Humana Q4 and 2024 Earnings

Tough 18 months for Humana

Humana was the fifth of the “Big Six Payors” to report earnings before the market opened on Tuesday (2/11/25). The stock has declined 6.5% over the past four trading days which is odd as most had expected worse earnings headed into the call. Annual revenue surpassed $117 billion, a 10% increase from $106 billion in 2023. Despite significant headwinds in Medicare Advantage, including a 250-basis-point increase in the Benefit Expense Ratio and a 50% EPS drop, Humana is refocusing on core business lines and cost discipline, reminiscent of Centene’s turnaround strategy from two years ago so I am excited to follow their progress throughout 2025. After reading the earnings transcript and looking through the financials, below were the highlights of their earnings season.

Medicare Advantage

Humana targets a 3% margin on individual Medicare Advantage for 2025, backed by 5% membership growth in 2024 and a positive AEP outcome for 2025. Over 90% of their business is in the MAPD space, meaning their success is closely tied to reimbursement rates and margins in this line of business. DSNP membership dropped by 30,000, which they attributed to Medicaid redeterminations rather than competitive losses. Humana is contesting their steep 2026 STAR rating drop in litigation with CMS, a decision that could significantly impact their financial outlook. I believe they may gain partial relief, as the broader implications of their rating decline could shake confidence in CMS's methodology. I think this 3% margin could be a bit of a stretch after listening the path they need but I like that they are setting aggressive goals and targeting OPEX.

STAR Ratings

Humana closed 650,000 care gaps in Q4 2024 to improve 2027 STAR ratings. CEO Jim Rechtin, appointed mid-year, launched a rapid initiative to bolster clinical outcomes, hoping to salvage their performance for the 2028 reimbursement year. The drop from 94% to 25% of members in 4-star or higher plans will severely reduce their CMS reimbursement due to lower quality bonuses, putting pressure on earnings. Additionally, it will damage their competitive position in the upcoming fall open enrollment period, as beneficiaries often select higher-rated plans for their perceived quality and benefits. The outcome of their ongoing litigation with CMS is pivotal to mitigating these financial and enrollment impacts.

Part D Plans/IRA