哈门那 (HUM) 2026年第三季度业绩电话会：每股收益指引上调至至少9.50美元

哈门那 (NYSE: HUM) 上调了2026年调整后每股收益预期，并表示联邦医疗保险优势计划（Medicare Advantage）、医疗补助计划（Medicaid）及CenterWell业务的执行情况正推动公司从“符合既定计划”迈向“优于既定计划”。管理层预计，定价策略将在2027年推动联邦医疗保险优势计划利润率显著改善，而星级评定表现的提升有望在2028年带来一次性利好。

核心要点

• 哈门那将2026年全年调整后每股收益预期上调至至少9.50美元，此前为至少9.00美元，部分得益于有利的住院及Part D成本表现。
• 该公司仍有望在2026年将其个人联邦医疗保险优势计划的税前利润率翻倍，剔除星级评定逆风影响。
• 哈门那获得了4.17分的会员加权星级评定，适用于2028奖金年度，其中95%的会员参加了4星及以上评级的计划。管理层预计该结果将在2028年带来超出其可持续规划假设的一次性利好。
• 管理层目前预计2027年联邦医疗保险优势计划会员人数将实现增长，因为年度投保期初期销售以及对受计划退出影响会员的挽留均好于最初预期。
• 哈门那预计2027年医疗成本趋势为8%至9%，相较于7%至8%的2026年区间。这一增长主要与预计14%至15%的Part D成本趋势挂钩，主要受医疗技术管线驱动。
• 资产负债表层面的举措包括约9亿美元的预计税前收益，来自Gentiva少数股权剥离；以及预计GAAP债务资本比率降低130个基点，得益于与贝莱德的合资架构。

关键财务数据

业务与经营业绩

联邦医疗保险优势计划（Medicare Advantage）

休曼纳表示，其2026年新增及回归会员的表现符合或优于预期。针对2027年，公司将以保障利润率的定价作为首要任务，其次是会员留存，最后是规模增长。

年度投保期（AEP）的初期结果超出公司最初预期。受计划性退出影响的会员召回力度尤为强劲，同时新签销售也超额完成计划。管理层将这一表现部分归因于经纪人及分销渠道关系的改善，以及部分小型计划的市场整合。

尽管如此，休曼纳仍缺乏足够的留存率数据以提供精确的2027年会员人数预期区间。管理层目前预计总会员人数将有所增长，但增速将不及2026年。

星级评定与临床表现

休曼纳2028奖励年按会员加权的星级评定达到 4.17。与上年相比，该公司报告称：

• 663,000 项额外护理干预已完成。
• 534,000 位新增会员接受了年度预防性体检。
• 28,000 例逾期乳腺钼靶检查已完成，筛查出 600 例此前未被发现的乳腺癌。
• 93,000 例逾期结直肠癌筛查已完成，筛查出 100 例此前未被发现的癌前病变和癌症。
• 73,000 例逾期糖尿病眼科检查已完成，确诊了 17,000 例此前未确诊的糖尿病相关眼部疾病。

针对2029奖励年，休曼纳表示，关键HEDIS指标的质量改进进展约为 按每名会员计算，较上年同期水平高出5%（截至第三季度末）。管理层对实现排名前四分之一的表现依然充满信心。

公司围绕排名前四分之一的星级评定（Stars）表现、而非2028奖金年度所达到的前10%水平来规划其福利与成本结构。此举旨在支持联邦医疗保险优势计划（Medicare Advantage）的可持续利润率在2028年达到至少3%，同时降低对异常强劲的星级评定结果的依赖。

Medicaid与CenterWell业务

Humana的Medicaid业务版图覆盖13个州，包括11个已开展业务的州，以及在佐治亚州和得克萨斯州已中标但尚待执行的合同。会员人数增加了 104,000 人（2026年期间），这得益于密歇根州、伊利诺伊州和南卡罗来纳州整合型双重资格计划的支持。

CenterWell基层医疗业务（CenterWell Primary Care）新增了近 147,000名 会员，相当于 30%的增长，其中包括对MaxHealth的收购。该公司还与贝莱德（BlackRock）设立了一家合资企业，使Humana拥有自2028年起从该合资企业收购诊所的选择权。

CenterWell的基层医疗业务在佛罗里达州面临来自特定病患群体和部分医疗机构的区域性压力。管理层表示，该问题对基层医疗机构影响显著，但对Humana整体而言并不重大。根据目前掌握的信息，预计合同重订、福利设计调整以及网络管理举措将抵消大部分压力。

资产负债表与资本配置

Humana预计将在2026年第四季度完成其在Gentiva少数股权的剥离，预计将产生约9亿美元的 税前收益。

与贝莱德新设立的合资企业取代了Humana此前与韦尔奇·卡森（Welsh Carson）的合作安排。管理层预计，较低的资金成本将减少相关的资产负债表负债，并使GAAP资本负债率降低约130个基点 （在第四季度）。

该架构还消除了为此前待定的2027年认沽期权提供资金的需求。Humana估计，通过举债履行该义务原本会使资本负债率增加约130个 基点（2027年，在其他条件相同的情况下）。

管理层表示，未来的资本配置将通过内生投资与并购相结合的方式，优先向保险子公司资本、Medicaid和CenterWell倾斜。随着盈利复苏，在股息支付率达到更正常化的水平后，Humana还计划增加股息，并可能扩大股票回购规模，使其超过抵消股权稀释所需的水平。

