8-K: Humana Reports 4Q25 Loss, Guides Lower 2026 EPS on Star Ratings

Humana Inc. reported a net loss for Q4 2025 and provided full-year 2026 financial guidance anticipating a decline in EPS due to Star Ratings headwinds, while projecting significant Medicare Advantage membership growth.

Summary

• Reported a 4Q25 GAAP net loss per share of $6.61 and an Adjusted net loss per share of $3.96.
• Full year (FY) 2025 GAAP EPS was $9.84, and Adjusted EPS was $17.14, which was in line with management's expectations and above initial guidance of approximately $16.25.
• The FY 2025 Insurance segment GAAP benefit ratio was 90.4 percent, slightly better than the guidance range of 90.1 percent to 90.5 percent.
• Introduced FY 2026 GAAP EPS guidance of 'at least $8.89' and Adjusted EPS guidance of 'at least $9.00'.
• The anticipated year-over-year decline in FY 2026 EPS results from the Star Ratings headwind for Bonus Year 2026, net of mitigation.
• Anticipates FY 2026 individual Medicare Advantage membership growth of 'approximately 25 percent' over 2025, driven by new sales and improved retention.
• CenterWell Senior Primary Care experienced growth of 100,600 patients, or over 25 percent, during 2025, including approximately 32,000 patients from the acquisition of The Villages Health.
• Expanded Medicaid footprint now spans 13 states, with Georgia and Texas expected to launch in 2027.

Sentiment

Score: 4

Explanation: StockSavvy.ai views this as a mixed but predominantly negative report due to the significant Q4 loss, the projected decline in 2026 EPS driven by Star Ratings headwinds, and reduced operating cash flow, despite strong membership growth and strategic initiatives.

Positives

• FY 2025 Adjusted EPS of $17.14 was in line with expectations and exceeded initial guidance of approximately $16.25.
• FY 2025 Insurance segment GAAP benefit ratio of 90.4% was slightly better than the top end of guidance (90.1%-90.5%).
• Anticipates FY 2026 individual Medicare Advantage membership growth of approximately 25% over 2025, driven by new sales and improved retention from a customer-led benefit strategy.
• Individual MA retention rate improved by over 500 basis points year over year during the Annual Election Period (AEP), exceeding the 2028 goal of 350-450 bps improvement.
• Most new individual MA sales during AEP were on contracts with 4+ Stars, leading to approximately 45% of MA members in 4+ Star contracts in 2026.
• Over 70% of new AEP sales were switchers from competitor MA plans.
• Nearly 30% of new AEP sales were 'bounce back' members, who have historically been more engaged and provide greater insight into expected health status.
• Greater than 75% of AEP sales came from higher lifetime value channels due to ongoing distribution mix rebalancing.
• Projected 20% lower per sale member acquisition costs in 2026 compared to 2025.
• Anticipates significant improvement in Group MA margins in 2026 (normalizing for Stars) driven by re-contracting.
• Expected continued Medicaid and CenterWell momentum in 2026, which are expected to drive increased earnings contribution over the mid and longer term.
• CenterWell Primary Care expects to add 60 to 70 clinics and 120,000 to 140,000 patients (approximately 26% patient growth at the midpoint) in 2026.
• Anticipates mitigating the ultimate impact of the v28 risk model changes in CenterWell Primary Care in 2026 and expanding margin.
• CenterWell Pharmacy expects increased volumes in 2026 associated with membership growth and continued expansion of its agnostic client base (Specialty, Direct to Consumer, and Direct to Employer volumes).
• Anticipates solid improvement in Pharmacy earnings contribution in 2026 with robust revenue growth.
• The consolidated operating cost ratio is anticipated to be 10% +/25 basis points in FY 2026, a decrease from the FY 2025 Adjusted operating cost ratio of 11.5%, driven by operating leverage and cost cutting.
• Capital optimization progress significantly reduces the funding required for expected membership growth in 2026, offsetting over $3 billion of growth in capital requirements.

