What changed in this filing

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Item 7. Management’s Discussion and Analysis

2025-02-20 compared with 2024-02-15 · 123 added, 149 removed, 433 unchanged (39% of the section changed)

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Following a strategic review, we determined the Employer Group Commercial Medical Products business was no longer positioned to sustainably meet the needs of commercial members over the long term or support our long-term strategic plans.

The exit from this line of business will be phased over the 18 to 24 months following our February 2023 announcement.

Sale of Hospice and Personal Care Divisions

On August 11, 2022, we completed the sale of a 60% i nterest in Gentiva (formerly Kindred) Hospice to Clayton, Dubilier & Rice, or CD&R, for cash proceeds of approximately $2.7 billion, net of cash disposed, including debt repayments from Gentiva Hospice to Humana of $1.9 billion.

In connection with the sale we recognized a pre-tax gain, net of transaction costs, of $237 million, which was reported as a gain on sale of Gentiva Hospice in the accompanying consolidated statements of income for the year ended December 31, 2022.

We anticipate the exit of this line of business to be finalized in the first half of 2025.

Value Creation Initiatives and Impairment Charges

In order to create capacity to fund growth and investment in our Medicare Advantage business and further expansion of our healthcare services capabilities beginning in 2022, we committed to drive additional value for the enterprise through cost saving, productivity initiatives, and value acceleration from previous investments.

As a result of these initiatives, we recorded charges of $281 million and $436 million in 2024 and 2023, respectively, primarily within operating costs in the consolidated statements of income.

The value creation initiative charges primarily relate to $256 million and $237 million in asset impairments in 2024 and 2023, respectively, as well as $25 million and $199 million in severance charges in connection with workforce optimization in 2024 and 2023, respectively.

In addition, we recorded impairment charges of $200 million, relating to indefinite-lived intangible assets, in 2024 and $91 million, including $55 million relating to indefinite-lived intangible assets, in 2023.

The indefinite-lived intangible asset impairment charges were included within operating costs in our consolidated statements of income with the remaining impairment charges included within investment income.

Further, we recorded severance charges of $70 million in 2023 within operating costs in our consolidated statement of income as a result of our exit from the Employer Group Commercial Medical Products business.

The emergence and spread of the novel coronavirus, or COVID-19, beginning in the first quarter of 2020 has impacted our business.

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During 2022, we experienced lower overall utilization of the healthcare system than anticipated, as the reduction in COVID-19 utilization following the increased incidence associated with the Omicron variant outpaced the increase in non-COVID-19 utilization.

The significant disruption in utilization during 2020 also impacted our ability to implement clinical initiatives to manage health care costs and chronic conditions of our members, and appropriately document their risk profiles, and, as such, significantly affected our 2021 revenue under the risk adjustment payment model for Medicare Advantage plans.

Finally, changes in utilization patterns and actions taken in 2021 as a result of the COVID-19 pandemic, including the suspension of certain financial recovery programs for a period of time and shifting the timing of claim payments and provider capitation surplus payments, impacted our claim reserve development and operating cash flows for 2021.

The COVID-19 National Emergency declared in 2020 was terminated on April 10, 2023 and the Public Health Emergency expired on May 11, 2023.

Value Creation Initiatives and Impairment Charges

As a result of these initiatives, we recorded charges of $436 million and $473 million in 2023 and 2022, respectively, within operating costs in the consolidated statements of income.

These charges were recorded at the corporate level and not allocated to the segments.

We expect to incur additional charges through the end of 2024.

The value creation initiative charges primarily relate to $237 million and $248 million in asset impairments in 2023 and 2022, respectively, as well as $199 million and $116 million in severance charges in connection with workforce optimization in 2023 and 2022, respectively.

The remainder of the 2022 charges primarily relate to external consulting fees.

During 2023, we also recorded severance charges of $70 million within operating costs in our consolidated statement of income as a result of our exit from the Employer Group Commercial Medical Products business and impairment charges of $91 million, including $55 million relating to indefinite-lived intangibles.

The indefinite-lived intangibles impairment charges were included within operating costs in our consolidated statement of income with the remaining impairment charges included within investment income.

Business Segments

During December 2022, we realigned our businesses into two distinct segments:

Insurance and CenterWell.

The Insurance segment includes the businesses that were previously included in the Retail and Group and Specialty segments, as well as the Pharmacy Benefit Manager, or PBM, business which was previously included in the Healthcare Services segment.

The CenterWell segment (formerly Healthcare Services) represents our payor-agnostic healthcare services offerings, including pharmacy solutions, primary care, and home solutions.

In addition to the new segment classifications being utilized to assess performance and allocate resources, we believe this simpler structure will create greater collaboration across the Insurance and CenterWell businesses and will accelerate work that is underway to centralize and integrate operations within the organization.

2021 segment financial information was recast to conform to the 2022 presentation.

Our two reportable segments, Insurance and CenterWell, are based on a combination of the type of health plan customer and adjacent businesses centered on well-being solutions for our health plans and other customers, as described below.

These segment groupings are consistent with information used by our Chief Executive Officer, the Chief Operating Decision Maker, to assess performance and allocate resources.

Our Chief Executive Officer, the Chief Operating Decision Maker, utilizes these segment groupings and results of each segment, measured by income (loss) from operations, to assess performance and allocate resources primarily during our annual budget process and periodic forecast updates.

For segment financial information, refer to Note 18 to the audited Consolidated Financial Statements included in Part II, Item 8, "Financial Statements and Supplementary Data" of this Form 10-K.

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In addition, our Insurance segment includes our Military services business, primarily our T-2017 East Region contract, as well as the operations of our PBM business.

The CenterWell segment includes our pharmacy solutions, primary care, and home solutions operations.

The segment also includes our strategic partnerships with WCAS to develop and operate senior-focused, payor-agnostic, primary care centers, as well as our minority ownership interest in Gentiva Hospice operations.

Services offered by

this segment are designed to enhance the overall healthcare experience.

The CenterWell segment includes our pharmacy, primary care, and home solutions operations.

Services offered by this segment are designed to enhance the overall healthcare experience.

These services may lead to lower utilization associated with improved member health and/or lower drug costs.

The results of each segment are measured by income (loss) from operations.

Intersegment sales and expenses are recorded at fair value and eliminated in consolidation.

Intersegment sales and expenses are recorded primarily at fair value and eliminated in consolidation.

Members served by our segments often use the same provider networks, enabling us in some instances to obtain more favorable contract terms with providers.

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These corporate amounts are reported separately from our reportable segments and are included with intersegment eliminations.

COVID-19 disrupted the pattern of our quarterly earnings and operating cash flows largely due to the temporary deferral of non-essential care which resulted in reductions in non-COVID-19 hospital admissions and lower overall healthcare system utilization during higher levels of COVID-19 hospital admissions.

At the same time, during periods of increased incidences of COVID-19, COVID-19 treatment and testing costs increase.

One of the product offerings of our Insurance segment is Medicare stand-alone prescription drug plans, or PDP, under the Medicare Part D program.

Our quarterly Insurance segment earnings and operating cash flows are impacted by the Medicare Part D benefit design and changes in the composition of our membership.

