Humana Q1 Earnings Call Highlights

Key Points

• Humana said Q1 “tracked expectations” and reiterated its top priority to return to a sustainable margin of at least 3% by 2028, with 2027 bid strategy emphasizing retention and TVC considerations while treating growth as a distant third.
• Early operational indicators show Medicare Advantage members — new and existing — are “performing in line to better” than guidance, the company built prudent IBNR reserves, and management is confident in returning to top‑quartile Stars in PY2028 while reporting early PY2029 gap‑closure roughly 5% ahead for key HEDIS metrics.
• On capital and governance, Humana issued $1 billion of junior subordinated notes and used reinsurance/legal‑entity moves to mitigate more than $3 billion of 2026 capital needs, will limit buybacks while maintaining dividends, is pursuing non‑core divestitures, and announced an Insurance leadership transition with Renaudin retiring and Aaron Martin and John Barger stepping into expanded roles.

Humana NYSE: HUM executives said the company’s first-quarter performance tracked as expected and reiterated its longer-term plan to rebuild Medicare Advantage profitability, while also outlining ongoing operational changes, balance-sheet actions, and growth initiatives at CenterWell.

Management says Q1 tracked expectations; focus turns to 2027 bids and 2028 margin target

President and CEO Jim Rechtin said Humana was “pleased with our first quarter” primarily because results were “where we expect it to be.” He said the company is now “turning our attention to bids” with a focus on returning “to a sustainable margin of at least 3% in 2028” and making progress toward that goal in 2027, commitments previously laid out at the company’s Investor Day.

Rechtin said membership growth is “on track” and that membership performance three months into the year is “performing as expected.” As Humana looks to the 2027 plan year, he also noted “appreciation for CMS’s engagement on the improved rate notice,” while emphasizing that “medical cost trend continues to outpace program funding.”

On bidding priorities, Rechtin told analysts Humana’s first priority is being “back to a normalized margin of at least 3% in 2028,” with bid decisions incorporating factors such as total value component (TVC) considerations and what the company does and does not know about newer member cohorts. He said the second priority is retention—“retention, retention”—and that growth is a “distant third priority.”

Insurance Segment President George Renaudin added that the company is approaching bids “market by market,” considering local provider environments and geographies, and said benefit and geographic adjustments are being evaluated in light of medical trend and the funding environment.

Early indicators: Medicare Advantage members tracking in line to better; reserves set prudently

Chief Financial Officer Celeste Mellet said available information to date suggests Medicare Advantage members—both new and existing—are “performing in line to better than our guidance,” even after adjusting for a milder flu season and winter storms. She said indicators the company is monitoring include risk scores, hospital admits per thousand (APTs), pharmacy claims, and initial medical claims still completing for the first quarter, as well as April trends.

Mellet said Humana took a “prudent approach to claims reserves” in the quarter given the early point in the year and membership growth, responding to a question about incurred-but-not-reported (IBNR) reserves rising more than membership. “We believe we are prudently reserved,” she said, adding that April trends were “fairly consistent with what we saw in the first quarter.”

On seasonality, Mellet said the company’s medical loss ratio expectations for the second quarter versus the first are influenced by prior-period development (PPD) dynamics. She said Humana “released more PPD in the first quarter of 2025 than the first quarter of 2026,” making the first-to-second quarter seasonality “less pronounced than it was last year.”

Mellet also addressed questions about flu and weather impacts, saying the company already reflected a “more beneficial flu season” in guidance and that any incremental benefit was “very, very modestly better” and “de minimis.” On weather, she said Humana’s plan concentration was in areas less affected, and after isolating weather, the company was still seeing favorability “running in line to ahead” on the indicators cited.

Rechtin and Mellet also described expanded monitoring efforts. Rechtin said it is “not so much that we’re looking at new and more indicators,” but rather a more disciplined cadence to understand trend “more in real time.” Mellet said the company is doing more work on the “front end of claims” to look for anomalies—such as regional provider and DRG differences—and is spending more time analyzing claims inventory, while also going deeper on new-member components to identify “hotspots faster if they exist.”

Stars and quality: confidence in PY 2028 trajectory; early signs for PY 2029

Rechtin said Humana’s outlook for Payment Year 2028 Star Ratings “has not changed” and that the company remains confident it is on track “to return to top quartile Stars results in PY 2028.” He cautioned, however, that Humana does not know “industry thresholds” and “cannot guarantee an outcome in October.” The company expects to share more detail on progress during its second-quarter call once the hybrid season is complete.

