Humana Inc.
02/19/2026 | Press release | Distributed by Public on 02/19/2026 13:27
Annual Report for Fiscal Year Ending December 31, 2025 (Form 10-K)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
For discussion of 2023 items and year-over-year comparisons between 2024 and 2023 that are not included in this 2025 Form 10-K, refer to "Item 7. - Management Discussion and Analysis of Financial Condition and Results of Operations" found in our Form 10-K for the year ended December 31, 2024, that was filed with the Securities and Exchange Commission on February 20, 2025.
Executive Overview
General
Humana Inc., headquartered in Louisville, Kentucky, is committed to putting health first - for our teammates, our customers, and our company. Through our Humana insurance services, and our CenterWell health care services, we make it easier for the millions of people we serve to achieve their best health - delivering the care and service they need, when they need it. These efforts are leading to a better quality of life for Medicare and Medicaid participants, families, individuals, military service personnel, and communities at large.
Our industry relies on two key statistics to measure performance. The benefit ratio, which is computed by taking total benefits expense as a percentage of premiums revenue, represents a statistic used to measure underwriting profitability. The operating cost ratio, which is computed by taking total operating costs, excluding depreciation and amortization, as a percentage of total revenue less investment income, represents a statistic used to measure administrative spending efficiency.
Employer Group Commercial Medical Products Business Exit
During 2025, we finalized our exit from the Employer Group Commercial Medical Products business, which included all fully insured, self-funded and Federal Employee Health Benefit medical plans, as well as associated wellness and rewards programs. No other Humana health plan offerings were materially affected. Following a strategic review, we determined the Employer Group Commercial Medical Products business was no longer positioned to sustainably meet the needs of commercial members over the long term or support our long-term strategic plans.
Value Creation Initiatives and Impairment Charges
In order to create capacity to fund growth in our businesses, we committed to drive additional value for the enterprise through cost saving and productivity initiatives. In addition, in response to sustained macroeconomic, regulatory and competitive pressures impacting the industry, we initiated a substantial multi-year transformation program designed to re-align our cost structure, operating model and technology footprint with evolving market conditions.
As a result of these initiatives, we recorded charges of $449 million, $281 million and $436 million in 2025, 2024 and 2023, respectively, primarily within operating costs in the consolidated statements of income. We expect to incur additional charges over the course of the program.
The value creation initiative charges primarily relate to $329 million, $25 million and $199 million in severance and other employee related charges in connection with workforce optimization in 2025, 2024 and 2023, respectively, as well as $40 million, $256 million and $237 million in asset impairments in 2025, 2024 and 2023, respectively. The remainder of the 2025 charges primarily relate to external consulting spend.
In addition, we recorded impairment charges of $253 million, $200 million and $91 million in 2025, 2024 and 2023, respectively. The impairment charges included impairment of indefinite-lived intangible assets for $128 million, $200 million and $55 million in 2025, 2024 and 2023, respectively, included within operating costs in our consolidated statements of income. The remaining impairment charges were included within investment income in our consolidated statements of income.
In addition to the value creation initiatives, we also recorded severance charges of $70 million in 2023 within operating costs in our consolidated statement of income as a result of our exit from the Employer Group Commercial Medical Products business.
Business Segments
Our two reportable segments, Insurance and CenterWell, are based on a combination of the type of health plan customer and adjacent businesses centered on well-being solutions for our health plans and other customers, as described below. Our Chief Executive Officer, the Chief Operating Decision Maker, utilizes these segment groupings and results of each segment, measured by income (loss) from operations, to assess performance and allocate resources primarily during our annual budget process and periodic forecast updates. For segment financial information, refer to Note 18 to the audited Consolidated Financial Statements included in Part II, Item 8, "Financial Statements and Supplementary Data" of this Form 10-K.
The Insurance segment consists of Medicare benefits, marketed to individuals or directly via group Medicare accounts, as well as our contract with CMS to administer the Limited Income Newly Eligible Transition, or LI-NET, prescription drug plan program and contracts with various states to provide Medicaid, dual eligible demonstration, and Long-Term Support Services benefits, which we refer to collectively as our state-based contracts. This segment also includes products consisting of specialty health insurance benefits marketed to individuals and employer groups, including dental, vision, and other supplemental health benefits. In addition, our Insurance segment includes our Military services business, primarily our T-5 East Region contract, as well as the operations of our PBM business.
The CenterWell segment includes our pharmacy solutions, primary care, and home solutions operations. Services offered by this segment are designed to enhance the overall healthcare experience. These services may lead to lower utilization associated with improved member health and/or lower drug costs.
Transactions between reportable segments primarily consist of sales of products and services rendered by our CenterWell segment, primarily pharmacy solutions, primary care, and home solutions, to our Insurance segment customers. Intersegment sales and expenses are recorded primarily at fair value and eliminated in consolidation. Members served by our segments often use the same provider networks, enabling us in some instances to obtain more favorable contract terms with providers. Our segments also share indirect costs and assets. As a result, the profitability of each segment is interdependent. We allocate most operating expenses to our segments. Assets and certain corporate income and expenses are not allocated to the segments, including the portion of investment income not supporting segment operations, interest expense on corporate debt, and certain other corporate expenses. These items are managed at a corporate level. These corporate amounts are reported separately from our reportable segments and are included with intersegment eliminations.
Seasonality
Our Medicare benefit costs rise as members pay their contractual portion of claims responsibility, progress through their annual deductible and maximum out-of-pocket expenses, as well as incurring higher episodic cost of care resulting in a higher benefit ratio throughout the year.
Our quarterly Insurance segment earnings and operating cash flows are impacted by the Medicare Part D benefit design and changes in the composition of our stand-alone prescription drug plan, or PDP, membership. The Medicare Part D benefit design results in coverage that varies as a member's cumulative out-of-pocket costs pass through successive stages of a member's plan period, which begins annually on January 1 for renewals. Effective January 1, 2025, the Medicare Part D coverage gap was eliminated as mandated by the Inflation Reduction Act of 2022, or IRA. The benefit design changes reduced out-of-pocket costs for beneficiaries, resulting in greater cost sharing and a leveling of net prescription costs throughout the year as compared to the historical seasonal decline prior to the IRA. In addition, the number of low income senior members as well as year-over-year changes in the mix of membership in our stand-alone PDP products affects the quarterly benefit ratio pattern.
The Insurance segment also experiences seasonality in the operating cost ratio as a result of costs incurred in the second half of the year associated with the Medicare marketing season.
Highlights
•Our strategy is to offer our members affordable health care combined with a positive consumer experience in growing markets. At the core of this strategy is our integrated care delivery model, which unites quality care, high member engagement, and sophisticated data analytics. Our approach to primary, physician-directed care for our members aims to provide quality care that is consistent, integrated, cost-effective, and member-focused, provided by both employed physicians and physicians with network contract arrangements. The model is designed to improve health outcomes and affordability for individuals and for the health system as a whole, while offering our members a simple, seamless healthcare experience. We believe this strategy is positioning us for long-term growth in both membership and earnings. We offer providers a continuum of opportunities to increase the integration of care and offer assistance to providers in transitioning from a fee-for-service to a value-based arrangement. These include performance bonuses, shared savings and shared risk relationships. At December 31, 2025, approximately 3,586,100 members, or 68%, of our individual Medicare Advantage members were in value-based relationships under our integrated care delivery model, as compared to 3,994,300 members, or 71%, at December 31, 2024.