The Medicare Part D benefit design results in coverage that varies as a member’s cumulative out-of-pocket costs pass through successive stages of a member’s plan period, which begins annually on January 1 for renewals.

Part D benefit design results in coverage that varies as a member’s cumulative out-of-pocket costs pass through successive stages of a member’s plan period, which begins annually on January 1 for renewals.

These plan designs generally result in us sharing a greater portion of the responsibility for total prescription drug costs in the early stages and less in the latter stages.

As a result, the PDP benefit ratio generally decreases as the year progresses.

In addition, the number of low income senior members as well as year-over-year changes in the mix of membership in our standalone PDP products affects the quarterly benefit ratio pattern.

In addition, the number of low income senior members as well as year-over-year changes in the mix of membership in our stand-alone PDP products affects the quarterly benefit ratio pattern.

Beginning in 2025, changes to Part D under the Inflation Reduction Act are expected to increase risk-adjusted direct subsidies and cap members' out-of-pocket costs and as a result significantly impact seasonality and cost trends.

The Insurance segment also experiences seasonality in the commercial fully-insured product offering.

The effect on the Insurance segment benefit ratio is opposite of the Medicare stand-alone PDP impact, with the benefit ratio increasing as fully-insured members progress through their annual deductible and maximum out-of-pocket expenses.

The Employer Group Commercial Fully-Insured business did not impact the Insurance segment benefit ratio for the year ended December 31, 2023 and increased the Insurance segment benefit ratio by 10 basis points for the year ended December 31, 2022.

The Employer Group Commercial Fully-Insured business increased the Insurance segment benefit ratio by 10 basis points for the year ended December 31, 2024 and did not impact the Insurance segment benefit ratio for the year ended December 31, 2023.

The Insurance segment also experiences seasonality in the operating cost ratio as a result of costs incurred in the second half of the year associated with the Medicare marketing season.

The Insurance segment may experience adverse impacts in the operating cost ratio as a result of our Employer Group Commercial Medical Products exit phased over the 18 to 24 months following our February 2023 announcement.

The Employer Group Commercial Fully-Insured business increased the Insurance segment operating cost ratio by 30 basis points and increased the Insurance segment operating cost ratio by 40 basis points for the years ended December 31, 2023 and 2022, respectively.

The Insurance segment may experience adverse impacts in the operating cost ratio as a result of our Employer Group Commercial Medical Products exit.

The Employer Group Commercial Fully-Insured business did not impact the Insurance segment operating cost ratio for the year-ended December 31, 2024 and increased the Insurance segment operating cost ratio by 30 basis points for the year ended December 31, 2023.

• Our strategy offers our members affordable health care combined with a positive consumer experience in growing markets.

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At December 31, 2024, approximately 3,994,300 members, or 71%, of our individual Medicare Advantage members were in value-based relationships under our integrated care delivery model, as compared to 3,764,300 members, or 70%, at December 31, 2023.

• On January 31, 2024, Centers for Medicare & Medicaid Services, or CMS, issued its preliminary 2025 Medicare Advantage and Part D payment rates and proposed policy changes, collectively, the Advance Notice.

CMS has invited public comment on the Advance Notice before publishing final rates on or before April 1, 2024, or the Final Notice.

In the Advance Notice, CMS estimates Medicare Advantage plans across the sector will, on average, experience a 0.16% decrease in benchmark funding based on proposals included therein.

As indicated by CMS, its estimate excludes the impact of fee-for-service county rebasing/re-pricing since the related impact is dependent upon finalization of certain data, which will be available with the publication of the Final Notice.

Based on our preliminary analysis using the same factors included in CMS’ estimate, the components of which are detailed on CMS’ website, we anticipate the proposals in the Advance Notice would result in a change to our benchmark funding that is approximately 160 basis points worse than our expectation of a flat rate environment.

This difference is primarily due to the proposed effective growth rate restatements, which we did not anticipate in light of the higher medical cost trends experienced across the industry, as well as the negative impact of CMS’ proposed normalization factors.

As part of our typical engagement with the agency, we will provide actuarial data with respect to our concerns regarding these items.

We will continue to analyze the Advance Notice and will draw upon our program expertise to provide CMS formal commentary on the impact of the Advance Notice and the related impact upon Medicare beneficiaries’ quality of care, affordability, and service to its members through the Medicare Advantage program.

• Net income attributable to Humana was $1.2 billion, or $9.98 per diluted common share, and $2.5 billion, or $20.00 per diluted common share, in 2024 and 2023, respectively.

This comparison was significantly impacted by the gain on sale of Gentiva Hospice, put/call valuation adjustments associated with non-consolidating minority interest investments, transaction and integration costs, the change in the fair market value of publicly-traded equity securities, an accrued charge related to certain litigation expenses, charges associated with value creation initiatives, and impairment charges.

This comparison was significantly impacted by put/call valuation adjustments associated with non-consolidating minority interest investments, charges associated with value creation initiatives, transaction and integration costs, impairment charges and an accrual related to certain anticipated litigation expenses.

The impact of these adjustments to our consolidated income before income taxes and equity in net earnings and diluted earnings per common share was as follows for the 2024 and 2023 periods:

(in millions)

Consolidated income before income taxes and equity in net (losses) earnings:

Gain on sale of Gentiva Hospice $ — $ (237)

Consolidated income before income taxes and equity in net losses:

Put/call valuation adjustments associated with our non-consolidating minority interest investments $ 296 $ 320

Transaction and integration costs — (48)

Change in fair market value of publicly-traded equity securities (1) 123

Accrued charge related to certain anticipated litigation expenses — 105

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Diluted earnings per common share:

Gain on sale of Gentiva Hospice $ — $ (1.86)

Put/call valuation adjustments associated with our non-consolidating minority interest investments $ 2.45 $ 2.57

Transaction and integration costs — (0.38)

Change in fair market value of publicly-traded equity securities (0.01) 0.97

Accrual charge related to certain anticipated litigation expenses 0.84 —

Accrued charge related to certain anticipated litigation expenses — 0.84

Value creation initiatives 2.33 3.50

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health insurance industry, including, among others, mandated coverage requirements, mandated benefits and guarantee issuance associated with insurance products, rebates to policyholders based on minimum benefit ratios, adjustments to Medicare Advantage premiums, the establishment of federally facilitated or state-based exchanges coupled with programs designed to spread risk among insurers, and the introduction of plan designs based on set actuarial values, and changes to the Part D prescription drug benefit design .

