Humana Inc.

    HUM ·NYSE ·Hospital & Medical Service Plans ·Inc. in DE
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    From 10-Q filed 2026-04-29 (period ending 2026-03-31).



    Humana Inc.
    ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF
    FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    The condensed consolidated financial statements of Humana Inc. in this document present the Company’s financial position, results of operations and cash flows, and should be read in conjunction with the following discussion and analysis. References to “we,” “us,” “our,” “Company,” and “Humana” mean Humana Inc. and its subsidiaries. This discussion includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. When used in filings with the Securities and Exchange Commission, or SEC, in our press releases, investor presentations, and in oral statements made by or with the approval of one of our executive officers, the words or phrases like “believes,” “expects,” “anticipates,” “intends,” “likely will result,” “estimates,” “projects” or variations of such words and similar expressions are intended to identify such forward–looking statements. These forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties and assumptions, including, among other things, information set forth in Item 1A. – Risk Factors in our 2025 Form 10-K, as modified by any changes to those risk factors included in this document and in other reports we filed subsequent to February 19, 2026, in each case incorporated by reference herein. In making these statements, we are not undertaking to address or update such forward-looking statements in future filings or communications regarding our business or results. In light of these risks, uncertainties and assumptions, the forward–looking events discussed in this document might not occur. There may also be other risks that we are unable to predict at this time. Any of these risks and uncertainties may cause actual results to differ materially from the results discussed in the forward-looking statements.
    Executive Overview
    General
    Humana Inc., headquartered in Louisville, Kentucky, is a leading U.S. healthcare company. Through our Humana insurance services and our CenterWell healthcare services, we make it easier for the millions of people we serve to achieve their best health – delivering the care and service they need, when they need it. These efforts are leading to a better quality of life for people with Medicare and Medicaid, families, individuals, military service personnel, and communities at large.
    Our industry relies on two key statistics to measure performance. The benefit ratio, which is computed by taking
    total benefits expense as a percentage of premiums revenue, represents a statistic used to measure underwriting profitability. The operating cost ratio, which is computed by taking total operating costs, excluding depreciation and amortization, as a percentage of total revenues less investment income, represents a statistic used to measure administrative spending efficiency.
    MaxHealth Acquisition
    On February 13, 2026, we acquired MaxHealth, a leading primary care platform focused on providing high-quality, integrated care to adults and senior patients throughout Florida, for cash consideration of approximately $908 million, net of cash acquired. This resulted in a preliminary purchase price allocation to goodwill of approximately $800 million, other intangible assets of $71 million, and net tangible assets acquired of $59 million. The other intangible assets, which primarily consist of member relationships and trade names, have an estimated weighted average useful life of 6.9 years. The purchase price allocation is preliminary, subject to completion of valuation analysis, including for example, refining assumptions used to calculate the fair value of intangible assets.
    Value Creation Initiatives
    In order to create capacity to fund growth in our businesses, we committed to drive additional value for the enterprise through cost saving and productivity initiatives. In addition, in response to sustained macroeconomic, regulatory and competitive pressures impacting the industry, we initiated a substantial multi-year transformation program designed to re-align our cost structure, operating model and technology footprint with evolving market conditions.
    As a result of these initiatives, we recorded charges of $98 million and $24 million for the three months ended March 31, 2026 and 2025, respectively, within operating costs in the consolidated statements of income. The charges primarily relate to external consulting spend, severance and other employee related charges in connection

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    with workforce optimization, and asset impairments for the three months ended March 31, 2026 and 2025. We expect to incur additional charges over the course of the program.
    Business Segments

