Humana Inc (HUM) — Q2 2025 Earnings Call Transcript

Thank you, and good morning. I hope everyone had a chance to review our press release and prepared remarks, which are both available on our website. 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 where Jim and Celeste will be joined by George Renaudin, President of Humana's Insurance segment. 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 second quarter 2025 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 and future filings or communications regarding our business or results. Today's press release, 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 references to earnings per share or EPS made during this conference call refer to diluted earnings per common share. Finally, the 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 will turn the call over to Jim Rechtin.

Thank you, Lisa. Good morning, everyone, and thank you for joining us. As you've already seen, we delivered a good second quarter and first half relative to our expectations. The outperformance was driven primarily by CenterWell Pharmacy as well as better-than-expected individual MA membership. Our second quarter medical cost trends were in line with expectations. And given these results in our solid first quarter, we are raising our full year 2025 EPS outlook from approximately $16.25 to approximately $17. While we still have challenges to navigate, the external environment this year continues to evolve largely in line with our expectations, and we are executing against our plan. There's actually a lot happening, and I have a great deal to cover today. So let me just remind everybody that I'll frame my comments as I typically do around the four basic drivers of our business. The first driver is MA product and experience, which drive customer growth and retention. Second is clinical excellence, which delivers clinical outcomes and medical margin. Third is delivering a highly efficient back office and fourth, is capital allocation and growth in both CenterWell and Medicaid. Let me start with our Medicare product and experience. Individual MA membership, as I mentioned before, has declined less than we expected. Part of this improvement is that we've seen more bounce back members. And so these are members who chose another plan last autumn during AEP, but have come back to us during OEP and ROI. These members typically have better year-one economics because we know them, and we can provide better clinical care. As you may remember from Investor Day, our retention strategy is an important lever for us on our path to a more sustainable and reliable margin. And so we're excited to see these members returning to Humana. We are also taking aggressive steps to continue to improve the experience for our members in an effort to build upon this performance. There's a couple of examples. The first is, last week, Humana announced new actions to simplify and streamline the prior authorization process. This builds on the recent commitments made by multiple health plans, including Humana, that were announced by AHIP in June. Humana's actions, which go even further than our initial commitment through AHIP will help ensure our members get the right care in a timely manner while also reducing administrative burdens for physicians as well as improving the experience for our members. I think it's important that we remind everyone that we believe that prior authorization is an important check and balance to ensure appropriate care. It's just that it should be invisible to our members. In another example of our focus on experience, we have entered into a new partnership with the healthcare software company, Epic. This partnership makes Humana the first health insurer to integrate health plan information directly into MyChart's accounts. Why is this important? This brings health plan coverage information into the same place where members frequently go to manage their care decisions. In essence, it provides increased transparency to the cost of care. We know that visibility into the cost of care when care decisions are being made is a big deal for our members, and we want to do everything we can to provide that visibility and transparency. Now let me turn to clinical excellence. We are going to focus today almost exclusively on Stars. We'll hit BY '27 and '28 along with the Stars litigation. I'll start with the Stars litigation. The court dismissed our case a couple of weeks ago on administrative grounds. They did this because we had not exhausted the optional appeals process with CMS when we originally filed our lawsuit. The appeals process with CMS is now over, and so we have refiled our Stars case in the same court. As we wait for a new ruling, our path forward remains the same. We are continuing to press ahead with urgency on BY '27 and BY '28. Operationally, we are continuing to make strong progress. We are closing gaps in care and driving both quality and experience for our customers. And so there's no change in our message or our tone here today. As a reminder, for BY '27 results, we will be entering a quiet period when we receive planned preview data. So after today's call, we will not be discussing BY '27 Stars until the final results are released by CMS in October. Shifting to the area of a highly efficient back office. We have a lot of activity happening in this area right now. During Investor Day, we shared that we were focused on transforming the organization, transforming the organization to enable scalable growth and drive operating leverage. This is a multiyear transformation, and it will include both near-term tactical cost programs, but also longer-term efforts to change how we operate through increased automation and use of technology. This week, we notified eligible employees of an early retirement program to help accelerate efforts with our operating model and to streamline cost. In the next few months, we will also be expanding our efforts to contract out additional aspects of our shared services functions. We are doing this in an effort to streamline and optimize outsourcing capabilities. We will also be evolving some of our employee benefits to bring them in line with industry standards. I really want to emphasize that while these changes will reduce costs, the intent is to enable our broader strategy. This will be a multiyear transformation. It will be taken at a measured pace. And the objective is to create a more nimble technology-enabled organization that can respond more quickly to consumer needs and expectations. Now let me turn to capital allocation and the growth of our Medicaid and CenterWell businesses. We're seeing exciting progress in both businesses right now. Strategic expansion of Medicaid continues with the launch of the Virginia contract, this brings our active footprint to 10 states with 3 more states awarded in pending. I know there's been a lot of curiosity about the impact of the Big Beautiful Bill. Our footprint in Medicaid is largely in non-expansion states, and it tends to be skewed towards the LTSS or long-term support services population. These geographies in this population are less impacted by the bill. So while the bill will certainly have some impact, we expect it to be more muted for us versus Medicaid broadly. We remain committed to our Medicaid strategy and the assumptions we made at Investor Day about margin progression. Finally, we are encouraged by our CenterWell Pharmacy outperformance year-to-date. This has been driven by two things: we've seen higher direct-to-consumer volume, and we have seen favorability in Specialty Pharmacy, which is seeing higher volumes and a more favorable drug mix than expected. So to conclude, all in, we are pleased with our solid performance year-to-date and our improved full year 2025 outlook. As we look ahead, we remain focused on delivering a more stable and compelling MA margin. We continue to have conviction that the strong core fundamentals and growth outlook for MA will allow us to deliver compelling shareholder value over the long term. And with that, I will turn it to Celeste for a few remarks before we go to Q&A.

