membership in those programs will grow by another 8% in 2022. In April 2022, Humana announced the sale of a 60% stake in KAH Hospice, the nation’s largest home health and hospice provider, for $2.8 billion to private investment firm Clayton, Dubilier &amp; Rice.

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G500 110 Humana

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F500-2021-41-Humana

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G500-2020-166-Humana

In 2019, the health insurer's consolidated revenues grew to nearly $56.5 billion, a more than $8 billion spike from the previous year. Like other insurers, Humana was able to take advantage of the suspension of a health insurance industry fee, which lowered its tax burden. The company also boosted its earnings-per-share numbers with the help of stock buybacks. Humana’s dedication to the lucrative Medicare Advantage market, where it has captured some 18% of enrollment, continues to serve it well.

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Humana

Humana is yet another health insurer which climbed the ranks in the latest Fortune 500 list. In 2019, the company’s consolidated revenues grew to nearly $56.5 billion, a more than $8 billion spike from the previous year. Like other insurers, Humana was able to take advantage of the suspension of a health insurance industry fee, which lowered its tax burden. The company also boosted its earnings-per-share numbers with the help of stock buybacks. Humana’s dedication to the ever-lucrative Medicare market, as a for-profit insurer, continues to serve it well.

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Wal-Mart stayed on top as its sales crept closer to half-a-trillion dollars. Apple moved into the top five. And UnitedHealth Group continued its steady climb. 

Best Workplaces In Health Care

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A health insurance company, Humana is one of the largest administrators of Medicare Advantage, a U.S. government program that provides health care to older Americans via private insurers. Humana plans are available in nearly 3,000 U.S. counties, the most of any Medicare Advantage provider. Humana also runs state-based Medicaid plans for lower-income Americans; CenterWell primary care centers for seniors; as well as home health and hospice businesses.

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Humana (HUM): Company Profile, Stock Price, News, Rankings

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Good day, and thank you for standing by. Welcome to Humana's first quarter earnings call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. I'd now like to hand the conference over to Lisa Stoner, Vice President of Investor Relations. Please go ahead.

Thank you, and good morning. I hope everyone had a chance to review our press release and prepared remarks, which are available on our website. We will begin this morning with brief remarks from Jim Rechtin, Humana's President and Chief Executive Officer, and Chief Financial Officer, Celeste Mellet. Following these remarks, we will host a question-and-answer session where Jim and Celeste will be joined by George Renaudin, Humana's President of Insurance Segment, and Dr. Sanjay Shetty, President of CenterWell. Before we begin our discussion, I need to advise call participants of our cautionary statement. Certain of the matters discussed in this conference call are forward-looking and involve a number of risks and uncertainties. Actual results could differ materially.

Investors are advised to read the detailed risk factors discussed in our latest Form 10-K or other filings with the SEC in our fourth quarter 2025 earnings press release as they relate to forward-looking statements, along with other risks discussed in our SEC filings. We undertake no obligation to publicly address or update any forward-looking statements in future filings or communications regarding our business or results. Today's press release, our historical financial news release, and our filings with the SEC are also available on our investor relations site. Call participants should note that today's discussion includes financial measures that are not in accordance with generally accepted accounting principles, or GAAP. Management's explanation for the use of these non-GAAP measures and reconciliation of GAAP to non-GAAP financial measures are included in today's press release.

Any references to earnings per share or EPS made during this conference call refer to diluted earnings per common share. Finally, this call is being re-recorded for replay purposes. That replay will be available on the investor relations page of Humana's website, humana.com, later today. With that, I will turn the call over to Jim.

Thank you, Lisa. Good morning, everyone. Thank you for joining us today. We have a few headlines. Let me start with we are pleased with our first quarter, and that is because we are where we expect it to be. I'm just gonna repeat that for emphasis. We are pleased with our first quarter because we are where we expect it to be. Right now, second headline, we are turning our attention to bids, and we are approaching bids with a focus on returning to a sustainable margin of at least 3% in 2028 and making progress against that in 2027. We know that we need to make some progress against that in 2027. Those are the commitments we laid out in June of last year at Investor Day, and we stand by those commitments.