    Our two reportable segments, Insurance and CenterWell, are based on a combination of the type of health plan customer and adjacent businesses centered on well-being solutions for our health plans and other customers, as described below. Our Chief Executive Officer, the Chief Operating Decision Maker, utilizes these segment groupings and results of each segment, measured by income (loss) from operations, to assess performance and allocate resources primarily during our annual budget process and periodic forecast updates.
    The Insurance segment consists of Medicare benefits, marketed to individuals or directly via group Medicare accounts, as well as our stand-alone prescription drug plans, or PDP, and contracts with various states to provide Medicaid, and Long-Term Support Services benefits, which we refer to collectively as our state-based contracts. This segment also includes products consisting of specialty health insurance benefits marketed to individuals and employer groups, including dental, vision, and other supplemental health benefits. In addition, our Insurance segment includes our Military services business as well as the operations of our PBM business.
    The CenterWell segment includes our pharmacy solutions, primary care, and home solutions operations. Services offered by this segment are designed to enhance the overall healthcare experience. These services may lead to lower utilization associated with improved member health and/or lower drug costs.
    Transactions between reportable segments primarily consist of sales of products and services rendered by our CenterWell segment, primarily pharmacy solutions, primary care, and home solutions, to our Insurance segment customers. Intersegment sales and expenses are recorded primarily at fair value and eliminated in consolidation. Members served by our segments often use the same provider networks, enabling us in some instances to obtain more favorable contract terms with providers. Our segments also share indirect costs and assets. As a result, the profitability of each segment is interdependent. We allocate most operating expenses to our segments. Assets and certain corporate income and expenses are not allocated to the segments, including the portion of investment income not supporting segment operations, interest expense on corporate debt, and certain other corporate expenses. These items are managed at a corporate level. These corporate amounts are reported separately from our reportable segments and are included with intersegment eliminations.
    Seasonality
    Our Medicare benefit costs rise as members pay their contractual portion of claims responsibility, progress through their annual deductible and maximum out-of-pocket expenses, as well as incurring higher episodic cost of care resulting in a higher benefit ratio throughout the year.
    Our quarterly Insurance segment earnings and operating cash flows are impacted by the Medicare Part D benefit design and changes in the composition of our stand-alone PDP membership. The Medicare Part D benefit design results in coverage that varies as a member’s cumulative out-of-pocket costs pass through successive stages of a member’s plan period, which begins annually on January 1 for renewals. The benefit design changes associated with the implementation of the Inflation Reduction Act of 2022, or IRA, reduced out-of-pocket costs for beneficiaries, resulting in greater cost sharing and a leveling of net prescription costs throughout the year. In addition, the number of low income senior members as well as year-over-year changes in the mix of membership in our stand-alone PDP products affects the quarterly benefit ratio pattern.
    The Insurance segment also experiences seasonality in the operating cost ratio as a result of costs incurred in the
    second half of the year associated with the Medicare marketing season.

    2026 Highlights

    •Our strategy is to offer our members affordable health care combined with a positive consumer experience in growing markets. At the core of this strategy is our integrated care delivery model, which unites quality

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    care, high member engagement, and sophisticated data analytics. Our approach to primary, physician-directed care for our members aims to provide quality care that is consistent, integrated, cost-effective, and member-focused, provided by both employed physicians and physicians with network contract arrangements. The model is designed to improve health outcomes and affordability for individuals and for the health system as a whole, while offering our members a simple, seamless healthcare experience. We believe this strategy is positioning us for long-term growth in both membership and earnings. We offer providers a continuum of opportunities to increase the integration of care and offer assistance to providers in transitioning from a fee-for-service to a value-based arrangement. These include performance bonuses, shared savings and shared risk relationships. At March 31, 2026, approximately 4,088,800 members, or 64%, of our individual Medicare Advantage members were in value-based relationships under our integrated care delivery model, as compared to 3,501,700 members, or 67%, at March 31, 2025.
    •Net income attributable to Humana was $1.19 billion, or $9.83 per diluted common share, and $1.24 billion, or $10.30 per diluted common share, for the three months ended March 31, 2026 and 2025, respectively. These comparisons were impacted by put/call valuation adjustments associated with non-consolidating minority interest investments and charges associated with value creation initiatives. The impact of these adjustments to our consolidated income before income taxes and equity in net losses and diluted earnings per common share was as follows for the 2026 and 2025 quarter:
    For the three months ended March 31,
    20262025
    (in millions)
    Consolidated income before income taxes and equity in net losses:
    Put/call valuation adjustments associated with our non consolidating minority interest investments$(34)$163 
    Value creation initiatives98 24 
    Total$64 $187 
    For the three months ended March 31,
    20262025
    Diluted earnings per common share:
    Put/call valuation adjustments associated with our non consolidating minority interest investments$(0.28)$1.35 
    Value creation initiatives0.81 0.20 
    Cumulative net tax impact(0.12)(0.36)
    Total$0.41 $1.19 

