Thank you, Jim. Our second quarter results reflect solid execution across the enterprise as we focus on returning the business to its full earnings power. And while we remain appropriately prudent in our assumptions heading into the back half of the year. To date, the underlying fundamentals of the business, including membership and patient growth, revenue and medical cost trends are developing in line to better than expected. We are pleased that our performance and outlook support our improved full year adjusted EPS outlook of approximately $17. And it is important to note that this outlook contemplates an additional approximately $100 million in incremental investments to improve member and patient outcomes and support operational excellence. The additional investments are focused in areas where we have seen strong returns to date, such as pairing in-home visits with virtual health to better engage members who don't have a primary care provider and closing gaps in care. Turning to the balance sheet and capital deployment. We continue to execute on our efforts to increase the efficiency of our balance sheet and fortify our foundation. And we're making the progress on the sale of noncore assets and optimizing our capital requirements. We will share more on these efforts that plans finalize in the coming months. With respect to capital deployment, we will remain prudent in our near-term approach, taking a balanced view to evaluating capital investments and returns. As I shared with you at our recent Investor Day, we intend to focus on maximizing shareholder value by executing on share buybacks to offset dilution from stock-based compensation, growing dividends in line with earnings as they recover and over the long term, executing on accretive M&A for which we have a proven track record. Accordingly, we completed approximately $100 million of share repurchases in the second quarter to offset dilution from employee issuance and do not have additional repurchases contemplated for 2025. During the quarter, we also opportunistically bought back approximately $200 million of debt due in 2027, using the proceeds from our bond issuance earlier this year. Looking ahead, we will continue to manage the levers within our control, focused on delivering best-in-class clinical excellence, transforming the company to enable scalable growth and driving enhanced operating leverage. We believe that these efforts will allow us to expand margin and realize the earnings potential of the business while driving better outcomes for our members, patients and associates. With that, I will turn the call back to Lisa to start the Q&A.

Great. Thank you, Celeste and Jim. Before starting the Q&A, just a quick reminder for fairness to those waiting in the queue, which we do have a long list in the queue. We ask that you please limit yourself to one question. So operator, with that, if you'll please introduce the first caller.

