Humana's Profit Surge Highlights Cost Discipline and Strategic Shifts

Humana delivered a stronger-than-expected first-quarter 2025 earnings report, with profits surging 250% year-over-year to SEK 74 million, driven by sharp cost reductions and strategic asset sales. While organic revenue growth stumbled, the insurer demonstrated resilience in managing expenses and prioritizing profitable membership segments—a strategy that could position it favorably as healthcare costs remain under scrutiny.

The Profit Boost: Cost Cuts and Asset Sales

The headline numbers paint a clear picture of operational efficiency. Adjusted operating profit rose 8% to SEK 108 million, while the leverage ratio dropped to 2.6x, signaling stronger balance sheet flexibility. A key contributor was the divestiture of 21 elderly care homes in Finland for SEK 285 million—a move that streamlined operations and freed capital.

The Insurance segment’s benefit ratio (claims paid relative to revenue) fell to 87.4%, marking progress toward the company’s 87.5% annual target. This metric is critical for Humana’s Medicare Advantage business, where lower claims costs improve margins and Star Ratings, which determine government subsidies.

Strategic Shifts: Exiting Unprofitable Markets

Humana is no longer chasing membership volume at any cost. The company announced it will reduce Medicare Advantage members by ~550,000 in 2025, focusing instead on higher-margin segments. This “quality over quantity” approach is a departure from past growth strategies but aligns with CFO Christoffer Herou’s emphasis on disciplined membership management.

The CenterWell division, meanwhile, is expanding through targeted contracts. For example, its recent deal to serve as the fulfillment pharmacy for NovoCare’s weight loss medications highlights its ability to tap into emerging healthcare trends.

Risks and Challenges

The strategy isn’t without risks. The membership decline could pressure top-line growth, especially given the -2.1% organic revenue drop. Additionally, the Medicare Advantage Star Ratings—critical to Humana’s financial health—will be closely watched, as lower ratings could reduce subsidies and member retention.

The guidance downgrade for GAAP EPS to SEK 14.68 (from SEK 15.88) also underscores lingering non-core challenges, such as put/call valuation adjustments and severance costs. These one-time items, while manageable, remind investors that Humana’s path to consistent growth remains uneven.

Conclusion: A Resilient Play in a Cost-Conscious Healthcare Landscape

Humana’s Q1 results highlight a disciplined approach to profitability in an era where cost discipline is paramount. With a deleveraged balance sheet, cash flow turning positive, and strategic divestitures, the insurer is well-positioned to navigate regulatory and economic headwinds.

The decision to prioritize high-margin members and exit unprofitable plans may weigh on short-term revenue growth but aligns with long-term sustainability. If Humana can maintain its 87.5% benefit ratio target and secure new contracts in value-based care, its adjusted EPS guidance of SEK 16.25 for 2025 appears achievable.

Investors should watch for two key indicators: Medicare Star Ratings in Q3 and the execution of CenterWell’s expansion plans. With shares up 12% year-to-date and a dividend yield of 1.5%, Humana remains a cautiously optimistic bet for those betting on insurers that can adapt to rising healthcare cost pressures.

In a sector where margin management is king, Humana’s Q1 performance suggests it’s still wearing the crown.