Humana Inc.
Analysis
Humana bet on growth it can price for a margin rather than growth for its own sake: it added a million members, absorbed a $3.5 billion ratings hit to 2026 profit, and now has to win its Stars back by 2028 to make that bet pay. How much of the 2027 margin gain comes from member exits versus cost cuts?
- Humana bought a million members and expects to keep them.
Growth lifted Q2 FY2026 revenue 26% from a year earlier, and management says new members are costing what it modelled. Pricing every plan to the same margin, instead of luring people onto cheap ones, is what makes that growth pay.
- Stars, not members, decides how much profit Humana keeps in 2026.
The 2026 profit guide of at least $9 a share is about half last year's, mostly because the ratings drop costs roughly $3.5 billion net of the work to soften it. Strip that out and individual Medicare Advantage margin doubles. What does the ratings hit consist of, contract by contract?
- Its recovery is real, but a funding gap sets the pace.
Humana improved 11 of its 12 quality measures faster than in past years, but cannot guarantee the rating without seeing how rivals did. Funding again trails medical cost, so 2027 bids cut benefits and leave plans covering 600,000 members. How much of those 600,000 members does Humana expect to win back?
- Stars recovers to top-quartile by the 2028 bonus year. Ratings decide what Medicare pays, so this one score is worth more to 2028 profit than every cost cut combined.
- The 2027 bids close most of the distance to a 3% margin. Nearly getting there next year is what makes the 2028 promise a plan rather than a date that keeps moving.
- The cost work keeps compounding as it matures. Management says cost cutting has barely started, so each year it continues adds profit without taking more from members.
- Medical costs keep outrunning what Medicare pays. Humana must take more out of benefits every year just to hold its margin, and members who lose benefits shop elsewhere.
- The rating lands short of top quartile in October. It would have to cut deeper into 2028 and 2029 plans, or settle for a lower margin than it promised.
- The million new members cost more to care for than expected. Year one carries heavy selling costs and unknown medical history, so a bad cohort only shows up in profit later.
| Politician | Transaction | Amount | Traded | Filed |
|---|---|---|---|---|
Donald Trump Republican · Executive | Sale | ≥$15K | Jul 8 | Sep 22 |
Donald Trump Republican · Executive | Purchase | ≥$1K | Mar 26 | May 13 |
Donald Trump Republican · Executive | Purchase | ≥$15K | Mar 18 | May 13 |
Donald Trump Republican · Executive | Purchase | ≥$1K | Mar 17 | May 13 |
Donald Trump Republican · Executive | Purchase | ≥$15K | Mar 11 | May 13 |
Congressional trading data provided by QuiverQuant
How Humana turned $130B of revenue into $2.7B of operating income.
| Revenue | ||
|---|---|---|
| Insurance Segment | $125B | ▲ 9.49% YoY |
| CenterWell Segment | $22.5B | ▲ 12.73% YoY |
| Total revenue | $130B | |
| Operating income | $2.7B | 2.1% |