In your prepared remarks, you highlighted that cost trends were in line or better than your expectations. Can you talk about what cost trend is actually better than your expectations? And within that, can you just talk about how Medicaid is doing since some of your peers are having some trend problems in that book of business?

Yes. Thank you, Ann. We're pleased to report that our results are generally meeting or exceeding our expectations. On the revenue front, CenterWell has performed better than anticipated, with stronger patient growth earlier in the year. As Jim mentioned, we've also experienced better-than-expected revenue growth in our pharmacy operations. On the insurance side, membership growth is also expected to surpass our earlier forecasts. Our current guidance anticipates a membership decline of around 500,000, an improvement from our previous estimate of 550,000. This adjustment is contributing to increased revenue while maintaining our medical loss ratio. Overall, our medical and operating costs, aside from the investments we've discussed, are aligning well with our expectations, and in some areas, exceeding them. Regarding Medicaid, Jim shared some insights, and now I'll hand it over to George to elaborate on the states and programs we're engaged with, which are enabling us to achieve our objectives for the year.

Yes. Thanks, Celeste. So as you think about our Medicaid business, as Jim said, you talked about the footprint. But there are really a few reasons why you can extrapolate across the whole industry that the Medicaid performance. And really, that's a result of three significant differences that you have to think about with Medicaid. One is the products that we're in. And so as Jim said, we're much more oriented towards the LTSS population than the traditional Medicaid population. So that's one factor that you have to think about. The second is the state footprint. And as you think about the state footprints and where we are, we are in states that we have worked very well with the states on the rate development and things are moving well there. Now one of the things you may say is, well, you're large in Florida. I think that one of our competitors did acknowledge that their Florida problem was really specific to a population that we don't have exposure to. So again, you have to think about product first, you have to think about the state footprints. And then the third part that is really important to think about with Medicaid is the network structure. And we believe that our network structure with our heavy emphasis on value-based care creates a differentiator versus where we are elsewhere. So with regard to Medicaid, we're really proud of the development we've had and the expansion we've had into now 10 full states and 3 more coming online. One thing that we should also mention is, for example, we now have a new Illinois contract that will be coming on. It's a big opportunity for us that emphasizes our prioritization of Medicaid, where we're focusing very hard in states that are linked, where the Medicaid and D-SNPs are linked and where Humana has an outsized dual membership to protect. So we feel good about development we've seen in Medicaid to date.

Yes. I think just to sum it up for you, Ann, Medicaid is running in line with our expectations. We're continuing to make progress on new states, and we feel good about where we are.

Great. I was wondering if you could talk a little bit more about the Part D performance and then any comments that you have on the CMS regulations that were just released a couple of days ago and how you're thinking about that for 2026.

I will discuss our performance up to now, and then I'll pass it over to George to cover the recent CMS announcement. First, there isn’t much to report about Part D. The member mix and prescription trends align with our expectations. As a reminder, we anticipated a low double-digit trend on the prescription side, and it has matched those expectations. We haven’t observed any unexpected changes in member behavior, and members are currently responding as anticipated. The progression throughout the year is expected to continue accordingly. Now, I’ll hand it over to George for further insights.

Yes, Celeste. There's not much more to add aside from the fact that we took the IRA changes into account when forming our bid strategy and setting our guidance. The specialty drug trend is high, which we anticipated, and that's the good news; it's evolving as we expected. We're confident in the pricing strategy we've implemented. Our co-pay and coinsurance structure is functioning as intended. This year, our PDP is developing as we planned, and as Celeste mentioned, members are progressing through the quarters as we expected, which is encouraging. Regarding next year’s pharmacy and the changes you’ve seen, for instance, with CMS's recent rules and the national average bid, we approached the bidding cautiously due to the uncertainty surrounding the high rate for '26. However, the outcomes from the risk orders and the national average bid have been slightly better than we anticipated, which is a positive development. From what we've observed regarding direct subsidies, the industry Part D seems to be more stable next year and aligns closely with our expectations, perhaps even slightly better.

