Q4 2024 Earnings Summary
- Humana is focusing on improving operating performance through clinical excellence and efficient back-office operations, which is expected to drive margin improvements and sustainable growth. This includes investments in Stars, clinical excellence, and membership strategies.
- The Medicaid business is emerging as a strong scale business with meaningful earnings potential, anticipating membership growth of 175,000 to 250,000 in 2025, and modest improvements in margin. Their most mature state, Florida, is performing at expected margins, indicating future profitability from Medicaid expansion.
- Humana expects margin improvement in the Group Medicare Advantage segment starting in 2026 through pricing actions as long-term contracts come up for renewal, moving away from less profitable long-term rate guarantee contracts. This should positively impact margins in the Group MA business.
- Uncertainty around future Star Ratings may negatively impact earnings: Humana's management expressed caution regarding their ability to improve Star Ratings in the near term, particularly for the 2027 payment year. They highlighted uncertainty due to potential threshold changes and acknowledged that achieving operational improvements may not be sufficient if thresholds move unfavorably. This uncertainty could affect Medicare Advantage reimbursement rates and impact profitability.
- Ongoing margin pressure in Group Medicare Advantage business: The company anticipates continued margin pressure in its Group Medicare Advantage segment in 2025, attributing this to industry changes and the evolution of long-term contracts. Humana does not expect margin improvement until 2026 when pricing actions can be implemented as contracts come up for renewal. This prolonged pressure may weigh on earnings in the near term.
- Higher-than-expected attrition in Dual Eligible Special Needs Plans (D-SNP): Humana experienced greater member losses in its D-SNP products than anticipated, partly due to redeterminations and changes in Special Enrollment Period (SEP) rules. The company is still learning from this attrition and acknowledges it may impact margin recovery efforts. Reduced membership in this higher-need segment could negatively affect revenue growth and profitability.
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | +10% (from $26.462B to $29.213B) | Total Revenue increased by approximately 10%, driven by strong core growth in the insurance segment and underlying increases in member enrollment and pricing improvements that built upon gains seen in Q4 2023. |
Insurance Premiums | +10% (from $25.13B to about $27.75B) | Insurance Premiums rose roughly 10%, reflecting higher per-member Medicare premiums and continued growth in Medicare Advantage and state-based contracts. This improvement reinforces trends from the previous period even as some offsets remained from declines in other memberships. |
Services Revenue | Dramatic reversal from +$77M to -$1.584B | Services Revenue plummeted dramatically as it reversed from a positive figure in Q4 2023 to a negative value in Q4 2024. This sharp change likely results from one-time charges, reclassifications, or operational adjustments that marked a departure from the prior period’s modest revenue recognition. |
CenterWell Revenue | +9% (from $12.241B to $13.355B) | CenterWell Revenue increased moderately by about 9%, bolstered by expansion in the primary care and pharmacy solutions segments. This growth continued positive momentum from the previous period while offsetting some of the challenges seen in other revenue streams. |
Operating Income | Worsened from -$348M to -$543M | Operating Income deteriorated significantly, worsening by $195M. The decline reflects increased operating expenses and margin pressures—such as a higher benefit ratio and escalating costs—that built on earlier period challenges. |
Net Income & EPS | Net Income declined from -$541M to -$693M; EPS from -$4.28 to -$5.76 | Net Income and EPS both showed further deterioration due to a combination of lower consolidated income and higher expense pressures relative to premiums. These changes highlight worsening profitability compared to Q4 2023, continuing a trend of increased margin challenges. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Margin (Group MA) | FY 2025 | Relatively comparable to 2024 | Margin pressure is expected in 2025 | lowered |
Incremental investments | FY 2025 | No prior guidance | A few hundred million dollars | no prior guidance |
Medical Loss Ratio (MLR) | FY 2025 | No prior guidance | Decreases from plan exits, offset by Medicaid, IRA & investments | no prior guidance |
Earnings seasonality | FY 2025 | No prior guidance | 60%-65% of earnings in Q1 2025 | no prior guidance |
Membership growth | FY 2025 | No prior guidance | Growth of roughly 200,000 PDP members | no prior guidance |
Trend outlook | FY 2025 | Normal utilization trends | Normalized medical cost trend | no change |
| Metric | Period | Guidance | Actual | Performance |
|---|---|---|---|---|
EPS | FY 2024 | At least $16 | Sum of Q1=6.13+ Q2=5.63+ Q3=4+ Q4=-5.76≈ $10 | Missed |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Margin improvements in Medicare Advantage | Emphasized a multi-year path to achieve 3% margin, expected normalized margin by 2027. | Reiterated commitment to 3% margin in Individual MA, with some 2025 margin pressure but improvement expected in 2026. | Remains a key focus; timeline clarified |
Operating performance in Medicare Advantage | Discussed multi-year planning and operational discipline to reach margin targets. | Achieved 40 bps improvement in op-ex ratio via optimization and outsourcing; investing in clinical excellence and cost management. | Ongoing refinement and investment |
Clinical excellence | Focused on appropriate admissions and claims audits to mitigate inpatient cost pressures. | Called the “engine of the business,” closed 650k care gaps, linked to Stars improvement and better member outcomes. | Greater emphasis on Stars and outcomes |
Back-Office Efficiency | Made progress on administrative cost management, automation, and pharmacy logistics. | Improved operating expense ratio by 40 bps; plans further efficiency initiatives. | Continued improvement |
Investments in Stars and membership strategies | No specific discussion about Stars investments in Q2 [No mention]. | Investing hundreds of millions in Stars, clinical excellence, and membership to enhance performance; closed 650k care gaps. | Newly emphasized |
Medicaid business scale and membership growth | Took a conservative approach to redeterminations; noted pressures in newer states but saw synergies with Medicare. | Projected 175k–250k new members in 2025, adding Virginia and expanding in Kentucky; 45% of members in markets <3 years mature. | Consistent optimism, clearer growth |