•Net income attributable to Humana was $1.2 billion, or $9.84 per diluted common share, and $1.2 billion, or $9.98 per diluted common share, in 2025 and 2024, respectively. This comparison was significantly impacted by put/call valuation adjustments associated with non-consolidating minority interest investments, charges associated with value creation initiatives, impairment charges, loss on sale of business and settlement of certain litigation expenses. The impact of these adjustments to our consolidated income before income taxes and equity in net earnings and diluted earnings per common share was as follows for the 2025 and 2024 periods:
| 2025 | 2024 | ||||||||||
| (in millions) | |||||||||||
| Consolidated income before income taxes and equity in net losses: | |||||||||||
| Put/call valuation adjustments associated with our non-consolidating minority interest investments | $ | 513 | $ | 296 | |||||||
| Value creation initiatives | 449 | 281 | |||||||||
| Impairment charges | 253 | 200 | |||||||||
| Loss on sale of business | 67 | - | |||||||||
| Settlement of certain litigation expenses | 15 | - | |||||||||
| Total | $ | 1,297 | $ | 777 | |||||||
| 2025 | 2024 | ||||||||||
| Diluted earnings per common share: | |||||||||||
| Put/call valuation adjustments associated with our non-consolidating minority interest investments | $ | 4.25 | $ | 2.45 | |||||||
| Value creation initiatives | 3.72 | 2.33 | |||||||||
| Impairment charges | 2.09 | 1.65 | |||||||||
| Loss on sale of business | 0.55 | - | |||||||||
| Settlement of certain litigation expenses | 0.13 | - | |||||||||
| Cumulative net tax impact | (3.36) | (1.50) | |||||||||
| Total | $ | 7.38 | $ | 4.93 | |||||||
Regulatory Environment
We are and will continue to be regularly subject to new laws and regulations, changes to existing laws and regulations, and judicial determinations that impact the interpretation and applicability of those laws and regulations. The Health Care Reform Law, the Families First Act, the CARES Act, and the Inflation Reduction Act, and related regulations, are examples of laws which have enacted significant reforms to various aspects of the U.S. health insurance industry, including, among others, mandated coverage requirements, mandated benefits and guarantee issuance associated with insurance products, rebates to policyholders based on minimum benefit ratios, adjustments to Medicare Advantage premiums, the establishment of federally facilitated or state-based exchanges coupled with programs designed to spread risk among insurers, and the introduction of plan designs based on set actuarial values, and changes to the Part D prescription drug benefit design.
It is reasonably possible that these laws and regulations, as well as other current or future legislative, judicial or regulatory changes including restrictions on our ability to manage our provider network, manage and sell our products, or otherwise operate our business, or restrictions on profitability, including reviews by regulatory bodies that may compare our Medicare Advantage profitability to our non-Medicare Advantage business profitability, or compare the profitability of various products within our Medicare Advantage business, and require that they remain within certain ranges of each other, increases in member benefits or changes to member eligibility criteria without corresponding increases in premium payments to us, further restrictions on service arrangements and fee payments between intercompany or vertically-integrated assets, increases in regulation of our prescription drug benefit businesses, reductions in reimbursement rates, or changes to the Part D prescription drug benefit design (and uncertainty arising from the implementation of these changes) in the aggregate may have a material adverse effect on our results of operations (including restricting revenue, enrollment and premium growth in certain products and market segments, restricting our ability to expand into new markets, increasing our medical and operating costs, further lowering our Medicare payment rates and increasing our expenses associated with assessments); our financial position (including our ability to maintain the value of our goodwill); and our cash flows.
We intend for the discussion of our financial condition and results of operations that follows to assist in the understanding of our financial statements and related changes in certain key items in those financial statements from year to year, including the primary factors that accounted for those changes. Transactions between reportable segments primarily consist of sales of products and services rendered by our CenterWell segment, primarily pharmacy solutions, primary care, and home solutions, to our Insurance segment customers and are described in Note 18 to the audited Consolidated Financial Statements included in Part II, Item 8, "Financial Statements and Supplementary Data" of this Form 10-K.
Comparison of Results of Operations for 2025 and 2024
The following discussion primarily details our results of operations for the year ended December 31, 2025, or the 2025 period, and the year ended December 31, 2024, or the 2024 period.
Consolidated
| Change | |||||||||||||||||||||||
| 2025 | 2024 | Dollars | Percentage | ||||||||||||||||||||
|
(dollars in millions, except per common share results) |
|||||||||||||||||||||||
| Revenues: | |||||||||||||||||||||||
| Insurance premiums | $ | 122,825 | $ | 112,104 | $ | 10,721 | 9.6 | % | |||||||||||||||
| Services: | |||||||||||||||||||||||
| Insurance | 1,017 | 966 | 51 | 5.3 | % | ||||||||||||||||||
| CenterWell | 4,816 | 3,465 | 1,351 | 39.0 | % | ||||||||||||||||||
| Total services revenue | 5,833 | 4,431 | 1,402 | 31.6 | % | ||||||||||||||||||
| Investment income | 1,006 | 1,226 | (220) | (17.9) | % | ||||||||||||||||||
| Total revenues | 129,664 | 117,761 | 11,903 | 10.1 | % | ||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||
| Benefits | 110,812 | 100,664 | 10,148 | 10.1 | % | ||||||||||||||||||
| Operating costs | 15,450 | 13,696 | 1,754 | 12.8 | % | ||||||||||||||||||
| Depreciation and amortization | 698 | 839 | (141) | (16.8) | % | ||||||||||||||||||
| Total operating expenses | 126,960 | 115,199 | 11,761 | 10.2 | % | ||||||||||||||||||
| Income from operations | 2,704 | 2,562 | 142 | 5.5 | % | ||||||||||||||||||
| Loss on sale of business | 67 | - | 67 | 100.0 | % | ||||||||||||||||||
| Interest expense | 631 | 660 | (29) | (4.4) | % | ||||||||||||||||||
| Other expense, net | 451 | 181 | 270 | 149.2 | % | ||||||||||||||||||
| Income before income taxes and equity in net losses | 1,555 | 1,721 | (166) | (9.6) | % | ||||||||||||||||||
| Provision for income taxes | 250 | 413 | (163) | (39.5) | % | ||||||||||||||||||
| Equity in net losses | (102) | (94) | 8 | 8.5 | % | ||||||||||||||||||
| Net income | $ | 1,203 | $ | 1,214 | $ | (11) | (0.9) | % | |||||||||||||||
| Diluted earnings per common share | $ | 9.84 | $ | 9.98 | $ | (0.14) | (1.4) | % | |||||||||||||||
| Benefit ratio (a) | 90.2 | % | 89.8 | % | 0.4 | % | |||||||||||||||||
| Operating cost ratio (b) | 12.0 | % | 11.8 | % | 0.2 | % | |||||||||||||||||
| Effective tax rate | 17.4 | % | 25.5 | % | (8.1) | % | |||||||||||||||||
(a)Represents total benefits expense as a percentage of premiums revenue.
(b)Represents total operating costs, excluding depreciation and amortization, as a percentage of total revenues less investment income.
Premiums Revenue
Consolidated premiums revenue increased $10.7 billion, or 9.6%, from $112.1 billion in the 2024 period to $122.8 billion in the 2025 period primarily due to higher per member Medicare premiums, largely driven by an increased direct subsidy due to the IRA, and higher per member state-based contracts premiums, as well as membership growth in the state-based contracts and stand-alone PDP businesses. These factors were partially offset by the membership decline within the individual Medicare Advantage business, inclusive of the decision to exit certain unprofitable plans and counties in 2025.
Services Revenue
Consolidated services revenue increased $1.4 billion, or 31.6%, from $4.4 billion in the 2024 period to $5.8 billion in the 2025 period primarily due to higher revenues associated with external growth in the primary care and pharmacy solutions businesses, partially offset by the impact of the v28 risk model revision impacting the primary care business.
Investment Income
Investment income decreased $0.2 billion, or 17.9%, from $1.2 billion in the 2024 period to $1.0 billion in the 2025 period primarily due to lower interest income on our debt securities, as well as non-cash impairment charge in the fourth quarter of 2025 related to our minority ownership interest in a joint-venture investment, deemed unrecoverable based on recent market activity.
Benefits Expense
Consolidated benefits expense increased $10.1 billion, or 10.1%, from $100.7 billion in the 2024 period to $110.8 billion in the 2025 period. The consolidated benefit ratio increased 40 basis points from 89.8% in the 2024 period to 90.2% in the 2025 period primarily due to a shift in line of business mix resulting from growth in the state-based contracts and stand-alone PDP businesses that carry a higher benefit ratio, combined with a reduction in individual Medicare Advantage membership, incremental investments to improve member and patient outcomes and support operational excellence, and the year-over-year increase in the Medicare stand-alone PDP benefit ratio driven by the impact of the IRA. These factors were partially offset by individual Medicare Advantage pricing inclusive of plan exits and benefit design changes that more than offset claims trend and the funding environment, as well as the anticipated higher favorable prior-period medical claims development in the 2025 period.
Consolidated benefits expense included $1.0 billion of favorable prior-period medical claims reserve development in the 2025 period and $701 million of favorable prior-period medical claims reserve development in the 2024 period. Prior-period medical claims reserve development decreased the consolidated benefit ratio by approximately 80 basis points in the 2025 period and decreased the consolidated benefit ratio by approximately 60 basis points in the 2024 period. Prior-period medical claims reserve development excludes the effects of provider risk-sharing arrangements, which are accounted for separately based on contractual settlement terms.
