Earnings call transcript: Humana Q2 2025 sees solid growth, stock dips

Humana Inc. reported its second-quarter 2025 earnings, revealing a robust performance driven by its CenterWell Pharmacy and Medicare Advantage memberships. Despite raising its full-year EPS outlook, Humana’s stock fell by 2.6% to $275 in aftermarket trading, reflecting investor concerns over membership declines and strategic investments.

Key Takeaways

• Humana increased its full-year 2025 EPS outlook from $16.25 to $17.00.
• Membership decline estimates improved from 550,000 to 500,000.
• The stock price dropped 2.6% in aftermarket trading.
• Investments of $100 million are focused on transformation and retention.

Company Performance

Humana demonstrated strong performance in Q2 2025, with significant contributions from its CenterWell Pharmacy and a better-than-expected individual Medicare Advantage membership. The company is actively expanding its primary care clinics and simplifying its authorization processes to enhance service delivery. Despite a challenging market environment, Humana’s strategic initiatives reflect its commitment to long-term growth.

Financial Highlights

• Revenue: Not specified in the earnings call summary.
• Earnings per share: Raised outlook to $17.00 for 2025.
• Membership decline: Improved estimate to 500,000 from 550,000.

Outlook & Guidance

Looking forward, Humana maintains its focus on stable Medicare Advantage margins and anticipates continued growth in its primary care and pharmacy segments. The company projects low double-digit pharmacy trends for 2026 and remains dedicated to enhancing shareholder value.

Executive Commentary

"We are seeing better than expected performance," said Celeste Milas, CFO. CEO Jim Rechtin expressed confidence in the company’s fundamentals, stating, "We continue to have conviction that the strong core fundamentals and growth outlook for MA will allow us to deliver compelling shareholder value over the long term."

Risks and Challenges

• Membership decline: Although improved, the decline still poses a risk to growth.
• Market competition: Conservative benefit design may impact competitiveness.
• Regulatory changes: Potential impacts from home health rules and litigation.
• Cost management: Challenges in streamlining operations and outsourcing.

Q&A

During the earnings call, analysts inquired about Humana’s STARS performance, membership dynamics, and the impact of regulatory changes. The company addressed these concerns, emphasizing its strategic focus on maintaining competitive benefits and exploring growth opportunities.

Full transcript - Humana Inc (HUM) Q2 2025:

Speaker 9: Good day, and thank you for standing by. Welcome to the Humana second 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’ll 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 would now like to hand the conference over to Lisa Stoner, Vice President of Investor Relations. Please go ahead.

Lisa Stoner, Vice President of Investor Relations, Humana: Thank you, and good morning. I hope everyone had a chance to review our press release and prepared remarks, which are both 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 Milas. Following these remarks, we will host a question-and-answer session where Jim and Celeste will be joined by George Renaudin, President of Humana’s Insurance Segment. 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, our other filings with the Securities and Exchange Commission, and our second 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 releases, 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 reconciliations 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, the call is being 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 Rechtin.

Jim Rechtin, President and Chief Executive Officer, Humana: Thank you, Lisa. Good morning, everyone, and thank you for joining us. As you’ve already seen, we delivered a good second quarter and first half relative to our expectations. The outperformance was driven primarily by CenterWell Pharmacy as well as better-than-expected individual MA membership. Our second quarter medical cost trends were in line with expectations, and given these results and our solid first quarter, we are raising our full year 2025 EPS outlook from approximately $16.25 to approximately $17. While we still have challenges to navigate, the external environment this year continues to evolve largely in line with our expectations, and we are executing against our plan. There’s actually a lot happening, and I have a great deal to cover today, so let me just remind everybody that I’ll frame my comments as I typically do around the four basic drivers of our business.

The first driver is MA product and experience, which drive customer growth and retention. Second is clinical excellence, which delivers clinical outcomes and medical margin. Third is delivering a highly efficient back office. And fourth is capital allocation and growth in both CenterWell and Medicaid. Let me start with our Medicare product and experience. Individual MA membership, as I mentioned before, has declined less than we expected. Part of this improvement is that we’ve seen more bounce-back members, and so these are members who chose another plan last autumn during AEP but have come back to us during OEP and ROI. These members typically have better year-one economics because we know them, and we can provide better clinical care.

As you may remember from Investor Day, our retention strategy is an important lever for us on our path to more sustainable and reliable margins, and so we’re excited to see these members returning to Humana. We’re also taking aggressive steps to continue to improve the experience for our members in an effort to build upon this performance. There’s a couple of examples. The first is last week, Humana announced new actions to simplify and streamline the prior authorization process. This builds on the recent commitments made by multiple health plans, including Humana, that were announced by AHIP in June. Humana’s actions, which go even further than our initial commitment through AHIP, will help ensure our members get the right care in a timely manner while also reducing administrative burdens for physicians as well as improving the experience for our members.