For Payment Year 2029 Stars, Rechtin said the company is seeing “a strong early start” from new early-engagement efforts. As an example, he said Humana is identifying certain chronic conditions among new members faster than in the past, improving targeting for gap-closure efforts. He said that at the end of the first quarter, Humana was “about 5% ahead of last year’s gap closure pace on a per member basis” for certain key HEDIS metrics.

CenterWell growth, MaxHealth acquisition, and Medicaid membership increase

Rechtin said Humana recently completed the acquisition of MaxHealth, describing it as a Florida-based primary care organization that expands CenterWell’s reach into new markets. He also said Medicaid membership grew by “approximately 50,000 lives,” largely driven by January program starts in Michigan, Illinois, and South Carolina.

CenterWell President Dr. Sanjay Shetty said CenterWell delivered “solid growth across each of our lines of business” in the first quarter, supported by Humana membership growth and “continued agnostic expansion.” Shetty highlighted several operating updates:

• Pharmacy: Shetty said CenterWell continues to see “industry-leading mail order penetration” for Medicare members and “nice uptake by new members in 2026,” while expanding agnostic volume across specialty, direct-to-consumer, and direct-to-employer channels. He referenced a newly announced Cost Plus partnership.
• Primary care: Shetty said patient growth was up 110,000 sequentially, or 22.5%, driven by organic growth and the MaxHealth acquisition.
• Home: He said CenterWell Home Health and onehome saw solid growth, including a next phase launch of a skilled nursing facility value-based care model now covering an additional 2 million patients.

Shetty said some first-quarter items “will not repeat,” and “in some cases, will actually reverse later in the year.” Examples he cited included skin substitute costs in the ACO REACH program within the primary care organization—both current-year and runout from prior year—“for which CMS will hold us harmless,” timing-related integration items tied to The Villages Health acquisition, and transaction and integration costs associated with MaxHealth that were not previously contemplated in first-quarter guidance.

Mellet added that CenterWell comparisons were difficult versus the prior year due to “one-time positivity” in specialty pharmacy in the first quarter of 2025 related to drug mix, and some favorability in the primary care organization. She said CenterWell’s operating cost ratio in 2026 is expected to be more “normalized” through the year and pointed to 2024 as a better reference for seasonality, noting CenterWell delivered about 20% of its earnings in the first quarter of 2024 and that Humana expects about the same in 2026.

Balance sheet actions, capital deployment, and leadership transition

Mellet said Humana has been working over the past 12 months to increase balance sheet “efficiency and resiliency,” including bolstering liquidity and addressing future funding needs. She highlighted a $1 billion issuance of junior subordinated notes completed in March, which she said is expected to fund 2027 maturities.

She also described balance sheet optimization initiatives, including “deploying subsidiary reinsurance and augmenting legal entity structures,” which she said mitigated “over $3 billion in capital contribution requirements for 2026.” Mellet said the company is maintaining dividend levels and limiting share repurchases to amounts needed to offset dilution from employee stock compensation, with an intent to increase both as cash flows and funding capacity grow. She said Humana is also pursuing “non-core asset divestitures” to help fund strategic acquisitions and expects to share more over the next several months.

On a question about Welsh, Carson put/call options, Mellet said the company needs to make a decision “in the middle of this year.” If Welsh, Carson exercises its put option next year, she said the first put would be “about $1 billion–$1.5 billion in 2027,” adding that the 2025 cohort could be put in 2027 and that Humana has included potential outflows related to puts or calls in its funding plan.

Rechtin also provided an update on an Insurance leadership transition. He said Renaudin will retire effective June 29, 2026, and will focus primarily on the annual MA bid process until then while serving as a strategic advisor through at least the end of 2026. Aaron Martin, currently President of Medicare Advantage, will begin leading day-to-day management of the Insurance Segment immediately and will formally assume the segment president role upon Renaudin’s retirement. Rechtin said John Barger will lead MA operations effective immediately and will formally assume the President of Medicare Advantage role when Martin transitions.

In closing remarks, Rechtin reiterated expectations that Humana will “double individual MA margin in 2026, adjusted for stars,” and said the company will remain disciplined in pricing as it works to “unlock the earnings power of the business by 2028.”

About Humana NYSE: HUM

Humana Inc NYSE: HUM is a health insurance company headquartered in Louisville, Kentucky, that primarily serves individuals and groups across the United States. The company is best known for its Medicare business, offering Medicare Advantage plans and prescription drug (Part D) coverage, alongside a range of commercial and employer-sponsored group health plans. Humana's products are designed to cover medical, behavioral health and pharmacy needs for members, with particular emphasis on seniors and Medicare-eligible populations.

In addition to traditional insurance products, Humana provides care-management and wellness services intended to support chronic-condition management, preventive care and care coordination.

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