One of your peers noted a pretty meaningful pullback in the individual PPO market next year. Just curious how you're thinking about the implications of that to your own membership growth and margins for next year?

Yes, I'll make a few brief comments before passing it over to George to discuss some specifics. First, there is a significant question on everyone's mind in the industry. Underneath that, there are two key points. One is the concern about a risk-prone population that seems to move between plans. The second is why we are optimistic about our current situation and our outlook for next year. The overarching response to this is that, as we mentioned during Investor Day, we don’t view membership itself as problematic. Instead, we believe the issue lies in the benefit packages and products. If the product and benefit structure are well-designed, all members can be valuable and attractive. We have made significant improvements to our products over the past two years, and we feel confident about our current position as well as our future trajectory. While others in the industry may not have made similar improvements, we see this positively impacting the sector as a whole. With that said, I’ll let George share more details. George?

Yes. Thanks, Jim. As Jim said, I understand why everyone is thinking about this question. But let me start by reminding you of the market dynamics that we've played out over the last few years. We were transparent almost two years ago now in discussing utilization trends we are seeing, and the impact of v28, and we made adjustments each year since then. We are the only plans to reduce benefits in any way in '24 and we reduced more benefits and more significant than just about all of our competitors in '25. In addition to that, we executed on the combination of plan and benefit county exits impacting 550,000 members. Given these two rounds of significant benefit cuts, we have a significant gap to peers' benefit value while some peers held their benefits stable or even invested more in their benefits. Now it's important to look at the granular MACVAT data. I know a lot of you had pulled that Milliman MACVAT information, but you have to isolate the growth plans because if you simply look at the averages, without taking out the legacy plans that no one is really selling anymore, you'll get an inaccurate view of how the plans compare. However, if you evaluate the growth plans, those plans you actually have seen growth on over the last couple of years, you will see the significant gap to our peers that has resulted from the two years of benefit reductions we've implemented. And additionally, we also did plan and county exits for 2025 that impacted 550,000 members. We've recaptured 40% of those members in other MA offerings. Our goal, if you will recall, was 50%. And we will have been happy with even more recapture because those plans, we feel confident are being priced correctly. So keep in mind, this 40% recapture rate of these exited members, as you hear the 2025 trends that we're saying today are tracking in line with expectations. To reiterate, when members rejoined us in plans that were priced appropriately considering the funding and medical cost trends, we're tracking in line with expectations that we set out in our guidance. We have also specifically evaluated how those recaptured members and plans are performing, and we feel good about our benefit structure and the members we recaptured where we price them for the long-term value. And for 2026, our benefits are largely stable in some places, we may have invested a little bit, and in others we may have pulled back some. But even with the significant cut by peers, if they do that for '26, we still anticipate having a gap to the next richest benefit in the market based upon an in-depth analysis of our competitors' opportunities under the various bid rules, including the TBC rules. So the point is, we continue to feel good about the current run rate of our plans and are confident that our plans are priced appropriately given the funding environment cost trends that we're all experiencing, even should we have greater growth.

I was hoping you could speak to what you saw in terms of inpatient utilization trends in Medicare Advantage during the second quarter. For context, one of your competitors spoke to an accelerating trend in the second quarter. So it would be good to get your perspective on your data that you have to date?

Yes. Thank you for the question. On the inpatient side, things are performing better than we expected regarding both admissions and cost per unit. We're not experiencing any significant acceleration; in fact, at the start of the year, the flu season was slightly higher but still within our expectations. Overall, we are seeing trends as we anticipated.

I wanted to get an update on Stars. I realize you're not ready to share specific details or cut points yet, but I believe the planned preview one has been released. This should give you a rough idea of your performance. There's significant interest in this information, so I would appreciate it if you could provide insights into how your performance in Stars has been. Do you anticipate that, upon receiving the final data and regardless of the cut points, investors will see a noticeable improvement in your underlying Star metrics?