I think it’s important that we remind everyone that we believe that prior authorization is an important check and balance to ensure appropriate care. It’s just that it should be invisible to our members. In another example of our focus on experience, we have entered into a new partnership with the healthcare software company Epic. This partnership makes Humana the first health insurer to integrate health plan information directly into MyChart accounts. Why is this important? This brings health plan coverage information into the same place where members frequently go to manage their care decisions. In essence, it provides increased transparency to the cost of care. We know that visibility into the cost of care when care decisions are being made is a big deal for our members, and we want to do everything we can to provide that visibility and transparency. Now, let me turn to clinical excellence.

We are going to focus today almost exclusively on STARS. We’ll hit BY 27 and 28 along with the STARS litigation. I’ll start with the STARS litigation. The court dismissed our case a couple of weeks ago on administrative grounds. They did this because we had not exhausted the optional appeals process with CMS when we originally filed our lawsuit. The appeals process with CMS is now over, and so we have refiled our STARS case in the same court. As we wait for a new ruling, our path forward remains the same. We are continuing to press ahead with urgency on BY 27 and BY 28. Operationally, we are continuing to make strong progress. We are closing gaps in care and driving both quality and experience for our customers, and so there’s no change in our message or our tone here today.

As a reminder for BY 27 results, we will be entering a quiet period when we receive plan preview data. After today’s call, we will not be discussing BY 27 STARS until the final results are released by CMS in October. Shifting to the area of a highly efficient back office, we have a lot of activity happening in this area right now. During Investor Day, we shared that we were focused on transforming the organization. Transforming the organization to enable scalable growth and drive operating leverage. This is a multi-year transformation, and it will include both near-term tactical cost programs but also longer-term efforts to change how we operate through increased automation and use of technology. This week, we notified eligible employees of an early retirement program to help accelerate efforts with our operating model and to streamline costs.

In the next few months, we will also be expanding our efforts to contract out additional aspects of our shared services functions. We are doing this in an effort to streamline and optimize outsourcing capabilities. We will also be evolving some of our employee benefits to bring them in line with industry standards. I really want to emphasize that while these changes will reduce cost, the intent is to enable our broader strategy. This will be a multi-year transformation. It will be taken at a measured pace, and the objective is to create a more nimble, technology-enabled organization that can respond more quickly to consumer needs and expectations. Now, let me turn to capital allocation and the growth of our Medicaid and CenterWell businesses. We’re seeing exciting progress in both businesses right now. Strategic expansion of Medicaid continues with the launch of the Virginia contract.

This brings our active footprint to 10 states, with three more states awarded and pending. I know there’s been a lot of curiosity about the impact of the Big Beautiful Bill. Our footprint in Medicaid is largely in non-expansion states, and it tends to be skewed towards the LTSS, or long-term services and supports population. These geographies and this population are less impacted by the bill. So while the bill will certainly have some impact, we expect it to be more muted for us versus Medicaid broadly. We remain committed to our Medicaid strategy and the assumptions we made at Investor Day about margin progression. Finally, we are encouraged by our CenterWell Pharmacy outperformance year to date. This has been driven by two things. We’ve seen higher direct-to-consumer volume, and we have seen favorability in specialty pharmacy, which is seeing higher volumes and more favorable drug mix than expected.

To conclude, all in, we are pleased with our solid performance year to date and our improved full year 2025 outlook. As we look ahead, we remain focused on delivering a more stable and compelling MA margin. We continue to have conviction that the strong core fundamentals and growth outlook for MA will allow us to deliver compelling shareholder value over the long term. With that, I will turn it to Celeste for a few remarks before we go to Q&A.

Lisa Stoner, Vice President of Investor Relations, Humana: Thank you, Jim. Our second quarter results reflect solid execution across the enterprise as we focus on returning the business to its full earnings power. While we remain appropriately prudent in our assumptions heading into the back half of the year, to date, the underlying fundamentals of the business, including membership and patient growth, revenue, and medical cost trends, are developing in line to better than expected. We are pleased that our performance and outlook support our improved full year adjusted EPS outlook of approximately $17. It is important to note that this outlook contemplates an additional approximately $100 million in incremental investments to improve member and patient outcomes and support operational excellence.

