Humana Inc.

Company Overview

Business Model: Humana Inc. and its subsidiaries, referred to as Humana, operate as a health and well-being company, committed to putting health first for its teammates, customers, and the company. Through Humana insurance services and CenterWell health care services, the Company aims to simplify health care for millions, delivering necessary care and service to improve the quality of life for Medicare and Medicaid participants, families, individuals, military service personnel, and communities. The core of its strategy is an integrated care delivery model, which combines quality care, high member engagement, and sophisticated data analytics, focusing on primary, physician-directed care to enhance health outcomes and affordability. Revenue is primarily generated from premiums for medical benefit plans and specialty products, with a significant portion derived from federal government contracts.

Market Position: Humana Inc. holds a national presence in the Medicare program, offering at least one type of Medicare plan in all 50 states and having participated for over 30 years. As of December 31, 2025, the Company served approximately 15 million members in its medical benefit plans and 4.7 million members in its specialty products. Federal government contracts accounted for 83% of total premiums and services revenue in 2025. The health benefits industry is highly competitive, with Humana Inc. facing competition from other managed care companies, national insurance companies, HMOs, and PPOs, some of which possess larger membership bases or greater financial resources in certain markets.

Recent Strategic Developments:

• Exit from Employer Group Commercial Medical Products Business: During 2025, Humana Inc. completed its exit from the Employer Group Commercial Medical Products business, encompassing all fully insured, self-funded, and Federal Employee Health Benefit medical plans, along with associated wellness and rewards programs. This strategic decision was based on the business's inability to sustainably meet commercial member needs or align with long-term strategic plans.
• Value Creation Initiatives: The Company initiated a multi-year transformation program to optimize its cost structure, operating model, and technology footprint in response to macroeconomic, regulatory, and competitive pressures. In 2025, charges of $449 million were recorded, primarily for workforce optimization-related severance ($329 million) and asset impairments ($40 million).
• Integrated Care Delivery Model Advancement: Humana Inc. continues to invest in its integrated care delivery model, which aims to improve the consumer experience and facilitate providers' transition to value-based arrangements. As of December 31, 2025, 68% (approximately 3,586,100 members) of individual Medicare Advantage members were engaged in value-based relationships, a slight decrease from 71% in 2024.
• Primary Care Business Acquisition: Post-period, on February 13, 2026, Humana Inc. completed the acquisition of a primary care business for approximately $941 million.

Geographic Footprint: Humana Inc. is headquartered in Louisville, Kentucky, with additional key administrative functions in Arlington, Virginia, and Green Bay, Wisconsin. Regional administrative support offices are located across Arizona, Florida, Georgia, Illinois, Massachusetts, New York, Tennessee, and Texas. The Company's CenterWell segment operates full-service, value-based senior-focused primary care centers in 15 states, including Florida and Texas. CenterWell Home Health maintains locations in 37 states, with approximately 68% overlap with individual Medicare Advantage membership. State-based contracts are held in Florida, Kentucky, Illinois, Indiana, Louisiana, Ohio, Oklahoma, South Carolina, Virginia, and Wisconsin. Florida is a significant market, with approximately 1.0 million individual Medicare Advantage members, contributing 14% of consolidated premiums and services revenue in 2025.

Financial Performance

Revenue Analysis

Profitability Metrics:

• Gross Margin: 13.76%
• Operating Margin: 2.08%
• Net Margin: 0.92%

Investment in Growth:

• R&D Expenditure: Not explicitly stated as a separate line item.
• Capital Expenditures: $523 million (2025)
• Strategic Investments: $81 million (2025) for acquisitions, net of cash.

Business Segment Analysis

Insurance Segment

Financial Performance:

• Revenue: $123.84 billion (+9.5% YoY)
• Operating Margin: 1.34%
• Key Growth Drivers: The increase was primarily driven by higher per member Medicare premiums, largely due to an increased direct subsidy from the Inflation Reduction Act of 2022 (IRA), and higher per member state-based contracts premiums. Membership growth in the state-based contracts and Medicare stand-alone Prescription Drug Plan (PDP) businesses also contributed. These gains were partially offset by a membership decline in the individual Medicare Advantage business, resulting from the decision to exit certain unprofitable plans and counties in 2025.

