8-K: Humana Affirms 2025 EPS, Targets 2027 Top Star Ratings

Humana Inc. reaffirms its 2025 earnings guidance while outlining a strategy to improve Medicare Advantage Star Ratings for 2027, despite lower 2026 ratings.

Summary

• Approximately 20% of members are currently enrolled in plans rated 4 stars and above for 2026, with an average Star rating of 3.61, consistent with the 2025 average MA Star Rating.
• 14% of members are in 4.5-star plans in 2026, an increase from 3% in 2025.
• Preliminary 2026 MA Star Ratings are generally in line with the assumptions utilized in multiyear financial planning, with no change to the 2025 to 2028 incremental earnings potential.
• The company is executing a MA contract diversification strategy, beginning with the 2026 Annual Election Period on October 15, 2025, which is expected to positively impact 2026 and 2027.
• Anticipates a return to Top Quartile results for the 2027 MA Star Ratings, supported by operational progress and a fundamental shift in its Stars program.
• Remains confident in its 2026 Individual MA pricing and benefit design, expecting to double individual MA pre-tax margin in 2026 (excluding Stars) and return to membership growth in 2026.
• Affirms FY 2025 guidance of approximately $13.77 in diluted earnings per common share (EPS) and approximately $17.00 in adjusted earnings per common share (Adjusted EPS).

Sentiment

Score: 6

Explanation: While 2026 Star Ratings are disappointing, the affirmation of financial guidance, strategic plans for 2027 improvement, and expected membership/margin growth in 2026 provide a cautiously optimistic outlook, indicating stability and a clear path forward despite current challenges.

Positives

• Reaffirmed FY 2025 diluted EPS guidance of approximately $13.77 and adjusted EPS guidance of approximately $17.00.
• 2026 MA Star Ratings are generally in line with multiyear financial planning assumptions, with no change to 2025-2028 incremental earnings potential.
• Increase in members in 4.5-star plans for 2026 (14%) compared to 2025 (3%).
• Confidence in 2026 Individual MA pricing and benefit design, expecting to double pre-tax margin (excluding Stars).
• Expectation to return to membership growth in 2026.
• Anticipates a return to Top Quartile results for 2027 MA Star Ratings due to strategic improvements.
• Tactical operational improvements made during the final months of the 2026 measurement period, creating a solid foundation for 2027 Star Ratings.

Negatives

• Only approximately 20% of members are currently enrolled in plans rated 4 stars and above for 2026.
• Average Star rating of 3.61 for 2026, consistent with 2025, indicating no significant improvement for 2026.
• Management is not satisfied with its 2026 Star Ratings.
• Had a short period of time to impact 2026 Star Ratings performance once 2025 Star Ratings were released in the fall of 2024.

Risks

• Forward-looking statements are not guarantees of future performance and are subject to risks, uncertainties, and assumptions, including those set forth in the Risk Factors section of the company's SEC filings.

Future Outlook

The company anticipates a return to Top Quartile results for the 2027 MA Star Ratings, supported by solid operational progress and a fundamental shift in its Stars program. It remains confident in its 2026 Individual MA pricing and benefit design, expecting to double individual MA pre-tax margin in 2026 (excluding Stars) and return to membership growth in 2026.

Management Comments

• While not satisfied with its 2026 Star Ratings, the company is pleased with the tactical operational improvements made during the final months of the 2026 measurement period, creating a solid foundation for the expected return to Top Quartile results for the 2027 Star Ratings.
• The company continues to anticipate a return to Top Quartile results for the 2027 MA Star Ratings.
• The company remains confident in its 2026 Individual MA pricing and benefit design, including the expectation that it will double individual MA pre-tax margin in 2026 (excluding Stars), and believes it is positioned to return to membership growth in 2026.

Industry Context

The Medicare Advantage market is highly regulated by the Centers for Medicare and Medicaid Services (CMS), with Star Ratings significantly impacting plan attractiveness, enrollment, and reimbursement. Humana's focus on improving Star Ratings for 2027 and its contract diversification strategy are direct responses to this competitive and regulatory environment, aiming to regain market share and profitability in a segment where quality ratings are paramount for both consumer choice and government payments.

Comparison to Industry Standards

• NA

Stakeholder Impact

• Shareholders: Reaffirmed earnings guidance and strategic plans for future growth and improved Star Ratings could provide stability and potential long-term value.
• Customers (Medicare Advantage members): The contract diversification strategy and focus on improving Star Ratings for 2027 aim to enhance plan quality and offerings.
• Employees: Operational improvements and strategic shifts in the Stars program may impact internal processes and roles.
• CMS: The company's performance in Star Ratings directly impacts its relationship and standing with the Centers for Medicare and Medicaid Services.

Next Steps

• Execution of MA contract diversification strategy, beginning with the 2026 Annual Election Period on October 15, 2025.
• Completion of the financial close process for the three and nine month periods ended September 30, 2025.
• Reporting of third quarter 2025 earnings release.

Key Dates

Recommendation

The filing presents a mixed picture. While 2026 Star Ratings are not satisfactory, they are 'in line with assumptions,' and 2025 earnings guidance is affirmed. The company has a clear strategy for 2027 Star Ratings improvement and expects membership and margin growth in 2026. This suggests stability and a potential turnaround, but the current Star Ratings are a headwind. A 'hold' recommendation allows investors to observe the execution of the 2027 Star Ratings improvement plan and 2026 growth before making further commitments.

Keywords

Humana, Medicare Advantage, Star Ratings, CMS, healthcare, insurance, financial guidance, EPS, adjusted EPS, membership growth, strategic planning