The primary headline here is that we believe that we are on track to meet our commitments from Investor Day, and we're doing the things to follow through on that. As usual, I will frame my comments today around the four drivers of our business. First is product and experience, which drive customer retention and growth. Second is clinical excellence, which delivers clinical outcomes and medical margin. Third, highly efficient operations. Fourth, capital allocation and growth in both CenterWell and Medicaid. Let's start with product and experience, where there are three things that I want you to take away. First of all, our member growth trajectory is on track. Now we will, and we have, and we will continue to manage distribution and growth dynamically if things change, but our growth trajectory is on track.

Second, I want to emphasize that membership, both new and returning, is performing as expected three months into the year. As we turn our attention to bids for the 2027 plan year, I want to express appreciation for CMS's engagement on the improved rate notice. This helps promote more stability in the industry as a whole, and it has a positive impact on the health of our seniors. Nevertheless, medical cost trend continues to outpace program funding. Our third takeaway, which is something we have noted previously, is that we will adjust benefits to remain on track to deliver our 2028 commitment of returning to a sustainable margin of at least 3%. We expect to make the necessary progress towards that goal in 2027. We are very aware that we need to make some progress in 2027.

Turning to clinical excellence, our outlook on PY 2028 Stars has not changed. We continue to be confident that we're on the right track to return to top quartile Stars results in PY 2028. Our performance on the Stars compensation metric, as disclosed in our proxy, is a good indicator of our progress. However, as you know, we don't know industry thresholds. While we feel good about our progress, we cannot guarantee an outcome in October. We will share more about our progress in the Q2 earnings call once the hybrid season is complete. For PY 2029 Stars, we are seeing a strong early start. We have early engagement efforts. These are new efforts, early engagement efforts which are translating into improved member activation and improved outcomes. To provide just one example, we're identifying certain chronic conditions among new members faster than we have in the past.

What this allows us to do is to better target our gap closure efforts. As a result, at the end of Q1, we are about 5% ahead of last year's gap closure pace on a per member basis on certain key HEDIS metrics. Now, regarding highly efficient operations, we continue to make progress on our operating model changes. This includes centralizing certain teams, expanding outsourcing, and increased automation of processes. All of these things are increasing efficiencies. Finally, on capital allocation, we recently completed the acquisition of MaxHealth. This is a Florida-based primary care organization that will expand CenterWell's reach into new critical markets. We also saw Medicaid membership grow by approximately 50,000 lives, and this is largely driven by the January start of programs in Michigan, Illinois, and South Carolina.

In conclusion, we expect to double individual MA margin in 2026, adjusted for stars. We expect to double individual MA margin. We continue to feel good about the way our member growth is setting us up for this year and subsequent years. We are making good progress on stars. We will continue to be disciplined in pricing with a focus on unlocking the earnings power of the business by 2028. As a final note, before I turn it over to Celeste, I want to share an update on the Insurance leadership transition that we announced in December. George Renaudin, Insurance Segment President, will retire effective June 29th, 2026. Until then, he will focus primarily on the annual MA bid process, and he will continue to serve as a strategic advisor through at least the end of 2026.

Aaron Martin, who is currently President of Medicare Advantage, will begin leading the day-to-day management of the Insurance Segment now. He will continue to report to George. He will formally assume the role of Insurance Segment President when George retires. John Barger, a 30-year industry veteran with more than a decade in Medicare Advantage, will lead MA operations effective immediately. He will formally assume the role of President of Medicare Advantage when Aaron transitions. I want to personally thank George for his nearly three decades of service to Humana and his instrumental impact on growing the Medicare Advantage business. With that, I will turn it to Celeste for a few remarks before we go to Q&A.

Thank you, Jim. There are a couple of items I will briefly address before we begin Q&A. First, we are pleased that available information to date suggests that our Medicare Advantage members, both new and existing, are performing in line to better than our guidance, even after adjusting for a more subdued flu season and the winter storms. This data, including what we continue to monitor in April, includes risk scores, hospital admits per thousand, or APTs, pharmacy claims, and initial medical claims, which are continuing to complete for the first quarter. We continue to enhance our claims and cost trend monitoring practices, including anomaly detection to identify and react to claims and payment trends faster, as well as to improve first-time payment accuracy. This important work improves visibility into cost trends and further strengthens payment integrity. Turning to capital deployment and the balance sheet.