Product Portfolio:

• Individual Medicare Advantage, Group Medicare Advantage, Medicare stand-alone PDP, Medicare Supplement.
• State-based contracts (Medicaid, dual eligible demonstration, Long-Term Support Services benefits).
• Specialty benefits (dental, vision, life, and disability).
• Military services (TRICARE contracts).

Market Dynamics:

• Medicare: Established national presence, offering plans in all 50 states, with strategies including health assessments and clinical guidance programs.
• State-based contracts: Serves Medicaid-eligible and dual-eligible members across multiple states.
• Specialty: Provides dental, vision, life, and disability insurance to employer groups and individuals.
• Military services: Administers health care services for active-duty and retired military personnel and their dependents under TRICARE contracts.

Sub-segment Breakdown:

• Individual Medicare Advantage: $90.40 billion revenue (-7.3% YoY membership decline to 5.25 million members). Includes 760,500 Dual-Eligible Special Needs Plan (D-SNP) members. Anticipates approximately 25% net membership growth in 2026.
• Group Medicare Advantage: $9.01 billion revenue (+16.6% YoY, +4.2% YoY membership growth to 0.57 million members). Anticipates approximately 150,000 net membership growth in 2026.
• Medicare stand-alone PDP: $6.84 billion revenue (+118.2% YoY, +7.6% YoY membership growth to 2.46 million members). Anticipates approximately 1,000,000 net membership growth in 2026.
• State-based contracts and other: $14.48 billion revenue (+32.6% YoY, +10.7% YoY membership growth to 1.62 million members). Growth primarily from the Virginia contract implemented in 2025 and additional membership allocation in Kentucky. Anticipates 25,000 to 100,000 net membership growth in 2026.
• Military services and other: $1.02 billion services revenue (+11.0% YoY, -23.4% YoY membership decline to 4.61 million beneficiaries due to the T-5 contract region change).

CenterWell Segment

Financial Performance:

• Revenue: $4.82 billion (+39.0% YoY)
• Operating Margin: 5.96%
• Key Growth Drivers: Primarily driven by higher revenues associated with external growth in the primary care and pharmacy solutions businesses. This was partially offset by the impact of the v28 risk model revision affecting the primary care business.

Product Portfolio:

• Pharmacy solutions (CenterWell Pharmacy, CenterWell Specialty Pharmacy, retail pharmacies within CenterWell Primary Care clinics).
• Primary care (full-service, value-based senior-focused primary care centers under Conviva Senior Primary Care and CenterWell Senior Primary Care brands).
• Home solutions (CenterWell Home Health, OneHome, minority ownership in hospice operations).

Market Dynamics:

• Pharmacy solutions: Operates mail-order, specialty, and retail pharmacies for various drugs and supplies.
• Primary care: Operates 350 primary care clinics with approximately 1,300 primary care providers, serving about 491,100 patients. Services are primarily delivered under risk-sharing arrangements with Humana Medicare Advantage health plans, third-party Medicare Advantage health plans, and CMS-administered risk-sharing arrangements for Original Medicare. A strategic partnership with Welsh, Carson, Anderson & Stowe supports the development of 146 primary care clinics.
• Home solutions: CenterWell Home Health is one of the nation's largest home health providers, operating in 37 states. OneHome integrates and coordinates home-based services through a full-risk model. Humana Inc. holds a 35% minority ownership interest in Gentiva Hospice.

Capital Allocation Strategy

Shareholder Returns:

• Share Repurchases: $151 million (0.4 million shares) in 2025 under the February 2024 share repurchase authorization. An additional $51 million (0.2 million shares) was used for repurchases in connection with employee stock plans. The remaining repurchase authorization was $2.7 billion as of February 18, 2026.
• Dividend Payments: $430 million in 2025.
• Dividend Yield: Approximately 1.46% (based on $0.8850 quarterly dividend and average stock price of $242.82 on June 30, 2025).
• Future Capital Return Commitments: The Board declared a cash dividend of $0.8850 per share payable on January 30, 2026, and another $0.8850 per share payable on April 24, 2026.