Operating Costs
Our segments incur both direct and shared indirect operating costs. We allocate the indirect costs shared by the segments primarily as a function of revenues. As a result, the profitability of each segment is interdependent.
Consolidated operating costs increased $1.8 billion, or 12.8%, from $13.7 billion in the 2024 period to $15.5 billion in the 2025 period. The consolidated operating cost ratio increased 20 basis points from 11.8% in the 2024 period to 12.0% in the 2025 period primarily due to business mix changes, including within the CenterWell segment that runs a significantly higher operating cost ratio than the Insurance segment, the operating leverage impact associated with the loss of individual Medicare Advantage membership, as well as higher charges associated with the value creation plan. These factors were partially offset by administrative cost efficiencies resulting from the value creation initiatives, operating leverage associated with increased revenues from the impact of the IRA, and a lesser operating cost impact from impairment costs in the 2025 period compared to the 2024 period.
Depreciation and Amortization
Depreciation and amortization decreased $141 million, or 16.8%, from $839 million in the 2024 period to $698 million in the 2025 period primarily due to decreased capital spending.
Interest Expense
Interest expense decreased $29 million, or 4.4%, from $660 million in the 2024 period to $631 million in the 2025 period primarily due to decrease in interest rates and average debt balances.
Income Taxes
Our effective tax rate was 17.4% and 25.5% for the 2025 period and 2024 period, respectively. The 2025 period effective income tax rate reflects the impact of a tax loss on sale of business, which exceeded the book loss. The related tax benefit is realizable via capital loss carryback. For a complete reconciliation of the federal statutory rate to the effective tax rate, refer to Note 12 to the audited Consolidated Financial Statements included in Part II, Item 8, "Financial Statements and Supplementary Data" of this Form 10-K.
Insurance Segment
Members may not be unique to each product since members have the ability to enroll in more than one product.
| Change | |||||||||||||||||||||||
| 2025 | 2024 | Members | % | ||||||||||||||||||||
| Membership: | |||||||||||||||||||||||
| Individual Medicare Advantage | 5,249,300 | 5,661,800 | (412,500) | (7.3) | % | ||||||||||||||||||
| Group Medicare Advantage | 568,400 | 545,700 | 22,700 | 4.2 | % | ||||||||||||||||||
| Medicare stand-alone PDP | 2,462,600 | 2,288,200 | 174,400 | 7.6 | % | ||||||||||||||||||
| Total Medicare | 8,280,300 | 8,495,700 | (215,400) | (2.5) | % | ||||||||||||||||||
| Medicare Supplement | 498,400 | 377,300 | 121,100 | 32.1 | % | ||||||||||||||||||
| State-based contracts and other | 1,615,600 | 1,459,900 | 155,700 | 10.7 | % | ||||||||||||||||||
| Military services | 4,605,400 | 6,009,100 | (1,403,700) | (23.4) | % | ||||||||||||||||||
| Commercial fully-insured | - | 300 | (300) | (100.0) | % | ||||||||||||||||||
| Commercial ASO | - | 4,800 | (4,800) | (100.0) | % | ||||||||||||||||||
| Total Medical Membership | 14,999,700 | 16,347,100 | (1,347,400) | (8.2) | % | ||||||||||||||||||
| Total Specialty Membership | 4,742,600 | 4,562,000 | 180,600 | 4.0 | % | ||||||||||||||||||
| Change | |||||||||||||||||||||||
| 2025 | 2024 | $ | % | ||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
| Premiums and Services Revenue: | |||||||||||||||||||||||
| Premiums: | |||||||||||||||||||||||
| Individual Medicare Advantage | $ | 90,403 | $ | 88,019 | $ | 2,384 | 2.7% | ||||||||||||||||
| Group Medicare Advantage | 9,014 | 7,731 | 1,283 | 16.6% | |||||||||||||||||||
| Medicare stand-alone PDP | 6,844 | 3,137 | 3,707 | 118.2% | |||||||||||||||||||
| Total Medicare | 106,261 | 98,887 | 7,374 | 7.5% | |||||||||||||||||||
| Specialty benefits | 989 | 955 | 34 | 3.6% | |||||||||||||||||||
| Medicare Supplement | 1,098 | 846 | 252 | 29.8% | |||||||||||||||||||
| State-based contracts and other | 14,477 | 10,915 | 3,562 | 32.6% | |||||||||||||||||||
| Commercial fully-insured | - | 501 | (501) | (100.0)% | |||||||||||||||||||
| Premiums revenue | 122,825 | 112,104 | 10,721 | 9.6% | |||||||||||||||||||
| Services: | |||||||||||||||||||||||
| Military services and other | 1,017 | 916 | 101 | 11.0% | |||||||||||||||||||
| Commercial ASO | - | 50 | (50) | (100.0)% | |||||||||||||||||||
| Services revenue | 1,017 | 966 | 51 | 5.3% | |||||||||||||||||||
| Total external revenues | $ | 123,842 | $ | 113,070 | $ | 10,772 | 9.5% | ||||||||||||||||
| Income from operations | $ | 1,664 | $ | 1,289 | $ | 375 | 29.1% | ||||||||||||||||
| Benefit ratio | 90.4 | % | 90.4 | % | - | % | |||||||||||||||||
| Operating cost ratio | 9.1 | % | 9.2 | % | (0.1) | % | |||||||||||||||||
Income from operations
Insurance segment income from operations increased $0.4 billion, or 29.1%, from $1.3 billion in the 2024 period to $1.7 billion in the 2025 period primarily due to the same factors impacting the Insurance segment's benefit and operating cost ratios as more fully described below.
Enrollment
Individual Medicare Advantage membership decreased 412,500members, or 7.3%, from 5,661,800 members as of December 31, 2024 to 5,249,300 members as of December 31, 2025 inclusive of the decision to exit certain unprofitable plans and counties in 2025. Individual Medicare Advantage membership includes 760,500 D-SNP members as of December 31, 2025, a net decrease of 176,600 D-SNP members, or 18.8%, from 937,100 members as of December 31, 2024. For the full year 2026, we anticipate net membership growth in our individual Medicare Advantage offerings of approximately 25%.
Group Medicare Advantage membership increased 22,700 members, or 4.2%, from 545,700 members as of December 31, 2024 to 568,400 members as of December 31, 2025 consistent with expectations as we maintain pricing discipline in a competitive market. For the full year 2026, we anticipate net membership growth in our group Medicare Advantage offerings of approximately 150,000 members.
Medicare stand-alone PDP membership increased 174,400 members, or 7.6%, from 2,288,200 members as of December 31, 2024 to 2,462,600 members as of December 31, 2025 reflecting shifting competitive dynamics. For the full year 2026, we anticipate net membership growth in our Medicare stand-alone PDP offerings of approximately 1,000,000 members.
State-based contracts and other membership increased 155,700 members, or 10.7%, from 1,459,900 members as of December 31, 2024to 1,615,600 members as of December 31, 2025 primarily due to the Virginia contract implemented in 2025 and the allocation of additional membership in Kentucky. For the full year 2026, we anticipate net membership growth in our state-based contracts of in a range of 25,000 to 100,000 members.
Specialty membership increased 180,600 members, or 4.0%, from 4,562,000 members as of December 31, 2024 to 4,742,600 members as of December 31, 2025 primarily reflecting growth in group dental and vision products.
Premiums revenue
Insurance segment premiums revenue increased $10.7 billion, or 9.6%, from $112.1 billion in the 2024 period to $122.8 billion in the 2025 period primarily due to higher per member Medicare premiums, largely driven by an increased direct subsidy due to the IRA, and higher per member state-based contracts premiums, as well as membership growth in the state-based contracts and stand-alone PDP businesses. These factors were partially offset by the membership decline within the individual Medicare Advantage business, inclusive of the decision to exit certain unprofitable plans and counties in 2025.
Services revenue
Insurance segment services revenue increased $0.1 billion, or 5.3%, from $966 million in the 2024 period to $1 billion in the 2025 period.
Benefits expense
The Insurance segment benefit ratio was unchanged at 90.4% in the 2024 and 2025 periods primarily due to a shift in line of business mix resulting from growth in the state-based contracts and stand-alone PDP businesses that carry a higher benefit ratio, combined with a reduction in individual Medicare Advantage membership, incremental investments to improve member and patient outcomes and support operational excellence, and the year-over-year increase in the Medicare stand-alone PDP benefit ratio driven by the impact of the IRA. These factors were offset by individual Medicare Advantage pricing inclusive of plan exits and benefit design changes that more than offset claims trend and the funding environment, as well as the anticipated higher favorable prior-period medical claims development in the 2025 period.