Negatives

• Reported a 4Q25 GAAP net loss per share of $6.61, compared to a loss of $5.76 in 4Q24.
• Reported a 4Q25 Adjusted net loss per share of $3.96, compared to a loss of $2.16 in 4Q24.
• FY 2025 GAAP EPS of $9.84 was down from $9.98 in FY 2024.
• FY 2026 GAAP EPS guidance of 'at least $8.89' and Adjusted EPS guidance of 'at least $9.00' represent a year-over-year decline from FY 2025 results.
• The anticipated year-over-year decline in FY 2026 EPS is primarily due to the Star Ratings headwind for Bonus Year 2026.
• Individual Medicare Advantage membership declined in 2025, inclusive of the company's decision to exit certain unprofitable plans and counties.
• Consolidated GAAP pretax results decreased from $1,721 million in FY 2024 to $1,555 million in FY 2025.
• Consolidated Adjusted pretax results showed a loss of ($596) million in 4Q25, compared to a loss of ($296) million in 4Q24.
• The consolidated GAAP benefit ratio increased year-over-year (90.2% in FY 2025 vs 89.8% in FY 2024), reflecting a shift in line of business mix to higher benefit ratio products and incremental investments.
• Operating cash flows for FY 2025 decreased significantly to $921 million from $2,966 million in FY 2024, primarily due to timing impacts, increased receivables from the IRA, and unfavorable working capital items.
• CenterWell segment operating cost ratio increased year-over-year (93.1% in FY 2025 vs 92.2% in FY 2024) due to the continued phase-in of the v28 risk model revision and an uptick in volume within CenterWell Specialty Pharmacy.
• Share capture of members impacted by competitor plan exits was approximately 12%, which is below market share.
• FY 2026 net investment income is expected to be down approximately $150 million year over year, primarily driven by lower average interest rates and capital optimization activity.
• Minimal share repurchase activity is contemplated for 2026 to offset dilution from stock-based compensation.
• Debt-to-total capitalization increased to 41.1% at December 31, 2025, from 40.3% at September 30, 2025, driven by the 4Q25 net loss.
• Individual MA margins are expected to be slightly below breakeven in 2026 after accounting for the BY 2026 Star Ratings headwind.
• Episodic Admissions in CenterWell Home Solutions decreased by 2.0% in FY 2025.

Risks

• If products are not designed and priced properly and competitively, if premiums are insufficient to cover healthcare costs, or if estimates of benefits expense are inadequate, profitability could be materially adversely affected.
• Estimates of future payments relating to benefit expenses involve extensive judgment and inherent variability, meaning reserves may be insufficient.
• Failure to effectively implement operational and strategic initiatives, including Medicare initiatives, state-based contract strategy, CenterWell growth, and integrated care delivery model, could materially adversely affect the business.
• The decline in Star Ratings for Medicare Advantage plans in 2025, and the rejection of Humana's lawsuit challenge (with an ongoing appeal), will negatively impact 2026 quality bonus payments from CMS and may significantly adversely affect revenues, operating results, and cash flows.
• No assurances can be given that the company will be successful in maintaining or improving its Star Ratings in future years.
• Failure to properly maintain data integrity, implement new information systems (including AI/ML), protect proprietary rights, or defend against cybersecurity attacks or privacy incidents could materially adversely affect the business.
• Involvement in various legal actions, disputes (e.g., provider contract disputes, qui tam litigation), governmental and internal investigations, if resolved unfavorably, could result in substantial monetary damages or changes in business practices and increase costs.
• As a government contractor, exposure to risks such as loss of material government contracts, governmental audits/investigations, potential inadequacy of government payment rates, or restrictions on profitability.
• Changes to the risk-adjustment model utilized by CMS or retrospective recovery by CMS of previously paid premiums (e.g., Final RADV Rule) could have a material adverse effect on operating results, financial position, and cash flows.
• Substantial government regulation; new laws or regulations or changes in their application could increase costs and materially adversely affect results of operations, financial position, and cash flows.
• Failure to manage acquisitions, divestitures, and other significant transactions successfully may have a material adverse effect.
• Failure to develop and maintain satisfactory relationships with providers of care could adversely affect the business.
• Significant competition in attracting and retaining talented employees; failure to manage succession for and retention of key executives could adversely affect the company.
• The pharmacy business is highly competitive and subjects the company to regulations and supply chain risks; changes in prescription drug industry pricing benchmarks may adversely affect financial performance.
• Ability to obtain funds from certain licensed subsidiaries is restricted by state insurance regulations.
• Downgrades in debt ratings, should they occur, may adversely affect business, results of operations, and financial condition.
• Volatility or disruption in the securities and credit markets may significantly and adversely affect the value of the investment portfolio and investment income.