Balance Sheet Position:

• Cash and Equivalents: $4.20 billion (2025)
• Total Debt: $12.37 billion (2025)
• Net Cash Position: -$8.17 billion (Net Debt)
• Credit Rating: BBB by Standard & Poor’s Rating Services (S&P) and Baa2 by Moody’s Investors Services, Inc. (Moody’s) as of December 31, 2025.
• Debt Maturity Profile: $0 in 2026, $1.03 billion in 2027, $993 million in 2028, $979 million in 2029, $500 million in 2030, and $8.996 billion thereafter.

Cash Flow Generation:

• Operating Cash Flow: $0.92 billion (2025)
• Free Cash Flow: $0.40 billion (2025)
• Cash Conversion Metrics: Not explicitly detailed in the filing.

Operational Excellence

Production & Service Model: Humana Inc. employs an integrated care delivery model that emphasizes consistent, integrated, cost-effective, and member-focused primary, physician-directed care. This model is supported by quality care, high member engagement, and sophisticated data analytics. The Company offers providers various opportunities to transition to value-based arrangements, including performance bonuses, shared savings, and shared risk contracts. Humana Inc. also directly operates CenterWell health care services, encompassing mail-order and specialty pharmacies, senior-focused primary care centers, and home health services.

Supply Chain Architecture: Key Suppliers & Partners:

• Health Care Providers: A network of employed and contracted hospitals, physicians, dentists, and ancillary service providers.
• Pharmaceutical Manufacturers: Key suppliers for the pharmacy solutions business, with contractual rebates influencing costs.
• Third-Party Service Providers: Critical for systems-related support, equipment, facilities, and data processing (e.g., data center operations, network, voice communication, pharmacy data processing).
• Welsh, Carson, Anderson & Stowe: A strategic partner for the expansion and development of primary care clinics.

Facility Network:

• Manufacturing: Not applicable, as Humana Inc. is a service-based company.
• Research & Development: Not explicitly detailed, but innovation and technology development are core to its strategy.
• Distribution: CenterWell Pharmacy (mail-order), CenterWell Specialty Pharmacy, and retail pharmacies located within CenterWell Primary Care clinics. CenterWell Home Health operates in 37 states for in-home care delivery.
• Administrative Offices: Principal executive office in Louisville, Kentucky, with other key administrative functions in Arlington, Virginia, and Green Bay, Wisconsin, and regional offices across several states.
• Medical Centers: Operates 350 primary care clinics, primarily in Florida and Texas, including full-service, multi-specialty medical centers. Approximately 372 of these facilities are leased or subleased to contracted providers.

Operational Metrics:

• Value-Based Relationships: 68% of individual Medicare Advantage members (approximately 3,586,100) were in value-based relationships at December 31, 2025.
• Primary Care Providers: Approximately 1,300 employed primary care providers.
• Primary Care Patients: Approximately 491,100 patients served by the primary care business.
• Voluntary Turnover Rate (VTR): 13.8% in 2025, a decrease from 14.4% in 2024.
• Average Employee Tenure: 7 years.

Market Access & Customer Relationships

Go-to-Market Strategy: Distribution Channels:

• Direct Sales: Utilizes approximately 1,000 employed sales representatives and 2,200 telemarketing representatives for Medicare and specialty products.
• Channel Partners: Markets Medicare and individual specialty products through licensed independent brokers and agents. A marketing arrangement with Walmart Inc. exists for its individual Medicare stand-alone PDP offering.
• Digital Platforms: Employs television, radio, internet, telemarketing, and direct mailings for product marketing.
• Employer Groups: Sells group Medicare Advantage products and specialty benefits (dental, vision, life, disability) to employer groups.