The additional investments are focused in areas where we have seen strong returns to date, such as pairing in-home visits with virtual health to better engage members who do not have a primary care provider and closing gaps in care. Turning to the balance sheet and capital deployment, we continue to execute on our efforts to increase the efficiency of our balance sheet and fortify our foundation, and we are making progress on the sale of non-core assets and optimizing our capital requirements. We will share more on these efforts as plans finalize in the coming months. With respect to capital deployment, we will remain prudent in our near-term approach, taking a balanced view to evaluating capital investments and returns.

As I shared with you at our recent Investor Day, we intend to focus on maximizing shareholder value by executing on share buybacks to offset dilution from stock-based compensation, growing dividends in line with earnings as they recover, and over the long term, executing on accretive M&A for which we have a proven track record. Accordingly, we completed approximately $100 million of share repurchases in the second quarter to offset dilution from employee issuance and do not have additional repurchases contemplated for 2025. During the quarter, we also opportunistically bought back approximately $200 million of debt due in 2027 using the proceeds from our bond issuance earlier this year. Looking ahead, we will continue to manage the levers within our control, focus on delivering best-in-class clinical excellence, transforming the company to enable scalable growth, and driving enhanced operating levers.

We believe that these efforts will allow us to expand margin and realize the earnings potential of the business while driving better outcomes for members, patients, and associates. With that, I will turn the call back to Lisa to start the Q&A.

Speaker 9: Great. Thank you, Celeste and Jim. Before starting the Q&A, just a quick reminder. For fairness to those waiting in the queue, which we do have a long list in the queue, we ask that you please limit yourself to one question. Operator, with that, if you’ll please introduce the first caller.

Speaker 5: Our first question comes from Anne Hines with Mizuho.

Speaker 7: Hi, good morning. In your prepared remarks, you highlighted that cost trends were in line or better than your expectations. Can you talk about what cost trend is actually better than your expectations? Within that, can you just talk about how Medicaid is doing since some of your peers are having some trend problems in the public business? Thanks.

Lisa Stoner, Vice President of Investor Relations, Humana: Yeah, thanks, Anne. We called out that. The results we are seeing generally are in line to better than our expectations. On the revenue side, we are seeing better than expected performance. In CenterWell, we saw higher than expected patient growth earlier in the year. As Jim called out, we have seen better than expected revenue growth on the pharmacy side of things. On the insurance side, membership growth, also as Jim called out, is going to be better than expected. Our guidance now assumes membership decline of around 500,000, up to 500,000 versus 550,000 before. That is driving higher revenue with an inline MLR. In terms of our overall medical and operating costs, with the exception of the investments we called out earlier, those are trending in line within the range of our expectations, in some cases on the better end of our expectations.

To your last question on Medicaid, Jim talked a bit, and I’ll turn it over to George about the states we’re in and the programs that we’re in, which is really allowing our business to deliver on what we expected for the year. I’ll turn it over to George to talk more about that.

George Renaudin, President of Humana’s Insurance Segment, Humana: Yeah, thanks, Celeste. As you think about our Medicaid business, as Jim said, he talked about the footprint, but there are really a few reasons why you can’t extrapolate across the whole industry the Medicaid performance. That’s the result of three significant differences that you have to think about with Medicaid. One is the products that we’re in. As Jim said, we’re much more oriented towards the LTSS population than the traditional Medicaid population. That’s one factor that you have to think about. The second is the state footprint. As you think about those state footprints and where we are, we are in states that we have worked very well with the states on the rate development, and things are moving well there. One of the things you may say is, you’re large in Florida.

I think that one of our competitors did acknowledge that their Florida problem was really specific to a population that we don’t have exposure to. You have to think about product first. You have to think about the state footprints. A third part that is really important to think about with Medicaid is the network structure. We believe that our network structure, with our heavy emphasis on value-based care, creates a differentiator versus where we are elsewhere. With regard to Medicaid, we’re really proud of the development we’ve had and the expansion we’ve had into now 10 full states and three more coming online. One thing that we should also mention is, for example, we now have a new Illinois contract that will be coming on.

That’s a big opportunity for us that emphasizes our prioritization of Medicaid, where we’re focusing very hard in states that are linked, where the Medicaid and DSNPs are linked, and where Humana has an outsized dual membership to protect. We feel good about the development we’ve seen in Medicaid to date.

Lisa Stoner, Vice President of Investor Relations, Humana: Yeah, I think just to sum it up for you, Anne, Medicaid is running in line with our expectations. We’re continuing to make progress on new states, and we feel good about where we are.

Speaker 7: Thanks.

Speaker 5: Our next question comes from Kevin Fischbeck with Bank of America.

Speaker 6: Great, thanks. I was wondering if you could talk a little bit more about the performance and then any comments that you have on the CMS regulations that were just released a couple of days ago and how you’re thinking about that for 2026. Thanks.