Future Outlook

Humana anticipates a challenging 2026 with a projected year-over-year decline in EPS due to Star Ratings headwinds, but expects significant individual Medicare Advantage membership growth of approximately 25%. The company is focused on mitigating the Star Ratings impact, improving retention, expanding its CenterWell and Medicaid platforms, and achieving operational efficiencies to unlock earnings potential by 2028. The company's financial guidance for 2026 is set with a higher level of conservatism to account for the dynamic environment.

Management Comments

• "We were pleased with our solid financial performance and operational progress in 2025."
• "We continue to feel good about our consumer-focused strategy and our individual Medicare Advantage membership growth in 2026, which will allow us to build for the future with even better outcomes and experiences."
• "Our financial guidance philosophy is to be appropriately conservative. For 2026, the level of conservatism in our initial guidance is higher than typical to account for the dynamic environment."
• "Confident in our ability to fund the 2026 MA membership growth and are comfortable with our capital levels."
• "Committed to delivering a stable and compelling MA margin and unlocking the earnings potential of the business by 2028 as laid out at our 2025 Investor Day."
• "Our MA benefit strategy will contemplate the funding environment each year."

Industry Context

StockSavvy.ai notes that Humana's focus on Medicare Advantage and Medicaid aligns with broader demographic trends of an aging population and increasing demand for government-sponsored healthcare programs. The challenges with Star Ratings highlight the intense regulatory scrutiny and competitive pressures within the MA market, where quality scores directly impact reimbursement and market perception. The expansion of CenterWell reflects a growing industry trend towards integrated care delivery and value-based care models, aiming to improve patient outcomes and control costs. The impact of the Inflation Reduction Act (IRA) on Medicare Part D seasonality and direct subsidies indicates significant legislative influence on the profitability and operational dynamics of health insurers.

Comparison to Industry Standards

• Humana's projected individual Medicare Advantage membership growth of approximately 25% for 2026 is robust, potentially outpacing some competitors who may face similar Star Ratings pressures or market saturation.
• The improved retention rate of over 500 basis points during AEP significantly exceeds the company's own 2028 goal of 350-450 bps, suggesting strong competitive positioning in member satisfaction and benefit design compared to industry averages.
• The decline in Star Ratings for Bonus Year 2026, despite an appeal, places Humana at a disadvantage compared to peers who maintain higher Star Ratings, impacting quality bonus payments and potentially enrollment attractiveness.
• The expansion of CenterWell Primary Care by 60-70 clinics and 120,000-140,000 patients in 2026 demonstrates aggressive growth in the value-based primary care space, a segment where companies like Oak Street Health (now part of CVS Health) and ChenMed are also expanding rapidly.
• The anticipated doubling of individual MA margin in 2026 (normalizing for Stars) suggests a strong underlying business model, even as the Star Ratings headwind pushes actual margins to slightly below breakeven, indicating a potential for significant recovery once Star Ratings improve.

