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Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The condensed consolidated financial statements of Humana Inc. in this document present the Company’s financial position, results of operations and cash flows, and should be read in conjunction with the following discussion and analysis. References to “we,” “us,” “our,” “Company,” and “Humana” mean Humana Inc. and its subsidiaries. This discussion includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. When used in filings with the Securities and Exchange Commission, or SEC, in our press releases, investor presentations, and in oral statements made by or with the approval of one of our executive officers, the words or phrases like “believes,” “expects,” “anticipates,” “intends,” “likely will result,” “estimates,” “projects” or variations of such words and similar expressions are intended to identify such forward–looking statements. These forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties and assumptions, including, among other things, information set forth in Item 1A. – Risk Factors in our 2024 Form 10-K, as modified by any changes to those risk factors included in this document and in other reports we filed subsequent to February 20, 2025, in each case incorporated by reference herein. In making these statements, we are not undertaking to address or update such forward-looking statements in future filings or communications regarding our business or results. In light of these risks, uncertainties and assumptions, the forward–looking events discussed in this document might not occur. There may also be other risks that we are unable to predict at this time. Any of these risks and uncertainties may cause actual results to differ materially from the results discussed in the forward-looking statements.
Executive Overview
General
Humana Inc., headquartered in Louisville, Kentucky, is committed to putting health first – for our teammates, our customers, and our company. Through our Humana insurance services, and our CenterWell health care services, we make it easier for the millions of people we serve to achieve their best health – delivering the care and service they need, when they need it. These efforts are leading to a better quality of life for people with Medicare, Medicaid, families, individuals, military service personnel, and communities at large.
Our industry relies on two key statistics to measure performance. The benefit ratio, which is computed by taking
total benefits expense as a percentage of premiums revenue, represents a statistic used to measure underwriting profitability. The operating cost ratio, which is computed by taking total operating costs, excluding depreciation and amortization, as a percentage of total revenue less investment income, represents a statistic used to measure administrative spending efficiency.
Value Creation Initiative****s
In order to create capacity to fund growth and investment in our Medicare Advantage business and further expansion of our healthcare services capabilities, we have committed to driving additional value for the enterprise through cost saving, productivity initiatives, and value acceleration from previous investments. As a result of these initiatives, we recorded charges of $24 million for the three months ended March 31, 2025 and $29 million for the three months ended March 31, 2024 within operating costs in the condensed consolidated statements of income. These charges primarily relate to asset impairments in the 2024 and 2025 quarters, as well as severance charges in connection with workforce optimization and external consulting spend for these initiatives in the 2025 quarter.
Business Segments
Our two reportable segments, Insurance and CenterWell, are based on a combination of the type of health plan customer and adjacent businesses centered on well-being solutions for our health plans and other customers, as described below. Our Chief Executive Officer, the Chief Operating Decision Maker, utilizes these segment groupings and results of each segment, measured by income (loss) from operations, to assess performance and allocate resources primarily during our annual budget process and periodic forecast updates.
The Insurance segment consists of Medicare benefits, marketed to individuals or directly via group Medicare accounts, as well as our contract with CMS to administer the Limited Income Newly Eligible Transition, or LI-NET, prescription drug plan program and contracts with various states to provide Medicaid, dual eligible demonstration,
and Long-Term Support Services benefits, which we refer to collectively as our state-based contracts. This segment also includes products consisting of specialty health insurance benefits marketed to individuals and employer groups, including dental, vision, and other supplemental health benefits. In addition, our Insurance segment includes our Military services business, primarily our T-5 East Region contract, as well as the operations of our PBM business.
The CenterWell segment includes our pharmacy, primary care, and home solutions operations. Services offered by this segment are designed to enhance the overall healthcare experience. These services may lead to lower utilization associated with improved member health and/or lower drug costs.
Transactions between reportable segments primarily consist of sales of products and services rendered by our CenterWell segment, primarily pharmacy, primary care, and home solutions, to our Insurance segment customers. Intersegment sales and expenses are recorded primarily at fair value and eliminated in consolidation. Members served by our segments often use the same provider networks, enabling us in some instances to obtain more favorable contract terms with providers. Our segments also share indirect costs and assets. As a result, the profitability of each segment is interdependent. We allocate most operating expenses to our segments. Assets and certain corporate income and expenses are not allocated to the segments, including the portion of investment income not supporting segment operations, interest expense on corporate debt, and certain other corporate expenses. These items are managed at a corporate level. These corporate amounts are reported separately from our reportable segments and are included with intersegment eliminations.
