Dive Brief:
- Humana raised its 2025 guidance alongside the release of second quarter results that beat analyst expectations on Wednesday. It’s a bright spot for investors in the health insurance sector following dismal reports from other payers.
- Executives attributed the outperformance to higher-than-anticipated prescription volumes and more lucrative drugs dispensed in Humana’s pharmacy services division. The company also benefited from higher revenue in its insurance segment from unexpectedly strong Medicare Advantage membership retention.
- In addition, medical costs — though elevated — remained generally in line with what Humana had planned for coming into 2025, the company said. Humana’s stock was up 6% in Wednesday morning trading following the results.
Dive Insight:
Humana now expects to bring in at least $128 billion in revenue this year, up from its prior guidance of $126 billion; and $17 in adjusted earnings per share, up from its prior guidance of $16.25.
Humana raising its guidance is night and day compared to other major publicly traded payers that have reported second quarter earnings so far.
Elevance and Molina both cut profit forecasts, while UnitedHealth and Centene — both companies that had pulled their 2025 guidance entirely earlier this year — established new floors that were well below previous expectations.
The core challenge is soaring medical costs, especially in Affordable Care Act, Medicaid and Medicare plans. Humana also witnessed a spike in medical expenses in the second quarter, with the payer’s insurance medical loss ratio reaching 89.9%, up from 89.5% same time last year.
Still, cost trend across Humana’s products — individual and group MA, Medicare prescription drug plans, and Medicaid — remains in line with expectations, executives said during a call with investors Wednesday morning.
“We’re not seeing an acceleration in anything,” CFO Celeste Mellet said.
Humana is benefiting from more conservative assumptions coming into 2025. The insurer, which brings in the brunt of its premiums from MA, was hit particularly hard by rising costs in the program last year. Humana overhauled its MA plans for 2025 as a result, including cutting benefits, charging higher premiums and exiting unprofitable plans and counties entirely. That strategy now appears to be paying off.
“We were the only plans to reduce benefits in any way in [2024] and we reduced more benefits more significantly than just about any of our competitors in [2025],” said George Renaudin, the president of Humana’s insurance segment.
Given the reductions, “we have a significant gap to peers’ benefit value while some peers held their benefits stable or even invested more in their benefits,” he added.
Humana’s MA business was also helped by the payer retaining more individual MA members than it had expected. Humana now expects to keep 50,000 more MA members than it previously forecast over the course of 2025.
The insurer’s plan exits for this year impacted hundreds of thousands of members. But Humana managed to recapture two-fifths of those members into other MA plans, and has seen a number of members that left Humana for 2025 coverage come back as of July, according to CEO Jim Rechtin.
Humana is still facing uncertainty for future MA earnings due to litigation with the government over its quality ratings in the program. But the results suggest Humana is making progress on improving its finances, analysts said.
Another reason for optimism is that the payer was seemingly immune to pressures in Medicaid in the quarter. A dogged mismatch between state payment rates and rising medical costs has been pummeling other Medicaid managed care companies.
Humana has been able to sidestep the worst of the trend because the insurer’s 10 Medicaid states have adequately updated rates, executives said. In addition, Humana’s products are more oriented towards the long-term supports and services population as opposed to traditional Medicaid.
In the second quarter, Humana’s insurance segment brought in $766 million in income from operations, basically flat year over year. In comparison, all other payers that have posted second quarter results have reported steep drops in profit from offering health insurance.
Operating income for UnitedHealth’s and Elevance’s insurance divisions fell 27% and 48% year over year in the quarter, respectively; while Molina, which doesn’t break out insurance divisions in its earnings reports, reported operating income was down 14%. Centene even slipped into the red, with an operating loss of $458 million.
Humana’s adjusted income from operations, which the company says is a better reflector of the insurance division’s performance, was down 7% year over year.
Still, Humana’s results “offer a more comforting story,” Jefferies analyst David Windley wrote in a note Wednesday.
The company also benefited from strong results in its CenterWell health services division, which includes primary care, home health and pharmacy businesses. CenterWell’s operating income of $344 million was up 2% year over year, mostly thanks to higher volumes and a more favorable drug mix in pharmacy.
The growth was driven by strategic changes to how CenterWell Pharmacy is organized and marketed, Mellet said. For example, CenterWell has invested a lot into partnerships with pharmaceutical companies that are spurring direct-to-consumer sales, including its deal with Novo Nordisk to sell GLP-1 medications, according to the CFO.
Overall, Humana reported revenue of $32.4 billion in the second quarter, up 10% year over year. Net income of $545 million was down 20%.