The Insurance segment benefits expense included $1.0 billion of favorable prior-period medical claims reserve development in the 2025 period and $701 million of favorable prior-period medical claims reserve development in the 2024 period. Prior-period medical claims reserve development decreased the Insurance segment benefit ratio by approximately 80 basis points in the 2025 period and decreased the Insurance segment benefit ratio by
approximately 60 basis points in the 2024 period. Prior-period medical claims reserve development excludes the effects of provider risk-sharing arrangements, which are accounted for separately based on contractual settlement terms.
Operating costs
The Insurance segment operating cost ratio decreased 10 basis points from 9.2% in the 2024 period to 9.1% in the 2025 period primarily due to administrative cost efficiencies resulting from the value creation initiatives and operating leverage associated with increased revenues from the impact of the IRA. These factors were partially offset by the operating leverage impact associated with the loss of individual Medicare Advantage membership.
CenterWell Segment
| Change | |||||||||||||||||||||||
| 2025 | 2024 | Dollars | Percentage | ||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||
| Revenues: | |||||||||||||||||||||||
| Services: | |||||||||||||||||||||||
| Home solutions | $ | 1,401 | $ | 1,313 | $ | 88 | 6.7 | % | |||||||||||||||
| Pharmacy solutions | 1,218 | 904 | 314 | 34.7 | % | ||||||||||||||||||
| Primary care | 2,197 | 1,248 | 949 | 76.0 | % | ||||||||||||||||||
| Total external revenues | 4,816 | 3,465 | 1,351 | 39.0 | % | ||||||||||||||||||
| Intersegment revenues: | |||||||||||||||||||||||
| Home solutions | 2,127 | 2,050 | 77 | 3.8 | % | ||||||||||||||||||
| Pharmacy solutions | 11,741 | 10,724 | 1,017 | 9.5 | % | ||||||||||||||||||
| Primary care | 3,789 | 3,697 | 92 | 2.5 | % | ||||||||||||||||||
| Intersegment revenues | 17,657 | 16,471 | 1,186 | 7.2 | % | ||||||||||||||||||
| Total revenues | $ | 22,473 | 19,936 | 2,537 | 12.7 | % | |||||||||||||||||
| Income from operations | $ | 1,339 | $ | 1,329 | $ | 10 | 0.8 | % | |||||||||||||||
| Operating cost ratio | 93.1 | % | 92.2 | % | 0.9 | % | |||||||||||||||||
Income from operations
CenterWell income from operations was relatively unchanged at $1.3 billion in the 2024 and 2025 periods, reflecting the same factors impacting the CenterWell segment's revenue and operating cost ratio as more fully described below.
Services revenue
CenterWell services revenue increased $1.4 billion, or 39.0%, from $3.5 billion in the 2024 period to $4.8 billion in the 2025 period primarily due to higher revenues associated with growth in the primary care and pharmacy solutions businesses, partially offset by the impact of the v28 risk model revision impacting the primary care business.
Intersegment revenues
CenterWell intersegment revenues increased $1.2 billion, or 7.2%, from $16.5 billion in the 2024 period to $17.7 billion in the 2025 period primarily due to higher revenues associated with growth in the pharmacy solutions business.
Operating costs
The CenterWell segment operating cost ratio increased 90 basis points from 92.2% in the 2024 period to 93.1% in the 2025 period primarily resulting from the continued phase-in of the v28 risk model revision within the primary care business, as well as the uptick of volume within CenterWell Specialty Pharmacy that carries a higher operating cost ratio than the traditional pharmacy business. These factors were partially offset by continued maturation of the v28 mitigation activities within the primary are business and administrative cost efficiencies resulting from the value creation initiatives.
Liquidity
Historically, our primary sources of cash have included receipts of premiums, services revenue, and investment and other income, as well as proceeds from the sale or maturity of our investment securities, and borrowings. Our primary uses of cash historically have included disbursements for claims payments, operating costs, interest on
borrowings, taxes, purchases of investment securities, acquisitions, capital expenditures, repayments on borrowings, dividends, and share repurchases. As premiums generally are collected in advance of claim payments by a period of up to several months, our business normally should produce positive cash flows during periods of increasing premiums and enrollment. Conversely, cash flows would be negatively impacted during periods of decreasing premiums and enrollment. From period to period, our cash flows may also be affected by the timing of working capital items including premiums receivable, benefits payable, and other receivables and payables. Our cash flows are impacted by the timing of payments to and receipts from CMS associated with Medicare Part D subsidies for which we do not assume risk. The use of cash flows may be limited by regulatory requirements of state departments of insurance (or comparable state regulators) which require, among other items, that our regulated subsidiaries maintain minimum levels of capital and seek approval before paying dividends from the subsidiaries to the parent. Our use of cash flows derived from our non-insurance subsidiaries, such as in our CenterWell segment, is generally not restricted by state departments of insurance (or comparable state regulators).
For additional information on our liquidity risk, please refer to Part I, Item 1A, "Risk Factors" of this Form 10-K.
Cash and cash equivalents increased to $4.2 billion at December 31, 2025 from $2.2 billion at December 31, 2024. The change in cash and cash equivalents for the years ended December 31, 2025, 2024 and 2023 is summarized as follows:
| 2025 | 2024 | 2023 | |||||||||||||||
| (in millions) | |||||||||||||||||
| Net cash provided by operating activities | $ | 921 | $ | 2,966 | $ | 3,981 | |||||||||||
| Net cash provided by (used in) investing activities | 2,273 | (2,952) | (3,492) | ||||||||||||||
| Net cash used in financing activities | (1,215) | (2,487) | (856) | ||||||||||||||
| Increase (decrease) in cash and cash equivalents | $ | 1,979 | $ | (2,473) | $ | (367) | |||||||||||
Cash Flow from Operating Activities
Cash flows provided by operations of $0.9 billion in the 2025 period decreased $2.0 billion from cash flows provided by operations of $3.0 billion in the 2024. The decrease in our operating cash flows primarily reflected timing impacts, including the year-over-year increase in receivables due to the IRA and the unfavorable impact of working capital items.
The most significant drivers of changes in our working capital are typically the timing of payments of benefits expense and receipts for premiums. Benefits expense includes claim payments, capitation payments, pharmacy costs net of rebates, allocations of certain centralized expenses and various other costs incurred to provide health insurance coverage to members, as well as estimates of future payments to hospitals and others for medical care and other supplemental benefits provided on or prior to the balance sheet date. For additional information regarding our benefits payable and benefits expense recognition, refer to Note 2 to the audited Consolidated Financial Statements included in Part II, Item 8, "Financial Statements and Supplementary Data" of this Form 10-K.
The detail of total net receivables (exclusive of Part D IRA impacts) was as follows at December 31, 2025, 2024 and 2023:
| Change | ||||||||||||||||||||||||||
| 2025 | 2024 | 2023 | 2025 | 2024 | ||||||||||||||||||||||
| (in millions) | ||||||||||||||||||||||||||
| Medicare | $ | 2,209 | $ | 1,745 | $ | 1,426 | $ | 464 | $ | 319 | ||||||||||||||||
| State-based contracts | 705 | 614 | 215 | 91 | 399 | |||||||||||||||||||||
| Military services | 163 | 180 | 148 | (17) | 32 | |||||||||||||||||||||
| Other | 299 | 263 | 334 | 36 | (71) | |||||||||||||||||||||
| Allowance for doubtful accounts | (106) | (98) | (88) | (8) | (10) | |||||||||||||||||||||
| Total net receivables | $ | 3,270 | $ | 2,704 | $ | 2,035 | 566 | 669 | ||||||||||||||||||
| Reconciliation to cash flow statement: | ||||||||||||||||||||||||||
| Receivables disposed | 4 | - | ||||||||||||||||||||||||
| Change in receivables per cash flow statement | $ | 570 | $ | 669 | ||||||||||||||||||||||
The changes in Medicare receivables for the 2025 period reflects higher per member Medicare premiums, partially offset by lower individual Medicare Advantage membership. The change in Medicare receivables for the 2024 period reflects individual Medicare Advantage membership growth. In addition, both periods further reflect the typical pattern caused by the timing of accruals and related collections associated with the CMS risk-adjustment model. Significant collections occur with the mid-year and final settlements with CMS in the second and third quarter.