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    Regulatory Environment

    We are and will continue to be regularly subject to new laws and regulations, changes to existing laws and regulations, and judicial determinations that impact the interpretation and applicability of those laws and regulations. The Health Care Reform Law, the Families First Act, the CARES Act, and the Inflation Reduction Act, and related regulations, are examples of laws which have enacted significant reforms to various aspects of the U.S. health insurance industry, including, among others, mandated coverage requirements, mandated benefits and guarantee issuance associated with insurance products, rebates to policyholders based on minimum benefit ratios, adjustments to Medicare Advantage premiums, the establishment of federally facilitated or state-based exchanges coupled with programs designed to spread risk among insurers, and the introduction of plan designs based on set actuarial values, and changes to the Part D prescription drug benefit design.
    It is reasonably possible that these laws and regulations, as well as other current or future legislative, judicial or regulatory changes including restrictions on our ability to manage our provider network, manage and sell our products, or otherwise operate our business, or restrictions on profitability, including reviews by regulatory bodies that may compare our Medicare Advantage profitability to our non-Medicare Advantage business profitability, or compare the profitability of various products within our Medicare Advantage business, and require that they remain within certain ranges of each other, increases in member benefits or changes to member eligibility criteria without corresponding increases in premium payments to us, further restrictions on ownership structure, service arrangements, or fee payments between intercompany or vertically-integrated assets, increases in regulation of our prescription drug benefit businesses, reductions in reimbursement rates, or changes to the Part D prescription drug benefit design (and uncertainty arising from the implementation of these changes) in the aggregate may have a material adverse effect on our results of operations (including restricting revenue, enrollment and premium growth in certain products and market segments, restricting our ability to expand into new markets, increasing our medical and operating costs, further lowering our Medicare payment rates and increasing our expenses associated with assessments); our financial position (including our ability to maintain the value of our goodwill); and our cash flows.

    We intend for the discussion of our financial condition and results of operations that follows to assist in the understanding of our financial statements and related changes in certain key items in those financial statements from year to year, including the primary factors that accounted for those changes. Transactions between reportable segments primarily consist of sales of products and services rendered by our CenterWell segment, primarily pharmacy solutions, primary care, and home solutions, to our Insurance segment customers and are described in Note 14 to the condensed consolidated financial statements included in this report.

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    Comparison of Results of Operations for 2026 and 2025
    The following discussion primarily deals with our results of operations for the three months ended March 31, 2026, or the 2026 quarter and the three months ended March 31, 2025, or the 2025 quarter.
    Change
    Three months ended March 31,Three months ended March 31, 2026 vs 2025
    20262025$%
    ($ in millions, except per common share results)
    Revenues:
    Insurance premiums$37,709$30,514$7,19523.6%
    Services:
    Insurance247252(5)(2.0)%
    CenterWell1,4281,08234632.0%
    Corporate2—2100.0%
    Total services revenue1,6771,33434325.7%
    Investment income262264(2)(0.8)%
    Total revenues39,64832,1127,53623.5%
    Operating expenses:
    Benefits33,70726,5357,17227.0%
    Operating costs4,0243,38064419.1%
    Depreciation and amortization163183(20)(10.9)%
    Total operating expenses37,89430,0987,79625.9%
    Income from operations1,7542,014(260)(12.9)%
    Interest expense1931603320.6%
    Other (income) expense, net(34)163197120.9%
    Income before income taxes and equity in net losses1,5951,691(96)(5.7)%
    Provision for income taxes395406(11)(2.7)%
    Equity in net losses(16)(43)(27)(62.8)%
    Net income$1,184$1,242$(58)(4.7)%
    Diluted earnings per common share$9.83$10.30$(0.47)(4.6)%
    Benefit ratio (a)89.4%87.0%2.4%
    Operating cost ratio (b)10.2%10.6%(0.4)%
    Effective tax rate25.0%24.6%0.4%
    (a)Represents benefits expense as a percentage of premiums revenue.
    (b)Represents operating costs, excluding depreciation and amortization, as a percentage of total revenues less investment income.