管理层业绩指引

Humana预计，无论是在星级调整后还是报告基准下，2027年个人联邦医疗保险优势计划（Medicare Advantage）的利润率都将实现实质性改善。管理层表示，尽管面临星级评定持续带来的逆风，该业务仍应会稳步实现盈利，但最终利润率将取决于年度参保期（Annual Enrollment Period）的会员规模与结构。

产品定价预计将是推动2027年利润率扩张的最大增量动力。此外，运营及医疗成本转型、首年营销及新会员入会成本下降，以及Medicaid和基层医疗业务跨过投资期后盈利能力的提高，都将提供额外支撑。

至于2028年，Humana继续将联邦医疗保险优势计划的利润率目标定为至少3%。预计2028奖金年度的星级评定结果将在公司可持续盈利框架之上带来额外的一次性利好。管理层计划将该收益的一部分用于对星级评定能力、客户体验和临床成果的一次性投资，同时将其余部分转化为利润并回馈股东。

在Humana对竞争对手举措、会员结构、产品动态及监管环境有更清晰的把握之前，该金额尚无法量化。管理层还指出，大约 30%的相关星级评定经济效益已被基于价值的医疗服务提供商协议所抵消。

风险与关注事项

• Humana尚未掌握2027年年度参保期的完整留存数据，这限制了对最终会员人数和利润率结果的预见性。
• 医疗成本增长趋势预计将升至2027年的8%–9%，其中Part D（处方药计划）趋势将达到14%–15% ，这主要受医疗健康技术管线的影响。
• 2028年星级评定带来的利好规模仍存不确定性，将取决于竞争对手的评级、Humana自身的会员规模与结构，以及其他运营和监管因素。
• CenterWell基层医疗业务正在应对某特定地区的成本上升问题。管理层预计当前举措将抵消大部分压力，但该评估是基于迄今为止掌握的信息作出的。
• 从资本负债率的角度来看，股票回购的效率不及业务投资，这可能会影响未来回购的节奏和规模。

分析师问答要点

分析师高度关注联邦医疗保险优势计划（Medicare Advantage）利润率复苏的动力来源。管理层强调，星级评定仅是贡献因素之一。定价调整、福利设计、运营成本削减、医疗成本管控举措以及合同重组，预计也将为盈利改善提供支持。

关于2027年的成本假设，Humana澄清称其 8%–9%的趋势预测反映出可识别的成本压力，而非额外增加的保守缓冲。预期的增速加快主要集中在D部分（Part D），更高的假设已纳入竞标方案中。

管理层还强调了团体联邦医疗保险优势计划（Medicare Advantage）取得的进展。剔除星级评定（Stars）带来的不利影响后，哈门那表示，该业务的利润率提升了500个基点，此前公司开展了重大的重新签约工作，不过全部效益要到2028年星级评定经济效益恢复后才会显现。

在资本方面，哈门那表示，保险业务增长仍是其最大的资金需求，因为参保人数与保费的增加需要受监管子公司补充额外资本。联邦医疗补助（Medicaid）与CenterWell仍是增长投资的主要领域，内生式扩张与并购均在相同的资本回报框架下进行评估。

财报电话会完整实录

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完整财报电话会议逐字稿

管理层陈述

Operator

Good day, and thank you for standing by. Welcome to Humana's Third Quarter 2026 Earnings Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to Lisa Stoner, Vice President of Investor Relations. Please go ahead.

Lisa Stoner

Thank you, and good morning. We will begin this morning with brief remarks from Jim Rechtin, Humana's President and Chief Executive Officer; and Chief Financial Officer, Celeste Mellet. Following these remarks, we will host a question-and-answer session with industry analysts.

Before we begin our discussion, I need to advise call participants of our cautionary statement. Certain of the matters discussed in this conference call are forward-looking and involve a number of risks and uncertainties. Actual results could differ materially. Investors are advised to read the detailed risk factors discussed in our latest Form 10-K, our other filings with the Securities and Exchange Commission and our third quarter 2026 earnings press release as they relate to forward-looking statements, along with other risks discussed in our SEC filings. We undertake no obligation to publicly address or update any forward-looking statements in future filings or communications regarding our business or results.

Today's press release and posted remarks our historical financial news releases, and our filings with the SEC are also available on our Investor Relations site.

Call participants should note that today's discussion includes financial measures that are not in accordance with generally accepted accounting principles or GAAP. Management's explanation for the use of these non-GAAP measures and reconciliations of GAAP to non-GAAP financial measures are included in today's press release. Any reference to earnings per share or EPS made during this conference call refer to diluted earnings per common share.

Finally, this call is being recorded for replay purposes. That replay will be available on the Investor Relations page of Humana's website, humana.com, later today.

With that, I'll turn it over to Jim.

James Rechtin

Thank you, Lisa. Good morning, everyone, and thank you for joining us. We have just one headline today, and that is that we are in a good place. Execution is strong and improving, signs point to our strategy working, we are increasingly seeing the tangible results of our team's good work. The results are positive for our members, our patients and their health and the results are contributing to our margin and earnings growth recovery, which is moving from on plan towards being ahead of plan.

As usual, I will frame my comments today around the 4 drivers of our business: one, product and experience, which drive customer retention and growth; two, clinical excellence, which delivers clinical outcomes and medical margin; three, highly efficient operations; and four, capital allocation and growth in both CenterWell and Medicaid.