Yes. Justin. The Plan preview one data is not available. Honestly, if it were, we would not be discussing the situation for 2027 at all. So, as of now, it is not released, and we don't have any additional visibility. To reiterate what I have mentioned before, we were not where we needed to be back in late September to early October last year. We have made significant operational progress and feel optimistic about it. You will notice improvement in our underlying metric performance. If you review each metric, our results have indeed improved. The real question is how much the industry has progressed alongside us, which affects the cut points. Currently, due to the absence of PP1 data, we lack visibility on that, which is why we will enter a quiet period over the next few months as that data becomes available.

Great. I was wondering if you could talk a little bit more about the Specialty Pharmacy strength and what was kind of driving that and some of the Part D dynamics that kind of flow through there from an IRA perspective? And how is that kind of playing out relative to your expectations at this point?

In the Specialty Pharma sector, specifically within the CenterWell Pharmacy business, our strong performance this year is largely due to strategic changes in how we organize and market that business. We have made significant investments in establishing robust partnerships with pharmaceutical companies, which has led to new opportunities through our direct-to-consumer model. For example, we have formed new partnerships with Ro and Weight Watchers to sell some GLP-1 products, and we anticipate seeing more of this type of business in the future. We are pleased with our progress this year, which has exceeded our expectations. Additionally, there is a general trend of outperformance in the Specialty industry this year. However, our specific success has been augmented by gaining access to several limited distribution drugs that we were previously unable to procure. These advancements are primarily a result of the partnerships we have developed. In the past, we were excluded from accessing these drugs, but now we have successfully gained that access. We are enthusiastic about the progress and momentum in this area. Regarding the trends in the PDP, as I mentioned earlier, the member mix and the prescription trends are aligning with our expectations, and we have not observed any unexpected behavioral changes.

Last quarter, you spoke about, I think, a couple of hundred million of additional investments that were mitigating upside to the guidance. And I believe, Celeste, I heard you say there was another $100 million. I want to confirm that's incremental spend that is in addition to the couple of hundred from 1Q. And then I'm curious why not invest more instead of letting it flow through the guidance this quarter?

I believe you're asking about the additional investments. Yes, that’s correct. We are confirming that it is an incremental $100 million. We see significant opportunities for investment across the business, particularly in our transformation efforts. This includes incremental investments in member retention, AI, and general operational efficiencies, as well as a bit in Stars where we're witnessing strong performance. We are being strategic about our spending and assessing where it makes financial sense to invest; we want to ensure our expenditures lead to good returns. We will indeed continue to seek additional opportunities, but we plan to allocate that $100 million where we believe it can drive meaningful returns and enhance some of our transformation initiatives and potential growth in Stars.

Yes. The one thing I would just add to that is we pulled some investment forward. So things we thought we were going to do next year got pulled into this year. But ultimately, you run into just a limit on how much of that you can do. How much can you operationally absorb in any given period of time. We'd love to be pulling more forward. But right now, we're digesting the investments that we're making. And that's a big part of it as well.

I would like to ask about two quick things related to CenterWell. You are continuing to grow membership in value-based primary care and are meeting your metrics. One thing you mentioned is that you are member agnostic, while some of your competitors are more focused on medically complex cases. Is that why you are appearing to perform better? Additionally, do you have any updates on the home health rule? I know you are shifting towards more value-based care, but you remain one of the largest fee-for-service providers, and the proposed rules are challenging. It’s difficult to understand how much this might impact the overall enterprise, given that even though you are significant in that area, it is relatively small in the context of the entire enterprise.

Yes. Regarding your first question about patient growth, we have opened more clinics, and they are performing well. This success is due to a mix of word-of-mouth referrals and marketing efforts. There isn't a specific group of patients driving unexpectedly high growth. We are satisfied with the current trends, including payment growth, and our expectations for that business remain in line with what we previously thought. Concerning home health, we are indeed disappointed by the proposed net rate reduction of over 6 percent. We don’t believe this accurately reflects the wage and inflation pressures the industry is facing, as labor constitutes approximately 75 percent of that rate, which should be tied to those costs. We also expected that CMS would eventually introduce a behavioral adjustment, but we did not anticipate it being as severe as proposed. Additionally, data collection is ongoing and is set to continue until the end of 2026 before it can be analyzed, so we think it is premature to make this adjustment. We are actively advocating for reasonable home health reimbursement and are assessing the proposed impacts on our Home Health operations. While we do have a natural hedge in our Insurance business, this would not completely offset the proposed changes. However, we are confident that there are additional strategies at the enterprise level that can mitigate the challenges not covered by our Insurance segment.