    Premiums Revenue

    Consolidated premiums revenue increased $7.2 billion, or 23.6%, from $30.5 billion in the 2025 quarter to $37.7 billion in the 2026 quarter primarily reflecting membership growth across the Medicare businesses in 2026, higher per member Medicare Advantage (MA) and stand-alone PDP premiums largely driven by an increase in MA benchmark funding from the Centers for Medicare and Medicaid Services (CMS) and the increased Part D direct subsidy as a result of the Inflation Reduction Act (IRA). These factors were partially offset by the previously disclosed Bonus Year (BY) 2026 Star Ratings headwind.



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    Services Revenue

    Consolidated services revenue increased $0.3 billion, or 25.7%, from $1.3 billion in the 2025 quarter to $1.7 billion in the 2026 quarter primarily reflecting the increased payor-agnostic client base across the CenterWell platform partially offset by the final year of the phase-in of the v28 risk model revision.
    Investment Income
    Investment income was relatively unchanged from $264 million in the 2025 quarter to $262 million in the 2026 quarter.
    Benefit Expense    
    Consolidated benefits expense increased $7.2 billion, or 27.0%, from $26.5 billion in the 2025 quarter to $33.7 billion in the 2026 quarter. The consolidated benefit ratio increased 240 basis points from 87.0% for the 2025 quarter to 89.4% for the 2026 quarter primarily reflecting the BY 2026 Star Ratings revenue headwind, the effect of the individual MA membership growth during the most recent Annual Election Period (AEP) and Open Enrollment Period (OEP) as the new members, on average, run at a higher benefit ratio as compared to retained members (excluding the impact of the BY 2026 Star Ratings headwind) and the anticipated lower favorable prior-period medical claims reserve development in the 2026 quarter compared to the 2025 quarter. These factors were partially offset by the 2026 individual MA pricing, inclusive of the MA funding environment (excluding the BY 2026 Star Ratings headwind) combined with our ongoing clinical excellence efforts, more than offsetting the assumption of claims trend (with largely stable benefits year over year), and the benefit of our group MA recontracting efforts for the 2026 plan year.
    Consolidated benefits expense included $389 million of favorable prior-period medical claims reserve development in the 2026 quarter and $477 million of favorable prior-period medical claims development in the 2025 quarter. This development does not directly correspond to our operating results as a portion is attributable to provider risk-sharing arrangements, which are accounted for separately based on contractual terms.
    Operating Costs
    Our segments incur both direct and shared indirect operating costs. We allocate the indirect costs shared by the segments primarily as a function of revenues. As a result, the profitability of each segment is interdependent.
    Consolidated operating costs increased $0.6 billion, or 19.1%, from $3.4 billion in the 2025 quarter to $4.0 billion in the 2026 quarter. The consolidated operating cost ratio decreased 40 basis points from 10.6% for the 2025 quarter to 10.2% for the 2026 quarter primarily reflecting operating leverage associated with increased revenues from membership growth across the Medicare businesses in 2026 combined with an improved MA benchmark funding rate and increased Part D direct subsidy resulting from the IRA, as well as the progress on our previously discussed tactical cost cutting and transformation initiatives combined with the beneficial impact of our prior value creation initiatives that have driven administrative cost efficiencies. These factors were partially offset by the impact of the previously disclosed BY 2026 Star Ratings headwind and a higher CenterWell operating cost ratio.
    Depreciation and Amortization
    Depreciation and amortization decreased $20 million, or 10.9%, from $183 million in the 2025 quarter to $163 million in the 2026 quarter primarily due to decreased capital spending.
    Interest Expense
    Interest expense increased $33 million, or 20.6%, from $160 million in the 2025 quarter to $193 million in the 2026 quarter primarily due to financing costs and higher average debt balances.