Let's start with product and experience. Our 2026 membership, both new and returning is performing in line to better than expected. Our 2027 product positioning also appears to be in line with expectations. Our product portfolio positions us largely as we expected at the time of bids. We believe our portfolio will deliver the margin progression in '27 that is necessary to put us on track for a 3% plus margin in 2028. And importantly, our portfolio is focused on providing our members simple, affordable and predictable coverage. It does this by protecting the benefits and services that seniors consistently identify as most important.

So far, AEP performance is ahead of our initial expectations. Our recapture or retention of our members impacted by planned exits has been particularly strong, but we are also seeing new sales ahead of plan. And while it remains very early in AEP, we currently anticipate that our membership will be up for 2027.

Turning to clinical excellence. I was going to say again that we are thrilled with our bonus year '28 or BY '28 results. Our Star ratings approached the highest ratings Humana has ever achieved with a member weighted Star rating of 4.17. I am proud of this team. This is truly the result of 65,000 associates working together to drive better experiences and health outcomes for our members. I'm going to provide just a few examples to bring this to life. Compared with the prior year, 663,000 more care opportunities were met, 534,000 additional members completed an annual preventative visit, 28,000 members received an overdue mammogram. This allowed us to identify 600 previously undetected breast cancers, many at an earlier stage than they otherwise would have been found. 93,000 members completed an overdue colorectal cancer screening. This allowed us to identify 100 previously undetected cases of precancers and cancers. And 73,000 members living with diabetes received an overdue eye exam. This allowed us to identify 17,000 previously undetected diagnoses of diabetes-related eye disease, which is a leading cause of vision loss. Detecting these conditions early is critical to successfully treating them and managing the conditions.

The improvement that the team has driven in the Stars program over the last 2 years is truly remarkable, and is driving a real difference for our members.

From a financial perspective, as we shared in the 8-K and audio file in October, our BY '28 results significantly exceed our goal of top quartile. As a reminder, results at roughly top quartile is the level of Stars performance that we believe is necessary to sustain a 3% margin and have competitive product. At or near top quartile performance is what is sustainable on an ongoing basis. We will have years close to top quartile, we will have years slightly above top quartile, and we will have years like this year well above top quartile. However, we will manage the business assuming a level that approximates top quartile. That means our benefit structure and our broader cost structure must be tuned to and work closer to top quartile results not at top decile.

As a result, we anticipate a onetime tailwind in 2028. We expect to utilize some of this tailwind for onetime investments. These investments will help solidify our Stars capability and accelerate our efforts to improve the customer experience and improve clinical outcomes.

We also expect additional onetime return to shareholders. We do not believe we can productively invest the full tailwind and thus, we will pass some through to shareholders. Once we have more information on 2028, which includes competitive dynamics, membership and product dynamics and regulatory environment, we will quantify the level of and the expected use of the tailwind. We will size how much we will invest, and we will explain roughly how much we'll pass through to earnings.

Now turning to BY '29 Stars. We continue to drive strong operational performance, running roughly 5% ahead of last year's quality improvement rate on a per member basis in key HEDIS metrics at the end of Q3. We feel confident that we will achieve our goal of top quartile performance for BY '29.

Regarding highly efficient operations, our multiyear transformation is progressing as anticipated, and we look forward to providing a more detailed update on this work at our December investor event.

Finally, let me turn to capital allocation. I'll start with Medicaid, where we have implemented contracts in 6 new states over the last 3 years, with our Medicaid footprint now spanning 13 states, including 11 active states and contracts awarded with implementations pending in Georgia and Texas. Our Medicaid membership has grown by 104,000 members in 2026, largely driven by the start of the Michigan Heidi Snip and the statewide Illinois Feidi Snip programs as well as the carbon of dual eligibles in the South Carolina Medicaid program. We are excited about these integrated dual programs, and we believe we are uniquely capable of delivering great outcomes for members and for states.

Within CenterWell Primary Care, we have driven strong growth this year, adding nearly 147,000 members or 30% growth, including the acquisition of MaxHealth in the first quarter. And we recently established a new partnership with BlackRock, which we are very excited about. Celeste will touch on this more in a moment.

In conclusion, we are driving strong execution across the company, which has us on a positive trajectory. We are pleased with our 2026 performance to date and our increased full year outlook. We are incredibly proud of our BY '28 Stars results and expect to maintain top quartile results for BY '29. We are positioned as we expected for the 2027 AEP, and we expect to make meaningful progress on MA margin expansion next year. Finally, we remain on track to deliver on our Investor Day commitments in 2028, which we will mark to market for you at the investor update on December 10.

With that, I will turn it to Celeste for a few remarks before the Q&A.

Celeste Mellet

Thank you, Jim. I will touch on our [indiscernible] performance and improved full year EPS outlook before providing more detail on our continued balance sheet efficiency and capital optimization progress, including the recently announced JV with BlackRock. Starting with '26, based on available information to date, cost trends are in line to better than our expectations for both new and existing members. Our performance to date supports an increase in our full year adjusted EPS outlook from at least $9 to at least $9.50. We also continue to maintain and build prudent reserves with IBNR up sequentially despite the seasonal shift where pharmacy costs make up a greater proportion of total benefit costs as we move through the year. All in, we are executing and delivering results better than initial guidance and remain on track to double our individual MA pretax margin this year, excluding the Stars headwind.

