Humana

After several years of elevated utilization that has not been fully offset by rate increases yet, covered MCO shares have risen about 35% on average since our last managed care industry report in September 2025, in anticipation of rising profits in at-risk medical insurance plans.

Why it matters: While trading much closer to fair value than they were about a year ago, the managed care organizations we cover still look moderately undervalued to fairly valued to us, with plenty of upside in their earnings growth prospects for the foreseeable future relative to norms. On average through 2030, we expect covered MCOs to grow earnings per share in the midteens compounded annually versus the typical industry goal of low-double-digit growth. This accelerated earnings growth looks likely due to potential margin improvement in at-risk plans—including Medicare Advantage (seniors), the individual exchanges, and Medicaid (low-income)—as the MCOs raise rates, adjust plan designs, and exit unprofitable geographies.

The bottom line: We continue to see reasonably valued to moderately undervalued shares in the managed care industry, even when considering their High to Very High Uncertainty Ratings, which remain about a notch above historical ratings due primarily to elevated regulatory uncertainty. New policy changes are threatening the individual exchange (2026) and Medicaid (2027) businesses. The market appears to be discounting companies with significant exposure to these businesses—like Centene, Elevance, and Molina—relative to their intrinsic value, which is creating an opportunity for long-term investors, in our view. Regulatory actions related to Medicare Advantage and vertical integration in the industry also remain possible. Cigna, CVS, Humana, and UnitedHealth appear most exposed and could eventually face potential fines and even forced separations in some scenarios.

BLANK PAGEFor more details on how each MCO stacks up against its peers, along with the industry's growth prospects, moat ratings, moat sources, and regulatory concerns, please see our September 2026 Industry Landscape on managed care organizations.

We are increasing our fair value estimate to $350 per share from $333 to primarily reflect cash flows generated since our last valuation update.

We continue to expect 2026 to be a trough year for the firm's profits. Even accounting for that weakness, we project that Humana's revenue and adjusted earnings per share will both grow in the low double digits compounded annually through 2030.

Operationally, most of the company's membership growth will likely come from its fully insured business, particularly its Medicare Advantage business, which could have a disproportionate impact on results and is currently facing significant challenges. While still one of the fastest-growing end markets in medical insurance, Medicare Advantage is facing headwinds that may slow the firm's profit growth trajectory, especially in the near term. However, in the long run, we expect operating margins to return to more acceptable levels as the elevated utilization is balanced by more attractive plan designs, a better operating structure, and a rebound in its currently weak MA star ratings.

Also, investors should know that Humana could face the clawback of overpayments from Medicare, which constrains our fair value estimate by nearly 20%. If that clawback proves significantly less than anticipated, there could be further upside to our valuation.

Humana earns a Narrow Morningstar Economic Moat Rating, which reflects its top-tier position in the US private health insurance market. Like many of its peers, Humana benefits from cost advantages, although its focus on Medicare-related plans makes it unique in an industry where intangible assets appear more important than in other medical insurance niches. We do not recognize intangible assets as a companywide moat source, however. Overall, with its ongoing competitive advantages in the US health insurance industry, we expect Humana to typically produce economic profits above capital costs during the next 10 years, although ongoing challenges in the Medicare Advantage market may make that more difficult than usual in the near term.

Medicare Advantage Leadership Keeps Humana's Moat Rating in Narrow Territory

Humana’s cost advantages relate primarily to scale in government programs like Medicare Advantage. For example, Humana enjoys the number-two position in Medicare Advantage, behind only UnitedHealth. Humana is typically the number-one or -two Medicare Advantage insurer in the counties in which it offers plans, and Medicare Advantage enrollment share can rise closer to 1 out of every 3 in its core local markets. This local scale creates negotiating power over local service providers that cater to seniors in this end market, which we think contributes to its cost advantage over most Medicare Advantage peers.

In Medicare Advantage, the government aims to pay insurers like Humana roughly the same amount as the traditional Medicare program to provide benefits for seniors on a risk-adjusted basis. Then, the insurer needs to lower the costs associated with caring for users by making them healthier to provide additional benefits (dental, vision, pharmacy, and so on) while also generating a profit. Within this framework, insurers like Humana need specialized expertise in managing the needs of seniors to improve their health outcomes and ultimately lower costs. Humana has built up this expertise over decades, which generally helps it create a better experience for end users from beginning to end and contributes to intangible assets specifically in that end-user-controlled market.

With its focus on making the complex healthcare system simpler and driving better health outcomes for end users, Humana typically leads the health insurers that we cover in terms of customer satisfaction, which we believe creates a brand-related intangible asset in this end market. In the consumer-driven Medicare Advantage market, factors like brand and differentiated benefits play a strong role for decision-makers because MA plans are sold directly to end users rather than through intermediaries, like employers, in most of the industry. Also, in Medicare Advantage, the government pays insurers bonuses related to star ratings achieved by each insurance plan (1 being the worst and 5 being the best) on measures of outcomes, processes, patient experience, and access. Typically, Humana stands out positively in terms of star ratings, too, scoring well above peers in 2019-24 ratings. However, MA star ratings in 2025-26 remain significantly below what Humana typically produces based on higher regulatory cutoff standards under Democrats and weaker-than-expected scores on certain aspects like its phone center operations. These lower star ratings cut into Humana's marketing in 2025 and bonus payments in 2026. However, in the long run, we expect Humana to improve its star ratings, with a particular focus in one plan where membership is highly concentrated.

Noninsurance Markets Are Not Additive, but Not Destructive, to Humana's Moat

While probably not moatworthy on a stand-alone basis, in our opinion, Humana's ownership of the fourth-largest pharmacy benefit manager and its growing presence in the provider space (primary care facilities and at-home health) help support the outcomes and cost management needed to run successful health insurance plans. Through both direct ownership and partnerships, Humana remains at the forefront of encouraging value-based offerings to boost health outcomes and better manage costs. Management continues to push members toward full-risk arrangements with providers, which could lead to higher profits for Humana and better health outcomes for patients than those in unaligned provider relationships, too.

Regulatory Concerns Create Potential Headwinds for Humana

Our moat rating for Humana is informed by an analysis of potential changes to the US healthcare system, which is the key environmental, social, and governance risk that Humana faces, in our opinion, as efforts to achieve universal coverage may continue. During the next 10 years, we view scenarios where Humana profitably provides medical and pharmaceutical benefits primarily through government programs, such as Medicare Advantage and Medicaid managed care plans, as more likely than not. Also, we expect its economic profits to rebound once it turns around its Medicare Advantage business in the intermediate term, even in a negative regulatory scenario that includes substantial but manageable clawbacks.

With its prowess in Medicare Advantage plans, Humana looks likely to benefit from strong demographic trends and increasing popularity of that program in the long run.

Humana enjoys industry-leading customer satisfaction metrics that positively influence its brand and reputation in the consumer-driven Medicare Advantage and Medicaid insurance sectors.

Humana's growth trajectory could rebound from current weakness, with management calling for pretax profits to more than double from 2025 to 2028 and grow in the low double digits in the long run at its June 2025 investor day.

Healthcare policy changes may remain a key threat to private insurers like Humana for the foreseeable future.

With its relatively concentrated operations, any missteps in its target markets could have an amplified effect on Humana's bottom line relative to peers.

Humana's top market—Medicare Advantage—appears to be under regulatory scrutiny to curb abuses. Margin pressure, fines, and meager rates notices all appear possible in the short and long run.