In the first quarter of last year, I posited that there was a real opportunity to increase the efficiency and resiliency of our balance sheet. Over the last 12 months, we have made considerable progress towards this end. Our efforts include bolstering liquidity and addressing future funding needs with rating agency friendly instruments, such as the $1 billion junior subordinated notes we completed in March, which is expected to fund 2027 maturities. In addition, we executed on several initiatives to optimize the balance sheet, including deploying subsidiary reinsurance and augmenting legal entity structures, successfully mitigating over $3 billion in capital contribution requirements for 2026.

We are maintaining dividend levels and limiting share repurchases to amounts necessary to offset dilution from employee stock compensation and intend to increase both when our cash flows and funding capacity grow with the execution of the plan laid out at our Investor Day. We are pursuing non-core asset divestitures to help fund strategic acquisitions and expect to share more news with you on this front over the next several months. All in, we are pleased with the results of our balance sheet enhancements and are comfortable with our capital levels, which provide a prudent buffer above regulatory and rating agency requirements. Consistent with this disciplined approach, we continue to evaluate a pipeline of initiatives to further strengthen the balance sheet. Lastly, let me reiterate the key messages that Jim highlighted.

We are pleased with the solid start to 2026 and believe our expanded membership base, relentless focus on returning to top quartile Stars, and pricing discipline position us well to deliver a stable and compelling MA margin and unlock the earnings potential of the business by 2028, as laid out at our Investor Day last year. We remain committed to taking appropriate action to meet the commitments we have made to you. I will now turn the call back to Lisa to start the Q&A.

Thank you, Celeste. Before starting the Q&A, just a quick reminder that in fairness to those waiting in the queue, we ask that you please limit yourself to one question. With that, operator, please introduce the first caller.

Our first question comes from Ann Hynes with Mizuho.

Great. Good morning. Thank you. I would just like to dig into DCP and IBNR a bit. From the press release, it looks like IBNR grew about 35% sequentially, and this is versus a 22% membership growth when looking at just total Medicare Advantage. Could you provide some insights into the drivers of this elevated IBNR growth relative to the, to the membership growth and also relative to your expectations coming in line, if it came in line with your expectations? Is this a conservatism on your part? Anything would be great. Any more details would be great. Thank you.

Hi, Ann. Thanks for your question. Consistent with the prudent assumptions we embedded in our guidance at the beginning of the year, which we are maintaining, we did take a prudent approach to claims reserves for the quarter, given how early it is in the year and given the membership growth. You are right. IBNR was up 35%, well above the growth in membership. We typically point you to looking at membership growth to understand how IBNR should flow. We believe we are prudently reserved, you know, coming out of the first quarter, just given the year ahead. I want to reiterate that we feel very good about what we saw in the first quarter and through the end of April in terms of all of the early indicators and completed claims.

What we're seeing in April so far is fairly consistent with what we saw in the first quarter.

Our next question comes from Andrew Mok with Barclays.

Hi, good morning. Wanted to ask about the Welsh, Carson put call options, given some near-term exercise windows. First, do you plan to exercise your June call options for the first two clinic cohorts? Second, if Welsh, Carson were to exercise the full amount of its put options, what would the total cash obligation look like in 2027 and 2028? Thanks.

Hi, Andrew. It's Celeste. We need to make a decision on the put call option in the middle of this year. We will obviously be mindful of, you know, all of the other things that are going on in our cash position or in our balance sheet. I would say that Welsh, Carson has been an amazing partner to us, and we're proud of what we've built together in a leading primary care business for seniors and continue to see structural value in this type of relationship. In terms of if they put to us next year, next year would be the beginning of the first put, it would be about $1 billion-$1.5 billion in 2027.

To be clear, they can only put the 2025 cohort to us in 2027, but both would be about $1 billion to a billion and a half. We have included any outflows related to puts or calls in our funding plan.

Our next question comes from Justin Lake with Wolfe Research.