Customer Portfolio: Enterprise Customers:

• Federal Government: The primary customer, contributing approximately 83% of total premiums and services revenue in 2025, through Medicare Advantage, Medicare Part D, and TRICARE programs.
• State Governments: Contracts with multiple states to serve Medicaid-eligible and dual-eligible members.
• Employer Groups: Customers for group Medicare Advantage and specialty benefits.
• Strategic Partnerships: Collaborates with Welsh, Carson, Anderson & Stowe for primary care clinic development. Customer Concentration:
• Florida Medicare Advantage: Contracts in Florida for individual Medicare Advantage members generated approximately $17.8 billion in premiums revenue, representing 14% of consolidated premiums and services revenue in 2025.
• TRICARE: The T-5 East Region contract covers approximately 4.6 million beneficiaries.

Geographic Revenue Distribution:

• Federal Government Contracts: Accounted for approximately 83% of total premiums and services revenue in 2025.
• Florida: Individual Medicare Advantage contracts in Florida represented 14% of consolidated premiums and services revenue.
• Key States by Medical Membership: Significant membership concentrations in Florida, Texas, Kentucky, North Carolina, Ohio, Louisiana, Illinois, Virginia, Georgia, and Tennessee.

Competitive Intelligence

Market Structure & Dynamics

Industry Characteristics: The health benefits industry is characterized by high competition and relatively low barriers to entry, facilitating the emergence of new competitors. Customers possess significant flexibility in switching providers, particularly during the Medicare Annual Enrollment Period. Competition is driven by factors such as service quality, provider network depth, and pricing. The industry faces ongoing pressure to control premium prices amidst rising medical and administrative costs, and is significantly influenced by diverse federal and state legislative and regulatory initiatives.

Competitive Positioning Matrix:

Direct Competitors

Primary Competitors: Include other managed care organizations, national insurance companies, and various Health Maintenance Organizations (HMOs) and Preferred Provider Organizations (PPOs). Some of these competitors may possess larger market shares or greater financial resources in specific markets. Physician or practice management companies also represent direct competition.

Emerging Competitive Threats: New entrants into the Medicare or Medicaid programs, disruptive technologies, and alternative health care solutions pose evolving competitive challenges. The increasing sophistication of cybersecurity attacks, partly driven by advancements in AI/ML technologies, also represents a significant threat.

Competitive Response Strategy: Humana Inc. maintains its competitive advantage by focusing on its integrated care delivery model, which aims to provide affordable health care and a positive consumer experience. This strategy involves enhancing clinical capabilities, expanding its Medicare programs, growing state-based contracts, and developing its CenterWell pharmacy solutions, primary care, and home solutions businesses. The Company also prioritizes proactive management of operating expenses and strategic investments in new products and health and well-being offerings.

Risk Assessment Framework

Strategic & Market Risks

Market Dynamics:

• Competitive Pressure: Intense competition, particularly on price, could lead to market share loss if pricing is misaligned or if membership declines or shifts unfavorably.
• Government Policy & Funding Changes: Policies and decisions by federal and state governments regarding Medicare Advantage, Part D, TRICARE, and Medicaid programs significantly impact profitability, premiums, eligibility, services, and costs. Reductions in premium payments, increased costs, or new fees/taxes could materially affect financial results.
• Star Ratings Impact: A significant decline in Medicare Advantage plans rated 4-star or higher in 2025 will negatively impact 2026 quality bonus payments and could adversely affect revenues, operating results, and cash flows. A lawsuit challenging the 2025 Star Ratings is pending appeal.
• Execution Risk of Strategic Initiatives: Failure to effectively implement strategic initiatives, including Medicare growth, state-based contracts strategy, CenterWell business expansion, and the integrated care delivery model, could materially adversely affect the business. Technology Disruption:
• Information Systems Integrity: Dependence on effective information systems and data integrity. Failure to maintain, implement new systems (including AI/ML), or protect proprietary rights could lead to operational disruptions, pricing inaccuracies, customer disputes, reputational damage, and increased costs.
• AI/ML Risks: Changes in laws/regulations regarding AI/ML use, and potential for inaccuracies, biases, or errors from AI/ML technologies, could result in additional compliance costs, regulatory investigations, fines, or lawsuits. Customer Concentration:
• Federal Government Reliance: Approximately 83% of total premiums and services revenue is derived from federal government contracts, exposing the Company to substantial risks from changes in these programs.
• Florida Medicare Advantage: Contracts in Florida accounted for 14% of total premiums and services revenue in 2025; the loss of these contracts or significant changes could have a material adverse effect.