I would like to revisit your comments regarding MA benefit actions in 2024 and 2025, noting the more cautious approach you've adopted compared to some competitors. How might this affect member experience before Stars? Also, could you remind us about the types of investments you're currently making that might alleviate these concerns and help you achieve your targets for the 2028 bonus year?

Yes, great question. We are monitoring this closely is where I would start. Certainly, any time that you take benefit actions, it does create some abrasion with members. We have been extremely active in diligence in essentially taking offsetting operating actions. So making sure that we're being very clear in how we communicate and explain the changes to our members, making sure that we're responsive to their concerns, et cetera. And all in all, we feel pretty good about where we are at on that specific item, meaning member experience related to cuts and benefits last year. But yes, I mean, every time you go through a set of cuts, there is some member abrasion and you have to take that into account in your operations and adjust for it. George, is there anything that you would add to that?

Yes, Jim, I would add that we have several methods for monitoring our performance. We regularly track NPS during every call, aiming to measure both the NPSR, which reflects relationships, and the NPST, which is specific to each transaction and interaction with members. So far, we haven't seen any concerning trends in that data. Additionally, we conduct mock cap surveys similar to the annual surveys done by CMS to stay informed on our status, and again, there’s nothing alarming in those results. Overall, things appear to be positive. It's important to note that many of our initiatives enhance the member experience. For instance, we introduced Epic MyChart, which integrates member and provider interactions in one place, allowing members to access all their plan information and manage appointments conveniently. The significant investments we've discussed are designed to enhance the member experience. Our efforts to improve health outcomes and Stars ratings are largely driven by our commitment to enhancing member satisfaction by ensuring they receive necessary care. We focus on proactive outreach and affordability in our care delivery. The decisions we previously made regarding benefit cuts were carefully analyzed to maintain care affordability, with the member experience as our priority. I’m particularly pleased with the expertise we've added to our team, such as David Dintenfass, who ensures we prioritize consumer experience. We are implementing numerous strategies to enhance the member experience while prudently managing our benefit offerings.

Yes, let me pull it back to just point out two things. One, the bounce-back membership that we are seeing this year, I think actually is kind of proof that a bunch of those measures are working. And so again, we look at the bounce back, the degree of bounce-back membership that is coming through OEP and ROI. And it makes us feel very good that we're doing the right things to adjust to the benefit changes that we made last year. And then the second thing is, this is really what you're driving at is, are we taking this into account in our Stars calculations? And do we still feel good about our overall Stars performance and the direction that it's headed even when you account for this? And the answer to that is yes. We're certainly taking it into account. And even when you think about some of that member abrasion that comes from reduced benefits, we feel good about the direction we're headed in. We feel good about the trajectory for BY '28.

Jim, you just kind of spoke about this, but could you provide a little bit more color on what's driving the bounce back on the members that are returning to Humana intra-year, kind of where are those guys coming from? And kind of what do you think from a benefits perspective that's bringing those people back?

Yes, I'm glad to address that. Firstly, it's primarily in areas where we've experienced a loss of membership, which shouldn't come as a surprise. However, within those regions, the losses are fairly widespread with no particular trend. Generally, when someone decides to leave Humana and later returns, it's often because they were caught off guard by their experience after making the switch. This surprise can stem from not fully understanding the benefit package or issues related to customer service. Typically, they return to Humana because they are familiar with what to expect in terms of their experience. This emphasizes the importance of clarity regarding our benefit packages; the clearer we are and the more informed our members feel, the more comfortable they are with making even tough decisions. I believe that contributes to what you're observing. George, do you have anything to add or any other insights?