Thanks. Good morning. I wanted to talk a little bit more about your 2027 bidding strategy. I appreciate your prepared remarks around rates and trend for 2027 and how you'll be reducing benefits to bridge the delta between those two numbers and protect margins. I want to ask your thoughts about protecting margins beyond that. Specifically, the reality that the full cost profile of your members probably won't be known for a couple of months, combined with the fact that you're in my confidence that you're going to get your stars back for 2028 will reduce your TVC for 2028. I want to ask how investors should think about the potential that the company might add some cushion to bid above and beyond that rate trend differential you talked about to reflect this new member uncertainty in the 2028 TVC reality in order to protect 2027 margins. Thanks.

Hey, Justin. Thanks for the question. I'll start, and then George will probably jump in here as well. Let me just be clear about how we're thinking about bids as we go into the year. You know, obviously, there's only so much detail that we can get into, but we can certainly share kind of philosophically what our principles are as we approach the bid. Number one is the focus on being back to a normalized margin of at least 3% in 2028. To be there in 2028, we have to look at 2027, and we have to be mindful of the progress that we need to make in order to be on track for 2028. That certainly takes into account TVC considerations. It takes into account what we do and what we don't know about the current cohort.

All of those things have to be accounted for in our bid strategy this year. That is priority number one. Priority number two is within the constraints of priority number one, I'm just going to, again, I'm going to emphasize that one more time. Within the constraints of priority number one, we want to provide as much stability as we can reasonably to our members so that we retain them. Retention is priority number two. Retention, retention. The way that you do that is you have to understand the different segments of your customers. You have to understand what their needs are. To the extent that you make adjustments to benefits, you do it in a way where it has the least impact on the things that are most important to them. It doesn't mean you don't make adjustments.

It means you do it in a way that is thoughtful to your members. Look, the third priority is growth, and that's a distant third priority. If we happen to grow some, great, but the priority is not growth. The priority is, number 1, being on track for PY 2028, and number two, retaining the members that we have. Again, churn is expensive, and we wanna minimize churn the most we can. George, what would you add to that?

Thanks, Jim. Justin, the other thing just to consider is that as we're looking through this, we are going market by market. It's not just a matter of taking a look at the various benefits and paying a lot of attention to those that Jim mentioned our members care about most, and it also help drive better health outcomes and better Star Ratings results. It's also looking at it market by market, understanding the environment we're in with various providers and going through each one of those geographies. It's not just a matter of benefit changes, you also have to look at geographies and make sure that every geography is going to be supportive to the long-term trajectory of what we're trying to accomplish to get to our PY 2028 targets. We'll make a lot of progress in 2027.

We also do have fairly good amount of information now about the new cohort. It's not perfect information by any means, but as Celeste has mentioned, all the key indicators of both our new and concurrent members we have, and those are lining up according to expectations. Our APTs, our authorizations, pharmacy, MRA, all those things are lining up the way that we were expecting, as Celeste mentioned in her opening comments. The other thing just to emphasize here is one of the things that we are seeing in the, in the industry today is that the industry is taking, it appears to be anyway, a more measured approach given the funding environment medical trend. The help we receive from CMS is helpful, but it is not, as Jim said, keeping up with medical trends.

We and others are having to make benefit adjustments, geographic adjustments in line with those expectations to continue to make progress towards our 2028 goals.

Our next question comes from Jason Cassorla with Guggenheim Partners.

Great. Thanks. Good morning. Maybe just a quick one on earnings seasonality. You guided 2Q MLR slightly above 91. It represents a deceleration in the YoY step-up in MLR compared to this first quarter. I guess with your significant new member growth and the Star Ratings headwind, maybe can you just help bridge us to that MLR expectation for the second quarter? That would be helpful. Thanks.

Yeah. Hey, the first quarter to second quarter change this year versus last year is very much affected by the levels of PPD. A year ago, we had higher PPD in the first quarter. If you recall, we've talked about how we reserved fairly conservatively at the end of 2024, given the regulatory uncertainty. We were in a more regular position at the end of 2025. We released more PPD in the first quarter of 2025 than the first quarter of 2026, so that the seasonality from the first quarter to the second quarter is less pronounced than it was last year.

Our next question comes from Stephen Baxter with Wells Fargo.