Operational & Execution Risks

Supply Chain Vulnerabilities:

• Third-Party Service Provider Dependency: Reliance on third-party service providers for critical systems support and data processing (e.g., the Change Healthcare cybersecurity incident in February 2024) makes operations vulnerable to their performance failures.
• Pharmaceutical Supply Chain: Risks associated with packaging and distribution of pharmaceuticals, including regulatory compliance, manufacturing/distribution disruptions, and changes in industry pricing benchmarks. Geographic Concentration:
• State-Specific Regulations: Operations are subject to diverse state-level regulations (e.g., licensing, mandated benefits, Certificate of Need processes), which can increase costs or restrict business expansion. Capacity Constraints:
• Provider Relationships: Inability to develop and maintain satisfactory relationships with health care providers could lead to higher costs, less desirable products, or difficulties meeting regulatory requirements. Financial instability or disputes among capitated providers could disrupt member services.
• Talent Attraction & Retention: Intense competition for qualified employees and executives, and challenges in managing succession plans for key roles, could adversely affect business operations and future performance.

Financial & Regulatory Risks

Market & Financial Risks:

• Benefits Expense Estimates: Significant judgment is involved in actuarial estimates of future benefit claims; actual health care costs exceeding estimates could materially impact profitability.
• Investment Portfolio Volatility: Volatility or disruption in securities and credit markets, including interest rate changes, may adversely affect the value of the investment portfolio and investment income, potentially leading to impairment losses.
• Debt Ratings Downgrades: Downgrades in credit ratings could increase borrowing costs, reduce sales and earnings, and negatively impact financial condition. Regulatory & Compliance Risks:
• Government Contractor Risks: Exposure to governmental audits (e.g., Risk-Adjustment Data Validation Audits, or RADV audits) and investigations, with potential for loss of licensure, exclusion from government programs, fines, or sanctions. A lawsuit challenging CMS's Final RADV Rule is pending appeal.
• New Laws & Regulations: Ongoing exposure to new laws, regulations, and judicial interpretations (e.g., Health Care Reform Law, Inflation Reduction Act of 2022) can increase operating costs, restrict business operations, or impact profitability.
• HIPAA & HITECH Act Compliance: Strict regulations governing individually identifiable health data; violations can result in significant criminal or civil penalties, litigation, and reputational damage.
• Corporate Practice of Medicine & Fraud/Abuse Laws: Subject to state laws limiting medical practice and federal/state anti-kickback, physician self-referral, and false claims laws; non-compliance could lead to penalties or business restructuring.
• Legal Proceedings: Involvement in various lawsuits and investigations, including stockholder class actions, derivative actions, a DOJ intervention in a qui tam lawsuit, and a TCPA class action, which could result in substantial monetary damages, fines, or required changes in business practices.

Geopolitical & External Risks

Geopolitical Exposure: Not explicitly detailed beyond general regulatory and trade risks. Trade Relations: Not explicitly detailed. Sanctions & Export Controls: Mentioned as a risk category, but specific details are not provided. Catastrophes: Exposure to natural disasters, public health emergencies, epidemics, or pandemics (e.g., COVID-19), which could occur more frequently or intensely due to global climate change, potentially disrupting supply chains and increasing medical costs.

Innovation & Technology Leadership

Research & Development Focus: Core Technology Areas:

• Integrated Care Delivery Model: Focuses on leveraging quality care, high member engagement, and sophisticated data analytics to improve health outcomes and affordability.
• AI/ML Technologies: Strategic investment in and implementation of new information systems, including those powered by or incorporating artificial intelligence and machine learning (including generative AI), to enhance administrative processes and clinical decision-making. Innovation Pipeline: Continuous development of new and innovative products and services, including technologies designed to improve connectivity across products and meet evolving consumer expectations for health care engagement. Intellectual Property Portfolio:
• Patent Strategy: Relies on trade secrets and copyrights to protect its proprietary information and systems.
• Licensing Programs: Not explicitly detailed in the filing.
• IP Litigation: Not explicitly detailed in the filing. Technology Partnerships:
• Strategic Alliances: Maintains a strategic partnership with Welsh, Carson, Anderson & Stowe to accelerate the expansion of its primary care model through the development of new clinics.

