Inquired about plans to exercise June call options for clinic cohorts and the potential cash obligation if Welsh Carson exercises its put options in 2027/2028.

Celeste Mellet stated a decision on the put/call option will be made mid-year, considering cash position. She noted that if Welsh Carson exercises, the cash obligation would be about $1 billion to $1.5 billion in 2027 for the '25 cohort, and these outflows are included in the funding plan. “next year, so next year would be the beginning of the first quarter, it would be about $1 billion to $1.5 billion in 2027. And to be clear, they can only put the '25 cohort to us in 2027, but both would be about $1 billion to $1.5 billion.”

Asked how the company plans to protect margins in 2027, considering the full cost profile of new members, the expected Stars recovery for 2028 impacting TBC, and whether this leads to bidding above the trend differential.

Jim Rechtin outlined three priorities for bids: first, being on track for the 3% margin in 2028; second, member retention; and third, growth (a distant third). George Renaudin added that the strategy involves market-by-market analysis and considering TBC limitations and expected Stars recovery for 2028. “Number 1 is the focus on being back to a normalized margin of at least 3% in 2028. And so to be there in 2028, we have to look at 2027, and we have to be mindful of the progress that we need to make in order to be on track for 2028.”

Questioned why the company is now emphasizing benefit cuts for 2027 to achieve margin improvement, given that 2026 margin doubling was achieved with relatively stable benefits, and if the 2027 funding shortfall is larger.

Jim Rechtin confirmed that the gap between funding and medical cost trend is indeed larger for the 2027 bid season than it was a year ago. George Renaudin added that while CMS help is appreciated, funding still doesn't keep up with medical trends, necessitating appropriate adjustments. “The short answer is, yes, the gap between funding and medical cost trend is larger going into this bid season than it was a year ago. Like it just -- it's very clearly larger than it was a year ago.”

HUM

Humana (HUM) Q1 FY26 earnings call: guidance and Q&A

Earnings call· Mar 2026 (Q1 FY26)· Health Care· Apr 29, 2026

Source: earnings call transcript

Executive summary

Humana Q1 FY26 — On Track for 2028 Margin Target Despite Funding Headwinds

Humana reported a solid first quarter, affirming its commitment to achieving a sustainable 3% Medicare Advantage margin by 2028. The company is prioritizing disciplined pricing and operational efficiency, including significant balance sheet optimization, to navigate a challenging funding environment where medical cost trends continue to outpace program funding. While member performance is in line with expectations, the FY27 bid strategy will focus on margin protection and member retention over growth, with necessary benefit adjustments anticipated.

Highlights

Medicare Advantage members, both new and existing, are performing in line to better than guidance for Q1 FY26.
Medicaid membership grew by approximately 50,000 lives in Q1 FY26, driven by new program starts.
CenterWell Primary Care saw patient growth of 110,000 patients, representing 22.5% sequential growth year-to-date.
The company is on track to return to top quartile Stars results for BY '28 and has a strong early start for BY '29 Stars, with Q1 FY26 HEDIS gap closure pace 5% ahead of last year.
Balance sheet enhancements mitigated over $3 billion in capital contribution requirements for FY26 and bolstered liquidity with $1 billion in junior subordinated notes.

Concerns

Medical cost trend continues to outpace program funding, creating a larger gap for the FY27 bid season compared to a year ago.
IBNR (Incurred But Not Reported) reserves grew 35% sequentially in Q1 FY26, significantly higher than the 22% Medicare Advantage membership growth, reflecting a prudent but elevated reserving approach.

Guidance & targets

Category	Target	Timeline	Confidence
Sustainable MA margin	at least 3% high materiality	FY28 · 2028	High
MA margin progress	make some progress against that high materiality	FY27 · 2027	High
Individual MA margin	double high materiality	FY26 · 2026	High
Q2 MLR	slightly above [91] medium materiality	Q2 · 2026	High
PDP performance	in line with expectations medium materiality	FY26 · 2026	High

Segment performance

Segment	Revenue	YoY	QoQ	Margin
CenterWell Experienced solid growth across all lines of business, driven by Humana's membership growth and agnostic expansion. Pharmacy saw industry-leading mail order penetration and strong uptake by new members. Primary Care achieved significant patient growth through organic expansion and the Max Health acquisition. Home segment also showed solid growth. Patient growth (Primary Care): 110,000 patientsSequential patient growth (Primary Care): 22.5%Mail order penetration (Pharmacy): industry-leading	—	—	—	—
Medicaid Membership growth was largely driven by the January start of new programs in Michigan, Illinois, and South Carolina. Membership growth: approximately 50,000 lives	—	—	—	—