Yeah. Hi. Thanks. I was hoping you could maybe expand a little bit on trend dynamics in the quarter. I guess maybe speaking ideally to how much of a benefit you think you might have seen from flu and weather in the quarter. Also potentially whether there's any difference in trend dynamics if you were to, you know, focus maybe more on the retained membership you had in the MA book. Thank you.

Hi. Thank you. Yeah, thanks for your question. First of all, if you recall, we reported our fourth quarter and gave our guidance for the year in early February. We already had a pretty good understanding of flu, and we had captured the more beneficial flu season in our guidance. It was very, very modestly better than we had expected, but, you know, de minimis. As it relates to weather, it's fairly easy to isolate the impact. If you think about where we are most concentrated from a plan perspective, it's in areas that were less affected by weather. We're able to strip out the impact of weather, and we're still seeing favorability running in line to ahead on all of the indicators that I mentioned to you.

Our next question comes from David Windley with Jefferies.

Thanks. Thanks for taking my question. Good morning. I wanted to switch to CenterWell and the operating cost ratio there, which ran a little higher than we were expecting. I wondered how much of that might be a result of the acquisitions and onboarding those. Then for the consolidated relatedly, the operating cost ratio seems to need to have a, a flatter trajectory through the year than would be normal for you. How are you planning to execute that, and wondering if those two are related? Thanks.

Great. Well, this is Sanjay. Thanks for the question. First off, just stepping back and looking at CenterWell more broadly for the quarter, I would say we're really pleased with the solid growth across each of our lines of business in the first quarter.

We're seeing that both because of the growth in Humana's membership as well as our continued agnostic expansion. You can kind of see that across each of the three businesses. Starting with pharmacy, we continue to see industry-leading mail order penetration for our Medicare members, and we've seen really nice uptake by new members in 2026. We're also continuing to expand our agnostic volume across specialty, direct-to-consumer, and direct-to-employer, including looking forward to the new Cost Plus partnership that we announced earlier this week. Second, in primary care, we're seeing really nice patient growth year to date, so sequentially 110,000 patients or 22.5% sequential growth. That's both through organic growth as well as through our recent acquisition of MaxHealth.

In the home, we're seeing solid growth in CenterWell Home Health and within onehome, and that includes through the launch of the next phase of our skilled nursing facility value-based care model, now covering an additional 2 million patients. All in, we're really pleased with the growth and execution across CenterWell. I think one of the things you may have noticed is that in the first quarter, we did have a handful of items that will not repeat, and in some cases, will actually reverse later in the year. I think that's what you're getting at. A couple of examples of what those are include the skin substitutes in our ACO REACH program in the primary care organization. That's both current year and continued run out from the prior year, for which CMS will hold us harmless.

Second, some timing-related items related to The Villages Health acquisition that as we continue to integrate, we'll see improvement for the rest of the year. Finally, some transaction and integration costs associated with the MaxHealth acquisition that were not previously contemplated in our Q1 guidance.

Hey, thanks, Sanjay. I'm just gonna add to that. Oops. Sorry. Sanjay, I'm just gonna add to that. First, if you're comparing to the first quarter of last year, particularly in CenterWell, it is a tough comparison. If you recall, we did mention one-time positivity, particularly in specialty pharmacy, which was driven by better than expected drug mix. We also had some favorability in 1Q 2025 in PCO. If you take a look at the OCR in CenterWell, it does actually tie to your question. It was in 1Q 2025, it was well below the rest of 2025. This year is, you're gonna have a more normalized OCR level throughout the year rather than the ramp that we saw in 1Q 2025 through the rest of the year.

In CenterWell, I would look to 2024 for seasonality. We had about 20% of our earnings in CenterWell in the first quarter of 2024. We expect about the same in 2026. Taking a step back to the consolidated OCR, yes, the first quarter was impacted by some of the noise in the comparisons in CenterWell. Our expectations for the year are in line with what we laid out in our guidance. If you know, if you look towards the insurance business, you can see really nice progress there on the OCR, but we are still expecting a significant pickup in the OCR this year. Or improvement, I should say, not pickup.

Our next question comes from A.J. Rice with UBS.