Lisa Stoner, Vice President of Investor Relations, Humana: Hey, I will talk about performance to date, and then I’ll turn it over to George to talk about the recent CMS announcements. First, not a lot to say about Part D, the member mix, and Rx trends are tracking in line with our expectations today. If you recall, we did have—we were expecting a low double-digit trend on the Rx side of things, and it’s in line with our expectations. We haven’t seen any unexpected behavioral changes to date, and members are hitting their MoOPs so far in line with the expectations. The ramp over the course of the year as members work through that. I’ll turn it over to George on additional comments.

George Renaudin, President of Humana’s Insurance Segment, Humana: Yeah, Celeste, there’s not a lot more to say other than we did consider the IRA changes in our bid strategy and then how we set our guidance. Specialty drug trend is high. I mean, let’s just say that it is because it is. That is as expected. That is the good news, it is developing as we expected. We’re confident in the pricing strategy that we’ve seen. Our copay versus coinsurance structure is working out the way we intended. This year, we’re seeing PDP develop as we expected, as Celeste said. Members are moving through the corridors as we expected, that is good. On the pharmacy for next year and on some of the things that you’re seeing in the, for example, CMS released, the recent rules in the national average bid, et cetera. Given the uncertainty of the IRA for 2026.

We did bid back and survey given the changes in the risk corridors. It has come in, the way the risk corridors have worked and the way that the national average bid has worked is a little bit better than we expected, which is positive. From what we are seeing in the direct subsidy, the industry Part D appears to be more consistent next year and within the range of our expectations to slightly better.

Speaker 5: Our next question comes from Andrew Mok with Barclays.

Speaker 2: Hi, good morning. One of your peers noted a pretty meaningful pullback in the individual PPO market next year. Just curious how you’re thinking about the implications of that to your own membership growth and margins for next year. Thanks.

Speaker 4: Yeah, hey, let me make a couple of quick comments, and then I’m going to hand off to George to walk you through some of the specifics. First of all, it’s a big question, I know, for the entire industry right now, given all the discussions that are out there. There’s really, I think, two questions underneath the question. One is, we recognize that there’s a lot of talk about, hey, is there an unattractive population from a risk standpoint that tends to bounce around from plan to plan? And then second, why do we seem to feel good about where we’re at, as we both this year and as we head into next year? The high-level response to that is, and we try to convey this at the Investor Day, is we don’t see bad membership. We see bad benefit packages and product.

If your product and your benefit structure is in the right place, all members can be good, profitable, attractive membership. We feel like we have taken good steps in the last two years to put our product in a good place. Again, we feel good about that. We’re seeing that this year. We feel good about the trajectory into next year. To the extent that others in the industry did not take similar steps in the past and are taking it now, we think that’s good for everybody. We think that’s good for the sector. We think that’s good for the industry. We think that is a positive thing. That, at the highest level, is kind of how we’re thinking about it. Let me let George walk through some of the detail behind that. George?

George Renaudin, President of Humana’s Insurance Segment, Humana: Yeah, thanks, Jim. As Jim said, I understand why everyone is thinking about this question. Let me start by reminding you of the market dynamics that we’ve played out over the last few years. We were transparent almost two years ago now in discussing the utilization trends we were seeing and the impact of V28. We made adjustments each year since then. We were the only plans to reduce benefits in any way in 2024, and we reduced more benefits and more significantly than just about all of our competitors in 2025. In addition to that, we executed on a combination of plan and benefit county exits impacting 560,000 members. Given these two rounds of significant benefit cuts, we have a significant gap to peers’ benefit value while some peers held their benefits stable or even invested more in their benefits.

Now, it’s important to look at the granular MACFAT data. I know a lot of you have pulled that Mellman MACFAT information, but you have to isolate the growth plans because if you simply look at the averages without taking out the legacy plans that no one’s really selling anymore, you’ll get an inaccurate view of how the plans compare. However, if you evaluate the growth plans, those plans you actually have seen growth on over the last couple of years, you’ll see the significant gap to our peers that has resulted from the two years of benefit reductions we’ve implemented. Additionally, we also did plan and county exits for 2025. It impacted 560,000 members. We’ve recaptured 40% of those members in other MA offerings. Our goal, if you’ll recall, was 50%.

We were good and happy with even more recaptured because those plans we feel confident are being priced correctly. Keep in mind this 40% recapture rate of these exited members as you hear the 2025 trends that we’re saying today are tracking in line with expectations. To reiterate, when members rejoined us in plans that were priced appropriately, considering the funding and medical cost trends, we’re tracking in line with expectations that we set out in our guidance. We have also specifically evaluated how those recaptured members and plans are performing, and we feel good about our benefit structure and the members we recaptured where we priced them for the long-term value. For 2026, our benefits are largely stable. In some places, we may have invested a little bit, and in others, we may have pulled back some. Even with the significant cut by peers.