It is reasonably possible that these laws and regulations, as well as other current or future legislative, judicial or regulatory changes including restrictions on our ability to manage our provider network, manage and sell our products, or otherwise operate our business, or restrictions on profitability, including reviews by regulatory bodies that may compare our Medicare Advantage profitability to our non-Medicare Advantage business profitability, or compare the profitability of various products within our Medicare Advantage business, and require that they remain within certain ranges of each other, increases in member benefits or changes to member eligibility criteria without corresponding increases in premium payments to us, increases in regulation of our prescription drug benefit businesses, or changes to the Part D prescription drug benefit design (and uncertainty arising from the implementation of these changes) in the aggregate may have a material adverse effect on our results of operations (including restricting revenue, enrollment and premium growth in certain products and market segments, restricting our ability to expand into new markets, increasing our medical and operating costs, further lowering our Medicare payment rates and increasing our expenses associated with assessments);

It is reasonably possible that these laws and regulations, as well as other current or future legislative, judicial or regulatory changes including restrictions on our ability to manage our provider network, manage and sell our products, or otherwise operate our business, or restrictions on profitability, including reviews by regulatory bodies that may compare our Medicare Advantage profitability to our non-Medicare Advantage business profitability, or compare the profitability of various products within our Medicare Advantage business, and require that they remain within certain ranges of each other, increases in member benefits or changes to member eligibility criteria without corresponding increases in premium payments to us, further restrictions on service arrangements and fee payments between intercompany or vertically-integrated assets, increases in regulation of our prescription drug benefit businesses, or changes to the Part D prescription drug benefit design (and uncertainty arising from the implementation of these changes) in the aggregate may have a material adverse effect on our results of operations (including restricting revenue, enrollment and premium growth in certain products and market segments, restricting our ability to expand into new markets, increasing our medical and operating costs, further lowering our Medicare payment rates and increasing our expenses associated with assessments);

our financial position (including our ability to maintain the value of our goodwill);

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We intend for the discussion of our financial condition and results of operations that follows to assist in the understanding of our financial statements and related changes in certain key items in those financial statements from year to year, including the primary factors that accounted for those changes.

Transactions between reportable segments primarily consist of sales of services rendered by our CenterWell segment, primarily pharmacy solutions, primary care, and home solutions, to our Insurance segment customers and are described in Note 18 to the audited Consolidated Financial Statements included in Part II, Item 8, "Financial Statements and Supplementary Data" of this Form 10-K.

Transactions between reportable segments primarily consist of sales of products and services rendered by our CenterWell segment, primarily pharmacy, primary care, and home solutions, to our Insurance segment customers and are described in Note 18 to the audited Consolidated Financial Statements included in Part II, Item 8, "Financial Statements and Supplementary Data" of this Form 10-K.

Comparison of Results of Operations for 2024 and 2023

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Income from operations 2,562 4,013 (1,451) (36.2) %

Gain on sale of Gentiva Hospice — (237) (237) (100.0) %

Interest expense 660 493 167 33.9 %

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Premiums Revenue

Consolidated premiums revenue increased $13.6 billion, or 15.5%, from $87.7 billion in the 2022 period to $101.3 billion in the 2023 period primarily due to individual Medicare Advantage and state-based contracts membership growth and higher per member individual Medicare Advantage premiums.

These factors were partially offset by the year-over-year decline in membership associated with group commercial medical, group Medicare Advantage and stand-alone PDP products, as well as the phase-out of COVID-19 sequestration relief in 2022.

Consolidated premiums revenue increased $10.8 billion, or 10.7%, from $101.3 billion in the 2023 period to $112.1 billion in the 2024 period primarily due to higher per member Medicare premiums as well as Medicare Advantage and state-based contracts membership growth.

These factors were partially offset by the continued decline in stand-alone PDP membership, as well as a decline in membership in our group commercial medical business as a result of our decision to exit the business.

Services Revenue

Consolidated services revenue decreased $0.7 billion, or 15.6%, from $4.8 billion in the 2022 period to $4.0 billion in the 2023 period primarily due to the divestiture of the 60% ownership of Gentiva Hospice in August 2022.

Consolidated services revenue increased $0.4 billion, or 9.9%, from $4.0 billion in the 2023 period to $4.4 billion in the 2024 period primarily due to higher revenues associated with growth in the primary care business, partially offset by the impact of the v28 risk model revision.

Investment Income

Investment income increased $0.7 billion, or 179.8%, from $0.4 billion in the 2022 period to $1.1 billion in the 2023 period primarily due to increase in interest income on our debt securities as well as the net unfavorable mark to market impact of our publicly-traded equity securities during the 2022 period.

Investment income increased $0.16 billion, or 14.7%, from $1.07 billion in the 2023 period to $1.23 billion in the 2024 period primarily due to an increase in interest income on our debt securities.

Benefits Expense

Consolidated benefits expense increased $12.3 billion, or 13.9%, from $88.4 billion in the 2023 period to $100.7 billion in the 2024 period.

The consolidated benefit ratio increased 100 basis points from 86.3% in the 2022 period to 87.3% in the 2023 period primarily due to investments in the benefit design of our Medicare Advantage products for 2023, higher than anticipated Medicare Advantage utilization trends, which further increased in the fourth quarter of 2023, driven by inpatient utilization, primarily for the months of November and December, and non-inpatient trends, predominately in the categories of physician, outpatient surgeries and supplemental benefits, as well as the impact of continued individual Medicare Advantage growth following the 2023 Annual Election Period, or AEP, including a high proportion of age-ins, which typically have a higher benefits expense ratio initially than the average new member.

These increases were partially offset by increased individual Medicare Advantage premiums, decreased average unit costs given the additional 20% payment on COVID-19 admissions during the Public Health Emergency, which expired on May 11, 2023, as well as higher favorable prior-period development in 2023.

Further, the 2023 ratio continues to reflect a shift in line of business mix, with growth in individual Medicare Advantage and state-based contracts and other membership, which can carry a higher benefits expense ratio.

The consolidated benefit ratio increased 250 basis points from 87.3% in the 2023 period to 89.8% in the 2024 period primarily due to the continued impact of elevated Medicare Advantage and state-based contracts medical cost trends in the 2024 period as well as lower favorable prior period medical claims reserve development.

These factors were partially offset by the impact of the pricing and benefit design of our 2024 Medicare Advantage products, which included a reduction in member benefits in response to the net impact of the 2024 final rate notice and the initial emergence of increased medical cost trends in 2023.

Further, the year-over-year comparison continues to reflect a shift in line of business mix, with growth in Medicare Advantage and state-based contracts and other membership, which can carry a higher benefit ratio.

Consolidated benefits expense included $701 million of favorable prior-period medical claims reserve development in the 2024 period and $872 million of favorable prior-period medical claims reserve development in the 2023 period.

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The consolidated operating cost ratio decreased 70 basis points from 12.5% in the 2023 period to 11.8% in the 2024 period.

The ratio decrease was primarily due to the divestiture of the 60% ownership of Gentiva Hospice in August 2022, which carried a significantly higher operating cost ratio compared to the historical consolidated operating cost ratio, scale efficiencies associated with growth in individual Medicare Advantage membership, administrative cost efficiencies as a result of our value creation initiatives, as well as the impact of significantly reduced compensation accruals in 2023 for the annual incentive plan offered to employees across all levels of the company, in accordance with plan requirements, as our 2023 performance was negatively impacted by the previously-discussed higher Medicare Advantage utilization trends.

These factors were partially offset by an

increase in commissions for brokers related to the individual Medicare Advantage membership growth in 2023, the impact of accelerated charges related to value creation initiatives in 2023 compared to 2022, impairment charges expensed in 2023, the phase-out of COVID-19 sequestration relief in 2022, and an accrual recorded in 2023 related to certain anticipated litigation expenses.