Turning to the balance sheet. We have continued our efforts to increase the efficiency of the balance sheet and fortify our foundation, and our significant progress reflects relentless focus on execution. We expect 2 major transactions to close this quarter. First, we will complete the divestment of our minority interest in Gentiva. Total pretax proceeds will be approximately $900 million. In addition, we recently announced and closed a new joint venture with BlackRock, which replaces the previous long-standing JVs with Welsh Carson. Our new JV has substantially enhanced our balance sheet efficiency and increased our financial flexibility while significantly reducing our cost of capital, reflecting the maturity of the business.

With the new structure, we will have the option to purchase clinics from the JV beginning in 2028. If we have not acquired all of the clinics by the end of 2033, BlackRock will have the right to exit the JV through a sale process, and we have the right to submit the first offer to acquire any remaining clinics. Importantly, the significantly reduced cost of capital under the new arrangement drives a substantial reduction of the JV-related liabilities on the balance sheet. We anticipate that this transaction will drive a reduction of approximately 130 basis points in the GAAP debt-to-cap ratio in the fourth quarter. Further, we no longer need to fund the previously pending put option in 2027, which, if debt funded, would have increased our debt-to-cap ratio by approximately 130 basis points next year, all else equal. We will continue to evaluate a pipeline of initiatives to drive further efficiency and resiliency.

Before going to Q&A, let me reiterate the headline that Jim shared. We have momentum. We are executing on our Investor Day commitments, and delivering on the earnings power and value of the company while driving better health outcomes and experiences for our members and our patients.

I will now turn the call back to Lisa to start the Q&A.

James Rechtin

Thank you, Celeste. [Operator Instructions] Operator, please introduce the first caller.

Operator

Our first question comes from Stephen Baxter with Wells Fargo.

分析师问答

Stephen Baxter

I was hoping you could expand a little bit more on the 2027 commentary, I guess, maybe potential list of headwinds and tailwinds. And then just thinking about meaningful progress in individual MA margins, any general sense of what we should be expecting on that front based on what you know today?

Celeste Mellet

Stephen, as we stand here today, we are going into 27 don't have any known headwinds other than carrying the Stars headwind we have from this year. So no incremental headwinds, and we do have a number of tailwinds. First, we continue to transform our business and are working to reduce both our OpEx and improve our medical costs really through driving better care outcomes. Second, we are continuing to move through the J-curves for Medicaid and PCO. Third, as we've talked about earlier in the year, we have significantly improved our product position and price for margin. That was our #1 priority in terms of our approach to bids this year. And then finally, we expect fewer numbers, which should lead to a lower year 1 headwind associated with marketing and onboarding and costs like that.

It's too early to call out where we expect the margin to land precisely for 2027. A lot of that will be driven by the ultimate membership size and composition as it relates to AEP. And while it's early, and we have a good directional view and we're happy with what we're seeing, we don't know our retention yet, and we want to see where those numbers land.

I would say it's safe to assume that we will make a material improvement both on a Stars adjusted and Star unadjusted basis. So we would expect to be well into the profitability range even reflecting the Stars headwind for next year.

Operator

Our next question comes from Justin Lake with Wolfe Research.

Justin Lake

Maybe you can give us a little more color on cost trends in the quarter and kind of how you're seeing coming out of the year for '27, how you're thinking about it? And then can you just give us a little more color on the call out you had in CenterWell. The year-over-year decline was pretty material, and you talked about one specific market and group of patients being pressured.

Celeste Mellet

Justin. So in terms of the cost trends, as we talked about last quarter, we're at the lower end of the range that we had expected for the year, which was 7% to 8%. We're continuing to see better-than-expected performance on the inpatient side, both in terms of APTs and cost per admissions. And a lot of that favorability has and will continue to flow through to value-based providers who have driven pretty significant improvement this year. But we're also seeing favorability on the Part D side, which is really what's helping us to drive our guidance up this year.

Going into next year, we are expecting trend to be higher, predominantly driven by the health technology pipeline So overall, we expect Part D to increase 14% to 15%, driven by the health technology pipeline. We have priced that into our bids, both on the MAPD side and the PDP side of things. On the med cost side, we are expecting things to be slightly higher as well. So overall, in the 8% to 9% for trend versus our range of 7% to 8% trend for this year.

And then in terms of PCO, so we are seeing some pressure in one geography related to a particular set of patients. And we believe we've been able to put a ring around that as the steps to improve that have already been taken by CenterWell and the payer partners, including Humana. So we have seen on the CenterWell side, a number of changes in terms of their contracting, including terms with payers -- terming payers and the terms with the remaining payers improving their positioning. And then on the payer side, including Humana, there are a number of flexes significantly improved benefit design. And then also pretty aggressive network management. There are some outlying facilities in Florida that have have been driving some of the pressure, and we've seen partners across the payer universe take action to address that.

Operator

Our next question comes from Ann Hynes with Mizuho.

Ann Hynes

Great. Thank you, and thank you for the directional commentary on MA membership for next year. I know that you highlighted growth for 2027. And -- but directionally, can you provide any more growth expectations besides it will not be as much as 2026? And within that, maybe just some commentary on the competitive AEP. Any surprises in the competitive environment? Because I thought before that membership might be like flat to down for next year.

