Humana’s Medicare Advantage Growth Strategy for 2026
Overview of Humana’s Confidence
Humana is optimistic about expanding both the size and profitability of its Medicare Advantage (MA) business in 2026. Despite concerns that the insurer’s generous plans may lead to increased costs, executives expressed confidence in their pricing strategies and plan designs during a call to discuss the company’s third-quarter results. They acknowledged the potential to manage membership growth if necessary as the open enrollment period progresses.
Financial Performance and Projections
Humana remains on track to double its pre-tax margins in privatized Medicare plans in 2026 compared to 2025. However, this forecast does not account for the impact of quality or “star” ratings. The recent decline in highly rated plans has presented challenges for profit recovery at a time when payers are facing difficulties in government programs.
On Wednesday, Humana reaffirmed its 2025 adjusted earnings guidance after reporting strong third-quarter results. Nevertheless, the Louisville-based insurer now anticipates a decrease in GAAP earnings of approximately $1.50 per share for the year. Following this guidance update, Humana’s stock fell by 5% in premarket trading, marking its lowest levels since the onset of the coronavirus pandemic.
Increased Investments and Profit Impact
The revised earnings outlook is not attributed to unexpected medical costs; rather, it stems from Humana’s decision to invest more heavily in operations and pursue higher MA star ratings. Initially, Humana planned to allocate a few hundred million dollars to the business but subsequently increased this investment by an additional $250 million over the second and third quarters, which contributed to a profit decline.
In the third quarter, Humana reported a net income of $195 million, a nearly 60% decrease year-over-year, alongside revenue of $32.6 billion, reflecting an 11% year-over-year increase. Despite the profit drop, both earnings and revenue exceeded analyst expectations.
Resilience Against Rising Medical Spending
Humana has shown resilience against rising medical costs this year due to a strategic reshaping of its business ahead of 2025. Last year, the insurer was significantly affected by increased costs in its MA program, prompting a comprehensive overhaul of its plans for 2025. This included reducing benefits, raising premiums, and withdrawing from unprofitable plans and counties. These changes have resulted in a net positive impact, with plan exits and adjustments to benefits counteracting claims trends and the funding environment.
Humana’s insurance segment recorded a medical loss ratio of 91.1% for the quarter, up from 90.6% the previous year but consistent with analyst forecasts. This metric, which indicates spending on patient care, would have been higher without the MA plan revisions.
Outlook for the 2026 Enrollment Period
With two weeks into the annual Medicare open enrollment, Humana appears well-positioned for 2026. Executives indicated that new sales are at the upper range of expectations, and a greater number of enrollees are selecting higher-rated plans that provide attractive bonuses for the insurer. Furthermore, Humana’s membership retention outlook has improved, with the company now anticipating 75,000 more MA members than initially projected, despite earlier expectations of a 500,000 member loss.
Strategic Adjustments in Response to Market Conditions
As major insurers face challenges in the Medicare enrollment period, Humana’s strategy remains focused on maintaining the quality of benefits in its plans, even as it reduces its presence in certain states and counties. While some investors are concerned that Humana’s aggressive growth strategy could lead to unsustainable margins, executives argue that not all growth is detrimental. They emphasize confidence in their pricing strategy and the intention to manage growth carefully to protect margins and member experience.
Star Ratings and Future Goals
Despite the positive outlook, a reduction in valuable star ratings poses a challenge for Humana’s aspirations for its MA business in the upcoming year. The company expects only 20% of its MA members to be in plans rated at least 4 stars in 2026, down from 25% in 2025, which could hinder profit recovery efforts. Analysts questioned why Humana didn’t transfer MA members from a major contract with lower star ratings to minimize revenue losses. However, executives indicated that such a move could risk long-term performance and member retention.
Instead, Humana plans to gradually split the underperforming contract into smaller segments to mitigate overall business risk. The company is making strides in improving its star ratings across various metrics and aims to achieve top-quartile ratings by the 2027 plan year.
Financial Performance of Other Segments
Humana’s insurance segment generated $251 million in income from operations, down 8% year-over-year. In contrast, the health services division, CenterWell, reported $305 million in income, a 20% decrease year-over-year despite strong revenue growth. The decline in income is attributed to higher operating expenses and the ongoing implementation of a Medicare risk adjustment model that has faced criticism from value-based providers.
The revenue for CenterWell reached $5.9 billion, marking a 17% increase year-over-year, driven by growth in pharmacy and primary care services. CenterWell Primary Care saw nearly a 15% increase in patients compared to the end of 2024, serving 447,100 patients across 342 centers in the quarter.
Future Growth Opportunities
Humana continues to focus on expanding CenterWell to diversify its portfolio beyond government insurance programs and compete with larger integrated healthcare providers like UnitedHealth and CVS. In July, the company announced its acquisition of Florida provider The Villages Health for $50 million and indicated openness to pursuing similar opportunities. CFO Celeste Mellet highlighted the potential for significant growth through strategic acquisitions in the current market environment.