Hi, everybody. Maybe just going back to the MA side of things. I appreciate the comments about all the metrics you're tracking, and they're tracking well. I think historically, there's always been this view that, and what reality's shown now is the second quarter claims experience really tells you whether you've got a problem or not. It sounds like some of these metrics are things you just normally would have tracked in prior years, but maybe some are new that you've done because of your initiatives. I wondered if you could just give us a flavor for how much incremental information, given the initiatives you have, that you feel like you have to sort of get ahead of what normally shows up in the second quarter.

Just to follow up on one of the previous discussions about the bids. If your expectation and a lot of what you're gearing for is the earnings power in 2028, understanding the restrictions on TBC from year to year and understanding the desire to hold benefits constant, does that cause you to lean in to making sure you hold on to membership because you're gonna get this big lift on stars next year, and maybe in a normal year you go for more margin improvement next year, but because you know stars and some of the other things happening for 28 are gonna be positive, you'd sort of be willing to slow that progression just to hold on or even grow membership? Any thoughts on that aspect of your bid strategy?

Hey, A.J., let me start. First of all, there's a lot in there. I'm gonna try to tease it apart and hit the different components of it. I'll start. I'm sure either Celeste or George will wanna weigh in as well. You know, let me just start with kind of the leading indicators. I think the way to think about our understanding of trend as it progresses through the year is that each incremental month is narrowing the range of possibilities of what you might see then for the balance of the year. Of course, you don't have perfect information at the end of March. You don't have perfect information at the end of April. You don't even have perfect information, frankly, at the end of June.

Each of those months is narrowing the range of outcomes that you might see for the rest of the year.

And so you know, we're obviously looking at the first quarter, and as Celeste indicated, we have also taken an early look at April, as it's coming in, and all of the indicators look as expected in that period of time. you know, what I would say is it's not so much that we're looking at new and more indicators. It's, it's more. The way I would describe it is we are being more disciplined in looking at them on a regular basis and a regular cadence so that we understand that trend even more in real time than we have in the past. I mean, that's the way I describe it. Are we feeling better each month? Yes. Do we also wanna see what happens at the end of the second quarter? Of course.

Clearly, we wanna see what happens at the end of the second quarter. Clearly, we will feel better then than we feel now. That's kinda how we think about that. On the second part, which I'm gonna now blank on, is the bids.

Bids in 2028. You know, look, the way that we have thought about this, including last year, including this year, including next year, is that, we have a margin expectation that is, you know, kind of consistent with over time being at a place that provides a sustainable, attractive margin for the business and a good return on capital. During this period of time where we have, you know, the Stars challenges, we are making adjustments so that we can protect the business through that period of time, while also making progress against margin. We're starting with where does our margin need to be each year? We did that this year. We started with where does our margin need to be this year?

We don't start with, "Hey, how much do we wanna grow?" We start with, "Where does our margin need to be to be on track to 2028 and back to a sustainable and durable long-term margin?" That is the first principle that we started with. That is the same thing we started with a year ago, frankly. Yes, we have an idea of the various scenarios that may play out in 2028. Obviously, we don't know what 2028 is going to look like, but we can kind of hone in on there's four or five different scenarios that might play out, and we need to plan for 2027 in a way that puts us in a situation where we can accommodate each of those scenarios.

When I talk about multi-year planning, which I've done a lot of over the course of the last few years, that's what we're talking about. We should always be looking out 2 years to 3 years and trying to understand how the external environment might evolve, and making sure that we are putting in place plans and contingency plans that can accommodate the unknown across that period of time, and that's really what we're doing. Let me open it up to Celeste or George to add.

Hey, I just wanna add on the claims work. We're doing a lot more, both in the front, particularly on the front end of claims, where we are looking for anomalies and differences in terms of regional provider, DRGs, just looking for things that might indicate that something which would normally be identified down the pike, something is different than our expectations. We're also spending a lot more time looking at the inventory, what's in there, and some of the drivers of that. Then on the back end, we're going deeper on the new member components than we typically would, as well as, the overall.

Breaking down, we, you know, in much more depth and more grain some of the things that we would look at. We can identify hotspots faster if they exist. As I said previously, the early indicators and then the ongoing claims that we see are running in line to better than our expectations.

