Humana Inc. reported first-quarter adjusted earnings of $10.31 per share, surpassing the consensus estimate of $10.19. However, the health insurer's shares dropped more than 6% in premarket trading after the company maintained its 2026 profit target and lowered its GAAP earnings forecast, signaling ongoing headwinds in its Medicare Advantage business.
The Louisville, Kentucky-based company posted GAAP earnings of $9.83 per share for the quarter ended March 31, down from $10.30 a year earlier. Revenue rose to $39.65 billion, compared to $32.11 billion in the prior-year period, driven by membership growth and premium increases.
Despite the top-line beat, investors remained cautious about the Medicare Advantage segment, which continues to face pressure from elevated medical costs, government reimbursement rates, and declining quality scores that affect federal bonus payments. Humana's insurance benefit ratio came in at 89.4%, slightly below its target of "just under 90%." The company noted that medical and pharmacy cost trends are running "slightly better" than anticipated for both new and existing members.
While competitors such as Centene, UnitedHealth, and Elevance have recently raised their annual forecasts, Humana left its 2026 adjusted earnings target unchanged at "at least $9.00" per share. On a GAAP basis, the company lowered its guidance to "at least $8.36" from the previous "at least $8.89," citing the impact of Medicare Star Ratings—quality metrics that determine bonus payments from the Centers for Medicare & Medicaid Services (CMS).
Earlier this month, the sector received a boost when CMS approved a 2.48% average increase for 2027 Medicare Advantage payments, translating to over $13 billion in additional funding. Analysts at Mizuho, Leerink, and Oppenheimer viewed the rate decision as a positive for insurers, suggesting potential margin expansion in 2027. However, Humana cautioned that the final rate does not fully offset rising medical cost trends.
Humana's CEO Jim Rechtin described the quarter as "a solid start to the year," highlighting ongoing improvements in customer experience and care quality. The company reiterated its forecast for approximately 25% growth in individual Medicare Advantage membership for 2025, driven by new sales and improved retention.
The insurer's CenterWell services division continued to expand, with CenterWell Senior Primary Care adding 110,500 new patients in the quarter, including contributions from the MaxHealth acquisition. CenterWell Pharmacy is also collaborating with Mark Cuban's Cost Plus Drugs to develop employer-focused prescription drug offerings.
Looking ahead, Humana faces risks related to its Star Ratings appeal, which could affect 2026 quality bonus payouts, revenue, and cash flow if unsuccessful. The company also noted that new Medicare Advantage enrollees typically have higher benefit ratios than existing members, adding to margin pressure. The broader question remains whether rapid membership gains and plan price increases can offset these headwinds as Humana navigates the 2027 Medicare bid process.