The ratio decrease was primarily due to scale efficiencies associated with growth in individual Medicare Advantage membership, administrative cost efficiencies resulting from our value creation initiatives, a lesser impact of commission expense for brokers in the 2024 period compared to the 2023 period as a result of significant individual Medicare Advantage membership growth in 2023, a lesser impact from charges related to value creation initiatives in the 2024 period compared to the 2023 period, as well as the impact of the accrued charge related to certain anticipated litigation expenses in the 2023 period.

These factors were partially offset by significantly reduced compensation accruals in the 2023 period related to the annual incentive plan offered to employees across all levels of the company as our 2023 performance was negatively impacted by higher-than-anticipated Medicare Advantage utilization trends, as well as higher impairment costs in the 2024 period.

Depreciation and Amortization

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Interest Expense

Interest expense increased $92 million, or 22.9%, from $401 million in the 2022 period to $493 million in the 2023 period primarily due to higher average interest cost on outstanding borrowings.

Our effective tax rate during 2023 was 25.2% compared to the effective tax rate of 21.4% in 2022.

The year-over-year increase in the effective income tax rates is primarily due to the favorable adjustment in relation to tax basis over book basis for the sale of Gentiva Hospice recognized in 2022, which resulted in book income in excess of taxable gain, an increase in our federal and state audit reserves for 2023, as well as a reduction in the recognized value of certain net operating losses.

Interest expense increased $167 million, or 33.9%, from $493 million in the 2023 period to $660 million in the 2024 period primarily due to an increase in interest rates and higher average debt balances.

Our effective tax rate was 25.5% and 25.2% for the 2024 period and 2023 period, respectively.

The year-over-year increase in the effective income tax rate is primarily due to a change in the mix of current year earnings between our Insurance segment and our CenterWell health services segment, as our CenterWell health services segment is subject to a higher effective tax rate than our Insurance segment.

For a complete reconciliation of the federal statutory rate to the effective tax rate, refer to Note 12 to the audited Consolidated Financial Statements included in Part II, Item 8, "Financial Statements and Supplementary Data" of this Form 10-K.

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State-based contracts and other 10,915 8,108 2,807 34.6 %

Total premiums revenue 101,272 87,712 13,560 15.5 %

Premiums revenue 112,104 101,272 10,832 10.7 %

Commercial ASO 50 237 (187) (78.9) %

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Services revenue 966 1,000 (34) (3.4) %

Total premiums and services revenue $ 102,272 $ 88,562 $ 13,710 15.5 %

Total external revenues $ 113,070 $ 102,272 $ 10,798 10.6 %

Income from operations $ 1,289 $ 2,654 $ (1,365) (51.4) %

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Income from operations

Insurance segment income from operations decreased $0.4 billion, or 12.2%, from $3.0 billion in the 2022 period to $2.6 billion in the 2023 period primarily due to the same factors impacting the segment's higher benefit ratio partially offset by the segment's lower operating cost ratio as more fully described below.

Individual Medicare Advantage membership increased 843,300 members, or 18.5%, from 4,565,600 members as of December 31, 2022 to 5,408,900 members as of December 31, 2023 primarily due to membership additions associated with the 2023 AEP and continued growth in 2023.

The year-ov er-year growth was further impacted by continued enrollment resulting from special elections, age-ins, and Dual Eligible Special Need Plans, or D-SNP, membership.

I ndividual Medicare Advantage membership includes 871,300 D-SNP members as of December 31, 2023, a net increase of 202,400 members, or 30.3%, from 668,900 members as of December 31, 2022.

For the full year 2024, we anticipate a net membership growth in our individual Medicare Advantage offerings of approximately 100,000 members.

Group Medicare Advantage mem bership decreased 55,500 members, or 9.8%, from 565,100 members as of December 31, 2022 to 509,600 members as of December 31, 2023 reflecting the net loss of certain large accounts partially offset by continued growth in small group accounts.

For the full year 2024 , we anticipate a net membership growth in our group Medicare Advantage offerings of approximately 45,000 members.

Insurance segment income from operations decreased $1.4 billion, or 51.4%, from $2.6 billion in the 2023 period to $1.3 billion in the 2024 period primarily due to the same factors impacting the segment's higher benefit ratio partially offset by the impact of the lower operating cost ratio as more fully described below.

Individual Medicare Advantage membership increased 252,900 members, or 4.7%, from 5,408,900 members as of December 31, 2023 to 5,661,800 members as of December 31, 2024 primarily due to membership additions associated with the 2024 Annual Election Period, or AEP.

I ndividual Medicare Advantage membership includes 937,100 D-SNP members as of December 31, 2024, a net increase of 65,800 D-SNP members, or 7.6%, from 871,300 members as of December 31, 2023.

For the full year 2025, we anticipate net membership decline in our individual Medicare Advantage offerings of approximately 550,000 members.

Group Medicare Advantage mem bership increased 36,100 members, or 7.1%, from 509,600 members as of December 31, 2023 to 545,700 members as of December 31, 2024 primarily due to growth in small and medium group accounts.

For the full year 2025, we anticipate net membership growth in our group Medicare Advantage offerings to be relatively flat.

Medic are stand-alone PDP membership decreased 560,900 members, or 19.7% , from 2,849,100 members as of December 31, 2023 to 2,288,200 members as of December 31, 2024 primarily due to continued intensified competition for Medicare stand-alone PDP offerings.

For the full year 2024 , we anticipate a net membership decline in our Medicare stand-alone PDP offerings of approximately 650,000 members.

State-based contracts and other membership increased 91,500 members, or 8.0%, from 1,137,300 members as of December 31, 2022 to 1,228,800 members as of December 31, 2023 reflecting the impact of membership additions associated with the implementation of the Louisiana and Ohio contracts effective January 2023 and February 2023, respectively, partially offset by ending the suspension of state eligibility redetermination efforts previously enacted as part of the Public Health Emergency.

For the full year 2024 , we anticipate a net membership growth in our state-based contracts of approximately 250,000 members.

Commercial fully-insured medical membership decreased 217,600 members, or 39.1%, from 556,300 members as of December 31, 2022 to 338,700 members as of December 31, 2023 and commercial ASO medical membership decreased 174,800 members, or 40.6%, from 430,100 members as of December 31, 2022 to 255,300 members as of December 31, 2023.

These decreases reflect our planned exit of the Employer Group Commercial Medical Products business, which includes all fully insured, self-funded and Federal Employee Health Benefit medical plans, as well as associated wellness and rewards programs.

The exit from this line of business will be phased over the 18 to 24 months following our February 2023 announcement.

Specialty membership decreased 326,500 members, or 6.3%, from 5,194,800 members as of December 31, 2022 to 4,868,300 members as of December 31, 2023 reflecting the decline in membership associated with our Optional Supplemental Benefit products as a result of enhanced mandatory dental and vision supplemental benefits on Medicare Advantage plans.

In addition, the decline reflects loss of dental and vision individuals due to terminations as well as loss of dental and vision groups cross-sold with commercial medical products.

For the full year 2025, we anticipate net membership growth in our Medicare stand-alone PDP offerings of approximately 200,000 members.