If they do that for 2026, we still anticipate having a gap to the next richest benefit in the market based upon an in-depth analysis of our competitors’ opportunities under the various bid rules, including the TDC rules. The point is, we continue to feel good about the current run rate of our plans and are confident that our plans are priced appropriately given the funny environment and cost trends that we’re all experiencing, even should we have greater growth.

Speaker 5: Our next question comes from Stephen Baxter with Wells Fargo.

Speaker 1: Yeah, hi, thank you. I was hoping you could speak to what you saw in terms of inpatient utilization trends in Medicare Advantage during the second quarter. For context, one of your competitors spoke to an accelerating trend in the second quarter, so it’d be good to get your perspective on your data that you have to date. Thank you.

Lisa Stoner, Vice President of Investor Relations, Humana: Yeah. Thanks for the question. On the inpatient side of things, things are trending in line to on the better end of our expectations when you take into account both admissions and the cost per unit. We’re not seeing an acceleration of anything. If anything, the beginning of the year because of the timing of the flu season was a little bit higher, but in line with our expectations. Things are trending, as we said, in line.

Speaker 5: Our next question comes from Justin Lake with Wolfe Research.

George Renaudin, President of Humana’s Insurance Segment, Humana: Thanks. Good morning. I thought I’d take a shot at getting the latest on STARS. I understand you’re going to go quiet, and I know you don’t have the cut points yet, so there’s no way to know what your STARS are specifically going to do. I do believe that plan preview one has gone out. You have a decent idea, or at least a starting point, in terms of how your own performance looks. As you might expect, there’s a lot of focus on this. I would love to know if you could share with us here how your own performance has been in STARS.

Do you feel like you’ve taken, when we see the final data, regardless of how the cut points end up and therefore how your STARS end up, will investors be able to see a pretty strong step forward in terms of underlying performance in your STAR metrics? Thanks.

Speaker 4: Yeah, hey, Justin, plan preview one data is not out. Honestly, if it was, we would not be talking about BY 27 at all. It is not out at this point, and we do not have any—or if it is, we’re not aware. I do not think it is out, and we do not have any additional visibility. Look, what I would say—and this is going to be consistent with what I have said in the past—we were behind where we needed to be back in September, late September, early October of last year. We have made really good operational progress. We genuinely feel good about it. You will see the underlying metric performance. You will see improvement in the underlying metric performance, meaning if you go metric by metric, our performance has gotten better.

It really is a question of how much has the industry improved along with us, and therefore, where are the cut points. At this point, with the lack of PP1 data, we just do not have visibility into that, which again is why we will enter a quiet period here over the next couple of months as that data does become available.

George Renaudin, President of Humana’s Insurance Segment, Humana: Got it. Thanks.

Speaker 5: Our next question comes from Erin Wright with Morgan Stanley.

Speaker 9: Great. I was wondering if you could talk a little bit more about the specialty pharmacy strength and what was kind of driving that and some of the Part D dynamics that kind of flow through there from an IRA perspective and how that’s kind of playing out relative to your expectations at this point.

Lisa Stoner, Vice President of Investor Relations, Humana: Hey, Aaron. On the specialty pharma—and I would just say in the CenterWell Pharmacy business in general—part of what’s driving our outperformance this year is strategic changes to how we’re organizing and marketing that business. We’ve invested a lot in building strong partnerships with pharma companies, and that’s done a couple of things for us. One, it’s creating new opportunities through this direct-to-consumer model. That’s the Novo Nordisk partnership we have. We’ve also partnered with Roe and Weight Watchers to sell some GLP-1s. We expect to see more of this type of business over time. We’re excited about the progress this year. It’s coming ahead of our expectations.

The second piece that’s driving outperformance—I should say the second piece is generally there’s broader outperformance from what we understand in specialty in the industry this year, but our specific performance is further boosted by winning additional access to multiple limited distribution drugs that we previously wouldn’t have been able to access. This is really driven by the partnerships I called out. In the past, other pharmacies have gotten them, and we have been excluded from that, and now we are included. Really excited about some of the progress and the momentum in that business. In terms of the PDP trends in general, as I called out earlier, the member mix and the Rx trends are tracking in line with our expectations, and there haven’t been any unexpected behavioral changes.

Speaker 5: Our next question comes from Joshua Raskin with Nephron Research.

Speaker 4: Hi, thanks. Good morning. Last quarter, you spoke about, I think, a couple hundred million of additional investments that were mitigating upside to the guidance. I believe, Celeste, I heard you say there was another $100 million. I want to confirm that’s incremental spend that is in addition to the couple hundred from Q1. I am curious, why not invest more instead of letting it flow through the guidance this quarter?