Hey, it's George. Thanks, Celeste. I'll just add two quick things. One is we've talked in the past about how much progress we're making in interoperability and the work we're doing in Stars, where we're getting out ahead. Jim mentioned all the things we've done to be able to reach out on the front end to our members as they're coming in, our new members. That also is helping inform where we are. That's yet one more indicator. I want to be very direct on your question about TBC. We're very well aware of the TBC limitations. We're very well aware what happens when TBC comes back, when with our expectations of what we're going to recover in Stars. That is very much part of our planning process as we're going to the 2027 bids.

Our next question comes from Kevin Fischbeck with Bank of America.

Great. Thanks. I guess, I guess I really do like the commentary around focusing on margins first and foremost. I just wanted to understand a little bit 'cause this commentary, because this year you expect to double margins on an MA basis, and now you're saying next year you're willing to cut benefits, even though this year you were able to do that, you know, with a relatively stable benefit design. Are you saying that the funding shortfall for 2027 is bigger than this funding shortfall for 2026, as far as Humana goes? Or is there something else around, you know, the timing of some of the cost-cutting initiatives on the G&A side that make next year potentially more reliant on benefits?

I'm just trying to understand, you know, the little bit of a change in tone here about margins and cutting benefits, if necessary, to achieve margin improvement. Thanks.

Hey, again, I'll kick off. Anybody who wants to add, feel free to add. The short answer is, yes, the gap between funding and medical cost trend is larger going into this bid season than it was a year ago. It's very clearly larger than it was a year ago. That is really what is driving our thinking. You know, we're still on track on our plans around cost management. You know, the other components that go into, you know, that go into our margin that we laid out, you know, last year in June, they are all largely on track. The difference right now is the funding environment relative to medical cost trend, that's mostly the funding environment.

Medical cost trend has been relatively stable, now for, you know, two years.

If I could just add one other piece to that, Kevin. That is that, you know, while we appreciate what CMS has done to create a more stable environment, as we've said, the funding still doesn't keep up. We will, this year, as we have in past years, make the appropriate adjustments. Just as a reminder, we were having to adjust benefits for two years, and we made those adjustments earlier than most of our competitors did. We continue to take a very disciplined approach as we go into this bid cycle. You can expect that going forward.

Our next question comes from Scott Fidel with Goldman Sachs.

Thanks. Good morning. Wanted to ask just two more targeted questions within two of the Medicare lines of business and just around the themes in terms of the monitoring and sort of early utilization trends. First would be just on individual MA, how you're seeing sort of those trends and on the new members in particular, maybe playing out between HMO and PPO. Then also, we really haven't talked much on PDP yet, where you have had pretty substantial growth. Curious around how the PDP line of business appears to be performing from a utilization perspective relative to the margin targets that you laid out in your guidance. Thanks.

Hey, let me just hit PPO and HMO here for a second, and then I'll hand it off to the others to handle PDP and add to the commentary on PPO and HMO. Look, the short answer is our portfolio as a whole is performing the way we expected it to perform. Like, that's the headline. I think more importantly, I just wanna continue to reinforce a message that we have delivered now for a couple of quarters, which is there is nothing inherently good or bad about any type of product. There's nothing inherent in the product that doesn't work. It is all about how do you price the product and how do you structure the product to target the right segments in the right way.

If you kind of look back in time, you know, 'cause I know there's all this talk about, hey, PPO is bad, PPO is not good. Look, if you look back in time, we had a number of years where the industry priced PPO aggressively and was, we, the industry, were using PPO as a growth engine, pricing aggressively, and you saw disproportionate growth in PPO. You saw that happen at the expense of margin in that product. We spent two years repricing our PPO product. We spent two years repricing our PPO product, and most of the industry either did it with us or followed suit shortly thereafter. The result that you're seeing is that growth is rebalancing back to being more equal between HMO and PPO across the industry, we believe.

Again, that is a result of the industry taking a different approach to how they price that product. When we do that product can perform financially, and we see that product performing financially. Look, every year, we're gonna step back, and we're gonna look at our whole portfolio, and we're gonna say, "Hey, are there pieces, are there geographies, are there pieces that we need to reconsider based on new information?" The practical reality is all product, if priced appropriately, is good product. Right now, when we look at our portfolio, our portfolio is performing.