State-based contracts and other membership increased 231,100 members, or 18.8%, from 1,228,800 members as of December 31, 2023 to 1,459,900 members as of December 31, 2024 reflecting the impact of membership additions associated with the implementation of new contracts partially offset with membership loss as a result of the public health of emergency unwind.

For the full year 2025, we anticipate net membership growth in our state-based contracts of approximately 175,000 to 250,000 members.

Specialty membership decreased 306,300 members, or 6.3%, from 4,868,300 members as of December 31, 2023 to 4,562,000 members as of December 31, 2024 primarily due to non-renewal of dental and vision plans as a result of exit from the Employer Group Commercial Medical Products business.

The decrease in commercial fully-insured and ASO membership as of December 31, 2024 compared to December 31, 2023 is due to our exit of the Employer Group Commercial Medical Products business.

Premiums revenue

Insurance segment premiums revenue increased $13.6 billion, or 15.5%, from $87.7 billion in the 2022 period to $101.3 billion in the 2023 period primarily due to individual Medicare Advantage and state-based contracts membership growth and higher per member individual Medicare Advantage premiums.

Insurance segment premiums revenue increased $10.8 billion, or 10.7%, from $101.3 billion in the 2023 period to $112.1 billion in the 2024 period primarily due to higher per member Medicare premiums as well as Medicare Advantage and state-based contracts membership growth.

Services revenue

Insurance segment services revenue increased $0.15 billion, or 17.6%, from $0.85 billion in the 2022 period to $1 billion in the 2023 period.

Insurance segment services revenue decreased $34 million, or 3.4%, from $1.0 billion in the 2023 period to $966 million in the 2024 period.

Benefits expense

The Insurance segment benefit ratio increased 140 basis points from 86.6% in the 2022 period to 88.0% in the 2023 period primarily due to investments in the benefit design of our Medicare Advantage products for 2023, higher than anticipated Medicare Advantage utilization trends, which further increased in the fourth quarter of 2023, driven by inpatient utilization, primarily for the months of November and December, and non-inpatient trends, predominately in the categories of physician, outpatient surgeries and supplemental benefits, as well as the impact of continued individual Medicare Advantage growth following the 2023 Annual Election Period, or AEP, including a high proportion of age-ins, which typically have a higher benefits expense ratio initially than the average new member.

The Insurance segment benefit ratio increased 240 basis points from 88.0% in the 2023 period to 90.4% in the 2024 period primarily due to the continued impact of elevated Medicare Advantage and state-based contracts medical cost trends in the 2024 period as well as lower favorable prior period medical claims reserve development.

The Insurance segment benefits expense included $701 million of favorable prior-period medical claims reserve development in the 2024 period and $872 million of favorable prior-period medical claims reserve development in the 2023 period.

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Operating costs

The Insurance segment operating cost ratio decreased 20 basis points from 10.4% in the 2022 period to 10.2% in the 2023 period primarily due to scale efficiencies associated with growth in individual Medicare Advantage membership, administrative cost efficiencies as a result of our value creation initiatives, as well as the impact of significantly reduced compensation accruals in 2023 for the annual incentive plan offered to employees across all levels of the company, in accordance with plan requirements, as our 2023 performance was negatively impacted by the previously-discussed higher Medicare Advantage utilization trends.

These factors were partially offset by an increase in commissions for brokers related to the individual Medicare Advantage membership growth in 2023, the phase-out of COVID-19 sequestration relief in 2022 and an accrual recorded in 2023 related to certain anticipated litigation expenses.

The Insurance segment operating cost ratio decreased 100 basis points from 10.2% in the 2023 period to 9.2% in the 2024 period primarily due to scale efficiencies associated with growth in individual Medicare Advantage membership, administrative cost efficiencies resulting from our value creation initiatives, a lesser impact of commission expense for brokers in the 2024 period compared to the 2023 period as a result of significant individual Medicare Advantage membership growth in 2023, as well as the impact of the accrued charge related to certain anticipated litigation expenses included in the 2023 period.

These factors were partially offset by significantly reduced compensation accruals in the 2023 period.

CenterWell Segment

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Primary care 1,248 842 406 48.2 %

Total services revenue 3,033 3,926 (893) (22.7) %

Total external revenues 3,465 3,033 432 14.2 %

Intersegment revenues:

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Primary care 3,697 3,332 365 11.0 %

Total intersegment revenues 15,372 13,373 1,999 14.9 %

Total services and intersegment revenues $ 18,405 17,299 1,106 6.4 %

Intersegment revenues 16,471 15,372 1,099 7.1 %

Total revenues $ 19,936 18,405 1,531 8.3 %

Income from operations $ 1,329 $ 1,404 $ (75) (5.3) %

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Income from operations

CenterWell segment income from operations increased $0.1 billion, or 8.8%, from $1.3 billion in the 2022 period to $1.4 billion in the 2023 period.

CenterWell income from operations decreased $0.1 billion, or 5.3%, from $1.4 billion in the 2023 period to $1.3 billion in the 2024 period primarily due to the same factors impacting the segment's higher operating cost ratio as more fully described below.

Services revenue

CenterWell segment services revenue decreased $0.9 billion, or 22.7%, from $3.9 billion in the 2022 period to $3.0 billion in the 2023 period primarily due to the divestiture of the 60% ownership of Gentiva Hospice in August 2022.

CenterWell services revenue increased $0.4 billion, or 14.2%, from $3.0 billion in the 2023 period to $3.5 billion in the 2024 period primarily due to higher revenues associated with growth in the primary care business, partially offset by the impact of the v28 risk model revision.

Intersegment revenues

CenterWell segment intersegment revenues increased $2.0 billion, or 14.9%, from $13.4 billion in the 2022 period to $15.4 billion in the 2023 period primarily due to individual Medicare Advantage membership growth, which led to higher pharmacy solutions revenues, higher revenues associated with growth in the primary care business, and greater revenues associated with the home solutions business as a result of the expansion of the value-based care home model in 2023 compared to 2022.

CenterWell intersegment revenues increased $1.1 billion, or 7.1%, from $15.4 billion in the 2023 period to $16.5 billion in the 2024 period primarily due to greater intersegment revenues associated with the home solutions business in the 2024 period as compared to the 2023 period as a result of the expansion of services to Humana members under value-based contracts, an increase in pharmacy solutions revenues resulting from growth in the specialty pharmacy business, driven by increased penetration of Humana health plan members, as well as payor agnostic consumers, and higher revenues associated with growth in the primary care business, partially offset by the impact of the v28 risk model revision.

Operating costs

The CenterWell segment operating cost ratio decreased 30 basis points from 91.5% in the 2022 period to 91.2% in the 2023 period primarily due to an improving ratio in the primary care business driven by year-over-year medical costs favorability, administrative cost efficiencies related to the pharmacy solutions business, as well as the impact of significantly reduced compensation accruals in 2023 for the annual incentive plan offered to employees across all levels of the company, in accordance with plan requirements, as our 2023 performance was negatively impacted by the previously-discussed higher Medicare Advantage utilization trends.

These factors were partially offset by the divestiture of the 60% ownership of Gentiva Hospice in August 2022, which carried a lower operating cost ratio compared to other businesses within the segment, the expansion of the value-based care model within the home solutions business, which carries a higher operating cost ratio compared to the core fee-for-service business, along with growth in Medicare Advantage episodes in the core fee-for-service business, as well as continued investments within the home solutions business to abate the pressures of the current nursing labor environment.