Lisa Stoner, Vice President of Investor Relations, Humana: I did think you might ask that question. That is right. Confirming your question, it is an incremental $100 million. We see a lot of opportunity to invest across the business, really focusing on our transformation. Where we have incremental investments in some of our member retention work, AI, general operational efficiencies, a little bit on STARS where we’re seeing high performance. We are looking at where it makes sense to spend money. We don’t want to just spend money to spend it. We’re not going to spend it where there aren’t good returns. Will we continue to look for additional opportunities? Absolutely. We are spending that $100 million where we think we can really drive a return and accelerate some of our transformation work and potential upside in STARS.

George Renaudin, President of Humana’s Insurance Segment, Humana: Yeah. Hey, the one thing I would just add to that is we’ve pulled some investment forward. So things we thought we were going to do next year got pulled into this year. Ultimately, you run into just a limit on how much of that you can do. How much can you operationally absorb in any given period of time? We’d love to be pulling more forward, but right now we’re digesting the investments that we’re making. That’s a big part of it as well.

Speaker 5: Our next question comes from AJ Rice with UBS.

Speaker 9: Hi, everybody. Just wanted to ask about two quick things related to CenterWell. You continue to grow that membership on the value-based primary care side and seem to be hitting your metrics there. I wonder, one thing you emphasize is that you’re member agnostic, where maybe some of your other peers in that space are more focused on the medically complex. Is that part of why you’re seemingly doing better? I just would also in CenterWell ask, do you have any update on home health rule? I know you’re moving that to more value-based as well, but I think you’re still one of the biggest fee-for-service providers, and the proposed rule’s challenging. It’s just sort of hard to know how much that’s likely to impact the overall enterprise, given it’s still, even though you’re big in that space, relatively small in terms of the entire enterprise.

Lisa Stoner, Vice President of Investor Relations, Humana: Yeah. So. On their first question on patient growth. It’s really we’ve opened more clinics. Those clinics are ramping. They’re doing well. It’s a combination of word of mouth and marketing. There isn’t a particular kind of patient that’s driving higher than expected growth. We’re pleased with what we’re seeing. Even with the higher patient growth, trends and our expectations for that business are consistent with what we would have thought. In terms of home health, yeah, we’re disappointed by the proposed 6%+ net rate reduction. We really don’t think it’s reflective of the wage and other inflation that the industry is experiencing. Labor makes up almost 75% of that rate, and the rate’s supposed to be tied to that. We also had anticipated that CMS would eventually implement a behavioral adjustment. We did not anticipate that it would be as high as proposed.

It also said the data is supposed to be collected through the end of 2026 and then analyzed then. Data is still being collected. We believe it’s early to make this adjustment. We’re continuing to advocate and educate the administration on the need for a reasonable home health reimbursement. We’re evaluating the impact in our home health businesses as proposed, but we do have a natural hedge in our insurance business. If this is implemented as proposed, it wouldn’t fully offset it. We believe we have other levers at the enterprise level that can absorb the headwind that isn’t naturally offset by insurance.

Speaker 5: Our next question comes from Ben Hendrix with RBC Capital Markets.

Speaker 4: Hey, thank you very much. I just wanted to go back to the commentary you made on MA benefit actions in 2024 and 2025 and the more conservative approach you have taken versus some peers. To what extent could that put you at a disadvantage from a member experience perspective ahead of STARS? And maybe you can remind us what types of investments you’re making right now that could mitigate some of that and lend some confidence in reaching your targets for the 2028 bonus year. Thanks.

George Renaudin, President of Humana’s Insurance Segment, Humana: Yeah. Hey. Great question. We are monitoring this closely is where I would start. Certainly, anytime that you take benefit actions, it does create some abrasion with members. We have been extremely active and diligent in essentially taking offsetting operating actions. Making sure that we’re being very clear in how we communicate and explain the changes to our members, making sure that we’re responsive to their concerns, etc. All in all, we feel pretty good about where we are at on that specific item, meaning member experience related to cuts in benefits last year. Yes, I mean, every time you go through a set of cuts, there is some member abrasion, and you have to take that into account in your operations and adjust for it. George, is there anything that you would add to that?

Speaker 9: Yeah, Jim. I would just add that there are a number of things that we follow there. We monitor NPS on a regular basis on every call, frankly, that’s taken. We try to monitor NPS. We’re monitoring both the NPSR, which is the NPS for relationship, and NPST, which is the NPS as to each transaction each time we get a call from a member and every time we interact with a member. We’re not seeing anything concerning in that data. We also, of course, are doing mock CAHPS surveys. If you think about the surveys that CMS does every year, we do those to monitor what’s happening. We’re not seeing anything very alarming there at all. In fact, things are looking fairly good. Keep in mind some of the other things that we are doing here actually impact and help the member experience.