James Rechtin

Yes, thanks for the question. The product positioning is largely in line with where we expected. What we're seeing is we're seeing outperformance from our distribution channel partners. That really has been the difference. We made a bunch of moves a year ago to improve the quality of our distribution partners, and that is paying some dividends this year. It's been a very good -- It's achieved a number of good results for us.

We don't expect anything like last year, obviously, and it's really too early to try to put a number on it at this point. While we have good visibility into new sales, and we have good visibility into our retention of members that were on plans that we exited which is a good sign for retention. We don't really have a good handle on retention at this point. We just don't have the data on that at this point in time. And so would you kind of add it all up, it's hard to give a clear range on exactly where we expect to be.

Celeste Mellet

Yes. And if I can add to that, we -- what we -- from what we can see across the larger players, I think they're all -- we're all better positioned than perhaps expected, especially given the number of plan is across most of the major players. As Jim mentioned, we think a lot of our performance is driven by our really strong relationships with our broker partners. But I do think there has been some consolidation of some smaller plans, which is driving a bit better performance from the larger players.

Operator

Our next question comes from Matthew Gillmor with KeyBanc.

Matthew Gillmor

I just wanted to follow up on the PCO costs from the earlier question from Justin. Can you quantify the impact from those higher costs? And do you expect to be to mitigate all of that for the 2027 period?

Celeste Mellet

We have never broken out the overall contribution of PCO. I would say, to the enterprise, it's not -- the impact is not meaningful. It is to PCO itself. We expect to offset most of what we're seeing with the actions that we -- that CenterWell has taken, Humana Plan have taken as well as the other payers have taken based on what we know today, it should address most of the pressure.

Operator

Our next question comes from David Windley with Jefferies.

David Windley

I wanted to maybe put a finer point on a couple of earlier ones around margins. So think your expectations for this year were on the individual MA to run slightly below breakeven. You're probably maybe slightly above breakeven, so 300-ish basis points to your 3% target, Stars, perhaps 2/3 of that. I guess I was wondering if we could -- if you agree with that, and if we could get perhaps a little bit more thinking on how much operationally, this coming year, you might span given that the Stars kicks in and delivers a lot of that?

And then, Jim, the outperformance part of that Stars, if not, how you would split it the thoughts that drive the decision factors that would influence how you would split it.

James Rechtin

Yes, let me start with the back end of that question. So again, we will not be ready to quantify this until late next year or possibly even in the 20,274th quarter call. We'll have to see how things develop. There's a couple of things that we have to look at. So one is the exact size of what the tailwind will be is not something that you can precisely quantify today. There's a whole bunch of factors that play into that. One is we will see the gap between us and our top quartile target shrink over the course of the next 15 months.

Our competitors will take actions that will improve their average Star scores. We will have limited actions that we can take to improve ours. Like we will take that actions we can, but we will have limited actions that we can take. So you will see that shrink over time. The second thing that will obviously impact the final tailwind is going to be the size and the mix of our membership, both this year and what we're seeing in AEP a year from now. That will have a meaningful impact and what that impact is hard to forecast at this point in time. So that's really step 1 for us.

The second step then is our really looking at from an operational capacity standpoint, what can we productively invest. To the degree that we have opportunities that that increase overall enterprise value over time, we want to take advantage of that. But there will be an operational capacity limitation to -- that we're going to have to manage through. And that is something that we will better understand 12 months from now than what been trying to predict it today. But those are really the factors that we will take into account. And what we do know, and I'll just stress this again is, the tailwind will be sufficient. Even with all of the factors that I just described, it will be sufficiently large that that we will not be able to productively invest all of it. We're not going to spend money to spend money, obviously.

And so we know that there will be something -- there's just a whole host of things that have to play out before we know exactly what that looks like.

Celeste Mellet

Yes. And if I could a couple of things on Starts. One, I wouldn't get too far ahead of us in terms of what that the tailwind will be. Don't forget about the 30% offset with the value-based care providers. And also what we're going to talk to you about next month at the investor update, and we continuously talk to you about, and this is how we're planning, it's like what are our sustainable earnings. So we will talk about '28 in that manner. And then, of course, we will give you that -- as we get closer, we will give you what we think the upside will be and how we will spend it.

Now as it relates to your question on margin, I'm certainly not going to comment on your estimate of where we are, but I'd say don't underestimate the other actions we are taking here to improve the margin of MA and the rest of our businesses. We set our #1 priority in AEP was to price for margin. Our #2 priority was retention, which helps with margin. And then third, [indiscernible] third was growth.

We also have been undergoing a significant transformation. You'll continue to have those additional tailwinds into next year, both on the operating cost side and the medical cost side of things. So Stars is important, but it is not the only thing we are working to improve here and not the only thing we are making significant progress on.

Operator

Our next question comes from Jason Cassorla with Giggenheim Securities.

Jason Cassorla

I wanted to ask about capital deployment. You've been pretty busy this year on the M&A front, and you've shown material improvements to your debt-to-cap ratio. I got as earnings and cash flow expand for you in the coming years, can you remind us in terms of how you're thinking about both future acquisition priorities as well as your thoughts around perhaps restarting share repurchase activity or anything else along those lines would be helpful?

