Humana’s decision to increase its Medicare Advantage membership continues to worry Wall Street, even after the insurer wrangled down medical costs in the first quarter.
But executives reassured investors that utilization is under control, and margin recovery plans are their No. 1 priority — a pledge likely to ruffle feathers among critics of major health insurers who argue the powerful middlemen have long prioritized profits over patients.
Humana reported first quarter revenue and earnings roughly in line with analysts’ expectations on Wednesday morning. The Louisville-based company’s results bucked the trend among other national insurers, which largely exceeded Wall Street’s forecasts after hiking premiums and slashing their membership in government programs like MA where costs have run amok.
Humana was the strategic outlier, electing instead to snap up new MA members heading into 2026.
The company ended the first quarter with 7.1 million seniors in the privatized Medicare program, 1.3 million more people than Humana managed at the end of 2025, according to its financial results.
The growth rate puts Humana on a trajectory to potentially supplant UnitedHealthcare as the largest MA insurer by the end of this year.
But it also muddles Humana’s margin recovery plans. The insurer has promised investors it’ll return to a 3% MA margin in 2028. But to get there, Humana needs to make meaningful progress in 2027, as the insurer expects its MA margin to be slightly below breakeven this year.
Investors are concerned that the company may have been too greedy in snapping up new members, given that the company could have onboarded hundreds of thousands of seniors with medical spending above what Humana will be paid by the government for overseeing their care.
A Wednesday morning call covering Humana’s first-quarter results focused heavily on the health status of Humana’s new MA members, and how the population might affect Humana’s outlook for margin improvement in 2027.
Humana executives allowed that it’s still too early in the year to be certain about medical costs. But at this stage, medical and pharmacy cost trends are slightly better than the company expected across its new and existing MA membership, they said — a trend that J.P. Morgan analyst Lisa Gill called “a positive early data point” in a research note.
Humana has “a fairly good amount of information now about the new cohort, which is not perfect information by any means,” said George Renaudin, the longtime head of Humana’s insurance division.
But “all the key indicators of both our new and concurrent members we have, and those are lining up with quarter expectations,” Renaudin, who is retiring this summer, said.
Better controlled medical costs contributed to Humana’s insurance segment posting a medical loss ratio — a key marker of spending on patient care — of 89.4%, better than analysts had expected, and insurance operating earnings of $1.4 billion, also above expectations.
“Results are so far, so good,” Jefferies analyst David Windley said in a note on the results. “Given skepticism about [Humana’s] very large growth cohort, these are all encouraging.”
Still, analysts on the call peppered executives with questions about how certain they are that spending on that new MA cohort will remain in hand, given those members’ full cost profile probably won’t be known for a few more months — potentially after Humana submits 2027 MA plan bids to the CMS.
If the insurer fails to account for higher spending in those bids, and then spending does increase, Humana could be staring down another year of flagging margins.
But Humana is relentlessly focusing on profit recovery, and everything else — including member retention — comes second, CEO Jim Rechtin promised.
Humana’s first priority is getting back to a 3% margin in 2028, Rechtin said multiple times throughout the hour-long call.
To do that, the insurer needs to ensure margin recovery process in 2027, the CEO said — suggesting that 2027 is going to be another year of benefit cuts and plan exits for MA seniors.
That’s an outcome the Trump administration was likely trying to avoid when it elected to raise MA reimbursement for 2027 well above what regulators originally proposed. Major MA insurers cutting their plan offerings to prioritize margins in 2026 has already caused significant turmoil for seniors, many of which were forced to switch plans.
Seniors, a reliable voting bloc, will learn about their options for Medicare coverage in 2027 just before the November midterm elections, a fact the insurance industry pointed out to the Trump administration when it lobbied aggressively for higher reimbursement.
The final rates will be helpful for Humana, executives said. But they won’t fully cover medical spending. The gap between funding and medical cost trend is actually larger going into this bid season that it was one year ago, Rechtin said.
“To be there in 2028, we have to look at 2027, and we have to be mindful of the progress we need to make ... all of those things have to be accounted for in our bid strategy this year. That is priority No. 1,” the CEO said.
“Priority No. 2 is within the constraint of priority No. 1., and I’m just going to — again, I’m going to emphasize that one more time — within the constraint of priority No. 1 — we want to provide as much stability as we can reasonably to our members,” Rechtin said, adding “the third priority is growth. And that’s a distant third.”
Investors appreciated Rechtin’s blunt comments about prioritizing profits. Insurers with a heavy presence in government programs like Humana have seen their stock suffer after a year-plus of failing to wrestle down relentlessly elevated medical spending. It’s common for executives to beat the drum on earnings calls and investor conferences about the need to improve margins as they attempt to boost their status on Wall Street.
Still, Rechtin’s comments Wednesday stood out in their frequency and candor.
“I really do like the commentary around focusing on margins first and foremost,” said Kevin Fischbeck, an analyst with Bank of America, on the call.
However, the broader market appeared unconvinced about Humana’s return to MA profitability, sending the company’s shares down in early morning trading Wednesday.
The public is also not likely to react positively. Insurers are struggling to contend with rising anger over how they appear to prioritize profits over patient access to medical care, especially amid widespread delays and denials for care. Lawmakers in Washington have also been increasingly critical of insurers’ profit motivations and how they might be perverting the U.S. healthcare system.
Overall, Humana posted a topline of $39.6 billion, up 23% year over year thanks to soaring membership growth. However, the company’s net income fell 5% to $1.2 billion due to plummeting MA bonus payments tied to its plans’ lower quality scores.
Analysts also said they understood Humana’s decision to confirm its adjusted earnings per share guidance of at least $9.00 instead of raising it on the positive signals, given how early it is in the year and the sheer volume of the MA enrollees the company added.
Humana, though, did lower its non-adjusted earnings per share guidance, from at least $8.89 to at least $8.36. The drop is due to Humana’s declining MA star ratings, which will lower its quality bonus payments from the CMS this year.