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    Income Taxes
    The effective income tax rate was 25.0% and 24.6% for the three months ended March 31, 2026 and 2025, respectively. The year-over-year increase in the effective income tax rate is primarily due to increased state tax expense.

    Insurance Segment
     March 31,Change
     20262025Members%
    Membership:
    Individual Medicare Advantage6,393,300 5,215,800 1,177,500 22.6 %
    Group Medicare Advantage729,200 572,600 156,600 27.3 %
    Medicare stand-alone PDP3,860,600 2,433,100 1,427,500 58.7 %
    Total Medicare10,983,100 8,221,500 2,761,600 33.6 %
    Medicare Supplement536,800 420,500 116,300 27.7 %
    State-based contracts and other1,561,300 1,608,100 (46,800)(2.9)%
    Military services 4,630,200 4,588,900 41,300 0.9 %
    Total Medical Membership17,711,400 14,839,000 2,872,400 19.4 %
    Total Specialty Membership4,912,300 4,688,400 223,900 4.8 %
    Members may not be unique to each product since members have the ability to enroll in more than one product.
    Change
    Three months ended March 31,Three months ended March 31, 2026 vs 2025
    20262025$%
    ($ in millions)
    Premiums and Services Revenue:
    Premiums:
    Individual Medicare Advantage$28,252$22,681$5,57124.6%
    Group Medicare Advantage2,9112,32258925.4%
    Medicare stand-alone PDP2,6171,4481,16980.7%
    Total Medicare33,78026,4517,32927.7%
    Specialty benefits268244249.8%
    Medicare Supplement3292517831.1%
    State-based contracts and other3,3323,568(236)(6.6)%
    Premiums revenue37,70930,5147,19523.6%
    Services:
    Military services and other247252(5)(2.0)%
    Services revenue247252(5)(2.0)%
    Total external revenues$37,956$30,766$7,19023.4%
    Income from operations$1,435$1,574$(139)(8.8)%
    Benefit ratio89.4%87.4%2.0%
    Operating cost ratio7.3%8.2%(0.9)%



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    Income from operations
    Insurance segment income from operations decreased $139 million, or 8.8%, from $1.6 billion in the 2025 quarter to $1.4 billion in the 2026 quarter primarily due to the same factors impacting the Insurance segment's benefit and operating cost ratios as more fully described below.
    Enrollment
    Individual Medicare Advantage membership increased 1,177,500 members, or 22.6%, from March 31, 2025 to March 31, 2026 reflecting net membership gains during the most recent AEP and OEP. Individual Medicare Advantage membership includes 945,100 D-SNP members as of March 31, 2026, a net increase of 146,000 D-SNP members, or 18.3%, from 799,100 D-SNP members as of March 31, 2025.
    Group Medicare Advantage membership increased 156,600 members, or 27.3%, from March 31, 2025 to March 31, 2026 reflecting net membership additions from the 2026 selling season.
    Medicare stand-alone PDP membership increased 1,427,500 members, or 58.7%, from March 31, 2025 to March 31, 2026 reflecting net membership additions from group MA recontracting efforts and the 2026 selling season.
    State-based contracts and other membership decreased 46,800 members, or 2.9%, from March 31, 2025 to March 31, 2026 primarily reflecting shifts in other membership offset by net membership additions in state-based contracts.

    Specialty membership increased 223,900 members, or 5%, from March 31, 2025 to March 31, 2026 primarily reflecting growth in group dental and vision products.