Cash Flow from Investing Activities
During the 2025, 2024 and 2023 periods, we acquired various businesses for approximately $81 million, $89 million and $233 million, respectively, net of cash and cash equivalents received. Net proceeds from the sale of business were $115 million in the 2025 period.
Our ongoing capital expenditures primarily relate to our information technology initiatives, support of services in our primary care operations including medical and administrative facility improvements necessary for activities such as the provision of care to members, claims processing, billing and collections, wellness solutions, care coordination, regulatory compliance and customer service. Total net capital expenditures, excluding acquisitions, were $523 million, $568 million and $794 million in the 2025, 2024 and 2023 periods, respectively.
Net proceeds of investment securities were $2.8 billion in the 2025 period. Net purchases of investment securities were $2.2 billion and $2.5 billion in the 2024 and 2023 periods, respectively.
Cash Flow from Financing Activities
Our financing cash flows are significantly impacted by the timing of claims payments and the related receipts from CMS associated with Medicare Part D claim subsidies for which we do not assume risk. Monthly prospective payments from CMS for reinsurance and low-income cost subsidies are based on assumptions submitted with our annual bid. Settlement of the reinsurance and low-income cost subsidies is based on a reconciliation made approximately 9 months after the close of each calendar year. Claim payments were higher than receipts from CMS associated with Medicare Part D claim subsidies for which we do not assume risk by $1 billion and $1.8 billion in the 2025 and 2024 periods, respectively, and receipts from CMS associated with Medicare Part D claim subsidies for which we do not assume risk were higher than claim payments by $0.8 billion in the 2023 period. Our net receivable from CMS for subsidies and brand name prescription drug discounts was $1.5 billion at December 31, 2025 compared to a net receivable of $530 million at December 31, 2024.
Under our administrative services only TRICARE contract, health care costs payments for which we do not assume risk exceeded reimbursements from the federal government by $74 million and $92 million in the 2025 and 2024 periods, respectively, and reimbursements from the federal government exceeded health care costs payments for which we do not assume risk by $57 million in the 2023 period.
In March 2025, we issued $750 million of 5.550% unsecured senior notes due May 1, 2035, $500 million of 6.000% unsecured senior notes due May 1, 2055, and an additional $250 million of our existing 5.375% unsecured senior notes due April 15, 2031. Our net proceeds, reduced for the underwriters' discounts and commissions paid, were $1.481 billion. We used the net proceeds of these offerings to repay the remaining $577 million aggregate principal amount of our 4.500% unsecured senior notes on their maturity date of April 1, 2025. The remaining net proceeds will be used for general corporate purposes, which may include the repayment of our existing indebtedness, including borrowings under our commercial paper program.
In November 2024, we repaid our $500 million 5.700% unsecured senior notes due March 13, 2026.
In March 2024, we issued $1.5 billion of 5.375% unsecured senior notes due April 15, 2031 and $1.0 billion of 5.750% unsecured senior notes due April 15, 2054. Our net proceeds, reduced for the underwriters' discounts and commissions paid, were $2.2 billion. We used the net proceeds for general corporate purposes, which included the repayment of existing indebtedness, including borrowings under our commercial paper program.
In November 2023, we issued $500 million of 5.750% unsecured senior notes due December 1, 2028 and $850 million of 5.950% unsecured senior notes due March 15, 2034. Our net proceeds, reduced for the underwriters' discounts and commissions paid, were $1.3 billion.
In March 2023, we issued $500 million of 5.700% unsecured senior notes due March 13, 2026 and $750 million of 5.500% unsecured senior notes due March 15, 2053. Our net proceeds, reduced for the underwriters' discounts and commissions paid, were $1.2 billion. We used the net proceeds to repay outstanding amounts under our $500 million Delayed Draw Term Loan. The remaining net proceeds were used for general corporate purposes, which included the repayment of existing indebtedness, including borrowings under our commercial paper program.
In May 2025, we entered into a Rule 10b5-1 Repurchase Plan to repurchase a portion of our $750 million aggregate principal amount of 1.350% senior notes maturing in February 2027 and a portion of our $600 million aggregate principal amount of 3.950% senior notes maturing in March 2027 during the period beginning on May 1, 2025 and ending on August 29, 2025. For the year ended December 31, 2025, we repurchased $200 million principal amount of these senior notes for approximately $194 million cash.
In October 2025, we entered into a Rule 10b5-1 Repurchase Plan to repurchase a portion of our $750 million aggregate principal amount of 2.150% senior notes maturing in February 2032, a portion of our $500 million aggregate principal amount of 3.125% senior notes maturing in August 2029 and a portion of our $750 million aggregate principal amount of 3.700% senior notes maturing in March 2029 during the period beginning on October 3, 2025 and ending on December 31, 2025. For the period ended December 31, 2025, we repurchased $200 million principal amount of these senior notes for approximately $177 million cash.
In August 2023, we entered into a Rule 10b5-1 Repurchase Plan to repurchase a portion of our $750 million aggregate principal amount of 1.350% senior notes maturing in February 2027, our $600 million aggregate principal amount of 3.950% senior notes maturing in March 2027, our $750 million aggregate principal amount of 3.700% senior notes maturing in March 2029, and our $500 million aggregate principal amount of 3.125% senior notes maturing in August 2029 during the period beginning on August 7, 2023 and ending on November 15, 2023. For the year ended December 31, 2023, we repurchased $339 million principal amount of these senior notes for approximately $310 million cash.
In March 2023, we entered into a Rule 10b5-1 Repurchase Plan to repurchase a portion of our $1.5 billion aggregate principal amount of 0.650% senior notes maturing in August 2023 and our $600 million aggregate principal amount of 3.850% senior notes maturing in October 2024 during the period beginning on March 13, 2023 and ending on July 21, 2023. For the year ended December 31, 2023, we repurchased $361 million principal amount of these senior notes for approximately $358 million cash. We repaid the remaining $1.2 billion aggregate principal amount of our 0.650% senior notes due on their maturity date of August 3, 2023. We repaid the remaining $559 million aggregate principal amount of our 3.850% senior notes on their maturity date of October 1, 2024.
We participate in a securities lending program where we loan certain investment securities for short periods of time in exchange for collateral. Net proceeds from the securities lending program were $220 million and $418 million in 2025 and 2024, respectively. We have previously entered into an uncommitted receivables purchase facility under which certain pharmaceutical rebate receivables may be sold on a non-recourse basis to a financial institution. Net repayments from the uncommitted receivables purchase facility were $123 million in 2025. Net proceeds provided by the uncommitted receivables purchase facility were $123 million in 2024.
We participate in a commercial paper program. Net repayments from issuance of commercial paper were $5 million in 2025 and the maximum principal amount outstanding at any one time during 2025 was $1.2 billion. Net repayments from the issuance of commercial paper were $907 million in 2024 and the maximum principal amount outstanding at any one time during 2024 was $2.7 billion. Net proceeds from issuance of commercial paper were $211 million in 2023 and the maximum principal amount outstanding at any one time during 2023 was $3.3 billion.
We received a short-term cash advance of $100 million from FHLB with certain of our marketable securities as collateral and subsequently repaid the outstanding balance in December 2023.
We repurchased common shares for $151 million, $817 million and $1.6 billion in 2025, 2024 and 2023, respectively, under share repurchase plans authorized by the Board of Directors and in connection with employee stock plans.
We paid dividends to stockholders of $430 million in 2025, $431 million in 2024, and $431 million in 2023.
Future Sources and Uses of Liquidity
Dividends
For a detailed discussion of dividends to stockholders, please refer to Note 16 to the audited Consolidated Financial Statements included in Part II, Item 8, "Financial Statements and Supplementary Data" of this Form 10-K.
Stock Repurchases
For a detailed discussion of stock repurchases, please refer to Note 16 to the audited Consolidated Financial Statements included in Part II, Item 8, "Financial Statements and Supplementary Data" of this Form 10-K.
Debt
For a detailed discussion of our debt, including our senior notes, term loans, revolving credit agreements, commercial paper program and other short-term borrowings, please refer to Note 13 to the audited Consolidated Financial Statements included in Part II, Item 8, "Financial Statements and Supplementary Data" of this Form 10-K.
Acquisitions & Divestitures
For a detailed discussion regarding acquisitions and divestitures, refer to Note 3 to the audited Consolidated Financial Statements included in Part II, Item 8, "Financial Statements and Supplementary Data" of this Form 10-K.