Just to add quickly, while we don't get into cohorts beyond new and concurrent members, as we called out, what we're seeing from a claims perspective and an early indicator perspective on both new and concurrent members is, are running in line to better than expected.

Hey, it's George. Scott, you also asked a question about the PDP. As we look at our PDP business today, it's online with our expectations. The membership mix, the pharmacy trends we're seeing, and member behavior in line with expectations. We remain confident in our 2026 pricing. If you remember, our guidance is right along the same lines as our guidance for 2025. Relatively flat, what we're seeing so far looks fairly good.

Our next question comes from Erin Wright with Morgan Stanley.

Hey, thanks. sorry, excuse me. Operating leverage still stands as a meaningful contributor to that 2028 bridge. Can you remind us on the progress on addressing some of the operating costs? Was there any timing dynamics to call out in the quarter? Anything we should think about for the year? Can you remind us of some of those components of the cost levers embedded in 2026 guidance, and what are some of the longer-term opportunities, the progress relative to what you were thinking maybe a year ago at the Investor Day? Have there been any changes or surprises on that front in terms of those levers near and longer term? Thanks.

Yeah, thanks for your question. We are making great progress against our operating cost targets. In terms of the particular quarter, as I mentioned earlier, there's a little bit of noise, just given the tough comparison to last year in CenterWell versus some of the less favorable one-time noise in CenterWell this year. Our expectations for the year are on track for what we had guided to you or at the beginning on our fourth quarter call. As it relates to the cost-cutting, both tactical and strategic, we are making really excellent progress there. In terms of the tactical cost-cutting measures that we talked about, we, Jim announced the early retirement program last year. We're continuing to see those employees exit.

The last of them will leave at the end of the second quarter. That, you know, gives an opportunity to folks who've been here for a really long time to, you know, if they'd like to go do something else or sail off into the sunset, and enjoy their lives outside of Humana, they can do that. We've been optimizing our internal policies. They squeeze out, you know, differences. They also, in some cases, get us more in line with corporate best practices. We've been improving productivity and increasing volume discounts while also improving payment terms with vendors. We've been consolidating our supplier base to drive better supplier relationships. Those are some of the more tactical things. Some of the more strategic long term, some of which are running through 2026, are changing and expanding our outsourcing capabilities.

2026, you'll see, where we're seeing the improvements is really in some of our corporate functions where we were well below industry benchmarks in terms of outsourcing percentages. We're getting closer to those benchmarks. In finance, for example, and HR recently made some changes there as well. Over the longer term, we see significant opportunities to consolidate our relationships and increase service and quality for our membership and our patients at the same time. It'll also reduce costs. Continuing to standardize and simplify our processes, while leveraging technology to use more automation and create efficiency. Jim talked about our operating model changes. There are some components that have shifted already. We've been really focused on centralizing the things that make sense to centralize.

You know, we believe it makes sense for us strategically, but it also is beneficial to our costs, and I think provides better and more consistent experiences for our members and our patients across the country. Those are just a few examples. Again, we are very confident in the progress that we are making this year and the targets we laid out for you for 2028.

Our next question comes from Ben Hendrix with RBC Capital Markets.

Thank you very much. Just wanted to follow up on some of the CenterWell commentary. I was just hoping to get, you know, any early observations within CenterWell on trend. Anything to call out on patient profiles or patient behavior, that you've observed across, your expanded Medicare membership versus the growth that you're seeing in the, carrier-agnostic population? Thanks.

This is Sanjay. Thank you for the question. Broadly speaking, for CenterWell, the growth in Humana is definitely a tailwind to the business across the three businesses. We see that within the pharmacy business, through the mail order penetration that we have in our Medicare business. We see that within the home solutions segment, both in CenterWell Home Health as well as within onehome, which as a reminder, is our post-acute value-based convener. Specifically within the primary care organization, that growth has been helped by the growth of Humana. Broadly speaking, what we're seeing in that population is in line with what the plan is seeing, as we enter the new year. Although it is very, very early for us in the year. I think, you know, we will continue to monitor that.

As an early indicator, though, some of the things that we track are engagement of those new patients, and those are tracking very much in line with expectations.

Humana (HUM) Q1 2026 Earnings Call Transcript

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