No, Jim. I think you're right. It's about the product and services and whether or not they got what they expected when they left us to go somewhere else. And they were the empty they know we have good services as we talked about at Investor Day, we're known for our service, and we're known for the way we approach our membership. So I think that all just plays into it.

I wondered if you could remind us what your assumptions for trend were this year in light of your comments about costs developing in line with those? I know Celeste referenced the low double-digit for pharmacy. Just curious to get the other components. And then what are you assuming for trend in '26 relative to what you were experiencing in '25, please?

We had anticipated low double-digit growth for pharmacy, and we still expect that to continue into next year. Regarding medical costs, we initially projected mid to high single-digit growth, and we expect that trend to remain the same for next year.

I know the lawsuit that you have probably colors your answer, but just any updated thoughts on RADV, whether you have to make assumptions and bids around prospective CMS clawbacks on premium payments that they actually make it through the 2019 audits.

Yes, there's really not a lot of color that we have to provide on this one. Partially, yes, with the litigation, there's a limit to what we can say. But partially, there's just a lot of unknowns to be frank. And so very little color to add on this particular topic.

Jim, if I could just add one other thing, it's just we've long supported the auditing of the contracts. As long as it takes into account the actuarial equivalence between MA and fee-for-service.

I was hoping you could clarify the moving pieces in the guide based. If I take about 1/3 of the 1Q beat that was described to CenterWell and all the 2Q beat and run rate it adjust for the investment spend, I get pretty close to the guide boost about $0.06 below. Is that the right way to think about it that the guide boost is primarily run rating the CenterWell outperformance year-to-date? Or are there other moving pieces? And can we think about the CenterWell strength as being sustainable beyond 2025?

Yes, that's correct. We anticipate that some of the outperformance will continue throughout the year, especially in the growth of CenterWell PCO. This trend is expected to extend into next year as well. On the Pharmacy side, we're seeing strong performance with Specialty and continued momentum in direct-to-consumer. Additionally, we noted that membership figures have exceeded our expectations. Therefore, our guidance for the year has been adjusted to a loss of up to 500,000, compared to the previous 550,000 estimate. This adjustment will carry through the rest of the year and into next year. There were also some factors in the first quarter that were specific to timing or one-time occurrences, which we are not including in our run rate.

I understand you feel strongly about your benefit richness and confident in attracting good profitable membership. I'm curious though, is there any level of membership growth percentage that you think if growth starts tracking to like 15%, 20%, 25%, where it could begin to potentially compromise earnings next year? And if you were to get early sense of that through AEP? Would you work to tap that growth if necessary? And then also, I understand plan preview one data is not out yet, but I believe plans have already received the raw results for cost center metrics earlier this month. Any ability to comment on how those results look out to your expectations, especially since there's such high sensitivity of even missing one single quality Star rating.

We will not comment on any data we have received from CMS as we are entering a quiet period and won't provide further comments until October. Regarding membership, we’re optimistic about our product and the membership levels we anticipate receiving. While there could be operational challenges at certain levels, we do not expect that to be likely. We will monitor the situation and make adjustments as necessary. If we are able to manage the growth effectively, our focus will be on long-term value rather than immediate year-one challenges. We will communicate clearly and transparently as we progress. While the possibility of operational issues exists, we believe it is low. Our primary concern is whether we can handle the growth operationally, rather than worrying about year-one economics that could hinder growth. I hope that answers your question.

Yes, maybe if I could add sort of a much less strategic and more tactical side. The timing of when membership growth matters a lot. So the AEP membership, you have a full year to absorb the marketing, but if you pick up a member late in the year. So if we picked the members late this year, late next year, they tend to come with a headwind because you don't really have a lot of revenue associated with them, and you have a lot of marketing costs. We do have all of our expectations for any back-end growth in '25 reflected in our guidance as of now.

Hey, with that, I just want to thank everybody for joining us this morning. And I want to thank everybody for your interest in Humana. And finally, I want to thank our 65,000 associates who serve our members and patients every day. We appreciate your support, and we hope you have a great day. Thanks.