Leadership & Governance

Executive Leadership Team

Leadership Continuity: The Company has established development and succession plans for its key employees and executives, though these plans do not guarantee the continued availability of their services.

Board Composition: The Board of Directors oversees material risks, including cybersecurity. The Audit Committee and Technology Committee share joint oversight responsibilities for information technology internal controls, cybersecurity, business continuity, disaster recovery programs, and emerging technologies such as artificial and augmented intelligence. The Audit Committee is composed solely of independent outside directors.

Human Capital Strategy

Workforce Composition:

• Total Employees: Approximately 67,060 associates as of December 31, 2025.
• Geographic Distribution: Not explicitly detailed beyond general administrative and medical center locations.
• Skill Mix: Not explicitly detailed.

Talent Management: Acquisition & Retention:

• Hiring Strategy: Committed to recruiting, developing, and retaining strong and diverse teams.
• Retention Metrics: The Voluntary Turnover Rate (VTR) was 13.8% in 2025, a decrease from 14.4% in 2024. The average tenure of associates is 7 years.
• Employee Value Proposition: Offers a Total Rewards program that includes competitive compensation, robust benefits (medical, dental, vision, short- and long-term disability, life insurance, 401(k) with Company match, tuition assistance, comprehensive financial well-being programs, health savings accounts, flexible spending accounts), and resources supporting work-life balance (paid time off, paid holidays, paid parental leave, paid caregiver time off, mental health support, employee discount programs).

Diversity & Development:

• Diversity Metrics: Not explicitly detailed in quantitative terms.
• Development Programs: Provides internal and external learning events, access to degree and certification programs through partner organizations, mentorship, and career advancement opportunities to promote continuous learning and growth.
• Culture & Engagement: Measures success and seeks to enhance engagement through an Annual Engagement Survey (AES) and continuous listening campaigns, which involve proactive solicitation, analysis, and response to associate feedback.

Environmental & Social Impact

Environmental Commitments: Climate Strategy:

• Emissions Targets: Not explicitly detailed.
• Carbon Neutrality: Not explicitly detailed.
• Renewable Energy: Not explicitly detailed. Supply Chain Sustainability:
• Supplier Engagement: Not explicitly detailed.
• Responsible Sourcing: Not explicitly detailed. Social Impact Initiatives:
• Community Investment: The Company is committed to "putting health first" for its stakeholders, aiming to improve the quality of life for Medicare and Medicaid participants, families, individuals, military service personnel, and communities at large.
• Product Impact: Products and services, including pharmacy solutions, primary care, and home solutions, are designed to promote health and wellness and advance population health.

Business Cyclicality & Seasonality

Demand Patterns:

• Seasonal Trends: Medicare benefit costs typically increase throughout the year as members meet their contractual claims responsibilities, progress through annual deductibles and maximum out-of-pocket expenses, and incur higher episodic care costs, leading to a higher benefit ratio. The elimination of the Medicare Part D coverage gap, effective January 1, 2025, due to the Inflation Reduction Act of 2022, has resulted in greater cost sharing and a more level distribution of net prescription costs throughout the year, contrasting with historical seasonal declines. The Insurance segment's operating cost ratio also experiences seasonality, with higher costs incurred in the second half of the year due to the Medicare marketing season.
• Economic Sensitivity: Not explicitly detailed.
• Industry Cycles: Not explicitly detailed. Planning & Forecasting: The Company's discussion of seasonality implies ongoing demand forecasting and capacity planning, particularly for Medicare products and marketing efforts, but specific methodologies are not detailed.