Liquidity Requirements
We believe our cash balances, investment securities, operating cash flows, and funds available under our credit agreement and our commercial paper program or from other public or private financing sources, taken together, provide adequate resources to fund ongoing operating and regulatory requirements, acquisitions, future expansion opportunities, and capital expenditures for at least the next twelve months, as well as to refinance or repay debt, and repurchase shares.
Adverse changes in our credit rating may increase the rate of interest we pay and may impact the amount of credit available to us in the future. Our investment-grade credit rating at December 31, 2025 was BBB according to Standard & Poor's Rating Services, or S&P, and Baa2 according to Moody's Investors Services, Inc., or Moody's. A downgrade by S&P to BB+ or by Moody's to Ba1 triggers an interest rate increase of 25 basis points with respect to $250 million of our senior notes. Successive one notch downgrades increase the interest rate an additional 25 basis points, or annual interest expense by approximately $1 million, up to a maximum 100 basis points, or annual interest expense by approximately $3 million.
In addition, we operate as a holding company in a highly regulated industry. Humana Inc., our parent company, is dependent upon dividends and administrative expense reimbursements from our subsidiaries, most of which are subject to regulatory restrictions. We continue to maintain significant levels of aggregate excess statutory capital and surplus in our state-regulated operating subsidiaries. Cash, cash equivalents, and short-term investments at the parent company were $1.5 billion at December 31, 2025 compared to $0.6 billion at December 31, 2024. This increase primarily reflects working capital changes, net proceeds from the issuance of senior notes, and proceeds from sale of business, partially offset by repayments of senior notes, capital contributions to certain subsidiaries, cash dividends to shareholders, capital expenditures, and common stock repurchases. Our use of operating cash derived from our non-insurance subsidiaries, such as our CenterWell segment, is generally not restricted by departments of insurance (or comparable state regulators). Our regulated insurance subsidiaries paid dividends to our parent company of $1.1 billion in 2025, $1.5 billion in 2024, and $1.8 billion in 2023. Subsidiary capital requirements from significant premium growth may impact the amount of regulated subsidiary dividends. Refer to our parent company financial statements and accompanying notes in Schedule I - Parent Company Financial Information. The amount of ordinary dividends that may be paid to our parent company in2026 is approximately$1.1 billion, in the aggregate. Actual dividends paid may vary due to consideration of excess statutory capital and surplus and expected future surplus requirements related to, for example, premium volume and product mix.
On February 13, 2026, we completed the acquisition of a primary care business for consideration of approximately $941 million.
Regulatory Requirements
For a detailed discussion of our regulatory requirements, including aggregate statutory capital and surplus as well as dividends paid from the subsidiaries to our parent, please refer to Note 16 to the to the audited Consolidated Financial Statements included in Part II, Item 8, "Financial Statements and Supplementary Data" of this Form 10-K.
Off-Balance Sheet Arrangements
As of December 31, 2025, we were not involved in any special purpose entity, or SPE, transactions. For a detailed discussion of off-balance sheet arrangements, please refer to Note 17 to the audited Consolidated Financial Statements included in Part II, Item 8, "Financial Statements and Supplementary Data" of this Form 10-K.
Guarantees and Indemnifications
For a detailed discussion of our guarantees and indemnifications, please refer to Note 17 to the audited Consolidated Financial Statements included in Part II, Item 8, "Financial Statements and Supplementary Data" of this Form 10-K.
Government Contracts
For a detailed discussion of our government contracts, including our Medicare, military services, and Medicaid and state-based contracts, please refer to Note 17 to the audited Consolidated Financial Statements included in Part II, Item 8, "Financial Statements and Supplementary Data" of this Form 10-K.
Critical Accounting Policies and Estimates
The discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements and accompanying notes, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements and accompanying notes requires us to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. We continuously evaluate our estimates and those critical accounting policies primarily related to benefits expense and revenue recognition as well as accounting for impairments related to our investment securities, goodwill, indefinite-lived and long-lived assets. These estimates are based on knowledge of current events and anticipated future events and, accordingly, actual results ultimately may differ from those estimates. We believe the following critical accounting policies involve the most significant judgments and estimates used in the preparation of our consolidated financial statements.
Benefits Expense Recognition
Benefits expense is recognized in the period in which services are provided and includes an estimate of the cost of services which have been incurred but not yet reported, or IBNR. Our reserving practice is to consistently recognize the actuarial best point estimate within a level of confidence required by actuarial standards. For further discussion of our reserving methodology, including our use of completion and claims per member per month trend factors to estimate IBNR, refer to Note 2 to the audited Consolidated Financial Statements included in Part II, Item 8, "Financial Statements and Supplementary Data" of this Form 10-K.
The completion and claims per member per month trend factors are the most significant factors impacting the IBNR estimate. The portion of IBNR estimated using completion factors for claims incurred prior to the most recent two months is generally less variable than the portion of IBNR estimated using trend factors. The following table illustrates the sensitivity of these factors, experience and the estimated potential impact on our operating results caused by reasonably likely changes in these factors based on December 31, 2025 data:
| Completion Factor (a): | Claims Trend Factor (b): | |||||||||||||||||||
|
Factor Change (c) |
Change in Benefits Payable |
Factor Change (c) |
Change in Benefits Payable |
|||||||||||||||||
| (dollars in millions) | ||||||||||||||||||||
| 0.70% | $633 | 4.50% | $855 | |||||||||||||||||
| 0.60% | $542 | 4.00% | $760 | |||||||||||||||||
| 0.50% | $452 | 3.50% | $665 | |||||||||||||||||
| 0.40% | $362 | 3.00% | $570 | |||||||||||||||||
| 0.30% | $271 | 2.50% | $475 | |||||||||||||||||
| 0.20% | $181 | 2.00% | $380 | |||||||||||||||||
| 0.10% | $90 | 1.50% | $285 | |||||||||||||||||
| 0.05% | $45 | 1.00% | $190 | |||||||||||||||||
| 0.03% | $27 | 0.50% | $95 | |||||||||||||||||
(a)Reflects estimated potential changes in benefits payable at December 31, 2025 caused by changes in completion factors for incurred months prior to the most recent two months.
(b)Reflects estimated potential changes in benefits payable at December 31, 2025 caused by changes in annualized claims trend used for the estimation of per member per month incurred claims for the most recent two months.
(c)The factor change indicated represents the percentage point change.
The following table provides a historical perspective regarding the accrual and payment of our benefits payable. Components of the total incurred claims for each year include amounts accrued for current year estimated benefits expense as well as adjustments to prior year estimated accruals. Refer to Note 11 to the audited Consolidated Financial Statements included in Part II, Item 8, "Financial Statements and Supplementary Data" of this Form 10-K for information about incurred and paid claims development as of December 31, 2025 as well as cumulative claim frequency and the total of IBNR included within the net incurred claims amounts.
| 2025 | 2024 | 2023 | ||||||||||||||||||
| (in millions) | ||||||||||||||||||||
| Balances at January 1 | $ | 10,440 | $ | 10,241 | $ | 9,264 | ||||||||||||||
| Acquisitions | - | - | 62 | |||||||||||||||||
| Incurred related to: | ||||||||||||||||||||
| Current year | 111,841 | 101,365 | 89,266 | |||||||||||||||||
| Prior years | (1,029) | (701) | (872) | |||||||||||||||||
| Total incurred | 110,812 | 100,664 | 88,394 | |||||||||||||||||
| Paid related to: | ||||||||||||||||||||
| Current year | (102,215) | (91,281) | (79,545) | |||||||||||||||||
| Prior years | (9,070) | (9,184) | (7,934) | |||||||||||||||||
| Total paid | (111,285) | (100,465) | (87,479) | |||||||||||||||||
| Balances at December 31 | $ | 9,967 | $ | 10,440 | $ | 10,241 | ||||||||||||||
The following table summarizes the changes in estimate for incurred claims related to prior years attributable to our key assumptions. As previously described, our key assumptions consist of trend and completion factors. The amounts below represent the difference between our original estimates and the actual benefits expense ultimately incurred as determined from subsequent claim payments.
| Favorable Development by Changes in Key Assumptions | |||||||||||||||||||||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||||||||||||||||||||
| Amount |
Factor Change (a) |
Amount |
Factor Change (a) |
Amount |
Factor Change (a) |
||||||||||||||||||||||||||||||
| (dollars in millions) | |||||||||||||||||||||||||||||||||||
| Trend factors | $ | (541) | (2.8) | % | $ | (473) | (2.6) | % | $ | (586) | (3.5) | % | |||||||||||||||||||||||
| Completion factors | (488) | (0.5) | % | (228) | (0.3) | % | (286) | (0.4) | % | ||||||||||||||||||||||||||
| Total | $ | (1,029) | $ | (701) | $ | (872) | |||||||||||||||||||||||||||||
(a)The factor change indicated represents the percentage point change.
