Humana Q2 Earnings Call Highlights

Humana NYSE: HUM said its 2026 performance is tracking in line with expectations, with management emphasizing planned Medicare Advantage margin expansion in 2027, progress in its Stars program and continued operating-cost reductions as key components of its path toward a sustainable pretax margin of at least 3% in 2028.

President and Chief Executive Officer Jim Rechtin said the company’s 2026 membership growth trajectory remains on track and that both new and returning members are performing as expected.

He said Humana’s priority in preparing its 2027 Medicare Advantage, or MA, bids was to make the margin progress needed to remain on course for its 2028 target.

“We expect our targeted margin expansion in 2027 to be driven by our ongoing focus on clinical excellence and operating efficiency work, combined with adjustments to our plan mix and benefits,” Rechtin said.

Chief Financial Officer Celeste Mellet said Humana expects to make “significant progress” in 2027 compared with 2026, although final results will depend on the size and composition of its membership.

The company did not provide a specific margin target for 2027.

Humana expects targeted plan exits for 2027 to affect approximately 600,000 members.

Mellet said the company intends to recapture a significant portion of those members, similar to its experience in 2025, when it recaptured just over 40% of affected membership.

The company said it will use plan exits to preserve higher-performing plans, particularly those with greater penetration of value-based care.

Mellet described the strategy as removing the lower end of profitability and returns rather than making more uniform benefit reductions across the portfolio.

She said most planned exits involve plans with ratings of 3.5 Stars or below for bonus year 2027, though she said the strategy was not principally a Stars-related decision.

Humana said its bids continue to assume cost trends consistent with its 2026 outlook.

Mellet reiterated that the company expects all-in medical and pharmacy cost trend of 7% to 8% this year, including lower medical-cost trend and double-digit drug-cost trend.

For 2027, she said drug trend is expected to increase modestly due to the health technology pipeline and newly released drugs.

Management also said it incorporates contingency into its bids because they are submitted well ahead of the coverage year.

Mellet said medical costs have been within Humana’s expected range, with slight favorability concentrated in inpatient care.

Based on roughly four months of completed claims data, she said the favorable inpatient trend was more concentrated among members served by value-based providers.

The com...