Key Learnings from Humana's 2025 Investor Day

Humana’s Investor Day (links: transcript, slides) this week provided a fascinating lens into how Humana views the future of its business and also the outlook for Medicare Advantage more broadly, charting out the path from today’s performance to what the business will look like in 2028. Even just the decision to focus so much of the presentation on what 2028 will look like I think says a lot about how Humana views the trajectory moving forward from here — 2026 and 2027 will clearly be recovery years for the organization as it manages through the Stars performance issue before the business stabilizes in 2028.

The slide below highlights Humana’s expected earnings trajectory over the next few years, noting how the business would be growing steadily each year if not for the issue presented by Stars-related payments. Recall that back in October 2024, Humana filed an 8-K disclosing its members in 4 Star plans dropped from 94% in 2024 to only 25% in 2025. Humana expects this state to persist for an additional year, meaning that it will receive lower quality bonus payments in 2026 and 2027 (which occur a year after the performance year — i.e. the decline in 2025 Stars performance impacts Humana’s payments in 2026). As you can see in the chart below, this causes a huge drag on earnings for Humana during those two years:

• Side note. I’ll note my one main quibble with Humana’s investor day here. The slides are atrocious at labeling the y-axis on charts. I get it in some situations, but this was literally 126 slides with more charts than I care to count. Not one that I can see has labels on the y-axis. Not one!

Humana doesn’t share how many members it eventually expects to have in 4 Star plans as the business normalizes in 2028, but it does note that it expects to be a top quartile plan, and that it will outperform its peer set of other large MA organizations.

My overall takeaway from the session:

Setting aside my gripe about y-axes for a second, it’s a reasonable narrative that navigates a tough overall investor story over the next few years with focus and clarity.

Humana expects EPS to decline in 2026, before returning to 2025 levels in 2027, and then starting to see growth again in 2028. The fact that the business would be steadily growing without the Stars challenge highlights just how big of an issue that is for the business. Yet despite all that, Humana’s stock is up almost 6% so far this week, indicating the general sense that this is the right set of activities to prioritize in returning the business back to a solid growth path.

That said, I think the session it highlights two core challenges for the business:

• It underscores the challenges of being predominantly a single-product insurance business, in this case with Humana being so reliant on Medicare Advantage performance. A lot of the business case is reliant on MA getting back to historical margins, which seems like a reasonable bet to me, although it also doesn’t seem like a slam dunk in todays political environment. This is a good slide articulating the historical margins for Medicare Advantage over time (again, why they didn’t put a y-axis here is baffling to me - 2010-12, 16-17, 19-20, and 22 were all above 3% margin):

  

  Slide 30: no y-axis here is just plan mean, it’s industry margin data!

• The session invites a lot of questions as to the state of Humana’s operations in 2025 and how over-reliant it was on excellent Stars performance masking what seems to be a number of blocking-and-tackling problems in the business. This dynamic was evidenced by the amount of gaps that Humana’s current leadership team identified in the business. This slide below I think highlights that dynamic well, describing how Humana has been performing relative to its potential:

  

  Slide 14

Perhaps its just me, but that slide screams the “you had one job” meme at me — those all seem like fairly fundamental concepts to be good at as an insurer, and instead Humana has gaps to where it thinks it can be performing going forward.

If you go back and revisit Humana’s 2022 Investor Day, it was heavily focused on executing on Humana’s clinical strategy and focus on building out primary care clinics via CenterWell as the core thrust of Humana’s strategy. Given that emphasis, it is particularly confusing to see Humana have so many gaps across categories that it seemingly should have excelled at given that. It is very clear the last few years have not played out as expected for the organization. You don’t have to go further than Humana’s stock price performance over that period for evidence — Humana’s stock price has fallen 50% since its last Investor Day in 2022.

Many of those gaps seem so basic that they should have been identifiable and actionable before now. It shift in historical clinical outcomes moving from industry leader to gap overnight also seems indicative of the challenge here. I think Humana did a good job explaining some of the issues that have arisen with Stars recently and how it is attempting to address those moving forward, it doesn’t necessarily explain how the business became so over-reliant on performance on such a brittle metric.

While I can understand a new leadership team pointing at these as the opportunities, I also can’t help but wonder why all of these critical functions have been gaps historically, and to what degree Humana will actually be able to control the change. I imagine that whether you are bullish or bearish on Humana over the next several years depends on the degree to which you have confidence in Humana’s ability to drive the changes articulated on that slide above.

Humana’s strategic direction: 2025 to 2028

The following three slides I think summarize nicely how Humana wants investors to think about the growth of the business over the next several years.