James Rechtin

SP540757048 Let me start and then Celeste will jump in as well. At a high level, what we would emphasize is that we are -- well, number one, our biggest use of capital is actually the insurance business as we grow. So our single biggest use of capital is funding reserves. And we just -- we'll make sure that, that's clear to everybody. Beyond that, the places where we will deploy capital is Medicaid and CenterWell. And obviously, that's not all M&A. That's a combination of both organic growth and M&A. And the focus continues to be in the places where we have been growing and investing over the course of the last couple of years.

So obviously, we've had a lot of organic growth in in Medicaid and a lot of that growth has been focused on these HEIDI, FEIDI and and dual-SNP plans. We continue to invest in the PCO business, which we think is an important part of the portfolio. It is both a good stand-alone business, and it reinforces all the things that we are trying to do within Medicare Advantage, which is drive quality, it's drives Stars, it's drive better outcome and outcomes and experience for our members, and it's managing a total medical cost at the end of the day.

So expanding our footprint in PCO continues to be a priority. Again, that's not just M&A. A lot of that is organic. And the decisions between organic and M&A are driven by what is available in the market and what is the price of what is in the market. And so we will be very thoughtful in what is going to deliver the best return on capital? Is it organic? Or is it M&A? And we look at those in the same bucket, so to speak. We don't have a separate target for either one. We look at those in the same bucket. So that's kind of how we think about it big picture,

Celeste, what would you add?

Celeste Mellet

Yes. And just to clarify, in terms of the capital deployed to insurance, it's the capital required to go into the subsidiaries. So when you grow membership, when you grow a premium, you need to put capital into the subsidiaries. As you know, we put substantial capital, much of which we had freed up from balance sheet work we had done into our insurance subsidiaries this year. But also in addition to what Jim was speaking about with M&A, we will, as we -- our earnings power recovers, begin to grow our dividend again. We would like to get that payout ratio to a more normalized level before we do that, but it's important to us to grow our dividend. We know that's important to shareholders. We have been doing buybacks enough to offset dilution. I would expect that we would increase that. But keep in mind that buybacks are very onerous from a debt-to-cap perspective. So you basically get twice as much bang for your buck investing in your business than you do buybacks or I should -- it's twice as onerous to the debt to cap.

And finally, I just want to say we're in a position where we actually versus a year or 2 years ago, we are -- we have the ability to make choices, and we will be very prudent about managing our balance sheet given the volatility of the business overall and ensuring we're teen our flexibility and our ability to retain operate through any environment. But we're really pleased to be in a position where we can make choices. We're not -- we don't have any puts. We don't have to spend a lot of money next year buying in clinics that we can buy later. We love that business, but a lot more flexibility than we had a year ago or 2 years ago.

Operator

Our next question comes from A.J. Rice with UBS.

Albert Rice

Hi, everybody. Historically, Humana was consistently, and I know it's a little bit of a different metric than what you're saying you're focused on now, but you are 90% or so 4-Star rated across your membership. And so that was quite a bit higher than the top quartile, and you consistently managed -- the business consistently managed for that. Now you're saying you're focusing on benefit design, reinvestment to manage toward a top quartile performance. Does that just give you more predictability around the business, sort of minimize volatility? I guess it seems like a change, maybe it's not, but I wonder if you'd comment on that.

And then specifically to the [indiscernible] recovery in occurs. I know we have been at that 30% outsourced to providers and shared risk arrangements for a while. Do you think you'll have the opportunity to step that up over time? Or is the [indiscernible] sort of a number that you're comfortable with and just will sustain?

James Rechtin

Yes, A.J., thank you for the question. Let me try to clarify the commentary around Stars to start, and then we'll come back to the second question there. So there's a couple of things going on when it comes to Stars that kind of philosophically, we're trying to ground into how we run the business. You are right. For a long time, we were able to manage Stars to a 90% 4-Star level. And obviously, our goal is not to hit top quartile. Our goal is to be the absolute best that we can be at Stars year in and year out. And we would love to be at 90% year in and year out. That is what we're going to be fighting to achieve every year. It's what we owe our patients and our members.

The nature of the top quartile metric is a couple of things. One, we put too much emphasis on 4 Stars as opposed to the mix of 3.5, 4 and 4.5, and we wanted more orientation to the PMPM impact of each of those step-ups in Star ratings. We wanted that internally because we need that kind of focus internally, and we want that externally because we think it's important that our investors are thinking about the overall PMPM impact not merely the 4-Star percentage impact. So that's part of our thinking.

Part of our thinking is, we need a minimum threshold by which we know that we can run the business successfully. And that minimum threshold is what informs how we manage our cost structure and how we manage our benefit structure. And it forces us to put more discipline in how we manage those 2 things. So our sitting here saying, hey, we'd love to be at 90%, or let's just say, we'd love to be a top decile, but we're going to manage the business at top quartile, that is a disciplined action for us. That is a way for us every single year to say, can our cost structure survive that top quartile? Can our benefits work at top quartile? Can this business be successful long term? We are forcing ourselves to be more disciplined. And I do think that, that -- we have probably not conveyed that as effectively as we could since Investor Day last year. But I think it's important for everybody to understand that.

This is for us to manage the business with discipline. We want to and expect to outperform every year, like that's what we expect of ourselves. But we need to know that target that allows us to understand how we manage the other elements of the business. So that's the logic for what we're doing. And look, over time, we welcome feedback around it, but that's the logic for what we're doing. And now let me go to the other questions, Celeste Mellet will take the other question.

