HUMANA INC Q3 FY2024 earnings call

• Four key drivers of the business: providing a Medicare product experience with discipline, operating with clinical excellence, having a highly efficient back office, and deploying growth capital.
• Exceeded Q3 expectations, expects at least $16 of EPS full year.
• MA membership growth continues to outpace expectations, with year-over-year growth of around 5% anticipated. Ranked number one for customer experience by Forrester for four consecutive years.
• STARS efforts: Making investments in provider and pharmacy networks, redirecting care management and call center capacity for member outreach, making technology investments, and extending value-based care contracts beyond primary care.
• AI adoption in the back office: Launched a generative AI solution that reduces post-call documentation time for care management teams by half.
• CenterWell clinics: Hitting clinical and financial targets, on track to mitigate V28, and a study demonstrates clinical and economic value of the clinics' V28.

Key areas include Medicare Advantage membership growth, with year-over-year growth of around 5% expected for the full year. Clinical cost control efforts are underway, with medical costs in Q3 largely in line with expectations and some success in cost control initiatives like value-based care contracts in areas like kidney disease and oncology management. AI is being increasingly used in the back office, such as a generative AI solution that reduces post-call documentation time for care management teams by half. The CenterWell clinics are hitting clinical and financial targets, with plans to add roughly 40 clinics this year through acquisitions of underperforming clinics.

• Expecting at least $16 of EPS full year, balancing near-term earnings progression with investment in the business.
• Targeting an Investor Day in May of 2025 to provide a more fulsome update on strategic initiatives and their expected impact.
• Feel good about pricing MA product margin expansion in 2025 but will balance near-term earnings progression with investment in areas like STARS, growth, admin cost efficiency, and medical cost management.
• Established a floor for 2025 to ensure room to make needed investments while not going backwards year-over-year.

• Uncertainty regarding STARS performance and the need for meaningful progression in STARS to achieve 2027 margin targets.
• Industry dynamics and competitive environment that can impact business performance.
• Uncertainties around medical cost trend, including the impact of specialty drug costs and regulatory changes like IRA.

Q: Justin Lake asked about 2025 investment spending and MA margin.

A: Jim and Susan discussed balancing investments with a 2025 floor, having room for EPS progression, and not having precise numbers yet but focusing on long-term earnings potential.

Q: Ann Hynes inquired about MLR results and 2025 bids.

A: Susan said MLR trends were relatively stable sequentially, and she is confident in the bid pricing tracking in line with expectations.

Q: Andrew Mok asked about the 2027 margin target and STARS recovery.

A: Jim and Susan discussed the need for meaningful progression in STARS to reach the 2027 margin target, with rate and competitive environment also being important factors.

Q: Ben Hendrix asked about specialty drug costs.

A: Susan talked about specialty drug costs, their attribution to new treatments or label expansions, and built-in assumptions for 2025 regarding induced utilization and IRA impact.

Q: Sarah James asked about STARS crosswalk and 2025 MA margin.

A: George and Susan discussed crosswalk considerations in the next bid cycle and the implications of 2025 MA margin with ongoing investments and membership growth evaluation.

Q: Joshua Raskin asked about MA market growth and retention.

A: George and Jim discussed industry growth expectations, retention efforts including digital sales and new digital tools, and the impact of plan exits on membership.

Q: Stephen Baxter asked about inpatient unit costs.

A: Susan talked about stable inpatient unit costs, with 2025 outlook based on consistent trends.

Q: Joanna Gajuk asked about utilization trends.

A: Susan said utilization trends were stable, with good assumptions for 2025 based on secular utilization churn.

Q: George Hill asked about inpatient claims denial rate.

A: Susan and George discussed claims denial rates, CMS audit, and stable trends since the first quarter.

Q: Whit Mayo asked about the STARS lawsuit.

A: Jim and George discussed the STARS lawsuit, needing three call overturns for improvement.

Q: A.J. Rice asked about STARS appeal and 2025 investment.

A: Jim and George discussed the impact of STARS appeal on investment, with investment focused on driving long-term performance regardless of the appeal.

Q: David Windley asked about channel investment and 2026 rates.

A: James and Susan discussed channel investments to address shopping issues, and 2026 rate expectations considering trend adjustments.

Q: Michael Ha asked about DSP redetermination and STARS.

A: Susan discussed DSP redetermination headwind, and Jim talked about STARS progress uncertainty given the late stage in 2024.