Let’s start with the key messages Humana wanted to communicate during the session:

Pretty straightforward, right? They’re seeking to show that the core business Humana operates in is an attractive one, Humana has a lot of opportunities within its control to improve the earnings potential of that business, and it will allocate capital to two key growth opportunities in Centerwell and Medicaid. All of that seems like a pretty reasonable, focused growth strategy for the next several years.

The slide below is one they came back to multiple times in the presentation, with a waterfall breaking down Humana’s key initiatives and their expected impact on earnings through 2028. As you can see, there is a heavy emphasis on operating leverage, and a reduced emphasis on Stars performance:

I think the waterfall chart above drives home a couple key points about the business:

1. Humana’s business today is very reliant on Stars performance and it is reducing its reliance on Stars as it anticipates top quartile performance in 2028, down from the 95% of members in 4 Star plans it had for 2025

2. The largest earnings growth lever for the organization over the next four years is in basic blocking and tackling via enterprise operating leverage (i.e. consolidating outsourcing efforts from dozens of partners to <10 partners)

3. Humana is going to focus on clinical excellence in order to drive a meaningful opportunity in MA. This will be via the activities you’d probably expect — value-based care programs, moving patients to lower cost sites of care, ensuring members see high quality providers, etc.

4. There’s a group of other logical business opportunities that are all logical strategic extensions, but seem marginal for Humana’s earnings growth near term. Medicaid seems like a longer term opportunity, CenterWell Pharmacy can grow in the specialty pharmacy market, and Centerwell Primary Care seems to have navigated v28 well and is positioned to acquire assets faltering as a result of v28.

Across all of those key initiatives, Humana shared a number of metrics that it will be tracking for investors moving forward. Here are the key metrics that Humana is tracking (note they mentioned they’re not reporting on all of these numbers every quarter, but rather as relevant):

Humana provided some helpful data on each of these metrics during the session, which I’ll let you peruse in the slides.

All-in-all, It seems like a pretty straight forward narrative over the next few years, one that Humana should be able to achieve, assuming it executes well and Medicare Advantage .

Humana: A Consumer Healthcare Company?

The one piece of the narrative during the investor day that felt a little of out of place was Humana trying to paint itself as a consumer healthcare company.

It feels as though Humana is trying to address the broader narrative challenge that insurers and Medicare Advantage have by painting itself as building a consumer healthcare company over the next several years. Humana’s CEO started the session making this point, and ending the session making this point. I’ll admit, it’s an odd categorization to me, and one that I’m not sure is really needed for Humana, but clearly seems to be attempting to indicate the transformation afoot in the industry.

At the beginning of the presentation, Humana’s CEO makes a point to indicate that five years ago, Humana was an insurance business. Today, he thinks Humana is a health services business, with Centerwell making up a sizable portion of the business. Projecting forward five years, he expects Humana to be known as a consumer healthcare company:

Coming to the end of the presentation, here is how Humana articulates its longer term consumer healthcare ambitions:

Call me crazy, but as I look at those bullets, what I see is a larger, more resilient version of the business Humana is today. I think that is a very reasonable thing, by the way. But like… Hims is a consumer healthcare company. Humana is a healthcare services company.

You should obviously watch the session and come to your own conclusion on the future of the business. But personally, I would be willing to bet that I am not referring to Humana as a consumer healthcare company in 2030. I’m not sure what this adds to the narrative here.

Revisiting Humana’s 2022 Investor Day

As far as I’m aware, Humana’s last Investor Day prior to this session was in September 2022, which I covered in depth here. It’s worth revisiting that as you check out this session to see how they compare, and also how much Humana’s 2022 Investor Day pivoted from its 2021 Investor Day.

Here’s how I summarized my takeaways from Humana’s 2022 Investor Day:

It’s interesting to note the difference in tone between this Investor Day and that session back in 2022, not to mention the prior Investor Day in 2021. It was a much more optimistic time about the prospects for Medicare Advantage and the general sentiment toward the industry, which is not entirely surprising when you look at how the historical margin chart I pasted above has played out over the last two years.

On top of that, it is notable how the core flywheel discussed in 2022 of primary care clinics and the Welsh Carson JV has faded into the background a bit. That almost certainly seems like a reflection of the challenges the market has faced over the last several years, specifically v28. The slide below indicates that the profitability J-Curve for primary care clinics hasn’t changed post v28, although it would be helpful to have more data specifically on where various cohorts are along this J-Curve:

Links:

If you’re looking at going deeper on Humana’s Investor Day, here are the links to the transcript and slides from the session:

Humana’s Investor Day Slides
Humana’s Investor Day Transcript