    Premiums Revenue
    Insurance segment premiums revenue increased $7.2 billion, or 23.6%, from $30.5 billion in the 2025 quarter to $37.7 billion in the 2026 quarter primarily reflecting membership growth across the Medicare businesses in 2026, higher per member MA and stand-alone PDP premiums largely driven by an increase in MA benchmark funding from CMS and the increased Part D direct subsidy as a result of the IRA. These factors were partially offset by the BY 2026 Star Ratings headwind.
    Services Revenue
    Insurance segment services revenue decreased $5 million, or 2.0%, from $252 million in the 2025 quarter to $247 million in the 2026 quarter.
    Benefits Expense
    The Insurance segment benefit ratio increased 200 basis points from 87.4% for the 2025 quarter to 89.4% for the 2026 quarter primarily reflecting the BY 2026 Star Ratings revenue headwind, the effect of the individual MA membership growth during the most recent AEP and OEP as the new members, on average, run at a higher benefit ratio as compared to retained members (excluding the impact of the BY 2026 Star Ratings headwind) and the anticipated lower favorable prior-period medical claims reserve development in the 2026 quarter compared to the 2025 quarter. These factors were partially offset by the 2026 individual MA pricing, inclusive of the MA funding environment (excluding the BY 2026 Star Ratings headwind) combined with our ongoing clinical excellence efforts, more than offsetting the assumption of claims trend (with largely stable benefits year over year), and the benefit of our group Medicare Advantage recontracting efforts for the 2026 plan year.




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    Operating Costs
    The Insurance segment operating cost ratio decreased 90 basis points from 8.2% for the 2025 quarter to 7.3% for the 2026 quarter primarily reflecting operating leverage associated with increased revenues from membership growth across the Medicare businesses in 2026 combined with an improved MA benchmark funding rate and increased Part D direct subsidy resulting from the IRA, as well as the progress on our previously discussed tactical cost cutting and transformation initiatives combined with the beneficial impact of prior value creation initiatives that have driven administrative cost efficiencies. These factors were partially offset by the impact of the previously disclosed BY 2026 Star Ratings headwind.
    CenterWell Segment
    Change
    Three months ended March 31,Three months ended March 31, 2026 vs 2025
    20262025$%
    ($ in millions)
    Revenues:
    Services:
    Home solutions$343$335$82.4%
    Pharmacy solutions297278196.8%
    Primary care78846931968.0%
    Total external revenues1,4281,08234632.0%
    Intersegment revenues:
    Home solutions

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    Next expected filings

    • ~2026-07-29 10-Q expected by 2026-08-08 (in 89 days)
    • ~2026-11-04 10-Q expected by 2026-11-14 (in 187 days)
    • ~2027-02-18 10-K expected by 2027-03-03 (in 293 days)
    • ~2027-04-28 10-Q expected by 2027-05-08 (in 362 days)

    Predicted from historical filing cadence; not an SEC commitment.

    Recent SEC filings

    • 2026-04-29 8-K Earnings Release; Regulation FD Disclosure; Financial Statements and Exhibits
    • 2026-04-29 10-Q Quarterly Report
    • 2026-04-16 S-8 Employee Benefit Plan Registration
    • 2026-04-10 8-K Officer/Director Change
    • 2026-03-09 8-K Material Agreement Entered; Material Financial Obligation; Other Events; Financial Statements and Exhibits
    • 2026-02-19 10-K Annual Report
    • 2026-02-11 8-K Earnings Release; Regulation FD Disclosure; Financial Statements and Exhibits
    • 2025-12-16 8-K Officer/Director Change; Regulation FD Disclosure; Financial Statements and Exhibits
    • 2025-11-05 10-Q Quarterly Report
    • 2025-11-05 8-K Earnings Release; Regulation FD Disclosure; Financial Statements and Exhibits
    • 2025-07-30 10-Q Quarterly Report
    • 2025-07-30 8-K Earnings Release; Regulation FD Disclosure; Financial Statements and Exhibits
    • 2025-05-30 8-K Material Agreement Entered; Material Financial Obligation; Financial Statements and Exhibits
    • 2025-04-30 10-Q Quarterly Report
    • 2025-04-30 8-K Earnings Release; Regulation FD Disclosure; Financial Statements and Exhibits