As previously discussed, our reserving practice is to consistently recognize the actuarial best estimate of our ultimate liability for claims, which generally results in favorable reserve development, or reserves that are considered redundant. We experienced favorable medical claims reserve development related to prior fiscal years of $1.0 billion in 2025, $701 million in 2024, and $872 million in 2023.
The favorable medical claims reserve development for 2025, 2024, and 2023 primarily reflects the consistent application of trend and completion factors.
Our favorable development for each of the years presented above is discussed further in Note 11 to the audited Consolidated Financial Statements included in Part II, Item 8, "Financial Statements and Supplementary Data" of this Form 10-K.
We continually adjust our historical trend and completion factor experience with our knowledge of recent events that may impact current trends and completion factors when establishing our reserves. Because our reserving practice is to consistently recognize the actuarial best point estimate as required by actuarial standards, there is a reasonable possibility that variances between actual trend and completion factors and those assumed in our December 31, 2025 estimates would fall within the ranges previously presented in our sensitivity table.
Revenue Recognition
Our Medicare contracts with CMS renew annually. We generally establish one-year specialty membership contracts, subject to cancellation on a 30-day written notice. Our military services contracts with the federal government and certain contracts with various state Medicaid programs generally are multi-year contracts subject to annual renewal provisions.
We receive monthly premiums from the federal government and various states according to government specified payment rates and various contractual terms. We bill and collect member premiums on a monthly basis. Changes in Medicare premium revenues resulting from the periodic changes in risk-adjustment scores derived from medical diagnoses for our membership are estimated by projecting the ultimate annual premium and recognized ratably during the year with adjustments each period to reflect changes in the ultimate premium.
Premiums revenue is estimated by multiplying the membership covered under the various contracts by the contractual rates. Premiums revenue is recognized as income in the period members are entitled to receive services, and is net of estimated uncollectible amounts, retroactive membership adjustments, and adjustments to recognize rebates under the minimum benefit ratios required under the Patient Protection and Affordable Care Act and The Health Care and Education Reconciliation Act of 2010, which we collectively refer to as the Health Care Reform Law. Medicare Advantage and Medicaid products are subject to minimum benefit ratio requirements. Estimated calendar year rebates recognized ratably during the year are revised each period to reflect current experience. Retroactive membership adjustments result from enrollment changes not yet processed, or not yet reported by the federal government and various states. We routinely monitor the collectability of specific accounts, the aging of receivables, historical retroactivity trends, estimated rebates, as well as prevailing and anticipated economic conditions, and reflect any required adjustments in current operations. Premiums received prior to the service period are recorded as unearned revenues.
Medicare Risk-Adjustment Provisions
CMS uses a risk-adjustment model that adjusts premiums paid to Medicare Advantage, or MA, plans according to health status of covered members. The risk-adjustment model, which CMS implemented pursuant to the Balanced Budget Act of 1997 (BBA) and the Benefits Improvement and Protection Act of 2000 (BIPA), generally pays more where a plan's membership has higher expected costs. Under this model, rates paid to MA plans are based on actuarially determined bids, which include a process whereby our prospective payments are based on our estimated cost of providing standard Medicare-covered benefits to an enrollee with a "national average risk profile." That baseline payment amount is adjusted to account for certain demographic characteristics and health status of our enrolled members. Under the risk-adjustment methodology, all MA plans must collect from providers and submit the necessary diagnosis code information to CMS within prescribed deadlines. The CMS risk-adjustment model uses the diagnosis data, collected from providers, to calculate the health status-related risk-adjusted premium payment to MA plans, which CMS further adjusts for coding pattern differences between the health plans and the government fee-for-service (FFS) program. We generally rely on providers, including certain providers in our network who are our employees, to code their claim submissions with appropriate diagnoses, which we send to CMS as the basis for our health status-adjusted payment received from CMS under the actuarial risk-adjustment model. We also rely on these providers to document appropriately all medical data, including the diagnosis data submitted with claims. In addition, we conduct medical record reviews as part of our data and payment accuracy compliance efforts, to more accurately reflect diagnosis conditions under the risk adjustment model. For additional information, refer to Note 17 to the audited Consolidated Financial Statements included in Part II, Item 8, "Financial Statements and Supplementary Data" and Part I, Item 1A, "Risk Factors" of this Form 10-K.
Investment Securities
Investment securities totaled $16.2 billion, or 33% of total assets at December 31, 2025, and $18.6 billion, or 40% of total assets at December 31, 2024. The investment portfolio was primarily comprised of debt securities, detailed below, at December 31, 2025 and December 31, 2024. The fair value of investment securities were as follows at December 31, 2025 and 2024:
| 12/31/2025 |
Percentage of Total |
12/31/2024 |
Percentage of Total |
|||||||||||||||||||||||
| (dollars in millions) | ||||||||||||||||||||||||||
|
U.S. Treasury and other U.S. government corporations and agencies: |
||||||||||||||||||||||||||
| U.S. Treasury and agency obligations | $ | 2,278 | 14.1 | % | $ | 3,227 | 17.3 | % | ||||||||||||||||||
| Mortgage-backed securities | 3,651 | 22.5 | % | 3,995 | 21.4 | % | ||||||||||||||||||||
| Tax-exempt municipal securities | 428 | 2.6 | % | 526 | 2.8 | % | ||||||||||||||||||||
| Mortgage-backed securities: | ||||||||||||||||||||||||||
| Residential | 388 | 2.4 | % | 522 | 2.8 | % | ||||||||||||||||||||
| Commercial | 1,012 | 6.2 | % | 1,206 | 6.5 | % | ||||||||||||||||||||
| Asset-backed securities | 783 | 4.8 | % | 1,403 | 7.5 | % | ||||||||||||||||||||
| Corporate debt securities | 7,656 | 47.4 | % | 7,756 | 41.7 | % | ||||||||||||||||||||
| Total debt securities | 16,196 | 100.0 | % | 18,635 | 100.0 | % | ||||||||||||||||||||
Approximately 97% of our debt securities were investment-grade quality, with a weighted average credit rating of AA- by S&P at December 31, 2025. Most of the debt securities that were below investment-grade were rated B. Tax-exempt municipal securities were diversified among general obligation bonds of states and local municipalities in the United States as well as special revenue bonds issued by municipalities to finance specific public works projects such as utilities, water and sewer, transportation, or education. Our general obligation bonds are diversified across the United States with no individual state exceeding approximately 1% of our total debt securities. Our investment policy limits investments in a single issuer and requires diversification among various asset types.
Gross unrealized losses and fair values aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position were as follows at December 31, 2025:
| Less than 12 months | 12 months or more | Total | |||||||||||||||||||||||||||||||||
|
Fair Value |
Gross Unrealized Losses |
Fair Value |
Gross Unrealized Losses |
Fair Value |
Gross Unrealized Losses |
||||||||||||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||||||||||||||
|
U.S. Treasury and other U.S. government corporations and agencies: |
|||||||||||||||||||||||||||||||||||
| U.S. Treasury and agency obligations | $ | 643 | $ | (7) | $ | 857 | $ | (32) | $ | 1,500 | $ | (39) | |||||||||||||||||||||||
| Mortgage-backed securities | 593 | (3) | 2,373 | (333) | 2,966 | (336) | |||||||||||||||||||||||||||||
| Tax-exempt municipal securities | 51 | - | 347 | (14) | 398 | (14) | |||||||||||||||||||||||||||||
| Mortgage-backed securities: | |||||||||||||||||||||||||||||||||||
| Residential | 10 | - | 321 | (46) | 331 | (46) | |||||||||||||||||||||||||||||
| Commercial | 77 | - | 794 | (47) | 871 | (47) | |||||||||||||||||||||||||||||
| Asset-backed securities | 85 | - | 263 | (12) | 348 | (12) | |||||||||||||||||||||||||||||
| Corporate debt securities | 872 | (6) | 3,785 | (367) | 4,657 | (373) | |||||||||||||||||||||||||||||
| Total debt securities | $ | 2,331 | $ | (16) | $ | 8,740 | $ | (851) | $ | 11,071 | $ | (867) | |||||||||||||||||||||||
Under the current expected credit losses model, or CECL, credit losses on available for sale debt securities are recognized through an allowance for credit losses rather than as reductions in the amortized cost of the securities. For debt securities whose fair value is less than their amortized cost which we do not intend to sell or are not required to sell, we evaluate the expected cash flows to be received as compared to amortized cost and determine if an expected credit loss has occurred. In the event of an expected credit loss, only the amount of the impairment associated with the expected credit loss is recognized in income with the remainder, if any, of the loss recognized in other comprehensive income. To the extent we have the intent to sell the debt security or it is more likely than not we will be required to sell the debt security before recovery of our amortized cost basis, we recognize an impairment loss in income in an amount equal to the full difference between the amortized cost basis and the fair value.
