Release Date: February 11, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Humana Inc (HUM, Financial) reported that its 2024 adjusted EPS is in line with initial guidance, reaffirming a positive financial outlook.
• The company achieved nearly 5% membership growth in 2024, despite repricing efforts to address elevated medical costs.
• Humana Inc (HUM) made significant progress in closing 650,000 care gaps in the fourth quarter of 2024, enhancing clinical excellence.
• The company improved its operating expense ratio by 40 basis points in 2024 through optimization and efficiency measures.
• Humana Inc (HUM) successfully expanded its Medicaid footprint, winning contracts in Georgia and Texas, which supports long-term growth strategies.

Negative Points

• Humana Inc (HUM) experienced higher-than-expected attrition in its D-SNP plans, impacting membership retention.
• The company faces significant regulatory and industry headwinds, which could affect future performance.
• There is uncertainty regarding the Stars ratings improvement for 2027, with potential impacts on financial outcomes.
• Humana Inc (HUM) anticipates margin pressure in its group MA segment due to long-term contracts and competitive dynamics.
• The company is navigating elevated specialty drug costs, which remain a challenge for managing overall medical trends.

Q & A Highlights

Q: Can you break down the levers of the 2025 MLR guidance, including the impact of IRA changes and the greater-than-expected loss of D-SNP? A: Celeste Mellet, Chief Financial Officer, explained that the improvement in the ratio is primarily driven by the exit of high-benefit ratio MA plans and adjustments to benefits in remaining plans. The favorable calendar in 2025 also contributes. Increases in the ratio are due to business mix changes, IRA impact, and incremental investments. The arrows provided in the prepared remarks indicate the order of size for these factors.

Q: How should we think about the path to achieving a 3% margin, and does it assume any Stars improvement? A: James Rechtin, President and CEO, stated that achieving a 3% margin requires a competitive Stars position, a normalized rate environment, and optimal operating performance in clinical excellence and efficient back office operations. Stars is a crucial part of this, and the focus is on improving these operating levers to allow competitive pricing in the market.

Q: Can you provide details on the few hundred million in investments offsetting earnings growth in 2025? Are these ongoing or one-time? A: Celeste Mellet clarified that the incremental investments are across initiatives to improve operating performance, including Stars and clinical excellence. These investments are not one-time and will be detailed further as the year progresses.

Q: How do you view the integration of Medicare and Medicaid in light of CMS's push for further integration by 2030? A: James Rechtin emphasized that Humana's Medicaid strategy aligns with the integration goals, with a focus on winning Medicaid states and increasing footprint. The integration applies to states with HIDE and FIDE SNPs, and Humana is prioritizing states with dual membership to protect margins and growth.

Q: What is the outlook for Medicaid margins from 2024 to 2025, and will the business reach profitability in 2025? A: George Renaudin, President of Insurance, noted that Medicaid is emerging as a strong business with meaningful earnings potential. While modest margin improvements are expected in 2025, profitability is not anticipated due to the J-curve effect, with 45% of members in states with less than three years of experience. Florida, the most mature state, is performing at expected margins.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.