The CenterWell segment operating cost ratio increased 100 basis points from 91.2% in the 2023 period to 92.2% in the 2024 period primarily due to the unfavorable impact of the v28 risk model revision to the primary care business and the impact of significantly reduced compensation accruals in the 2023 period, partially offset by administrative cost efficiencies resulting from our value creation initiatives and positive prior-period medical claims reserve development within the Primary Care Organization.

Historically, our primary sources of cash have included receipts of premiums, services revenue, and investment and other income, as well as proceeds from the sale or maturity of our investment securities, and borrowings.

Our primary uses of cash historically have included disbursements for claims payments, operating costs, interest on borrowings, taxes, purchases of investment securities, acquisitions, capital expenditures, repayments on borrowings, dividends, and share repurchases.

Because premiums generally are collected in advance of claim payments by a period of up to several months, our business normally should produce positive cash flows during periods of increasing premiums and enrollment.

As premiums generally are collected in advance of claim payments by a period of up to several months, our business normally should produce positive cash flows during periods of increasing premiums and enrollment.

Conversely, cash flows would be negatively impacted during periods of decreasing premiums and enrollment.

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Net cash used in investing activities (2,952) (3,492) (1,006)

Net cash (used in) provided by financing activities (856) (1,914) 3,015

Net cash used in financing activities (2,487) (856) (1,914)

(Decrease) increase in cash and cash equivalents $ (2,473) $ (367) $ 1,667

Cash Flow from Operating Activities

Cash flows provided by operations of $4.0 billion in the 2023 period decreased $606 million from cash flows provided by operations of $4.6 billion in the 2022 period primarily due to lower earnings in the 2023 period compared to the 2022 period combined with the unfavorable impact of working capital changes.

Cash flows provided by operations of $3.0 billion in the 2024 period decreased $1.0 billion from cash flows provided by operations of $4.0 billion in the 2023 period primarily due to lower earnings in the 2024 period compared to the 2023 period, partially offset by the favorable impact of working capital changes.

The most significant drivers of changes in our working capital are typically the timing of payments of benefits expense and receipts for premiums.

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Medicare $ 1,745 $ 1,426 $ 1,260 $ 319 $ 166

Commercial and other 549 383 579 166 (196)

State-based contracts 614 215 65 399 150

Military services 180 148 101 32 47

Other 263 334 318 (71) 16

Allowance for doubtful accounts (98) (88) (70) (10) (18)

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Reconciliation to cash flow statement:

Receivables (acquired) disposed (24) 194

Receivables acquired — (24)

Change in receivables per cash flow statement $ 669 $ 337

The changes in Medicare receivables for both the 2024 period and the 2023 period reflect individual Medicare Advantage membership growth and the typical pattern caused by the timing of accruals and related collections associated with the CMS risk-adjustment model.

The increase in Commercial and other receivables for the 2023 period is primarily related to Medicaid membership growth.

The decrease in Commercial and other receivables for 2022 primarily relates to the Gentiva Hospice disposition.

The increase in State-based contracts receivables for the 2024 and 2023 periods is primarily related to expansion to various states.

Cash Flow from Investing Activities

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In connection with the sale we recognized a pre-tax gain, net of transaction costs, of $237 million which was reported as a gain on sale of Gentiva Hospice in the accompanying consolidated statement of income for the year ended December 31, 2022.

During the 2023 period and 2022 period, we acquired various businesses for approximately $233 million and $337 million, respectively, net of cash and cash equivalents received.

During 2021, we acquired Kindred at Home and other primary care businesses for cash consideration of approximately $4.2 billion, net of cash received.

During the 2024, 2023 and 2022 periods, we acquired various businesses for approximately $89 million, $233 million and $337 million, respectively, net of cash and cash equivalents received.

Our ongoing capital expenditures primarily relate to our information technology initiatives, support of services in our primary care operations including medical and administrative facility improvements necessary for activities such as the provision of care to members, claims processing, billing and collections, wellness solutions, care coordination, regulatory compliance and customer service.

Net capital expenditures, excluding acquisitions, were $794 million, $1.1 billion and $1.3 billion in the 2023, 2022 and 2021 periods, respectively.

Total net capital expenditures, excluding acquisitions, were $568 million, $794 million and $1.1 billion in the 2024, 2023 and 2022 periods, respectively.

Net purchases of investment securities were $2.2 billion, $2.5 billion and $2.3 billion in the 2024, 2023 and 2022 periods, respectively.

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Settlement of the reinsurance and low-income cost subsidies is based on a reconciliation made approximately 9 months after the close of each calendar year.

Receipts from CMS associated with Medicare Part D claim subsidies for which we do not assume risk were higher than claim payments by $771 million and $2 billion in the 2023 and 2022 periods, respectively, and claim payments were higher than receipts from CMS associated with Medicare Part D claim subsidies for which we do not assume risk by $261 million in the 2021 period.

Our net payable from CMS for subsidies and brand name prescription drug discounts was $1.3 billion at December 31, 2023 compared to a net payable of $540 million at December 31, 2022.

Under our administrative services only TRICARE contract, reimbursements from the federal government exceeded health care costs payments for which we do not assume risk by $57 million and $25 million in the 2023 and 2022 periods, respectively, and health care costs payments for which we do not assume risk exceeded reimbursements from the federal government by $45 million in the 2021 period.

Claim payments were higher than receipts from CMS associated with Medicare Part D claim subsidies for which we do not assume risk by $1.8 billion in the 2024 period and receipts from CMS associated with Medicare Part D claim subsidies for which we do not assume risk were higher than claim payments by $0.8 billion and $2 billion in the 2023 and 2022 periods, respectively.

Our net receivable from CMS for subsidies and brand name prescription drug discounts was $0.5 billion at December 31, 2024 compared to a net payable of $1.3 billion at December 31, 2023.

Under our administrative services only TRICARE contract, health care costs payments for which we do not assume risk exceeded reimbursements from the federal government by $92 million in the 2024 period and reimbursements from the federal government exceeded health care costs payments for which we do not assume risk by $57 million and $25 million in the 2023 and 2022 periods, respectively.

In March 2024, we issued $1.3 billion of 5.375% unsecured senior notes due April 15, 2031 and $1.0 billion of 5.750% unsecured senior notes due April 15, 2054.

Our net proceeds, reduced for the underwriters' discounts and commissions paid, were $2.2 billion.

We used the net proceeds for general corporate purposes, which included the repayment of existing indebtedness, including borrowings under our commercial paper program.

In November 2023, we issued $500 million of 5.750% unsecured senior notes due December 1, 2028 and $850 million of 5.950% unsecured senior notes due March 15, 2034.

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Our net proceeds, reduced for the underwriters' discounts and commissions paid, were $744 million.

In August 2021, we issued $1.5 billion of 0.650% unsecured senior notes due August 3, 2023, $750 million of 1.350% unsecured senior notes due February 3, 2027 and $750 million of 2.150% unsecured senior notes due February 3, 2032.