Celeste Mellet

I can take the question. Yes, A.J., just to clarify what Jim was saying, we did call out the top quartile goal at our Investor Day last year. I think it got lost a little bit because there were so many other numbers and moving pieces. But as it relates to your second question, and you were a little blurry on our end, so I'm going to guess as to what I think you were asking. We are -- we have shifted slightly in terms of our thinking about providers. We very much believe that value-based care can drive excellent health outcomes, and we obviously are investing that ourselves in our own business. But we're really focused on aligning our members to high-quality providers. Not every high-quality provider wants to do risk. Not every high-quality provider wants to be a value-based provider. We don't want to not partner with excellent providers who don't take risk, we want to embrace them as well to ensure that our members are getting the best quality care.

As it relates to this quarter, in particular, in terms of our percent in value-based care, we've been really focusing on strengthening the infrastructure and governance needed to manage those relationships effectively and efficiently. And at times, that can lead to us parting ways with some of them, where we don't view them as appropriate value-based care providers because they're not driving the health outcomes that we would expect.

So again, I focus you on high-quality providers, doesn't mean you're going to see a material change in percent of value-based care, but we want to ensure every day that our members are getting the best care possible.

Operator

Our next question comes from Kevin Fischbeck with Bank of America.

Kevin Fischbeck

just one clarification question and then the real question. As far as this extra Stars earnings in 2028, just want to make sure you were going to say we're hitting our 2028 number, and then this is a onetime benefit on top of an excess of that is where you think it's going to land right now.

But then I guess the real question is, you talked about the progression on the Medicaid -- sorry, the Medicare individual margin, but there is another, I don't know, $7 or $8 of EPS to get to that $40 number that comes from Medicaid, CenterWell, capital deployment, group MA. So we think about that progression of that earnings stream? Is that ratable in '27, '28? Is there a reason to think it's going to be more back-end loaded or front-end loaded there?

James Rechtin

Let me start, and then I think Celeste will probably jump in here as well. I'll come back to the Stars question. I think, Kevin, what you were asking is for us to clarify, yes, we've hit our target and we're well above our target. And if we're managing the business at our target, meaning our cost structure and, et cetera, then there should be some overage, some benefit above where we manage the business to on a day-to-day basis. That is accurate. And then the question, of course, is then what are we going to do with that? And we do expect to invest some, and we do expect some of it to pass through to earnings. And the exact quantification is what we won't have for some period of time, but that is how we're thinking about it.

And then on your second question, again, I can't remember, I will pass to Celeste.

Celeste Mellet

Yes. So I just want to make sure you're clear on what Jim was saying. Yes, the Stars performance would be in excess of our target for 2028. And Jim did say upfront that we are running towards ahead of plan. And if you think about the things that we laid out, if you think about the waterfall that we gave you at our Investor Day last year that we will update for you next month, across every single line item, we are ahead, and we will show that to you. So the 95% of members in 4 plus Star plans this year would be upside to that. And we will size that for you as we get closer, depending on all of the factors.

So as it relates to '27, again, given where we are in AP, I'm not going to tell you exactly how far we'll get to you. But the same factors that have us ahead of '28 will effectively make our steepen the slope to the past. So you will see improvement versus what we would have previously expected in '27 as well as in '28. And there are a number of factors, some of which I have called out already, the overall cost transformation, moving through their J-curves for Medicaid and Medicare?

Don't forget that we have undertaken a very significant recontracting effort in our group MA business. So last year, we had -- we were very significantly negative in group MA. Excluding the Stars headwind, we have improved 500 basis points. Now you won't see the full benefit of that. So we got our Stars back in 2028, 500 basis points. So it's -- again, I said this, it's not just Stars that we're delivering on. It is across the board.

Operator

Our next question comes from Scott Fidel with Goldman Sachs.

Scott Fidel

Thought it might be helpful if you could spend a little time just talking about how the strategy has sort of evolved around deploying reinsurance in the Medicare Advantage business. It seemed like there was a pretty substantial increase in the use of the reinsurance this year. And just curious in terms of like as we think about the primary effects of that on the P&L and revenue and cost or balance sheet, just sort of if you can sort of walk us through the mechanics of that.

And then more importantly, on the go-forward in terms of the reinsurance, is that something that you'd look to sort of sustain or was that more of something that was like a bit more of a one-off for this year and then you look to receive and reduce that? Just mostly curious on sort of how you're thinking about approaching that for 2027?

Celeste Mellet

When we looked at our -- I guess, our lack of reinsurance, our view was there was a lot more efficient way to manage the amount of capital that was required to be put into the sub. So -- and that was, to some extent, I think, making us uncompetitive. The way I think about it is that previously about -- we were putting about 12% of premiums into the subs. It's probably just under 10% at the moment. And we are close to where we would want to be. If we grow a bit this year, we'll grow, but this year, we maybe do a little bit more. But you won't see a substantial change in terms of, I think, the overall use of reinsurance into 2027.

That cost is reflected in our -- the run rate is reflected in our numbers for this year. It is -- I would say, it's definitely cheaper than debt funding. You obviously don't get the NII pickup, but we believe there are more efficient ways to to use. If we decide to use debt, we believe there are better ways to apply that debt. So we'll obviously reexamine this year in, year out and figure out the optimal way to deploy capital, to fund ourselves, consider all the costs, but I wouldn't expect to change in the next couple of years. We're pretty happy with where we are right now.