Seasonality
Our quarterly Insurance segment earnings and operating cash flows are impacted by the Medicare Part D benefit design and changes in the composition of our stand-alone prescription drug plan, or PDP, membership. The Medicare Part D benefit design results in coverage that varies as a member’s cumulative out-of-pocket costs pass through successive stages of a member’s plan period, which begins annually on January 1 for renewals. Effective January 1, 2025, the Medicare Part D coverage gap was eliminated as mandated by the Inflation Reduction Act of 2022, or IRA. The standard Part D benefit now comprises three phases: the deductible phase, the initial coverage phase and the catastrophic coverage phase. Beneficiaries' out-of-pocket expenses for covered prescription drugs are capped at $2,000, after which they incur no additional cost sharing for the remainder of the year. In addition, the Coverage Gap Discount Program was replaced by the Manufacturer Discount Program, requiring pharmaceutical manufacturers to provide discounts on brand name drugs during both the initial coverage and catastrophic phases. These changes are anticipated to reduce out-of-pocket costs for beneficiaries and impact plan liabilities, accordingly. These benefit design changes will result in us sharing a greater portion of the responsibility and result in prescription costs that are more level throughout the year as compared to the historical seasonal decline seen prior to the IRA. In addition, the number of low-income senior members, as well as year-over-year changes in the mix of membership in our stand-alone PDP products, affects the quarterly benefit ratio pattern. The Insurance segment also experiences seasonality in the operating cost ratio as a result of costs incurred in the second half of the year associated with the Medicare marketing season.
2025 Highlights
- Our strategy offers our members affordable health care combined with a positive consumer experience in growing markets. At the core of this strategy is our integrated care delivery model, which unites quality care, high member engagement, and sophisticated data analytics. Our approach to primary, physician-directed care for our members aims to provide quality care that is consistent, integrated, cost-effective, and member-focused, provided by both employed physicians and physicians with network contract arrangements. The model is designed to improve health outcomes and affordability for individuals and for the health system as a whole, while offering our members a simple, seamless healthcare experience. We believe this strategy is positioning us for long-term growth in both membership and earnings. We offer providers a continuum of opportunities to increase the integration of care and offer assistance to providers in transitioning from a fee-for-service to a value-based arrangement. These include performance bonuses, shared savings and shared risk relationships. At March 31, 2025, approximately 3,501,700 members, or
67%, of our individual Medicare Advantage members were in value-based relationships under our integrated care delivery model, as compared to 3,837,300 members, or 69%, at March 31, 2024.
- Net income attributable to Humana was $1.2 billion, or $10.30 per diluted common share, and $0.7 billion, or $6.11 per diluted common share, for the three months ended March 31, 2025 and 2024, respectively. These comparisons were significantly impacted by put/call valuation adjustments associated with non-consolidating minority interest investments and charges associated with value creation initiatives. The impact of these adjustments to our consolidated income before income taxes and equity in net losses and diluted earnings per common share was as follows for the 2025 and 2024 quarter:
| For the three months ended March 31, | |||||||||||||||||||||||
| 2025 | 2024 | ||||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
| Consolidated income before income taxes and equity in net losses: | |||||||||||||||||||||||
| Put/call valuation adjustments associated with our non consolidating minority interest investments | $ | 163 | $ | 131 | |||||||||||||||||||
| Value creation initiatives | 24 | 29 | |||||||||||||||||||||
| Total | $ | 187 | $ | 160 | |||||||||||||||||||
| For the three months ended March 31, | |||||||||||||||||||||||
| 2025 | 2024 | ||||||||||||||||||||||
| Diluted earnings per common share: | |||||||||||||||||||||||
| Put/call valuation adjustments associated with our non consolidating minority interest investments | $ | 1.35 | $ | 1.08 | |||||||||||||||||||
| Value creation initiatives | 0.20 | 0.24 | |||||||||||||||||||||
| Cumulative net tax impact | (0.36) | (0.31) | |||||||||||||||||||||
| Total | $ | 1.19 | $ | 1.01 |
Regulatory Environment
We are and will continue to be regularly subject to new laws and regulations, changes to existing laws and regulations, and judicial determinations that impact the interpretation and applicability of those laws and regulations. The Health Care Reform Law, the Families First Act, the CARES Act, and the Inflation Reduction Act, and related regulations, are examples of laws which have enacted significant reforms to various aspects of the U.S. health insurance industry, including, among others, mandated coverage requirements, mandated benefits and guarantee issuance associated with insurance products, rebates to policyholders based on minimum benefit ratios, adjustments to Medicare Advantage premiums, the establishment of federally facilitated or state-based exchanges coupled with programs designed to spread risk among insurers, and the introduction of plan designs based on set actuarial values, and changes to the Part D prescription drug benefit design.
It is reasonably possible that these laws and regulations, as well as other current or future legislative, judicial or regulatory changes including restrictions on our ability to manage our provider network, manage and sell our products, or otherwise operate our business, or restrictions on profitability, including reviews by regulatory bodies that may compare our Medicare Advantage profitability to our non-Medicare Advantage business profitability, or compare the profitability of various products within our Medicare Advantage business, and require that they remain within certain ranges of each other, increases in member benefits or changes to member eligibility criteria without corresponding increases in premium payments to us, further restrictions on service arrangements and fee payments between intercompany or vertically-integrated assets, increases in regulation of our prescription drug benefit businesses, or changes to the Part D prescription drug benefit design (and uncertainty arising from the implementation of these changes) in the aggregate may have a material adverse effect on our results of operations
(including restricting revenue, enrollment and premium growth in certain products and market segments, restricting our ability to expand into new markets, increasing our medical and operating costs, further lowering our Medicare payment rates and increasing our expenses associated with assessments); our financial position (including our ability to maintain the value of our goodwill); and our cash flows.
We intend for the discussion of our financial condition and results of operations that follows to assist in the understanding of our financial statements and related changes in certain key items in those financial statements from year to year, including the primary factors that accounted for those changes. Transactions between reportable segments primarily consist of sales of products and services rendered by our CenterWell segment, primarily pharmacy, primary care, and home solutions, to our Insurance segment customers and are described in Note 14 to the condensed consolidated financial statements included in this report.
Comparison of Results of Operations for 2025 and 2024
The following discussion primarily deals with our results of operations for the three months ended March 31, 2025, or the 2025 quarter and the three months ended March 31, 2024, or the 2024 quarter.
| Change | |||||||||||||||||||||||||||||||||||||||||||||||
| Three months ended March 31, | Three months ended March 31, 2025 vs 2024 | ||||||||||||||||||||||||||||||||||||||||||||||
| 2025 | 2024 | $ | % | ||||||||||||||||||||||||||||||||||||||||||||
| ($ in millions, except per common share results) | |||||||||||||||||||||||||||||||||||||||||||||||
| Revenues: | |||||||||||||||||||||||||||||||||||||||||||||||
| Insurance premiums | $ | 30,514 | $ | 28,261 | $ | 2,253 | 8.0 | % | |||||||||||||||||||||||||||||||||||||||
| Services: | |||||||||||||||||||||||||||||||||||||||||||||||
| Insurance | 252 | 275 | (23) | (8.4) | % | ||||||||||||||||||||||||||||||||||||||||||
| CenterWell | 1,082 | 787 | 295 | 37.5 | % | ||||||||||||||||||||||||||||||||||||||||||
| Total services revenue | 1,334 | 1,062 | 272 | 25.6 | % | ||||||||||||||||||||||||||||||||||||||||||
| Investment income | 264 | 288 | (24) | (8.3) | % | ||||||||||||||||||||||||||||||||||||||||||
| Total revenues | 32,112 | 29,611 | 2,501 | 8.4 | % | ||||||||||||||||||||||||||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||||||||||||||||||||||||||
| Benefits | 26,535 | 25,124 | 1,411 | 5.6 | % | ||||||||||||||||||||||||||||||||||||||||||
| Operating costs | 3,380 | 3,042 | 338 | 11.1 | % | ||||||||||||||||||||||||||||||||||||||||||
| Depreciation and amortization | 183 | 209 | (26) | (12.4) | % | ||||||||||||||||||||||||||||||||||||||||||
| Total operating expenses | 30,098 | 28,375 | 1,723 | 6.1 | % | ||||||||||||||||||||||||||||||||||||||||||
| Income from operations | 2,014 | 1,236 | 778 | 62.9 | % | ||||||||||||||||||||||||||||||||||||||||||
| Interest expense | 160 | 159 | 1 | 0.6 | % | ||||||||||||||||||||||||||||||||||||||||||
| Other expense, net | 163 | 63 | 100 | 158.7 | % | ||||||||||||||||||||||||||||||||||||||||||
| Income before income taxes and equity in net losses | 1,691 | 1,014 | 677 | 66.8 | % | ||||||||||||||||||||||||||||||||||||||||||
| Provision for income taxes | 406 | 251 | 155 | 61.8 | % | ||||||||||||||||||||||||||||||||||||||||||
| Equity in net losses | (43) | (24) | 19 | 79.2 | % | ||||||||||||||||||||||||||||||||||||||||||
| Net income | $ | 1,242 | $ | 739 | $ | 503 | 68.1 | % | |||||||||||||||||||||||||||||||||||||||
| Diluted earnings per common share | $ | 10.30 | $ | 6.11 | $ | 4.19 | 68.6 | % | |||||||||||||||||||||||||||||||||||||||
| Benefit ratio (a) | 87.0 | % | 88.9 | % | (1.9) | % | |||||||||||||||||||||||||||||||||||||||||
| Operating cost ratio (b) | 10.6 | % | 10.4 | % | 0.2 | % | |||||||||||||||||||||||||||||||||||||||||
| Effective tax rate | 24.6 | % | 25.3 | % | (0.7) | % |
(a)Represents benefits expense as a percentage of premiums revenue.
(b)Represents operating costs, excluding depreciation and amortization, as a percentage of total revenues less investment income.
Premiums Revenue
Consolidated premiums revenue increased $2.3 billion, or 8.0%, from $28.3 billion in the 2024 quarter to $30.5 billion in the 2025 quarter primarily due to higher per member Medicare premiums, driven largely by an increased direct subsidy due to the IRA, and higher per member state-based contracts premiums, as well as membership growth in the stand-alone PDP and state-based contracts businesses. These factors were partially offset by the membership decline within the individual Medicare Advantage business, inclusive of the decision to exit certain unprofitable plans and counties.
Services Revenue
Consolidated services revenue increased $272 million, or 25.6%, from $1.1 billion in the 2024 quarter to $1.3 billion in the 2025 quarter primarily due to higher revenues associated with growth in the primary care business, partially offset by the impact of the v28 risk model revision.
Investment Income
Investment income decreased $24 million, or 8.3%, from $288 million in the 2024 quarter to $264 million in the 2025 quarter primarily due to lower interest income on debt securities.
Benefit Expense
Consolidated benefits expense increased $1.4 billion, or 5.6%, from $25.1 billion in the 2024 quarter to $26.5 billion in the 2025 quarter. The consolidated benefit ratio decreased 190 basis points from 88.9% for the 2024 quarter to 87.0% for the 2025 quarter primarily due to individual Medicare Advantage pricing inclusive of plan exits, benefit design changes and favorable workday impacts in the 2025 quarter more than offsetting claims trend and the funding environment, as well as the change in Medicare Part D seasonality due to the IRA. These factors were partially offset by a shift in line of business mix resulting from reductions in individual Medicare Advantage membership, combined with growth in the stand-alone PDP and state-based contracts businesses, which carry a higher benefit ratio. In addition, the decrease was offset by a delayed flu season that led to a more acute period in the 2025 quarter compared to the 2024 quarter and lower favorable prior-period medical claims reserve development.
Consolidated benefits expense included $477 million of favorable prior-period medical claims reserve development in the 2025 quarter and $535 million of favorable prior-period medical claims development in the 2024 quarter. Prior-period medical claims reserve development decreased the consolidated benefit ratio by 160 basis points in the 2025 quarter and decreased the consolidated benefit ratio by 190 basis points in the 2024 quarter.
Operating Costs
Our segments incur both direct and shared indirect operating costs. We allocate the indirect costs shared by the segments primarily as a function of revenues. As a result, the profitability of each segment is interdependent.
Consolidated operating costs increased $338 million, or 11.1%, from $3.0 billion in the 2024 quarter to $3.4 billion in the 2025 quarter. The consolidated operating cost ratio increased 20 basis points from 10.4% for the 2024 quarter to 10.6% for the 2025 quarter primarily due to business mix changes, including within the CenterWell segment which runs a significantly higher operating cost ratio than the Insurance segment, combined with the operating leverage impact of the loss of individual Medicare Advantage membership. This factor was partially offset by administrative cost efficiencies resulting from the value creation initiatives and operating leverage associated with increased revenues from the impact of the IRA as previously described.
Depreciation and Amortization
Depreciation and amortization decreased $26 million, or 12.4%, from $209 million in the 2024 quarter to $183 million in the 2025 quarter primarily due to decreased capital spending.
Interest Expense
Interest expense remained relatively unchanged from the 2024 quarter to the 2025 quarter.
Income Taxes
The effective income tax rate was 24.6% and 25.3% for the three months ended March 31, 2025, and 2024, respectively. The year-over-year decrease in the effective income tax rate is primarily due to reduced state tax expense.
Insurance Segment
| March 31, | Change | ||||||||||||||||||||||
| 2025 | 2024 | Members | % | ||||||||||||||||||||
| Membership: | |||||||||||||||||||||||
| Individual Medicare Advantage | 5,215,800 | 5,548,900 | (333,100) | (6.0) | % | ||||||||||||||||||
| Group Medicare Advantage | 572,600 | 551,500 | 21,100 | 3.8 | % | ||||||||||||||||||
| Medicare stand-alone PDP | 2,433,100 | 2,347,000 | 86,100 | 3.7 | % | ||||||||||||||||||
| Total Medicare | 8,221,500 | 8,447,400 | (225,900) | (2.7) | % | ||||||||||||||||||
| Medicare Supplement | 420,500 | 323,200 | 97,300 | 30.1 | % | ||||||||||||||||||
| State-based contracts and other | 1,608,100 | 1,261,400 | 346,700 | 27.5 | % | ||||||||||||||||||
| Military services | 4,588,900 | 5,955,300 | (1,366,400) | (22.9) | % | ||||||||||||||||||
| Commercial fully-insured (a) | — | 109,700 | (109,700) | (100.0) | % | ||||||||||||||||||
| Commercial ASO (a) | — | 77,700 | (77,700) | (100.0) | % | ||||||||||||||||||
| Total Medical Membership | 14,839,000 | 16,174,700 | (1,335,700) | (8.3) | % | ||||||||||||||||||
| Total Specialty Membership (b) | 4,688,400 | 4,653,200 | 35,200 | 0.8 | % |
(a) Reflects the exit of the Employer Group Commercial Medical Products business.
(b) We provide a full range of insured specialty products including dental, vision, and life insurance benefits marketed to individuals and groups. Members included in these products may not be unique to each product since members have the ability to enroll in a medical product and one or more specialty products.
| Change | |||||||||||||||||||||||||||||||||||||||||||||||
| Three months ended March 31, | Three months ended March 31, 2025 vs 2024 | ||||||||||||||||||||||||||||||||||||||||||||||
| 2025 | 2024 | $ | % | ||||||||||||||||||||||||||||||||||||||||||||
| ($ in millions) | |||||||||||||||||||||||||||||||||||||||||||||||
| Premiums and Services Revenue: | |||||||||||||||||||||||||||||||||||||||||||||||
| Premiums: | |||||||||||||||||||||||||||||||||||||||||||||||
| Individual Medicare Advantage | $ | 22,681 | $ | 22,448 | $ | 233 | 1.0 | % | |||||||||||||||||||||||||||||||||||||||
| Group Medicare Advantage | 2,322 | 1,989 | 333 | 16.7 | % | ||||||||||||||||||||||||||||||||||||||||||
| Medicare stand-alone PDP | 1,448 | 821 | 627 | 76.4 | % | ||||||||||||||||||||||||||||||||||||||||||
| Total Medicare | 26,451 | 25,258 | 1,193 | 4.7 | % | ||||||||||||||||||||||||||||||||||||||||||
| Specialty benefits | 244 | 239 | 5 | 2.1 | % | ||||||||||||||||||||||||||||||||||||||||||
| Medicare Supplement | 251 | 197 | 54 | 27.4 | % | ||||||||||||||||||||||||||||||||||||||||||
| State-based contracts and other | 3,568 | 2,311 | 1,257 | 54.4 | % | ||||||||||||||||||||||||||||||||||||||||||
| Commercial fully-insured | — | 256 | (256) | (100.0) | % | ||||||||||||||||||||||||||||||||||||||||||
| Premiums revenue | 30,514 | 28,261 | 2,253 | 8.0 | % | ||||||||||||||||||||||||||||||||||||||||||
| Services: | |||||||||||||||||||||||||||||||||||||||||||||||
| Military services and other | 252 | 251 | 1 | 0.4 | % | ||||||||||||||||||||||||||||||||||||||||||
| Commercial ASO | — | 24 | (24) | (100.0) | % | ||||||||||||||||||||||||||||||||||||||||||
| Services revenue | 252 | 275 | (23) | (8.4) | % | ||||||||||||||||||||||||||||||||||||||||||
| Total external revenues | $ | 30,766 | $ | 28,536 | $ | 2,230 | 7.8 | % | |||||||||||||||||||||||||||||||||||||||
| Income from operations | $ | 1,574 | $ | 898 | $ | 676 | 75.3 | % | |||||||||||||||||||||||||||||||||||||||
| Benefit ratio | 87.4 | % | 89.3 | % | (1.9) | % | |||||||||||||||||||||||||||||||||||||||||
| Operating cost ratio | 8.2 | % | 8.3 | % | (0.1) | % |
Income from operations
Insurance segment income from operations increased $0.7 billion, or 75.3%, from $0.9 billion in the 2024 quarter to $1.6 billion in the 2025 quarter primarily due to the same factors impacting the Insurance segment's lower benefit and operating cost ratios as more fully described below.
Enrollment
Individual Medicare Advantage membership decreased 333,100 members, or 6.0%, from March 31, 2024 to March 31, 2025, inclusive of the decision to exit certain unprofitable plans and counties. Individual Medicare Advantage membership includes 799,100 D-SNP members as of March 31, 2025, a net decrease of 123,100 D-SNP members, or 13.3%, from 922,200 D-SNP members as of March 31, 2024.
Group Medicare Advantage membership increased 21,100 members, or 3.8%, from March 31, 2024 to March 31, 2025, consistent with expectations as we maintain pricing discipline in a competitive market.
Medicare stand-alone PDP membership increased 86,100 members, or 3.7%, from March 31, 2024 to March 31, 2025, reflecting shifting competitive dynamics.
State-based contracts and other membership increased 346,700 members, or 27.5%, from March 31, 2024 to March 31, 2025, reflecting additional membership related to the Oklahoma and Indiana contracts implemented in April 2024 and July 2024, respectively, along with the allocation of additional membership in Kentucky.
Specialty membership remained largely unchanged from March 31, 2024 to March 31, 2025.
Premiums Revenue
Insurance segment premiums revenue increased $2.3 billion, or 8.0%, from $28.3 billion in the 2024 quarter to $30.5 billion in the 2025 quarter primarily due to higher per member Medicare premiums, driven largely by an increased direct subsidy due to the IRA, and higher per member state-based contracts premiums, as well as membership growth in the stand-alone PDP and state-based contracts businesses. These factors were partially offset by the membership decline within the individual Medicare Advantage business, inclusive of the decision to exit certain unprofitable plans and counties.
Insurance segment services revenue decreased $23 million, or 8.4%, from $275 million in the 2024 quarter to $252 million in the 2025 quarter.
Benefits Expense
The Insurance segment benefit ratio decreased 190 basis points from 89.3% for the 2024 quarter to 87.4% for the 2025 quarter primarily due to individual Medicare Advantage pricing inclusive of plan exits, benefit design changes and favorable workday impacts in the 2025 quarter more than offsetting claims trend and the funding environment, as well as the change in Medicare Part D seasonality due to the IRA. These factors were partially offset by a shift in line of business mix resulting from reductions in individual Medicare Advantage membership, combined with growth in the stand-alone PDP and state-based contracts businesses, which carry a higher benefit ratio. In addition, the decrease was offset by a delayed flu season that led to a more acute period in the 2025 quarter compared to the 2024 quarter and lower favorable prior-period medical claims reserve development.
Operating Costs
The Insurance segment operating cost ratio decreased 10 basis points from 8.3% for the 2024 quarter to 8.2% for the 2025 quarter primarily due to administrative cost efficiencies resulting from the value creation initiatives and operating leverage associated with increased revenues from the impact of the IRA as previously described. These factors were partially offset by the operating leverage impact of the loss of individual Medicare Advantage membership.
CenterWell Segment
| Change | |||||||||||||||||||||||||||||||||||||||||||||||
| Three months ended March 31, | Three months ended March 31, 2025 vs 2024 | ||||||||||||||||||||||||||||||||||||||||||||||
| 2025 | 2024 | $ | % | ||||||||||||||||||||||||||||||||||||||||||||
| ($ in millions) | |||||||||||||||||||||||||||||||||||||||||||||||
| Revenues: | |||||||||||||||||||||||||||||||||||||||||||||||
| Services: | |||||||||||||||||||||||||||||||||||||||||||||||
| Home solutions | $ | 335 | $ | 335 | $ | — | — | % | |||||||||||||||||||||||||||||||||||||||
| Pharmacy solutions | 278 | 211 | 67 | 31.8 | % | ||||||||||||||||||||||||||||||||||||||||||
| Primary care | 469 | 241 | 228 | 94.6 | % | ||||||||||||||||||||||||||||||||||||||||||
| Total external revenues | 1,082 | 787 | 295 | 37.5 | % | ||||||||||||||||||||||||||||||||||||||||||
| Intersegment revenues: | |||||||||||||||||||||||||||||||||||||||||||||||
| Home solutions | 497 | 485 | 12 | 2.5 | % | ||||||||||||||||||||||||||||||||||||||||||
| Pharmacy solutions | 2,566 | 2,617 | (51) | (1.9) | % | ||||||||||||||||||||||||||||||||||||||||||
| Primary care | 950 | 929 | 21 | 2.3 | % | ||||||||||||||||||||||||||||||||||||||||||
| Intersegment revenues | 4,013 | 4,031 | (18) | (0.4) | % | ||||||||||||||||||||||||||||||||||||||||||
| Total revenues | $ | 5,095 | $ | 4,818 | $ | 277 | 5.7 | % | |||||||||||||||||||||||||||||||||||||||
| Income from operations | $ | 392 | $ | 282 | $ | 110 | 39.0 | % | |||||||||||||||||||||||||||||||||||||||
| Operating cost ratio | 91.1 | % | 93.0% | (1.9) | % |
Income from operations
CenterWell income from operations increased $0.1 billion, or 39.0%, from $0.3 billion in the 2024 quarter to $0.4 billion in the 2025 quarter primarily due to the CenterWell segment's lower operating cost ratio as more fully described below.
Services Revenue
CenterWell services revenue increased $0.3 billion, or 37.5%, from $0.8 billion in the 2024 quarter to $1.1 billion in the 2025 quarter primarily due to higher revenues associated with growth in the primary care business, partially offset by the impact of the v28 risk model revision.
Intersegment Revenue
CenterWell intersegment revenues remained relatively unchanged from the 2024 quarter to the 2025 quarter.
Operating Costs
The CenterWell segment operating cost ratio decreased 190 basis points from 93.0% for the 2024 quarter to 91.1% for the 2025 quarter primarily due to administrative cost efficiencies resulting from the value creation initiatives, as well as more favorable operating trends in the primary care business in the 2025 quarter as a result of stabilizing medical cost trends and maturation of the v28 mitigation activities, partially offset by the continued phase-in of v28.
Liquidity
Historically, our primary sources of cash have included receipts of premiums, services revenue, and investment and other income, as well as proceeds from the sale or maturity of our investment securities, and borrowings. Our primary uses of cash historically have included disbursements for claims payments, operating costs, interest on borrowings, taxes, purchases of investment securities, acquisitions, capital expenditures, repayments on borrowings, dividends, and share repurchases. As premiums generally are collected in advance of claim payments by a period of up to several months, our business normally should produce positive cash flows during periods of increasing premiums and enrollment. Conversely, cash flows would be negatively impacted during periods of decreasing premiums and enrollment. From period to period, our cash flows may also be affected by the timing of working capital items including premiums receivable, benefits payable, and other receivables and payables. Our cash flows are impacted by the timing of payments to and receipts from CMS associated with Medicare Part D subsidies for which we do not assume risk. The use of cash flows may be limited by regulatory requirements of state departments of insurance (or comparable state regulators) which require, among other items, that our regulated subsidiaries maintain minimum levels of capital and seek approval before paying dividends from the subsidiaries to the parent. Our use of cash flows derived from our non-insurance subsidiaries, such as in our CenterWell segment, is generally not restricted by state departments of insurance (or comparable state regulators).
For additional information regarding our liquidity risk, refer to Part I, Item 1A, "Risk Factors" in our 2024 Form 10-K and Part II, Item 1A, "Risk Factors" of this Form 10-Q.
Cash and cash equivalents increased to approximately $4.3 billion at March 31, 2025 from $2.2 billion at December 31, 2024. The change in cash and cash equivalents for the three months ended March 31, 2025 and 2024 is summarized as follows:
| Three Months Ended | |||||||||||
| 2025 | 2024 | ||||||||||
| (in millions) | |||||||||||
| Net cash provided by operating activities | $ | 331 | $ | 423 | |||||||
| Net cash provided by (used in) investing activities | 314 | (414) | |||||||||
| Net cash provided by financing activities | 1,384 | 1,207 | |||||||||
| Increase in cash and cash equivalents | $ | 2,029 | $ | 1,216 |
Cash Flow from Operating Activities
Cash flows provided by operations of $0.3 billion in the 2025 quarter decreased $0.1 billion from cash flows provided by operations of $0.4 billion in the 2024 quarter. The decrease in operating cash flows primarily reflected the unfavorable impact of working capital items, partially offset by higher earnings in the 2025 quarter.
The most significant drivers of changes in our working capital are typically the timing of payments of benefits expense and receipts for premiums. Benefits expense includes claim payments, capitation payments, pharmacy costs net of rebates, allocations of certain centralized expenses and various other costs incurred to provide health insurance coverage to members, as well as estimates of future payments to hospitals and others for medical care and other supplemental benefits provided on or prior to the balance sheet date. For additional information regarding our benefits payable and benefits expense recognition, refer to Note 2 to the audited Consolidated Financial Statements included in Part II, Item 8, "Financial Statements and Supplementary Data" in our 2023 Form 10-K.
The detail of total net receivables at March 31, 2025 and December 31, 2024 and reconciliation to cash flow for the three months ended March 31, 2025 and 2024 was as follows:
| March 31, 2025 | December 31, 2024 | 2025 Quarter Change | 2024 Quarter Change | ||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
| Medicare | $ | 3,468 | $ | 1,745 | $ | 1,723 | $ | 1,862 | |||||||||||||||
| State-based contracts | 654 | 614 | 40 | 11 | |||||||||||||||||||
| Military services | 145 | 180 | (35) | 21 | |||||||||||||||||||
| Other | 313 | 263 | 50 | (7) | |||||||||||||||||||
| Allowances | (121) | (98) | (23) | 3 | |||||||||||||||||||
| Total net receivables | $ | 4,459 | $ | 2,704 | $ | 1,755 | $ | 1,890 | |||||||||||||||
The change in Medicare receivables for the 2025 quarter reflects higher per member Medicare premiums, driven largely by an increased direct subsidy due to the IRA. The change in Medicare receivables for the 2024 quarter reflects individual Medicare Advantage membership growth. In addition, both periods further reflect the typical pattern caused by the timing of accruals and related collections associated with the CMS risk-adjustment model. Significant collections occur with the mid-year and final settlements with CMS in the second and third quarter.
Cash Flow from Investing Activities
Acquisition related activities during the first quarter of 2025 were not material. During the 2024 quarter, we acquired various businesses for approximately $14 million, net of cash and cash equivalents received, respectively.
Our ongoing capital expenditures primarily relate to our information technology initiatives, support of services in our primary care operations including medical and administrative facility improvements necessary for activities such as the provision of care to members, claims processing, billing and collections, wellness solutions, care coordination, regulatory compliance and customer service. Total net capital expenditures, excluding acquisitions, were $95 million in the 2025 quarter and $177 million in the 2024 quarter.
Net proceeds of investment securities were $409 million in the 2025 quarter and net purchases of investment securities were $223 million in the 2024 quarter.
Cash Flow from Financing Activities
Receipts from CMS associated with Medicare Part D claim subsidies for which we do not assume risk were higher than claim payments by $75 million and $569 million in the 2025 and 2024 quarters, respectively.
Under our administrative services only TRICARE contracts, health care costs payments for which we do not assume risk exceeded reimbursements from the federal government by $110 million and $70 million in the 2025 and 2024 quarters, respectively.
In March 2025, we issued $750 million of 5.550% unsecured senior notes due May 1, 2035, $500 million of 6.000% unsecured senior notes due May 1, 2055, and an additional $250 million of our existing 5.375% unsecured senior notes due April 15, 2031. Our net proceeds, reduced for the underwriters' discounts and commissions paid, were $1.481 billion. We used the net proceeds of these offerings to repay outstanding amounts from the 4.500% Senior Notes due on April 1,2025. The remaining net proceeds will be used for general corporate purposes, which may include the repayment of our existing indebtedness, including borrowings under our commercial paper program.
In March 2024, we issued $1.3 billion of 5.375% unsecured senior notes due April 15, 2031 and $1.0 billion of 5.750% unsecured senior notes due April 15, 2054. Our net proceeds, reduced for the underwriters' discounts and
commissions paid, were $2.2 billion. We used the net proceeds for general corporate purposes, which included the repayment of existing indebtedness, including borrowings under our commercial paper program.
In 2024, we entered into a securities lending program where we loan certain investment securities for short periods of time in exchange for collateral. We also entered into an uncommitted receivables purchase facility under which certain pharmaceutical rebate receivables may be sold on a non-recourse basis to a financial institution. In the 2025 quarter, net proceeds from the securities lending program were $175 million and net repayments from the uncommitted receivables purchase facility were $68 million.
Net repayments from the issuance of commercial paper were $4 million and $644 million in the 2025 quarter and 2024 quarter, respectively. The maximum principal amount outstanding at any one time during the 2025 quarter was $1.2 billion.
We repurchased common shares for $702 million in the 2024 quarter, under share repurchase plans authorized by the Board of Directors. We also acquired common shares in connection with employee stock plans for $9 million and $15 million in the 2025 quarter and 2024 quarter, respectively.
We paid dividends to stockholders of $108 million and $109 million during the 2025 quarter and 2024 quarter, respectively.
Future Sources and Uses of Liquidity
Dividends
For additional information regarding our dividends to stockholders, refer to Note 10 to the unaudited Consolidated Financial Statements included in Part I, Item 1, "Financial Statements" of this Form 10-Q.
Stock Repurchases
For additional information regarding stock repurchases, refer to Note 10 to the unaudited Consolidated Financial Statements included in Part I, Item 1, "Financial Statements" of this Form 10-Q.
Debt
For additional information regarding debt, including our senior notes, term loans, revolving credit agreements, commercial paper program and other short-term borrowings, refer to Note 12 to the unaudited Consolidated Financial Statements included in Part I, Item 1, "Financial Statements" of this Form 10-Q.
Acquisitions
For additional information regarding acquisitions, refer to Note 3 to the unaudited Consolidated Financial Statements included in Part I, Item 1, "Financial Statements" of this Form 10-Q.
Liquidity Requirements
We believe our cash balances, investment securities, operating cash flows, and funds available under our credit agreement and our commercial paper program or from other public or private financing sources, taken together, provide adequate resources to fund ongoing operating and regulatory requirements, acquisitions, future expansion opportunities, and capital expenditures for at least the next twelve months, as well as to refinance or repay debt, and repurchase shares.
Adverse changes in our credit rating may increase the rate of interest we pay and may impact the amount of credit available to us in the future. Our investment-grade credit rating at March 31, 2025 was BBB according to Standard & Poor’s Rating Services, or S&P, and Baa2 according to Moody’s Investors Services, Inc., or Moody’s. A downgrade by S&P to BB+ or by Moody’s to Ba1 triggers an interest rate increase of 25 basis points with respect to $250 million of our senior notes. Successive one notch downgrades increase the interest rate an additional 25 basis
points, or annual interest expense by $1 million, up to a maximum 100 basis points, or annual interest expense by $3 million.
In addition, we operate as a holding company in a highly regulated industry. Humana Inc., our parent company, is dependent upon dividends and administrative expense reimbursements from our subsidiaries, most of which are subject to regulatory restrictions. We continue to maintain significant levels of aggregate excess statutory capital and surplus in our state-regulated operating subsidiaries. Cash, cash equivalents, and short-term investments at the parent company were $1.2 billion at March 31, 2025 compared to $562 million at December 31, 2024. This increase primarily reflects net proceeds from the issuance of senior notes and commercial paper, proceeds from maturities of investment securities, partially offset by repayment of borrowings under the commercial paper program, capital contributions to certain subsidiaries, net working capital changes, cash dividends to shareholders, capital expenditures, and common stock repurchases. Our use of operating cash derived from our non-insurance subsidiaries, such as our CenterWell segment, is generally not restricted by departments of insurance (or comparable state regulators).
Regulatory Requirements
Certain of our subsidiaries operate in states that regulate the payment of dividends, loans, or other cash transfers to Humana Inc., our parent company, and require minimum levels of equity as well as limit investments to approved securities. The amount of dividends that may be paid to Humana Inc. by these subsidiaries, without prior approval by state regulatory authorities, or ordinary dividends, is limited based on the entity’s level of statutory income and statutory capital and surplus. If the dividend, together with other dividends paid within the preceding twelve months, exceeds a specified statutory limit or is paid from sources other than earned surplus, it is generally considered an extraordinary dividend requiring prior regulatory approval. In most states, prior notification is provided before paying a dividend even if approval is not required.
Although minimum required levels of equity are largely based on premium volume, product mix, and the quality of assets held, minimum requirements vary significantly at the state level. Based on the most recently filed statutory financial statements as of December 31, 2024, our state regulated subsidiaries had aggregate statutory capital and surplus of approximately $13.2 billion, which exceeded aggregate minimum regulatory requirements of $11.4 billion. The amount of ordinary dividends that may be paid to our parent company in 2025 is approximately $1.1 billion in the aggregate. Actual dividends paid to our parent company were approximately $1.5 billion in 2024. The amount, timing and mix of ordinary and extraordinary dividend payments will vary due to state regulatory requirements, the level of excess statutory capital and surplus and expected future surplus requirements related to, for example, premium volume and product mix.
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