HUM operating KPIs by quarter

HUM operating KPIs stated on its earnings calls, by fiscal quarter
KPI	Dec 2024 Q4 FY24	Mar 2025 Q1 FY25	Jun 2025 Q2 FY25	Dec 2025 Q4 FY25	This call Mar 2026 Q1 FY26	Jun 2026 Q2 FY26	Change vs prior quarter
Employees	65K I also just want to thank the 65,000 associates that we have who are serving our members and patients every day. Source: earnings call transcript	65K I also want to thank our 65,000 associates who serve our members and patients every day. Source: earnings call transcript	65K And finally, I want to thank our 65,000 associates who serve our members and patients every day. Source: earnings call transcript	65K With that, I would thank you for joining us this morning and for your interest in Humana, and I want to thank -- say thanks to our 65,000 associates who serve our members and our patients every day. Source: earnings call transcript	65K And I also want to say thank you to our 65,000 associates who serve our members and our patients every day. Source: earnings call transcript	65K And I also want to thank, as we always do, the 65,000 associates who make this place work, who serve our members, who serve our patients each and every day. Source: earnings call transcript	0%

Operating figures the company stated on at least two of the calls shown, checked against each call's transcript. Click a figure to read the sentence. A dash means it was not stated that quarter.

Deals & partnerships

Max Health acquisition

Completed the acquisition of Max Health, a Florida-based primary care organization, to expand CenterWell's reach into new critical markets.

[indiscernible] partnership

A new partnership announced earlier this week, contributing to CenterWell Pharmacy's agnostic expansion.

Risks & headwinds

Medical cost trend outpacing program funding FY27 bid season

gap is larger going into this bid season than it was a year ago

Mitigation:adjust benefits to remain on track to deliver our 2028 commitment of returning to a sustainable margin of at least 3%

Elevated IBNR growth Q1 FY26

IBNR was up 35% sequentially, well above the 22% membership growth

Mitigation:prudent assumptions embedded in guidance; prudently reserved coming out of the first quarter

Q&A highlights

Asked about the 35% sequential growth in IBNR compared to 22% membership growth in MA, seeking insight into drivers and whether it reflects conservatism.

Celeste Mellet confirmed that IBNR growth was a result of prudent assumptions and conservative reserving given the early stage of the year and membership growth. She reiterated confidence in Q1 performance and early April indicators.

“IBNR was up 35%, well above the growth in membership. We typically point you to looking at membership growth to understand how IBNR ship flows. So we believe we are prudently reserved coming out of the first quarter, just given the year ahead.”

asked by Ann Hynes · answered by Celeste Mellet

2 min read 6 chapters

Detailed narrative

Q1 Performance and Strategic Alignment

Humana reported a strong first quarter, aligning with internal expectations and positioning the company to meet its long-term commitment of achieving a sustainable Medicare Advantage (MA) margin of at least 3% by 2028. Management emphasized the need to make significant progress towards this goal in 2027.

The company's strategy is built around product and experience, clinical excellence, efficient operations, and capital allocation, with all areas showing progress.

Stars Program and Clinical Excellence

The company remains confident in its trajectory to return to top quartile Stars results for the 2028 benefit year (BY '28), with performance on the Stars compensation metric indicating good progress. For BY '29 Stars, Humana is seeing a strong early start, driven by new early engagement efforts that have led to improved member activation and outcomes.

At the end of Q1, the company was approximately 5% ahead of last year's HEDIS gap closure pace on a per-member basis for key metrics.

Operational Efficiency and Cost Management

Humana continues to advance its operating model changes, which include centralizing certain teams, expanding outsourcing, and increasing process automation. These initiatives are designed to enhance efficiencies and contribute to the company's cost management targets. The transformation office, established 15-17 months ago, plays a crucial role in tracking initiatives, providing surge resources, and ensuring alignment with the 5-year strategic plan.

Capital Allocation and Balance Sheet Optimization

In Q1, Humana completed the acquisition of Max Health, a Florida-based primary care organization, expanding CenterWell's reach. The company also bolstered its balance sheet by issuing $1 billion in junior subordinated notes to address future funding needs and optimized legal entity structures, mitigating over $3 billion in capital contribution requirements for 2026.

Humana is maintaining dividend levels and limiting share repurchases to offset dilution, while also pursuing noncore asset divestitures to fund strategic acquisitions.

2027 Bid Strategy and Market Dynamics

For the 2027 plan year bids, Humana's primary focus is on achieving its 2028 margin target, followed by member retention, and then growth. The company acknowledges that medical cost trends continue to outpace program funding, necessitating benefit adjustments to protect margins.

A market-by-market approach is being taken to ensure each geography supports the long-term trajectory, with a focus on minimizing churn and providing stability to members.

Enhanced Claims Monitoring and Trend Visibility

Humana has enhanced its claims and cost trend monitoring practices, incorporating anomaly detection to identify and react to claims and payment trends faster, and to improve first-time payment accuracy. These efforts provide improved visibility into cost trends and strengthen payment integrity.

Early indicators and completed claims for Q1, including April data, suggest that MA members are performing in line with or better than expectations, even after accounting for a subdued flu season and winter storms.

Summary of the company's earnings call; see how call summaries are prepared. Not investment advice.