Jim mentioned the Epic MyChart, where we’re the first plan to try to integrate what members interact with their provider and have them have their provider and payer show up in one spot to improve that member experience so they can see all their information about their plan while at the same time checking on their next appointment. A number of the activities of the millions of dollars that you’ve heard Jim and Celeste talk about that we’re investing in are investing very much in the member experience itself. The activities that we’re taking in STARS, yes, they improve health outcomes and they improve our STARS, but the reason for that is predominantly because we’re also improving the member experience, making sure that our members are getting the care that they need.

Ultimately, what they’re looking for is that they can get the care they need, that they are being proactively outreached to get care that’s appropriate for them, and also doing so in a way that is affordable. We believe that the actions we’ve taken, we’ve talked about the cuts we made before and how we’re very, very. We use a lot of analysis to make those decisions about what benefits cuts we make to ensure care remains affordable. All the actions we’ve taken have very much had that member experience in mind. One of the things that I love about some of the teammate changes we’ve had in the company over the past year or two is that we brought in other expertise, such as David Diamond, who works on the ELT with us and is making sure that we’re very focused on that consumer experience.

There are a whole host of actions that I could point to where we’re actually trying to improve the member experience while at the same time taking prudent actions in our benefit designs.

George Renaudin, President of Humana’s Insurance Segment, Humana: Yeah. Hey. Let me pull it back to just point out two things. One. The bounce-back membership that we are seeing this year, I think, actually is kind of proof that a bunch of those measures are working. Again, we look at the bounce-back, the degree of bounce-back membership that is coming through OEP and ROI, and it makes us feel very good that we’re doing the right things to adjust to the benefit changes that we made last year. The second thing, because this is really what you’re driving at, is are we taking this into account in our STARS calculations and do we still feel good about our overall STARS performance and the direction that it’s headed even when you account for this? The answer to that is yes. We’re certainly taking it into account.

Even when you think about some of that member abrasion that comes from reduced benefits, we feel good about the direction we’re headed in. We feel good about the trajectory for BY28.

Speaker 4: Thank you.

Speaker 5: Our next question comes from George Hill with Deutsche Bank.

Speaker 1: Hey, good morning, and thanks for taking the question. I think, Jim, you just kind of spoke about this, but could you provide a little bit more color on what’s driving the bounce-back. On the members that are returning to Humana in for a year? Kind of where are those guys coming from and kind of what do you think from a benefits perspective that’s bringing those people back?

George Renaudin, President of Humana’s Insurance Segment, Humana: Yes. Happy to hit that. I think, first of all, it is disproportionately in places where we saw lost membership, which I do not think will surprise anybody. Within the regions where we have seen lost membership, it is pretty broad-based. There is no specific pattern across those regions. Generally, what we see is that when somebody makes a decision to leave Humana and then bounces back, more times than not, it is because they were surprised by what they were getting when they made the change. The surprise might be that they did not really understand the benefit package. The surprise might be something around customer service. Typically, they were surprised. They come back to Humana where they have experience, where they know what they are getting from an experience standpoint. This is why we want to be so clear about the benefit packages.

The more clear we are and the more that they feel informed, the more comfortable they are with the decisions that we have to make, even when they are hard decisions. I think that is part of what you are seeing. Again, I will just, George, anything you would add or any other color there?

Speaker 9: No, Jim, I think you’re right. It’s about the product and services and whether or not they got what they expected when they left us to go somewhere else. And we’re the MT. They know we have good services. As we talked about in Investor Day, we’re known for our service, and we’re known for the way we approach our membership. I think that that all just plays into it.

Speaker 5: Our next question comes from David Windley with Jefferies.

Speaker 1: Hi, good morning. Thanks for taking my question. I wondered if you could remind us what your assumptions for trend were this year in light of your comments about costs developing in line with those. I know Celeste referenced the low double digit for pharmacy. Just curious to get the other components. What are you assuming for trend in 2026 relative to what you are experiencing in 2025, please? Thank you.

Lisa Stoner, Vice President of Investor Relations, Humana: Hey. Yeah. As you said, on pharmacy, we were expecting low double digits. We continue to expect low double digits into next year. On the medical cost side, our expectations were for mid to high single digits. Our expectations for next year are consistent with that.

Speaker 1: Super. Thank you.

Speaker 5: Our next question comes from Whit Mayo with Leerink Partners.