Our net proceeds, reduced for the underwriters' discounts and commissions paid, were $3.0 billion.

In August 2023, we entered into a Rule 10b5-1 Repurchase Plan to repurchase a portion of our $750 million aggregate principal amount of 1.350% senior notes maturing in February 2027, our $600 million aggregate principal amount of 3.950% senior notes maturing in March 2027, our $750 million aggregate principal amount of 3.700% senior notes maturing in March 2029, and our $500 million aggregate principal amount of 3.125% senior notes maturing in August 2029 during the period beginning on August 7, 2023 and ending on November 15, 2023.

We repaid $600 million aggregate principal amount of our 3.150% senior notes due on their maturity date of December 1, 2022 and $400 million aggregate principal amount of our 2.900% senior notes due on their maturity date of December 15, 2022.

In 2024, we entered into a securities lending program where we loan certain investment securities for short periods of time in exchange for collateral.

We also entered into an uncommitted receivables purchase facility under which certain pharmaceutical rebate receivables may be sold on a non-recourse basis to a financial institution.

For the year ended December 31, 2024, the securities lending program and uncommitted receivables purchase facility provided net proceeds of $418 million and $123 million, respectively.

In November 2024, we repaid our $500 million 5.700% unsecured senior notes due March 13, 2026.

maturing in August 2029 during the period beginning on August 7, 2023 and ending on November 15, 2023.

For the year ended December 31, 2023, we repurchased $339 million principal amount of these senior notes for approximately $310 million cash.

In March 2023, we entered into a Rule 10b5-1 Repurchase Plan to repurchase a portion of our $1.5 billion aggregate principal amount of 0.650% senior notes maturing in August 2023 and our $600 million aggregate principal amount of 3.850% senior notes maturing in October 2024 during the period beginning on March 13, 2023 and ending on July 21, 2023.

For the year ended December 31, 2023, we repurchased $361 million principal amount

of these senior notes for approximately $358 million cash.

For the year ended December 31, 2023, we repurchased $361 million principal amount of these senior notes for approximately $358 million cash.

We repaid the remaining $1.2 billion aggregate principal amount of our 0.650% senior notes due on their maturity date of August 3, 2023.

We repaid the remaining $559 million aggregate principal amount of our 3.850% senior notes on their maturity date of October 1, 2024.

We entered into a commercial paper program in October 2014.

Net proceeds from issuance of commercial paper were $211 million in 2023 and the maximum principal amount outstanding at any one time during 2023 was $3.3 billion.

Net repayments from the issuance of commercial paper were $376 million in 2022 and the maximum principal amount outstanding at any one time during 2022 was $1.5 billion.

Net proceeds from issuance of commercial paper were $352 million in 2021 and the maximum principal amount outstanding at any one time during 2021 was $1.2 billion.

Net repayments from issuance of commercial paper were $907 million in 2024 and the maximum principal amount outstanding at any one time during 2024 was $2.7 billion.

Net proceeds from the issuance of commercial paper were $211 million in 2023 and the maximum principal amount outstanding at any one time during 2023 was $3.3 billion.

Net repayments from issuance of commercial paper were $376 million in 2022 and the maximum principal amount outstanding at any one time during 2022 was $1.5 billion.

We received a short-term cash advance of $100 million from FHLB with certain of our marketable securities as collateral and subsequently repaid the outstanding balance in December 2023.

In August 2022, we repaid the $2.0 billion October 2021 Term Loan Agreement without a prepayment penalty due.

In October 2021, we entered into a $2.0 billion term loan agreement and applied the proceeds to finance the repayment in full of the outstanding assumed Kindred at Home debt.

In August 2021, we borrowed $500 million under the delayed draw term loan agreement, which was used, in combination with other debt financing, to fund the approximate $5.8 billion transaction price of Gentiva Hospice.

We repurchased common shares for $1.6 billion, $2.1 billion and $79 million in 2023, 2022 and 2021, respectively, under share repurchase plans authorized by the Board of Directors and in connection with employee stock plans.

We repurchased common shares for $0.8 billion, $1.6 billion and $2.1 billion in 2024, 2023 and 2022, respectively, under share repurchase plans authorized by the Board of Directors and in connection with employee stock plans.

We paid dividends to stockholders of $431 million in 2024, $431 million in 2023, and $392 million in 2022.

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For a detailed discussion of stock repurchases, please refer to Note 16 to the audited Consolidated Financial Statements included in Part II, Item 8, "Financial Statements and Supplementary Data" of this Form 10-K.

For a detailed discussion of our debt, including our senior notes, term loans, credit agreement and commercial paper program, please refer to Note 13 to the audited Consolidated Financial Statements included in Part II, Item 8, "Financial Statements and Supplementary Data" of this Form 10-K.

For a detailed discussion of our debt, including our senior notes, term loans, revolving credit agreements, commercial paper program and other short-term borrowings, please refer to Note 13 to the audited Consolidated Financial Statements included in Part II, Item 8, "Financial Statements and Supplementary Data" of this Form 10-K.

Acquisitions & Divestitures

For a detailed discussion regarding acquisitions and divestitures, refer to Note 3 to the audited Consolidated Financial Statements included in Part II, Item 8, "Financial Statements and Supplementary Data" of this Form 10-K.

Liquidity Requirements

We believe our cash balances, investment securities, operating cash flows, and funds available under our credit agreement and our commercial paper program or from other public or private financing sources, taken together, provide adequate resources to fund ongoing operating and regulatory requirements, acquisitions, future expansion

opportunities, and capital expenditures for at least the next twelve months, as well as to refinance or repay debt, and repurchase shares.

Adverse changes in our credit rating may increase the rate of interest we pay and may impact the amount of credit available to us in the future.

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We continue to maintain significant levels of aggregate excess statutory capital and surplus in our state-regulated operating subsidiaries.

Cash, cash equivalents, and short-term investments at the parent company decreased to $0.5 billion at December 31, 2023 from $0.9 billion at December 31, 2022.

This decrease primarily reflects common stock repurchases, repayment of maturing senior notes, capital expenditures, capital contributions to certain subsidiaries, cash dividends to shareholders and acquisitions, partially offset by net proceeds from the senior notes, dividends from insurance subsidiaries, and cash from certain non-insurance subsidiaries within our CenterWell segment.

Our use of operating cash derived from our non-insurance subsidiaries, such as our CenterWell segment, is generally not restricted by regulators.

Cash, cash equivalents, and short-term investments at the parent company were $0.6 billion at December 31, 2024 compared to $0.5 billion at December 31, 2023.

This increase primarily reflects working capital changes, net proceeds from the issuance of senior notes and commercial paper, proceeds from the sale and maturities of investment securities, dividends from insurance subsidiaries and cash from certain non-insurance subsidiaries within our CenterWell segment partially offset by common stock repurchases, repayment of maturing senior notes, repayment of borrowings under the commercial paper program, purchases of investment securities, capital expenditures, capital contributions to certain subsidiaries, cash dividends to shareholders and acquisitions.

Our use of operating cash derived from our non-insurance subsidiaries, such as our CenterWell segment, is generally not restricted by departments of insurance (or comparable state regulators).