Potential expected credit loss impairment is considered using a variety of factors, including the extent to which the fair value has been less than cost; adverse conditions specifically related to the industry, geographic area or financial condition of the issuer or underlying collateral of a debt security; changes in the quality of the debt security's credit enhancement; payment structure of the debt security; changes in credit rating of the debt security by the rating agencies; failure of the issuer to make scheduled principal or interest payments on the debt security and changes in prepayment speeds. For debt securities, we take into account expectations of relevant market and economic data. For example, with respect to mortgage and asset-backed securities, such data includes underlying loan level data and structural features such as seniority and other forms of credit enhancements. We estimate the amount of the expected credit loss component of a debt security as the difference between the amortized cost and the present value of the expected cash flows of the security. The present value is determined using the best estimate of future cash flows discounted at the implicit interest rate at the date of purchase. The expected credit loss cannot exceed the full difference between the amortized cost basis and the fair value.
We participate in a securities lending program to optimize investment income. We loan certain investment securities for short periods of time in exchange for collateral initially equal to at least 102% of the fair value of the investment securities on loan. The fair value of the loaned investment securities is monitored on a daily basis, with additional collateral obtained or refunded as the fair value of the loaned investment securities fluctuates. The collateral, which may be in the form of cash or U.S. Government securities, is deposited by the borrower with an independent lending agent. Any cash collateral, which is reinvested by the lending agent primarily in short-term, highly liquid investments, is recorded as a securities lending collateral asset within other current assets on our consolidated balance sheet at the end of the reporting period. We record a corresponding liability to reflect our
obligation to return the collateral within trade accounts payable and accrued expenses on our consolidated balance sheet at the end of the reporting period. Collateral received in the form of securities is not recorded in our consolidated balance sheets because, absent default by the borrower, we do not have the right to sell, pledge or otherwise reinvest securities collateral. Loaned securities continue to be carried as investment securities on the consolidated balance sheet at the end of the reporting period. Earnings on the invested cash collateral, net of expense, associated with the securities lending payable are recorded as investment income.
The risks inherent in assessing the impairment of an investment include the risk that market factors may differ from our expectations, facts and circumstances factored into our assessment may change with the passage of time, or we may decide to subsequently sell the investment. The determination of whether a decline in the value of an investment is related to a credit event requires us to exercise significant diligence and judgment. The discovery of new information and the passage of time can significantly change these judgments. The status of the general economic environment and significant changes in the national securities markets influence the determination of fair value and the assessment of investment impairment. There is a continuing risk that declines in fair value may occur and additional material realized losses from sales or expected credit loss impairments may be recorded in future periods.
All issuers of debt securities we own that were trading at an unrealized loss at December 31, 2025 remain current on all contractual payments. After taking into account these and other factors previously described, we believe these unrealized losses primarily were caused by an increase in market interest rates in the current markets since the time these debt securities were purchased. At December 31, 2025, we did not intend to sell any debt securities with an unrealized loss position in accumulated other comprehensive income, and it is not likely that we will be required to sell these debt securities before recovery of their amortized cost basis. Additionally, we did not record any material credit allowances for debt securities that were in an unrealized loss position at December 31, 2025, 2024 or 2023.
Goodwill, Indefinite-lived and Long-lived Assets
At December 31, 2025, goodwill, indefinite-lived and other long-lived assets represented 27% of total assets and 74% of total stockholders' equity, compared to 29% and 83%, respectively, at December 31, 2024. The decrease in goodwill, indefinite-lived and other long-lived assets as a percentage of total assets is primarily attributable to the increase in cash and cash equivalents and other assets, partially offset by the decrease in investment securities. The decrease in goodwill, indefinite-lived and other long-lived assets as a percentage of total stockholders' equity is primarily attributable to the increase in retained earnings and the decrease in accumulated other comprehensive loss.
For goodwill, we are required to test at least annually for impairment at a level of reporting referred to as the reporting unit, and more frequently if adverse events or changes in circumstances indicate that the asset may be impaired. A reporting unit either is our operating segments or one level below the operating segments, referred to as a component, which comprise our reportable segments. A component is considered a reporting unit if the component constitutes a business for which discrete financial information is available that is regularly reviewed by management. We are required to aggregate the components of an operating segment into one reporting unit if they have similar economic characteristics. Goodwill is assigned to the reporting unit that is expected to benefit from a specific acquisition.
We perform a quantitative assessment to review goodwill for impairment to determine both the existence and amount of goodwill impairment, if any. Our strategy, long-range business plan, and annual planning process support our goodwill impairment tests. These tests are performed, at a minimum, annually in the fourth quarter, and are based on an evaluation of future discounted cash flows. We rely on this discounted cash flow analysis to determine fair value. However, outcomes from the discounted cash flow analysis are compared to other market approach valuation methodologies for reasonableness. We use discount rates that correspond to a market-based weighted-average cost of capital and terminal growth rates that correspond to long-term growth prospects, consistent with the long-term inflation rate. Key assumptions in our cash flow projections, including changes in membership, premium yields, medical and operating cost trends, and certain government contract extensions, are consistent with those utilized in our long-range business plan and annual planning process. If these assumptions differ from actual, including the impact of the Health Care Reform Law or changes in government reimbursement rates, the estimates
underlying our goodwill impairment tests could be adversely affected. The fair value of our reporting units with significant goodwill exceeded carrying amounts by a substantial margin. However, unfavorable changes in key assumptions or combinations of assumptions including a significant increase in the discount rate, decrease in the long-term growth rate or substantial reduction in our underlying cash flow assumptions, including revenue expectations and growth rates, operating cost trends, and projected operating income could have a significant negative impact on the estimated fair value of our home solutions reporting unit, which accounted for $4.4 billion of goodwill. Impairment tests completed for 2025, 2024, and 2023 did not result in an impairment loss.
Indefinite-lived intangible assets relate to Certificate of Needs (CON) and Medicare licenses acquired in connection with our CenterWell Home Health (formerly Kindred at Home) acquisition with a carrying value of $1.1 billion at December 31, 2025. Like goodwill, we are required to test at least annually for impairment and more frequently if adverse events or changes in circumstances indicate that the asset may be impaired. These tests are performed, at a minimum, annually in the fourth quarter. If the carrying amount of an indefinite-lived intangible asset exceeds its fair value, an impairment loss is recognized. Fair values of indefinite-lived intangible assets are determined based on the income approach. For our CON intangible assets, unfavorable changes in key assumptions or combinations of assumptions, including a significant increase in the discount rate, decrease in the long-term growth rate or substantial reduction in the underlying cash flow assumptions, including revenue growth rates, operating cost trends, and projected operating income could have a significant negative impact on the estimated fair value of our CON intangible assets, which account for $790 million of our intangible assets. Impairment tests completed on our indefinite-lived intangible assets for 2025, 2024 and 2023 resulted in impairment charges of $128 million, $200 million and $55 million, respectively. These charges reflect the amount by which the carrying value exceeded its estimated fair value. The fair values of the assets were measured using Level 3 inputs, such as projected revenues and operating cash flows.
Long-lived assets consist of property and equipment and other definite-lived intangible assets. These assets are depreciated or amortized over their estimated useful life, and are subject to impairment reviews. We periodically review long-lived assets whenever adverse events or changes in circumstances indicate the carrying value of the asset may not be recoverable. In assessing recoverability, we must make assumptions regarding estimated future cash flows and other factors to determine if an impairment loss may exist, and, if so, estimate fair value. We also must estimate and make assumptions regarding the useful life we assign to our long-lived assets. If these estimates or their related assumptions change in the future, we may be required to record impairment losses or change the useful life, including accelerating depreciation or amortization for these assets. Other than the impairment charges as described in Footnote 2 to the audited Consolidated Financial Statements included in Part II, Item 8, "Financial Statements and Supplementary Data" of this Form 10-K, there were no other impairment losses in the last three years.
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