Regulatory Environment & Compliance

Regulatory Framework: Industry-Specific Regulations:

• Federal Programs: Highly regulated by the Centers for Medicare and Medicaid Services (CMS) for Medicare Advantage and Part D, and by the United States Department of Defense for TRICARE. Contracts are generally subject to annual renewal and risk-adjustment models.
• State Regulations: State departments of insurance and health audit HMOs and health insurance companies for financial, contractual, and health services compliance. State insurance holding company regulations require approvals or notices for new products, rates, material transactions, and dividend payments. Certificate of Need (CON) processes in some states restrict provider entry or expansion.
• Health Care Reform Law (ACA) & IRA: Subject to significant reforms impacting mandated coverage, benefits, minimum benefit ratios, Medicare Advantage premiums, and Part D benefit design.
• HIPAA & HITECH Act: Compliance with federal and state laws governing individually identifiable health data, including privacy, security, and data breach notification requirements. International Compliance: Files income tax returns in the United States and Puerto Rico. Trade & Export Controls: Mentioned as a risk category, but specific compliance requirements or business limitations are not detailed. Legal Proceedings:
• DOJ Investigations: Ongoing cooperation with the Department of Justice regarding Medicare Part C risk adjustment practices.
• RADV Audit Lawsuit: Humana Inc. and Humana Benefit Plan of Texas, Inc. filed suit against the United States Department of Health and Human Services and Xavier Becerra, challenging the Final RADV Rule. The District Court vacated the rule, but the government has appealed to the Fifth Circuit.
• Stockholder Litigation: Subject to a putative stockholder class action and parallel derivative actions alleging false or misleading statements regarding financial performance, medical costs, Star Ratings, and Medicare Advantage distribution relationships.
• Medicare Advantage Marketing Lawsuit: Humana Inc. and Americans for Beneficiary Choice filed suit against HHS and CMS challenging the Medicare Advantage and Part D Star Ratings program. The District Court rejected the challenge, and Humana Inc. has appealed to the Fifth Circuit.
• Qui Tam Lawsuit: The Department of Justice filed a complaint in partial intervention related to a qui tam lawsuit alleging civil violations concerning non-commission payments to call center broker partners and marketing of Medicare Advantage plans to under-65 beneficiaries.
• TCPA Class Action: A class action lawsuit alleging violations of the Telephone Consumer Protection Act is proceeding in federal court.
• Other Regulatory Reviews: Subject to ongoing reviews by state insurance and health care regulatory authorities covering various business practices, which could result in fines or required practice changes.

Tax Strategy & Considerations

Tax Profile:

• Effective Tax Rate: 17.4% in 2025, down from 25.5% in 2024. The 2025 rate reflects the impact of a tax loss on the sale of a business, which exceeded the book loss and is realizable via capital loss carryback.
• Geographic Tax Planning: Files income tax returns in the United States and Puerto Rico.
• Tax Reform Impact: The Inflation Reduction Act of 2022 (IRA) mandated changes to the Medicare Part D coverage gap, which impacts plan liabilities and may influence tax planning initiatives.
• Income Taxes Paid: $231 million for federal income taxes and $41 million for state and local income taxes in 2025.
• Net Operating Loss Carryforwards: As of December 31, 2025, the Company had approximately $0.5 million in federal net operating losses, $2.0 billion in pre-tax state net operating losses, and $141 million in Puerto Rico net operating losses to carry forward.

Insurance & Risk Transfer

Risk Management Framework:

• Insurance Coverage: Humana Inc. manages general business risks, including professional and general liability, employee workers’ compensation, cybersecurity, and officer and director errors and omissions, through a wholly-owned captive insurance subsidiary. Exposure to these risks is reduced by obtaining third-party insurance coverage for losses exceeding retained limits.
• Risk Transfer Mechanisms:
  • Capitation Contracts: Engages in capitation contracts with providers, where physicians and hospitals assume varying levels of financial risk for defined member populations.
  • Reinsurance Agreements: Cedes underwriting risk for certain blocks of long-duration insurance policies (primarily life and annuities in run-off status) to third-party reinsurers. In 2025, the Company entered an agreement with an unrelated insurer to minimize catastrophic loss risk and reduce capital and surplus requirements.
  • Government Contracts: Under TRICARE contracts, the federal government retains all health care cost risk, with Humana Inc. providing administrative services.