UPDATED: 11:45 a.m. on April 30
Humana is putting a focus on diversification in its broader strategy around Medicare Advantage bidding, though its legal battle with the feds over the program's star ratings looms as a critical factor.
George Renaudin, president of Humana's insurance segment, told investors on Wednesday morning that part of the company's response to the changes in the star ratings — which led to significant score drops across multiple insurers — is to adjust its strategy to ensure members are less concentrated in certain contracts.
For the 2025 star ratings, one of Humana's largest contracts saw a drop from 4.5 stars to 3.5 stars thanks to updated methodology that changes key cutpoints used to calculate scores. That particular contract accounted for 90% of its group MA plans.
Renaudin said that addressing that level of concentration is a "multi-year process" that the team is working toward as part of its broader goal of getting back to 3% margin by 2027.
"Given the competitive nature of the bids, we’re not going to share our pricing strategy for competitive reasons, obviously, and we’re not going to give any specifics there," he said, "but I will tell you that what we’re looking to do is balance membership and margins, focusing on maximizing long term earnings power of the business."
CEO Jim Rechtin also reiterated that the company is at the mercy of the courts when it comes to the ongoing lawsuit, so they can't entirely predict how it may play out and the impact it could have on 2026 scores.
However, he noted that the insurer has made significant investments in improving its star ratings performance, and the team feels that those moves are positive momentum for the future.
"We do feel good about the progress operationally," Rechtin said. "I think that’s the most important message."
Humana reaffirmed its outlook for the year on the back of $1.2 billion in profit for the first quarter, which surpassed Wall Street analysts' predictions.
Per Zacks Investment Research, investors estimated $9.98 in earnings per share for the quarter, which Humana exceeded at $11.58. The company fell just shy of projections on revenue, bringing in $32.1 billion in the first quarter.
Analysts had projected $32.2 billion, according to Zacks.
The company expects a medical loss ratio for the full year of between 90.1% and 90.5%, echoing the broader industry trend toward higher costs in the Medicare Advantage (MA) space. In the first quarter, the insurer's medical loss ratio was 87.4%, which aligns with anticipated performance, according to prepared remarks posted Wednesday morning.
"While it remains early in the year, available information to date suggests medical and Rx cost trends are in line with our expectations," the company said in the prepared comments.
Elevated medical costs, particularly in MA, have dinged major payers for more than a year, with warning signs emerging as early as mid-2023. The companies have attributed this trend, in part, to patients securing elective procedures, such as orthopedic surgeries, after delays during the COVID-19 pandemic.
Also in the mix are regulatory changes that impact reimbursement rates and updated methodology used to calculate the program's star ratings, which dragged down many insurers in the latest cycle. In the prepared remarks, Humana said that the 2026 proposed rate notice for MA "better reflects the medical cost trend environment and should enable greater stability."
Humana is also investing heavily in improving its star ratings performance, which remains a priority, executives said. It's one of several health plans embroiled in legal action with the Centers for Medicare & Medicaid Services over the latest round of scores.
The company had 14.8 million members as of March 31, a decrease from 16.2 million in the prior-year quarter. Driving that trend is Humana's decision to exit certain low-performing markets due to the MA cost pressures, which drove 446,000 in membership losses for the first quarter.
Overall, Humana expects to lose about 500,000 members in MA this year.
The company did log membership growth in both standalone Medicare prescription drug plans and Medicaid, according to the earnings report. Humana executives said in the prepared remarks that the company is taking a strategic approach to Medicaid growth, with a focus on dual eligibles.
Revenues at its CenterWell unit grew slightly, up from $4.8 billion in the prior-year quarter to reach $5.1 billion. Much of that growth is attributable to its senior-focused primary care business, according to the report.
“Our team has done a great job launching us on a strong start to the year. Medicare Advantage is performing as expected and we are excited about our progress in expanding CenterWell and Medicaid,” said Humana President and CEO Jim Rechtin in the press release
The company expects full-year earnings per share of $16.25.