Lower Medical Costs Lift Humana's Earnings Outlook as Medicare Advantage Recovery Gains Momentum

Humana Raises Profit Forecast as Medical Costs Come in Below Expectations

Humana (HUM) reported better-than-expected third-quarter results on Friday, November 6, 2026, raising its full-year earnings outlook as medical expenses came in below management's expectations.

The health insurer reported a narrower-than-expected adjusted quarterly loss and 26% revenue growth, supported by expanding Medicare Advantage enrollment. Shares gained approximately 3% during Friday's session, reflecting a positive investor response to improving cost trends and the company's recovery outlook.

Key Points

• Earnings guidance improves: Humana raised its 2026 adjusted earnings forecast to at least $9.50 per share, up from $9.00, as medical costs came in below expectations.
• Enrollment growth supports revenue: Third-quarter revenue increased 26% to $41.16 billion, while individual Medicare Advantage membership grew 23% year to date.
• Star Ratings strengthen the recovery outlook: Approximately 95% of members are now enrolled in plans rated four stars or higher for the 2027 rating year, improving eligibility for government bonus payments in 2028.

Better Medical Costs Support Humana's Higher Earnings Guidance

Humana reported an adjusted third-quarter loss of $0.70 per share, narrower than the $1.00 loss analysts had expected. Revenue reached $41.16 billion, exceeding Wall Street estimates and increasing 26% from the same period last year.

The more significant development was medical cost performance. Humana's insurance benefit ratio, which measures the percentage of premium revenue spent on medical care, came in at 93.7%, while management had previously expected a ratio slightly above 94%. Lower medical expenses helped the company raise its full-year adjusted earnings forecast to at least $9.50 per share, exceeding analysts' expectations.

However, profitability remains under pressure. The benefit ratio increased from 91.1% a year earlier, and Humana's insurance segment recorded an adjusted operating loss of $299 million, compared with a profit in the prior-year quarter. These results illustrate the competing forces affecting health insurers: growing membership and revenue alongside elevated medical expenses. Management indicated that medical and pharmacy cost trends are running in line with or better than expectations across both new and existing members.

How Are Medicare Advantage Enrollment and Star Ratings Driving Recovery?

Humana continues expanding its Medicare Advantage business even as other insurers have reduced their exposure to certain plans. Individual Medicare Advantage membership increased 23% through the first nine months of 2026, putting the company on track for approximately 25% full-year growth. The expansion is significant because Medicare Advantage has faced industrywide profitability challenges from rising medical costs and tighter government reimbursement rates. Humana is responding through pricing adjustments, operating efficiencies, and efforts to improve plan quality.

One of the most important developments came in October, when updated Medicare Advantage Star Ratings showed a substantial improvement in the company's health plan quality scores. Approximately 95% of Humana members are now enrolled in plans rated four stars or higher for the 2027 rating year, the threshold for eligibility for federal quality bonus payments. The improvement positions Humana to receive higher bonus payments in 2028, providing a potential earnings benefit beyond the current recovery in medical costs. The company has also targeted an individual Medicare Advantage pretax margin of at least 3%, supported by pricing improvements and stronger plan performance.

Outside insurance, Humana continues expanding its healthcare services operations. CenterWell Senior Primary Care increased its patient population by approximately 30% through the first nine months of the year, while Medicaid membership grew 7%. These businesses contribute to Humana's broader strategy of combining insurance coverage with healthcare delivery and services.

What Could Shape Humana's Earnings Recovery Through 2028?

Although Humana raised its 2026 earnings outlook, management continues to anticipate significant near-term profitability challenges. The company expects substantial seasonal losses during the fourth quarter, with its insurance benefit ratio projected to rise above 95.5%. Higher medical utilization and continued pressure from existing Medicare Advantage Star Ratings remain important factors.

For 2027, Humana has incorporated higher medical cost trends into its pricing assumptions, including elevated expenses associated with prescription drug coverage. Management expects pricing adjustments and operating improvements to support better margins, although the benefits from higher Star Ratings will primarily affect 2028. That timing creates a distinction between Humana's near-term earnings recovery and the longer-term impact of government quality bonuses.

The company is also taking steps to strengthen its financial position. A joint venture with BlackRock (BLK) is expected to reduce certain financial obligations, while the anticipated Gentiva divestiture would generate approximately $900 million in proceeds. These developments could provide additional financial flexibility as Humana continues expanding its insurance and healthcare services businesses. Investors will receive more information at the company's December 10 investor update, when management plans to discuss its earnings growth strategy through 2028.

What It Means for Investors

The third-quarter results suggest that medical cost management is improving relative to Humana's expectations, an important development for a health insurer facing sustained profitability pressure. The raised guidance provides evidence of near-term progress, strong Medicare Advantage enrollment demonstrates continued demand for its plans, and improved Star Ratings increase eligibility for future government bonus payments.

However, the timing of those payments matters. Humana must navigate elevated medical costs, seasonal fourth-quarter losses, and pricing adjustments before the larger anticipated benefits from improved ratings begin contributing in 2028. For investors evaluating HUM stock, the central issue is whether enrollment growth, medical cost controls, and higher-quality plans can translate into sustained margin improvement. The December investor update should provide additional context on that transition.

Conclusion

Humana's latest earnings report reflects progress in managing medical expenses while continuing to expand its Medicare Advantage business. Despite those improvements, insurance profitability remains under pressure, and the anticipated benefits from higher government quality payments are still several years away. The company's next phase will depend on its ability to convert membership growth and operational improvements into stronger earnings as it moves toward 2028.

FAQs

Why did Humana raise its 2026 earnings guidance?

Humana raised its adjusted earnings guidance to at least $9.50 per share because medical and pharmacy costs came in below expectations, supporting better-than-anticipated third-quarter financial performance.

How did Humana perform in the third quarter of 2026?

Humana reported revenue of $41.16 billion, up 26% year over year, and an adjusted loss of $0.70 per share, narrower than the $1.00 loss analysts expected.

What is Humana's medical benefit ratio?

The medical benefit ratio measures the percentage of insurance premium revenue spent on medical care. Humana reported a third-quarter ratio of 93.7%, below management's expectations but higher than the prior-year level.

Why are Medicare Advantage Star Ratings important for Humana?

Star Ratings determine eligibility for federal quality bonus payments. Humana's improved ratings mean approximately 95% of members are enrolled in plans rated four stars or higher for the 2027 rating year, strengthening its potential bonus payments in 2028.

What should investors watch next for Humana?

Investors will be watching medical cost trends, Medicare Advantage enrollment, insurance margins, and Humana's December 10 investor update, which will outline its earnings growth strategy through 2028.

This article was created with AI assistance and reviewed by an editor. For details, please refer to our Terms of Use.

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