Operator

Our next question comes from Andrew Mok with Barclays.

Andrew Mok

I wanted to follow up on your comment around your capitated partners. It sounded like you absorbed most of the Stars related headwind and shielded your capitated partners from the downside when you lost your bonus revenue. So I just want to better understand how the mechanics of this work with the bonus revenue flowing through to your capitated partners back on the way up.

Celeste Mellet

Yes. So yes, we did insulate our value-based care providers, to some extent, the -- particularly the higher quality ones. We wanted to ensure that just given the overall challenges in MA that they were protected. And we -- the way we allocated it was based on performance. So the best performers got the greatest benefit or the greatest contribution from us.

As you think about the upside to top quartile, right, that is incremental. So you're going to have the full cap offset. If you're thinking just up to where we were targeting, yes, you would see the reversal of that where -- or you wouldn't see as much of the offset, right, because we're already offsetting some of that for them. But when you get above where we were targeting, that is all incremental. That is you still have the 30% cap offset. And we can -- you can follow up with Lisa, if you have more questions, but you really have to think about the target and then on top of it, what's below, what's above.

Operator

Our last question today will come from George Hill with Deutsche Bank.

George Hill

I guess I'll just take mind a point of clarification, Celeste. It sounds like if I'm thinking about 2027, you guys are pricing to about 8.5% trends, but trend is currently running, call it, maybe 7-ish. So the question is, as we think about margin expansion for 2027, kind of how much of it is coming from the pricing initiatives versus how much of it is coming from internal cost control initiatives? And kind of should we think of this level of conservatism as kind of what terms like the new normal disciplined operating model?

Celeste Mellet

So to be clear, I said 8% to 9%. I did not say 8.5% is the range. The -- and the reason for that, as I called out, is, in large part, driven by our expectation of a very robust, robust health technology pipeline really driving Part D, the Part D component up to 14% to 15%. This year, we're closer to 11% to 12%. And then the med cost on the margin a little bit higher as well. We don't price or look at trend in terms of operating -- I mean, it is part of operating discipline, but you have to be able to justify the costs that you price into your bids. You can't just add to be conservative, you have to really be able to justify those expenses. And based on the various pieces in particular, on the Part D side, it drives that higher trend, and that is reflected in our bids.

And I would say in terms of the improvement for 2027, a large part of it is going to be driven by the pricing. But you will have continued upside from some of the other components. We had a benefit from our transformation this year. We had a nice tailwind. If you recall, back at the beginning of the year, we walked through all of the things we had done to offset the Stars headwind. We would have very little earnings if we hadn't taken action to offset the Stars headwinds. So we have some of that already. The real incremental progress is going to be because of the pricing.

James Rechtin

Yes. Let me just layer 1 more thing on there, which is, the way that I would think about what we're trying to do to manage the business, it's less about conservatism and it's more about discipline. It is about running the business in a way where we are planning across multiple years, looking out and understanding how the external environment may change, good or bad, being prepared to be able to adapt to those things and then running with a level of discipline in year that we are holding ourselves accountable across all pieces, all of the drivers of this business. The 4 things that I talk about every single quarter, we need to be operating against all 4 of those things every single day, every single week, every single quarter, every single year.

And so we have to make decisions internally that create visibility and clarity into all 4 of those elements in a way that our team can go execute successfully against those. That is what we're doing. That is why we're disciplined about saying what is top quartile and how do we manage to that? That is why we are disciplined about saying how do you manage the balance sheet in a way where even when you just had a couple of years of depressed earnings, you can actually take your debt to cap down, right?

We took our debt to cap down in a couple of years that were very difficult for the business, and we did that because we were disciplined about how we're managing the balance sheet. That is how we want to manage the entire business, and it is less about conservatism and it is much more about just being disciplined so that we know that we are delivering quarter after quarter, year after year.

With that, I want to go back, and I want to kind of close where we started this conversation today. We are in a good place. We are executing. We have a strategy that, again, all signs are pointing to it is working. We are increasingly seeing the results of that, and we're seeing the results of our team doing really good work, and this is moving us towards being ahead of plan. You can see this in our earnings guidance today. You can see this in our top quartile and better results in Stars. You can see this in how we are successfully managing a robust growth -- membership growth in 2026. And each one of these milestones is evidence that we are, in fact, planning across multiple years, preparing for the possibility that there may be unexpected external factors that we have to navigate, and we're operating with an improved level of operating discipline day in and day out.

We're turning clear goals into action across our team in a shared way. So yes, we have individual accountability, but we also have shared accountability to hit numbers. We're acting and moving earlier, and we make it easier for the people that we're serving, for our members and our patients. These milestones and momentum are all improving our outlook for the next couple of years and beyond the next couple of years. These are things that create sustained value over time.

I'm truly proud of how our team has responded over the course of the last couple of years. I'm thrilled that more is visible externally. But I'm actually more energized about what we can achieve going forward and where we're headed.

And so with that, I just want to say thank you for joining us this morning and for your interest in Humana. And I want to say thank you to the 65,000 associates who serve our members and our patients every day. They are what make all of this happen, and we appreciate your support, and we hope you have a great day. Thank you.

Operator

This concludes today's conference call. Thank you for participating. You may now disconnect.