Speaker 9: Hey, thanks. I know the lawsuit that you have probably colors your answer, but just any updated thoughts on RADV, whether you have to make assumptions and bids around prospective CMS clawbacks on premium payments if they actually make it through the 2019 audit sticks?

George Renaudin, President of Humana’s Insurance Segment, Humana: Yeah, there’s really not a lot of color that we have to provide on this one. Partially, yes, with the litigation, there’s a limit to what we can say. Partially, there’s just a lot of unknowns, to be frank. Very little color to add on this particular topic.

Speaker 9: Hey, Jim, if I could just add one other thing, it’s just we’ve long supported the auditing of the contracts as long as it takes into account the actuary equivalence between MA and fee for service.

Speaker 6: Okay. Thanks.

Speaker 5: Our next question comes from Sarah James with Cantor.

Lisa Stoner, Vice President of Investor Relations, Humana: Thank you. I was hoping you could clarify the moving pieces in the guide boost. If I take about a third of the 1Q that was subscribed to CenterWell and all of the 2Q and run rate it just for the investment spend, I get pretty close to the guide boost, about $0.06 below. Is that the right way to think about it, that the guide boost is primarily run rating the CenterWell outperformance year to date? Or are there other moving pieces? Can we think about the CenterWell strength as being sustainable beyond 2025? Yeah, great question. That is right. We are assuming some of the outperformance will continue through the year, particularly on the CenterWell PCO growth. That will continue through this year and into next year. The performance on the pharmacy side of things, the specialty outperformance, and then the direct-to-consumer momentum that we have.

We also, as we called out, have better-than-expected membership. Our guidance for the year is up to 500,000 lost versus 550,000 previously. That will run through the year and into next year. There were some things in the first quarter in particular that were timing or one-timers in nature, and we’re not run rating those.

Speaker 5: Our last question today will come from Michael Hall with Baird.

Speaker 4: Thank you. Now, I understand you feel strongly about your benefit richness and confident in attracting good, profitable membership. I’m curious, though, is there any level of membership growth percentage that you think if growth starts tracking to 15%, 20%, 25% where it could begin to potentially compromise earnings next year? If you were to get early sense of that through AEP, would you work to cap that growth if necessary? I understand plan preview one data is not out yet, but I believe plans have already received the raw results for cost center metrics earlier this month. Any ability to comment on how those results stick out to your expectations, especially since there’s such high sensitivity of even missing one single call to STAR rating? Thank you.

George Renaudin, President of Humana’s Insurance Segment, Humana: Yeah. We are not going to comment on any of the data that we’ve received from CMS. Again, we’re headed into that quiet period, and we really will not be commenting again until we reach October. I’ve now lost track. What was the first question?

Lisa Stoner, Vice President of Investor Relations, Humana: Membership.

George Renaudin, President of Humana’s Insurance Segment, Humana: Membership. Yeah, yeah, yeah. Here’s basically how we think about it. First of all, we feel good about the product, and we feel good that the membership that we’re going to be receiving will be good at whatever level it is. Is there a certain level where operationally it could, in theory, become challenging? Sure. Do we anticipate that that is likely to happen? No. Will we monitor it and make adjustments as we need to? Yes. To the degree that we can operationally absorb the growth, then the real question I think then you’re asking is, hey, is there a year-one drag that we’re worried about heading into next year? If it is good growth and good membership, we will be focused on long-term value, and we will explain that to you, and we will continue to grow. We will be very clear, and we’ll be very transparent.

Again, when we look at it, do we think the likelihood that we’re in that situation is very high? No, not really. Is it theoretically possible? It is. The main question we will ask is, can we operationally absorb it? Not, are we afraid of year-one economics and therefore kind of turn off growth? Hopefully, that answers the question.

Lisa Stoner, Vice President of Investor Relations, Humana: Yeah. Maybe if I can add sort of a much less strategic and more tactical. The timing of when membership grows matters a lot. The AEP membership, you have a full year to absorb the marketing, but if you pick up a member late in the year—if we picked up members late this year, late next year—they tend to come with a headwind because you do not really have a lot of revenue associated with them, and you have a lot of marketing costs. We do have all of our expectations for any back-end growth in 2025 reflected in our guidance as we go.

Speaker 4: Perfect. Thank you.

George Renaudin, President of Humana’s Insurance Segment, Humana: Hey, with that, I just want to thank everybody for joining us this morning, and I want to thank everybody for your interest in Humana. Finally, I want to thank our 65,000 associates who serve our members and patients every day. We appreciate your support, and we hope you have a great day. Thanks.

Speaker 5: This concludes today’s conference call. Thank you for participating. You may now disconnect.

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