HUMANA INC Q1 FY2025 earnings call

• Jim Rechtin: Pleased with start to 2025, reaffirming full-year guidance, Q1 outperformance is timing-related, monitoring trends including consumer behavior from IRA, no new info on CMS 2026 star ratings litigation, scheduled investor conference on June 16 with objectives to clarify earnings power, unlock it, and track progress. Operational progress: Medicare product and experience with strong OEP, clinical excellence closing care gaps and medication adherence, efficient back office with G&A better than expected and AI in contact centers, capital allocation and growth in CenterWell and Medicaid.
• Celeste Mellet: Reinforced solid start, reaffirmed full-year outlook, focus on operating efficiencies, margins, Medicaid and CenterWell J curves, balance sheet efficiency, EPS outperformance due to timing of expenses, and focus on unlocking long-term value.

Medicare product and experience: Strong performance in OEP with early positive outlook for the rest of the year. CenterWell: Seeing robust patient and membership growth in primary care, with 30 new centers added through acquisition and partnership. Medicaid: Continued growth, with ~100,000 growth year-to-date in line with expected 175,000-250,000 growth for the year, and selected for new Illinois contracts. Clinical excellence: Closing care gaps by pairing in-person home visits with virtual health, achieving 25% year-over-year reduction in care gaps, and 30%-50% reduction in members with weight refills through medication adherence campaigns. Back office: G&A cost for the quarter slightly better than expected due to timing of costs, with progress in cost management like increased AI use in contact centers.

Reaffirmed full-year guidance, including adjusted EPS guidance of approximately $16.25 and expected insurance segment benefit ratio of 90.1% to 90.5%. Focus on managing levers within control to expand margins and realize earnings potential, including quality, clinical excellence, operating efficiencies, and maturity of Medicaid and CenterWell businesses through their J curves.

Forward-looking statements involve risks, litigation on CMS 2026 star ratings, external environment evolving, regulatory headwinds, uncertainty around Stars outcomes affecting margin targets.

Q: How much of your investments moved out of 1Q? Did it move into 2Q?

A: Most of the impact of incremental investments flowed through the MLR in the first quarter, only about 10 basis points, with investments expected later in the year versus the first quarter.

Q: Update on path to the 3% MA margin target?

A: Largely in the same place as before, focused on Stars outcome, no meaningful change from past communication.

Q: Update on Stars timing and bids?

A: No visibility on Stars litigation timing, bids ongoing, working on diversification of Stars strategy to reduce concentration on certain contracts, not sharing pricing strategy for competitive reasons.

Q: Visibility on Medicaid state rate mismatch and utilization?

A: Medicaid performing in line with expectations, growing ~100,000 year-to-date, selected for new Illinois contracts, seeing modest margin improvement in 2025 as rates adjust to trend experience Q: Cadence of earnings and medical trend visibility?

A: Earnings front loaded due to IRA, medical trends developing as expected with data through end of April, doc fix in late third or fourth quarter may pressure fourth quarter but contemplated in guidance