Our regulated insurance subsidiaries paid dividends to our parent company of $1.5 billion in 2024, $1.8 billion in 2023, and $1.3 billion in 2022.

Subsidiary capital requirements from significant premium growth has impacted the amount of regulated subsidiary dividends over the last two years.

Subsidiary capital requirements from significant premium growth may impact the amount of regulated subsidiary dividends.

Refer to our parent company financial statements and accompanying notes in Schedule I - Parent Company Financial Information.

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The following table provides a historical perspective regarding the accrual and payment of our benefits payable.

Components of the total incurred claims for each year include amounts accrued for current year estimated benefits

expense as well as adjustments to prior year estimated accruals.

Components of the total incurred claims for each year include amounts accrued for current year estimated benefits expense as well as adjustments to prior year estimated accruals.

Refer to Note 11 to the audited Consolidated Financial Statements included in Part II, Item 8, "Financial Statements and Supplementary Data" of this Form 10-K for information about incurred and paid claims development as of December 31, 2024 as well as cumulative claim frequency and the total of IBNR included within the net incurred claims amounts.

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The favorable medical claims reserve development for 2024, 2023, and 2022 primarily reflects the consistent application of trend and completion factors estimated using an assumption of moderately adverse conditions.

The favorable development recognized in 2023 and 2021 primarily resulted from trend factors developing more favorably than originally expected as well as for 2021 completion factors developing faster than expected.

The favorable development recognized in 2022 resulted primarily from completion factors remaining largely unchanged, resulting in lower overall development as compared to 2023 and 2021.

Our favorable development for each of the years presented above is discussed further in Note 11 to the audited Consolidated Financial Statements included in Part II, Item 8, "Financial Statements and Supplementary Data" of this Form 10-K.

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Total debt securities 18,635 100.0 % 17,008 100.0 %

Common stock — — % 7 — %

Total investment securities $ 17,008 100.0 % $ 14,261 100.0 %

Approximately 97% of our debt securities were investment-grade quality, with a weighted average credit rating of AA- by S&P at December 31, 2024.

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Tax-exempt municipal securities were diversified among general obligation bonds of states and local municipalities in the United States as well as special revenue bonds issued by municipalities to finance specific public works projects such as utilities, water and sewer, transportation, or education.

Our general obligation bonds are diversified across the United States with no individual state

exceeding approximately 1% of our total debt securities.

Our general obligation bonds are diversified across the United States with no individual state exceeding approximately 1% of our total debt securities.

Our investment policy limits investments in a single issuer and requires diversification among various asset types.

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The expected credit loss cannot exceed the full difference between the amortized cost basis and the fair value.

We participate in a securities lending program to optimize investment income.

We loan certain investment securities for short periods of time in exchange for collateral initially equal to at least 102% of the fair value of the investment securities on loan.

The fair value of the loaned investment securities is monitored on a daily basis, with additional collateral obtained or refunded as the fair value of the loaned investment securities fluctuates.

The collateral, which may be in the form of cash or U.S.

Government securities, is deposited by the borrower with an independent lending agent.

Any cash collateral, which is reinvested by the lending agent primarily in short-term, highly liquid investments, is recorded as a securities lending collateral asset within other current assets on our

consolidated balance sheet at the end of the reporting period.

We record a corresponding liability to reflect our obligation to return the collateral within trade accounts payable and accrued expenses on our consolidated balance sheet at the end of the reporting period.

Collateral received in the form of securities is not recorded in our consolidated balance sheets because, absent default by the borrower, we do not have the right to sell, pledge or otherwise reinvest securities collateral.

Loaned securities continue to be carried as investment securities on the consolidated balance sheet at the end of the reporting period.

Earnings on the invested cash collateral, net of expense, associated with the securities lending payable are recorded as investment income.

The risks inherent in assessing the impairment of an investment include the risk that market factors may differ from our expectations, facts and circumstances factored into our assessment may change with the passage of time, or we may decide to subsequently sell the investment.

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The discovery of new information and the passage of time can significantly change these judgments.

The status of the general

economic environment and significant changes in the national securities markets influence the determination of fair value and the assessment of investment impairment.

The status of the general economic environment and significant changes in the national securities markets influence the determination of fair value and the assessment of investment impairment.

There is a continuing risk that declines in fair value may occur and additional material realized losses from sales or expected credit loss impairments may be recorded in future periods.

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If these assumptions differ from actual, including the impact of the Health Care Reform Law or changes in government reimbursement rates, the estimates underlying our goodwill impairment tests could be adversely affected.

The fair value of our reporting units with significant goodwill exceeded carrying amounts by a substantial margin.

However, unfavorable changes in key assumptions or combinations of assumptions including a significant increase in the discount rate, decrease in the long-term growth rate or substantial reduction in our underlying cash flow assumptions, including revenue growth rates, medical and operating cost trends, and projected operating income could have a significant negative impact on the estimated fair value of our home solutions and primary care reporting units, which accounted for $4.4 billion and $1.2 billion of goodwill, respectively.

The fair value of our reporting units with

significant goodwill exceeded carrying amounts by a substantial margin.

However, unfavorable changes in key assumptions or combinations of assumptions including a significant increase in the discount rate, decrease in the long-term growth rate or substantial reduction in our underlying cash flow assumptions, including revenue growth rates, operating cost trends, and projected operating income could have a significant negative impact on the estimated fair value of our home solutions reporting unit, which accounted for $4.4 billion of goodwill.

Impairment tests completed for 2024, 2023, and 2022 did not result in an impairment loss.

Indefinite-lived intangible assets relate to Certificate of Needs (CON) and Medicare licenses acquired in connection with our August 2021 KAH acquisition with a carrying value of $1.4 billion at December 31, 2023.

Indefinite-lived intangible assets relate to Certificate of Needs (CON) and Medicare licenses acquired in connection with our CenterWell Home Health (formerly Kindred at Home) acquisition with a carrying value of $1.2 billion at December 31, 2024.

Like goodwill, we are required to test at least annually for impairment and more frequently if adverse events or changes in circumstances indicate that the asset may be impaired.

These tests are performed, at a minimum, annually in the fourth quarter.

If the carrying amount of an indefinite-lived intangible asset exceeds its fair value, an impairment

loss is recognized.

If the carrying amount of an indefinite-lived intangible asset exceeds its fair value, an impairment loss is recognized.

Fair values of indefinite-lived intangible assets are determined based on the income approach.

Impairment tests completed for 2023 and 2022 did not result in material impairment losses.

For our CON intangible assets, unfavorable changes in key assumptions or combinations of assumptions, including a significant increase in the discount rate, decrease in the long-term growth rate or substantial reduction in the underlying cash flow assumptions, including revenue growth rates, operating cost trends, and projected operating income could have a significant negative impact on the estimated fair value of our CON intangible assets, which account for $910 million of our intangible assets.

Impairment tests completed for 2024 and 2023 resulted in impairment charges of $200 million and $55 million, respectively.

Impairment test completed for 2022 did not result in a material impairment charge.

These charges reflect the amount by which the carrying value exceeded its estimated fair value.

Impairment tests completed for 2021 did not result in an impairment loss.

The fair values of the assets were measured using Level 3 inputs, such as projected revenues and operating cash flows.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis