filings.toolsItem 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF
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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 2025 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 19, 2026, 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 a leading U.S. healthcare company. Through our Humana insurance services and our CenterWell healthcare 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 and 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 revenues less investment income, represents a statistic used to measure administrative spending efficiency.
MaxHealth Acquisition
On February 13, 2026, we acquired MaxHealth, a leading primary care platform focused on providing high-quality, integrated care to adults and senior patients throughout Florida, for cash consideration of approximately $908 million, net of cash acquired. This resulted in a preliminary purchase price allocation to goodwill of approximately $800 million, other intangible assets of $71 million, and net tangible assets acquired of $59 million. The other intangible assets, which primarily consist of member relationships and trade names, have an estimated weighted average useful life of 6.9 years. The purchase price allocation is preliminary, subject to completion of valuation analysis, including for example, refining assumptions used to calculate the fair value of intangible assets.
Value Creation Initiative****s
In order to create capacity to fund growth in our businesses, we committed to drive additional value for the enterprise through cost saving and productivity initiatives. In addition, in response to sustained macroeconomic, regulatory and competitive pressures impacting the industry, we initiated a substantial multi-year transformation program designed to re-align our cost structure, operating model and technology footprint with evolving market conditions.
As a result of these initiatives, we recorded charges of $98 million and $24 million for the three months ended March 31, 2026 and 2025, respectively, within operating costs in the consolidated statements of income. The charges primarily relate to external consulting spend, severance and other employee related charges in connection
with workforce optimization, and asset impairments for the three months ended March 31, 2026 and 2025. We expect to incur additional charges over the course of the program.
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 stand-alone prescription drug plans, or PDP, and contracts with various states to provide Medicaid, 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 as well as the operations of our PBM business.
The CenterWell segment includes our pharmacy solutions, 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 solutions, 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 Medicare benefit costs rise as members pay their contractual portion of claims responsibility, progress through their annual deductible and maximum out-of-pocket expenses, as well as incurring higher episodic cost of care resulting in a higher benefit ratio throughout the year.
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 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. The benefit design changes associated with the implementation of the Inflation Reduction Act of 2022, or IRA, reduced out-of-pocket costs for beneficiaries, resulting in greater cost sharing and a leveling of net prescription costs throughout the year. 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.
2026 Highlights
- Our strategy is to offer 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, 2026, approximately 4,088,800 members, or 64%, of our individual Medicare Advantage members were in value-based relationships under our integrated care delivery model, as compared to 3,501,700 members, or 67%, at March 31, 2025.
- Net income attributable to Humana was $1.19 billion, or $9.83 per diluted common share, and $1.24 billion, or $10.30 per diluted common share, for the three months ended March 31, 2026 and 2025, respectively. These comparisons were 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 2026 and 2025 quarter:
| For the three months ended March 31, | |||||||||||||||||||||||
| 2026 | 2025 | ||||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
| Consolidated income before income taxes and equity in net losses: | |||||||||||||||||||||||
| Put/call valuation adjustments associated with our non consolidating minority interest investments | $ | (34) | $ | 163 | |||||||||||||||||||
| Value creation initiatives | 98 | 24 | |||||||||||||||||||||
| Total | $ | 64 | $ | 187 | |||||||||||||||||||
| For the three months ended March 31, | |||||||||||||||||||||||
| 2026 | 2025 | ||||||||||||||||||||||
| Diluted earnings per common share: | |||||||||||||||||||||||
| Put/call valuation adjustments associated with our non consolidating minority interest investments | $ | (0.28) | $ | 1.35 | |||||||||||||||||||
| Value creation initiatives | 0.81 | 0.20 | |||||||||||||||||||||
| Cumulative net tax impact | (0.12) | (0.36) | |||||||||||||||||||||
| Total | $ | 0.41 | $ | 1.19 |
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 ownership structure, service arrangements, or fee payments between intercompany or vertically-integrated assets, increases in regulation of our prescription drug benefit businesses, reductions in reimbursement rates, 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 solutions, 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 2026 and 2025
The following discussion primarily deals with our results of operations for the three months ended March 31, 2026, or the 2026 quarter and the three months ended March 31, 2025, or the 2025 quarter.
| Change | |||||||||||||||||||||||||||||||||||||||||||||||
| Three months ended March 31, | Three months ended March 31, 2026 vs 2025 | ||||||||||||||||||||||||||||||||||||||||||||||
| 2026 | 2025 | $ | % | ||||||||||||||||||||||||||||||||||||||||||||
| ($ in millions, except per common share results) | |||||||||||||||||||||||||||||||||||||||||||||||
| Revenues: | |||||||||||||||||||||||||||||||||||||||||||||||
| Insurance premiums | $ | 37,709 | $ | 30,514 | $ | 7,195 | 23.6% | ||||||||||||||||||||||||||||||||||||||||
| Services: | |||||||||||||||||||||||||||||||||||||||||||||||
| Insurance | 247 | 252 | (5) | (2.0)% | |||||||||||||||||||||||||||||||||||||||||||
| CenterWell | 1,428 | 1,082 | 346 | 32.0% | |||||||||||||||||||||||||||||||||||||||||||
| Corporate | 2 | — | 2 | 100.0% | |||||||||||||||||||||||||||||||||||||||||||
| Total services revenue | 1,677 | 1,334 | 343 | 25.7% | |||||||||||||||||||||||||||||||||||||||||||
| Investment income | 262 | 264 | (2) | (0.8)% | |||||||||||||||||||||||||||||||||||||||||||
| Total revenues | 39,648 | 32,112 | 7,536 | 23.5% | |||||||||||||||||||||||||||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||||||||||||||||||||||||||
| Benefits | 33,707 | 26,535 | 7,172 | 27.0% | |||||||||||||||||||||||||||||||||||||||||||
| Operating costs | 4,024 | 3,380 | 644 | 19.1% | |||||||||||||||||||||||||||||||||||||||||||
| Depreciation and amortization | 163 | 183 | (20) | (10.9)% | |||||||||||||||||||||||||||||||||||||||||||
| Total operating expenses | 37,894 | 30,098 | 7,796 | 25.9% | |||||||||||||||||||||||||||||||||||||||||||
| Income from operations | 1,754 | 2,014 | (260) | (12.9)% | |||||||||||||||||||||||||||||||||||||||||||
| Interest expense | 193 | 160 | 33 | 20.6% | |||||||||||||||||||||||||||||||||||||||||||
| Other (income) expense, net | (34) | 163 | 197 | 120.9% | |||||||||||||||||||||||||||||||||||||||||||
| Income before income taxes and equity in net losses | 1,595 | 1,691 | (96) | (5.7)% | |||||||||||||||||||||||||||||||||||||||||||
| Provision for income taxes | 395 | 406 | (11) | (2.7)% | |||||||||||||||||||||||||||||||||||||||||||
| Equity in net losses | (16) | (43) | (27) | (62.8)% | |||||||||||||||||||||||||||||||||||||||||||
| Net income | $ | 1,184 | $ | 1,242 | $ | (58) | (4.7)% | ||||||||||||||||||||||||||||||||||||||||
| Diluted earnings per common share | $ | 9.83 | $ | 10.30 | $ | (0.47) | (4.6)% | ||||||||||||||||||||||||||||||||||||||||
| Benefit ratio (a) | 89.4% | 87.0% | 2.4% | ||||||||||||||||||||||||||||||||||||||||||||
| Operating cost ratio (b) | 10.2% | 10.6% | (0.4)% | ||||||||||||||||||||||||||||||||||||||||||||
| Effective tax rate | 25.0% | 24.6% | 0.4% |
(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 $7.2 billion, or 23.6%, from $30.5 billion in the 2025 quarter to $37.7 billion in the 2026 quarter primarily reflecting membership growth across the Medicare businesses in 2026, higher per member Medicare Advantage (MA) and stand-alone PDP premiums largely driven by an increase in MA benchmark funding from the Centers for Medicare and Medicaid Services (CMS) and the increased Part D direct subsidy as a result of the Inflation Reduction Act (IRA). These factors were partially offset by the previously disclosed Bonus Year (BY) 2026 Star Ratings headwind.
Services Revenue
Consolidated services revenue increased $0.3 billion, or 25.7%, from $1.3 billion in the 2025 quarter to $1.7 billion in the 2026 quarter primarily reflecting the increased payor-agnostic client base across the CenterWell platform partially offset by the final year of the phase-in of the v28 risk model revision.
Investment Income
Investment income was relatively unchanged from $264 million in the 2025 quarter to $262 million in the 2026 quarter.
Benefit Expense
Consolidated benefits expense increased $7.2 billion, or 27.0%, from $26.5 billion in the 2025 quarter to $33.7 billion in the 2026 quarter. The consolidated benefit ratio increased 240 basis points from 87.0% for the 2025 quarter to 89.4% for the 2026 quarter primarily reflecting the BY 2026 Star Ratings revenue headwind, the effect of the individual MA membership growth during the most recent Annual Election Period (AEP) and Open Enrollment Period (OEP) as the new members, on average, run at a higher benefit ratio as compared to retained members (excluding the impact of the BY 2026 Star Ratings headwind) and the anticipated lower favorable prior-period medical claims reserve development in the 2026 quarter compared to the 2025 quarter. These factors were partially offset by the 2026 individual MA pricing, inclusive of the MA funding environment (excluding the BY 2026 Star Ratings headwind) combined with our ongoing clinical excellence efforts, more than offsetting the assumption of claims trend (with largely stable benefits year over year), and the benefit of our group MA recontracting efforts for the 2026 plan year.
Consolidated benefits expense included $389 million of favorable prior-period medical claims reserve development in the 2026 quarter and $477 million of favorable prior-period medical claims development in the 2025 quarter. This development does not directly correspond to our operating results as a portion is attributable to provider risk-sharing arrangements, which are accounted for separately based on contractual terms.
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 $0.6 billion, or 19.1%, from $3.4 billion in the 2025 quarter to $4.0 billion in the 2026 quarter. The consolidated operating cost ratio decreased 40 basis points from 10.6% for the 2025 quarter to 10.2% for the 2026 quarter primarily reflecting operating leverage associated with increased revenues from membership growth across the Medicare businesses in 2026 combined with an improved MA benchmark funding rate and increased Part D direct subsidy resulting from the IRA, as well as the progress on our previously discussed tactical cost cutting and transformation initiatives combined with the beneficial impact of our prior value creation initiatives that have driven administrative cost efficiencies. These factors were partially offset by the impact of the previously disclosed BY 2026 Star Ratings headwind and a higher CenterWell operating cost ratio.
Depreciation and Amortization
Depreciation and amortization decreased $20 million, or 10.9%, from $183 million in the 2025 quarter to $163 million in the 2026 quarter primarily due to decreased capital spending.
Interest Expense
Interest expense increased $33 million, or 20.6%, from $160 million in the 2025 quarter to $193 million in the 2026 quarter primarily due to financing costs and higher average debt balances.
Income Taxes
The effective income tax rate was 25.0% and 24.6% for the three months ended March 31, 2026 and 2025, respectively. The year-over-year increase in the effective income tax rate is primarily due to increased state tax expense.
Insurance Segment
| March 31, | Change | ||||||||||||||||||||||
| 2026 | 2025 | Members | % | ||||||||||||||||||||
| Membership: | |||||||||||||||||||||||
| Individual Medicare Advantage | 6,393,300 | 5,215,800 | 1,177,500 | 22.6 | % | ||||||||||||||||||
| Group Medicare Advantage | 729,200 | 572,600 | 156,600 | 27.3 | % | ||||||||||||||||||
| Medicare stand-alone PDP | 3,860,600 | 2,433,100 | 1,427,500 | 58.7 | % | ||||||||||||||||||
| Total Medicare | 10,983,100 | 8,221,500 | 2,761,600 | 33.6 | % | ||||||||||||||||||
| Medicare Supplement | 536,800 | 420,500 | 116,300 | 27.7 | % | ||||||||||||||||||
| State-based contracts and other | 1,561,300 | 1,608,100 | (46,800) | (2.9) | % | ||||||||||||||||||
| Military services | 4,630,200 | 4,588,900 | 41,300 | 0.9 | % | ||||||||||||||||||
| Total Medical Membership | 17,711,400 | 14,839,000 | 2,872,400 | 19.4 | % | ||||||||||||||||||
| Total Specialty Membership | 4,912,300 | 4,688,400 | 223,900 | 4.8 | % |
Members may not be unique to each product since members have the ability to enroll in more than one product.
| Change | |||||||||||||||||||||||||||||||||||||||||||||||
| Three months ended March 31, | Three months ended March 31, 2026 vs 2025 | ||||||||||||||||||||||||||||||||||||||||||||||
| 2026 | 2025 | $ | % | ||||||||||||||||||||||||||||||||||||||||||||
| ($ in millions) | |||||||||||||||||||||||||||||||||||||||||||||||
| Premiums and Services Revenue: | |||||||||||||||||||||||||||||||||||||||||||||||
| Premiums: | |||||||||||||||||||||||||||||||||||||||||||||||
| Individual Medicare Advantage | $ | 28,252 | $ | 22,681 | $ | 5,571 | 24.6% | ||||||||||||||||||||||||||||||||||||||||
| Group Medicare Advantage | 2,911 | 2,322 | 589 | 25.4% | |||||||||||||||||||||||||||||||||||||||||||
| Medicare stand-alone PDP | 2,617 | 1,448 | 1,169 | 80.7% | |||||||||||||||||||||||||||||||||||||||||||
| Total Medicare | 33,780 | 26,451 | 7,329 | 27.7% | |||||||||||||||||||||||||||||||||||||||||||
| Specialty benefits | 268 | 244 | 24 | 9.8% | |||||||||||||||||||||||||||||||||||||||||||
| Medicare Supplement | 329 | 251 | 78 | 31.1% | |||||||||||||||||||||||||||||||||||||||||||
| State-based contracts and other | 3,332 | 3,568 | (236) | (6.6)% | |||||||||||||||||||||||||||||||||||||||||||
| Premiums revenue | 37,709 | 30,514 | 7,195 | 23.6% | |||||||||||||||||||||||||||||||||||||||||||
| Services: | |||||||||||||||||||||||||||||||||||||||||||||||
| Military services and other | 247 | 252 | (5) | (2.0)% | |||||||||||||||||||||||||||||||||||||||||||
| Services revenue | 247 | 252 | (5) | (2.0)% | |||||||||||||||||||||||||||||||||||||||||||
| Total external revenues | $ | 37,956 | $ | 30,766 | $ | 7,190 | 23.4% | ||||||||||||||||||||||||||||||||||||||||
| Income from operations | $ | 1,435 | $ | 1,574 | $ | (139) | (8.8)% | ||||||||||||||||||||||||||||||||||||||||
| Benefit ratio | 89.4% | 87.4% | 2.0% | ||||||||||||||||||||||||||||||||||||||||||||
| Operating cost ratio | 7.3% | 8.2% | (0.9)% |
Income from operations
Insurance segment income from operations decreased $139 million, or 8.8%, from $1.6 billion in the 2025 quarter to $1.4 billion in the 2026 quarter primarily due to the same factors impacting the Insurance segment's benefit and operating cost ratios as more fully described below.
Enrollment
Individual Medicare Advantage membership increased 1,177,500 members, or 22.6%, from March 31, 2025 to March 31, 2026 reflecting net membership gains during the most recent AEP and OEP. Individual Medicare Advantage membership includes 945,100 D-SNP members as of March 31, 2026, a net increase of 146,000 D-SNP members, or 18.3%, from 799,100 D-SNP members as of March 31, 2025.
Group Medicare Advantage membership increased 156,600 members, or 27.3%, from March 31, 2025 to March 31, 2026 reflecting net membership additions from the 2026 selling season.
Medicare stand-alone PDP membership increased 1,427,500 members, or 58.7%, from March 31, 2025 to March 31, 2026 reflecting net membership additions from group MA recontracting efforts and the 2026 selling season.
State-based contracts and other membership decreased 46,800 members, or 2.9%, from March 31, 2025 to March 31, 2026 primarily reflecting shifts in other membership offset by net membership additions in state-based contracts.
Specialty membership increased 223,900 members, or 5%, from March 31, 2025 to March 31, 2026 primarily reflecting growth in group dental and vision products.
Premiums Revenue
Insurance segment premiums revenue increased $7.2 billion, or 23.6%, from $30.5 billion in the 2025 quarter to $37.7 billion in the 2026 quarter primarily reflecting membership growth across the Medicare businesses in 2026, higher per member MA and stand-alone PDP premiums largely driven by an increase in MA benchmark funding from CMS and the increased Part D direct subsidy as a result of the IRA. These factors were partially offset by the BY 2026 Star Ratings headwind.
Services Revenue
Insurance segment services revenue decreased $5 million, or 2.0%, from $252 million in the 2025 quarter to $247 million in the 2026 quarter.
Benefits Expense
The Insurance segment benefit ratio increased 200 basis points from 87.4% for the 2025 quarter to 89.4% for the 2026 quarter primarily reflecting the BY 2026 Star Ratings revenue headwind, the effect of the individual MA membership growth during the most recent AEP and OEP as the new members, on average, run at a higher benefit ratio as compared to retained members (excluding the impact of the BY 2026 Star Ratings headwind) and the anticipated lower favorable prior-period medical claims reserve development in the 2026 quarter compared to the 2025 quarter. These factors were partially offset by the 2026 individual MA pricing, inclusive of the MA funding environment (excluding the BY 2026 Star Ratings headwind) combined with our ongoing clinical excellence efforts, more than offsetting the assumption of claims trend (with largely stable benefits year over year), and the benefit of our group Medicare Advantage recontracting efforts for the 2026 plan year.
Operating Costs
The Insurance segment operating cost ratio decreased 90 basis points from 8.2% for the 2025 quarter to 7.3% for the 2026 quarter primarily reflecting operating leverage associated with increased revenues from membership growth across the Medicare businesses in 2026 combined with an improved MA benchmark funding rate and increased Part D direct subsidy resulting from the IRA, as well as the progress on our previously discussed tactical cost cutting and transformation initiatives combined with the beneficial impact of prior value creation initiatives that have driven administrative cost efficiencies. These factors were partially offset by the impact of the previously disclosed BY 2026 Star Ratings headwind.
CenterWell Segment
| Change | |||||||||||||||||||||||||||||||||||||||||||||||
| Three months ended March 31, | Three months ended March 31, 2026 vs 2025 | ||||||||||||||||||||||||||||||||||||||||||||||
| 2026 | 2025 | $ | % | ||||||||||||||||||||||||||||||||||||||||||||
| ($ in millions) | |||||||||||||||||||||||||||||||||||||||||||||||
| Revenues: | |||||||||||||||||||||||||||||||||||||||||||||||
| Services: | |||||||||||||||||||||||||||||||||||||||||||||||
| Home solutions | $ | 343 | $ | 335 | $ | 8 | 2.4% | ||||||||||||||||||||||||||||||||||||||||
| Pharmacy solutions | 297 | 278 | 19 | 6.8% | |||||||||||||||||||||||||||||||||||||||||||
| Primary care | 788 | 469 | 319 | 68.0% | |||||||||||||||||||||||||||||||||||||||||||
| Total external revenues | 1,428 | 1,082 | 346 | 32.0% | |||||||||||||||||||||||||||||||||||||||||||
| Intersegment revenues: | |||||||||||||||||||||||||||||||||||||||||||||||
| Home solutions | 683 | 497 | 186 | 37.4% | |||||||||||||||||||||||||||||||||||||||||||
| Pharmacy solutions | 2,855 | 2,566 | 289 | 11.3% | |||||||||||||||||||||||||||||||||||||||||||
| Primary care | 1,134 | 950 | 184 | 19.4% | |||||||||||||||||||||||||||||||||||||||||||
| Intersegment revenues | 4,672 | 4,013 | 659 | 16.4% | |||||||||||||||||||||||||||||||||||||||||||
| Total revenues | $ | 6,100 | $ | 5,095 | $ | 1,005 | 19.7% | ||||||||||||||||||||||||||||||||||||||||
| Income from operations | $ | 289 | $ | 392 | $ | (103) | (26.3)% | ||||||||||||||||||||||||||||||||||||||||
| Operating cost ratio | 94.5% | 91.1% | 3.4% |
Income from operations
CenterWell income from operations decreased $103 million, or 26.3%, from $392 million in the 2025 quarter to $289 million in the 2026 quarter primarily due to the same factors impacting the CenterWell segment's revenue and operating cost ratio as more fully described below.
Services Revenue
CenterWell external services revenue increased $0.3 billion, or 32.0%, from $1.1 billion in the 2025 quarter to $1.4 billion in the 2026 quarter primarily reflecting the continued expansion of our payor-agnostic client base, primarily associated with the primary care business as a result of recent acquisitions, partially offset by the final year of the phase-in of the v28 risk model revision.
Intersegment Revenue
CenterWell intersegment revenues increased $0.7 billion, or 16.4%, from $4.0 billion in the 2025 quarter to $4.7 billion in the 2026 quarter primarily due to higher revenues associated with growth in each of the CenterWell business lines resulting from increased Medicare membership in 2026.
Operating Costs
The CenterWell segment operating cost ratio increased 340 basis points from 91.1% for the 2025 quarter to 94.5% for the 2026 quarter primarily reflecting the final year of the phase-in of the v28 risk model revision, along with certain year-over-year timing impacts, the uptick of volume within CenterWell Specialty Pharmacy, which carries a higher operating cost ratio than the traditional pharmacy business, the anticipated headwind in the 2026 quarter associated with a primary care acquisition in the fourth quarter of 2025, as well as transaction and integration costs associated with the recently disclosed acquisition of MaxHealth in the 2026 quarter. These factors were partially offset by the continued maturation of the v28 mitigation activities within the primary care business and the progress on our tactical cost cutting and transformation initiatives combined with the beneficial impact of prior value creation initiatives that have driven administrative cost efficiencies.
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 2025 Form 10-K and Part II, Item 1A, "Risk Factors" of this Form 10-Q.
Cash and cash equivalents increased to approximately $5.0 billion at March 31, 2026 from $4.2 billion at December 31, 2025. The change in cash and cash equivalents for the three months ended March 31, 2026 and 2025 is summarized as follows:
| Three Months Ended | |||||||||||
| 2026 | 2025 | ||||||||||
| (in millions) | |||||||||||
| Net cash provided by operating activities | $ | 1,254 | $ | 331 | |||||||
| Net cash (used in) provided by investing activities | (2,553) | 314 | |||||||||
| Net cash provided by financing activities | 2,050 | 1,384 | |||||||||
| Increase in cash and cash equivalents | $ | 751 | $ | 2,029 |
Cash Flow from Operating Activities
Cash flows provided by operations of $1.3 billion in the 2026 quarter increased $0.9 billion from cash flows provided by operations of $0.3 billion in the 2025 quarter. The increase in our operating cash flows was the result of favorable working capital activity, primarily associated with an increase in the IBNR balance, modestly offset by a decline in net earnings in the 2026 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 2025 Form 10-K.
The detail of total net receivables at March 31, 2026 and December 31, 2025 and reconciliation to cash flow for the three months ended March 31, 2026 and 2025 was as follows:
| March 31, 2026 | December 31, 2025 | 2026 Quarter Change | 2025 Quarter Change | ||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
| Medicare | $ | 4,153 | $ | 2,209 | $ | 1,944 | $ | 1,723 | |||||||||||||||
| State-based contracts | 764 | 705 | 59 | 40 | |||||||||||||||||||
| Military services | 89 | 163 | (74) | (35) | |||||||||||||||||||
| Other | 314 | 299 | 15 | 50 | |||||||||||||||||||
| Allowances | (102) | (106) | 4 | (23) | |||||||||||||||||||
| Total net receivables | $ | 5,218 | $ | 3,270 | $ | 1,948 | $ | 1,755 | |||||||||||||||
| Reconciliation to cash flow statement: | |||||||||||||||||||||||
| Receivables acquired | (34) | — | |||||||||||||||||||||
| Change in receivables per cash flow statement | $ | 1,914 | $ | 1,755 |
The change in Medicare receivables for the 2026 quarter and 2025 quarter reflects 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
During the 2026 quarter, we acquired MaxHealth for cash consideration of approximately $908 million, net of cash acquired. No other businesses were acquired that individually or in the aggregate had a material impact on our results of operations, financial conditions or cash flows during the 2026 and 2025 quarters.
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 $121 million in the 2026 quarter and $95 million in the 2025 quarter.
Net purchases of investment securities were $1.5 billion in the 2026 quarter and net proceeds of investment securities were $409 million in the 2025 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 $548 million and $75 million in the 2026 and 2025 quarters, respectively.
Under our administrative services only TRICARE contracts, reimbursements from the federal government exceeded health care costs payments for which we do not assume risk by $125 million in the 2026 quarter and health care costs payments for which we do not assume risk exceeded reimbursements from the federal government by $110 million in the 2025 quarter.
In March 2026, we issued $1.0 billion in aggregate principal amount of 6.625% fixed-to-fixed rate junior subordinated notes (Subordinated Notes) due September 15, 2056, which resulted in approximately $990 million of net proceeds after deducting underwriters' discounts and offering expenses. We intend to use the net proceeds from this offering for general corporate purposes, including repayment of borrowings under our commercial paper program.
In March 2026, we entered into a Rule 10b5-1 Repurchase Plan to repurchase a portion of our $750 million aggregate principal amount of 1.350% senior notes maturing in February 2027, $600 million aggregate principal of 3.950% senior notes maturing in March 2027, $750 million aggregate principal amount of 3.700% senior notes maturing in March 2029, $500 million aggregate principal amount of 3.125% senior notes maturing in August 2029 and $750 million aggregate principal amount of 2.150% senior notes maturing in February 2032 during the period beginning on March 23, 2026 and ending on July 31, 2026. For the period ended March 31, 2026, we repurchased $10 million of the principal amount of the 1.350% senior notes maturing in February 2027 for approximately $10 million cash.
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 were used for general corporate purposes, which may include the repayment of our 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. In 2024, 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 2026 quarter net repayments from the securities lending program were $55 million. There were no repayments or proceeds from the uncommitted receivables purchase facility in the 2026 quarter. 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 proceeds from the issuance of commercial paper were $693 million in the 2026 quarter and maximum principal amount outstanding at any one time during the 2026 quarter was $2.0 billion. Net repayments from the issuance of commercial paper were $4 million in the 2025 quarter.
We acquired common shares in connection with employee stock plans for $107 million and $9 million in the 2026 quarter and 2025 quarter, respectively.
We paid dividends to stockholders of $107 million and $108 million during the 2026 quarter and 2025 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, junior subordinated notes, 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 and Divestitures
For additional information regarding acquisitions and divestitures, 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, 2026 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 $111 million at March 31, 2026 compared to $1.5 billion at December 31, 2025. This decrease primarily reflects capital contributions to certain subsidiaries, cash dividends to shareholders, capital expenditures, and common stock repurchases, partially offset by net proceeds from the issuance of junior subordinated notes and commercial paper. 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).
During 2025 and 2026, we entered into agreements with unrelated insurers that do not qualify for reinsurance accounting under GAAP, and are accounted for using deposit accounting. These contracts minimize the risk of catastrophic loss, reducing capital and surplus requirements. Total deposit assets and liabilities related to these reinsurance agreements that do not qualify for reinsurance accounting under GAAP are not material at March 31, 2026.
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, 2025, our state regulated subsidiaries had aggregate statutory capital and surplus of approximately $14.1 billion, which exceeded aggregate minimum regulatory requirements of $7.5 billion. The amount of ordinary dividends that may be paid to our parent company in 2026 is approximately $1.1 billion in the aggregate. Actual dividends paid to our parent company were approximately $1.1 billion in 2025. 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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