Legal Proceedings

• Humana filed a lawsuit seeking to set aside and vacate the 2025 Star Ratings of its Medicare Advantage plans.
• On October 14, 2025, the Court issued a decision rejecting Humana's challenge to the 2025 Star Ratings.
• The company has appealed that decision, but there can be no assurances it will ultimately prevail in the lawsuit.
• Involvement in various legal actions, or disputes that could lead to legal actions (such as provider contract disputes and qui tam litigation brought by individuals on behalf of the government).
• Governmental and internal investigations, and routine internal review of business processes.
• Changes to the risk-adjustment model utilized by CMS or retrospective recovery by CMS of previously paid premiums as a result of the final rule related to the risk adjustment data validation audit methodology published by CMS on January 30, 2023 (Final RADV Rule), which Humana believes fails to address adequately the statutory requirement of actuarial equivalence and violates the Administrative Procedure Act.

Stakeholder Impact

• Shareholders: Expected decline in FY 2026 EPS due to Star Ratings headwind could negatively impact share price and returns. Long-term value creation is targeted by 2028.
• Members/Patients: Customer-led benefit strategy, improved retention, and growth in CenterWell primary care aim to provide better outcomes and experiences. Decline in Star Ratings could affect quality bonus payments and potentially the attractiveness of plans.
• Employees: Value creation initiatives include charges related to severance and associate exit costs, indicating potential workforce adjustments.
• Providers: Failure to maintain satisfactory relationships with providers could adversely affect the business. Risk-sharing arrangements and capitated shared risk models are in place.
• CMS/Government: Star Ratings decline impacts quality bonus payments. The company is a government contractor and exposed to risks related to government healthcare programs and regulations.

Next Steps

• Host a live question-and-answer session for analysts at 8:00 a.m. ET on February 11, 2026.
• Continue efforts to strengthen the Stars program, focusing on achieving Top Quartile Stars results in Bonus Year 2028.
• Expand Medicaid footprint, with Georgia and Texas expected to launch in 2027.
• Add 60 to 70 clinics and 120,000 to 140,000 patients in CenterWell Primary Care in 2026.
• Continue to mitigate the impact of v28 risk model changes in CenterWell Primary Care in 2026.
• Expand value-based home health models in 2026, including broader coverage of Skilled Nursing Facility (SNF) services across 15 states.
• Execute on comprehensive initiatives to drive productivity and efficiency within the home operating model.
• Continue to evaluate select small to mid-sized strategic M&A activity, primarily within CenterWell.
• Continue efforts to increase the efficiency of the balance sheet and fortify the foundation, including working capital improvements, non-core asset sales, liability and capital management.
• Maintain the dividend flat year over year on a per share basis throughout 2026.
• Anticipate a decision on the Illinois TANF Request for Proposal (RFP) submission in the first quarter of 2026.

Key Dates

Recommendation

Humana faces significant headwinds in 2026 due to the Star Ratings decline, which is projected to cause a year-over-year decrease in EPS and push individual MA margins to slightly below breakeven. While the company demonstrates strong individual Medicare Advantage membership growth and strategic expansion in CenterWell and Medicaid, these positives are largely offset by the immediate financial impact of the Star Ratings and a substantial drop in operating cash flow. The long-term goal of unlocking earnings potential by 2028 is promising, but the near-term outlook presents considerable uncertainty and pressure on profitability. A 'hold' recommendation reflects the mixed signals: strong operational execution in growth areas balanced against the material financial drag from regulatory changes and litigation. Investors should monitor the progress of Star Ratings improvement and the realization of efficiency gains.

Keywords

Humana, HUM, Medicare Advantage, MA, CenterWell, Medicaid, Healthcare, Insurance, Financial Results, Earnings Guidance, Star Ratings, EPS, Benefit Ratio, Operating Cost Ratio, Membership Growth, Primary Care, Pharmacy Benefit Manager, PBM, IRA, Risk Adjustment, Government Contracts, Cybersecurity, Litigation, Capital Management