Margin improvement in Group Medicare Advantage | No mention in Q2 about a specific timeline shift [No mention]. | Improvement targeted in 2026 as contracts renew; pressure in 2025 is factored into guidance. | Newly introduced timeline |
Uncertainty around future Star Ratings | No mention of future thresholds impacting earnings in Q2 [No mention]. | Highlighted significant uncertainty and litigation risks for 2026, though operational progress continues. | Newly discussed risk |
Higher-than-expected D-SNP attrition | No mention of D-SNP attrition in Q2 [No mention]. | Lost more D-SNP members than planned, 30k due to redeterminations; pricing strategy largely successful overall. | Newly mentioned challenge |
Exiting unprofitable plans to improve margins | Identified plan exits to eliminate losses, membership reduction by a few hundred thousand. | Deliberate exits improved the benefit ratio; part of shedding unprofitable plans to reset for margin recovery. | Continues, with stronger impact |
Partnership with Google on AI and automation | Discussed accelerating AI initiatives with Google to reduce costs and enhance processes. | No mention in Q4 [No mention]. | No longer mentioned |
Favorable risk scores (MRA payments) | Saw one-time favorability in ‘23 MRA final payment; contributed to a higher revenue outlook. | No mention in Q4 [No mention]. | No longer mentioned |
Prolonged margin recovery due to regulation | Attributed slower margin recovery to regulatory constraints like TBC limits; aiming for normalized margins by 2027. | Acknowledged significant regulatory headwinds requiring more nimble operations; still focused on multi-year planning. | Remains consistent |
Membership reductions from plan exits | Expected to lose hundreds of thousands of members but offered alternative plans. | Major benefit ratio improvement from exiting unprofitable plans; D-SNP losses also contributed. | Continues as part of margin strategy |
Higher inpatient costs near-term pressure | Higher inpatient admissions (2-midnight rule) driving MLR up; mitigating via clinical checks and audits. | No mention in Q4 [No mention]. | No longer mentioned |
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Stars Ratings Impact
Q: How will Stars affect future earnings?
A: Achieving a 3% margin requires a competitive Stars rating. Management emphasizes the need for clinical excellence and G&A optimization to enhance operating performance. Despite uncertainty around threshold movements affecting Stars ratings, they feel positive about progress made and are cautiously optimistic about improvements by 2028, as they have more time to implement changes and build buffers against threshold changes.
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2025 Investments Impact
Q: What are the major investments impacting 2025 earnings?
A: The company is making incremental investments of a few hundred million dollars in 2025, focused on initiatives like improving Stars ratings, clinical excellence, and membership strategies. These investments are included in guidance and are critical for long-term performance, with details to be shared as the year progresses.
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2025 MLR Guidance
Q: What drives the 2025 MLR improvement?
A: The majority of the improvement in the medical loss ratio is due to exiting certain Medicare Advantage plans with high benefit ratios. Adjustments to benefits in remaining plans and favorable calendar effects in 2025 also contribute positively. Offsetting factors include growth in Medicaid (which has higher benefit ratios), impacts from the Inflation Reduction Act (IRA), and incremental long-term investments that increase the benefit ratio in the near term.
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D-SNP Attrition Impact
Q: How does D-SNP attrition affect your outlook?
A: The company retained fewer Dual Eligible Special Needs Plan (D-SNP) members than expected, partly due to 30,000 losses from redeterminations. While this helps margin by exiting unprofitable plans, they are implementing strategies to improve D-SNP performance, including pilots during the enrollment period. Success in Medicaid expansions to 13 states strengthens their position as Medicare and Medicaid integration grows.
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Path to 3% Margin
Q: Is Stars improvement needed to achieve 3% margin?
A: Yes, attaining a 3% margin necessitates a competitive Stars rating, a normalized rate environment, and optimal operating performance. By focusing on clinical excellence and reducing G&A costs, the company aims to price benefits competitively. Some improvements are expected in 2026 and beyond.
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Medicaid Margin Trajectory
Q: How is Medicaid margin expected to improve?
A: Medicaid margins show modest improvement in 2025 with membership growth of 175,000 to 250,000 due to new implementations like Virginia and additional allocations in Kentucky. However, as 45% of members are in states with less than three years of experience, full margin potential will take time. The most mature state, Florida, is performing at expected margins, indicating future improvements as other states mature.
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Specialty Rx Trends
Q: What are the trends in specialty pharmacy costs?
A: Specialty drug spend remains elevated but stable, consistent with previous quarters. The company's pricing and forecasting account for these trends, and they expect specialty drugs to continue being a key focus area in the industry.
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Group MA Margin Pressure
Q: What's causing margin pressure in Group MA?
A: Margin pressure in the Group Medicare Advantage market is due to less mature industry practices like long-term rate guarantees. As these contracts come up for renewal, pricing actions are expected to improve margins in 2026. Margins remain under pressure in 2025, which is reflected in current guidance.
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Part D Seasonality and IRA Impact
Q: How is the IRA affecting Part D seasonality?
A: The Inflation Reduction Act (IRA) shifts more expense to the plan over the year, altering earnings seasonality. Members meet out-of-pocket maximums earlier, increasing plan liability later. Additionally, higher deductibles mean members bear more expense early, further shifting earnings towards the front of the year.
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Medicare and Medicaid Integration
Q: How are you positioned for Medicare-Medicaid integration?
A: With Medicaid wins in Georgia and Texas, expanding to 13 states, the company is positioned for upcoming integration efforts required by CMS by 2027 and 2030. They are focusing on states with existing dual-eligible members to align with future integration rules and better serve these populations.
Research analysts covering HUMANA.