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Item 7. Management’s Discussion and Analysis

2026-02-19 compared with 2025-02-20 · 145 added, 147 removed, 409 unchanged (42% of the section changed)

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Through our Humana insurance services, and our CenterWell health care services, we make it easier for the millions of people we serve to achieve their best health – delivering the care and service they need, when they need it.

These efforts are leading to a better quality of life for people with Medicare, Medicaid, families, individuals, military service personnel, and communities at large.

These efforts are leading to a better quality of life for Medicare and Medicaid participants, families, individuals, military service personnel, and communities at large.

Our industry relies on two key statistics to measure performance.

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Employer Group Commercial Medical Products Business Exit

In February 2023, we announced our planned exit from 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.

No other Humana health plan offerings are materially affected.

During 2025, we finalized our exit from the Employer Group Commercial Medical Products business, which included all fully insured, self-funded and Federal Employee Health Benefit medical plans, as well as associated wellness and rewards programs.

No other Humana health plan offerings were materially affected.

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.

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.

Initially during periods of increased incidences of COVID-19, a reduction in non-COVID-19 hospital admissions for non-emergent and elective medical care resulted in lower overall healthcare system utilization.

At the same time, COVID-19 treatment and testing costs increased utilization.

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

In order to create capacity to fund growth in our businesses, we committed to drive additional value for the enterprise through cost saving and productivity initiatives.

In addition, in response to sustained macroeconomic, regulatory and competitive pressures impacting the industry, we initiated a substantial multi-year transformation program designed to re-align our cost structure, operating model and technology footprint with evolving market conditions.

As a result of these initiatives, we recorded charges of $449 million, $281 million and $436 million in 2025, 2024 and 2023, respectively, primarily within operating costs in the consolidated statements of income.

We expect to incur additional charges over the course of the program.

The value creation initiative charges primarily relate to $329 million, $25 million and $199 million in severance and other employee related charges in connection with workforce optimization in 2025, 2024 and 2023, respectively, as well as $40 million, $256 million and $237 million in asset impairments in 2025, 2024 and 2023, respectively.

The remainder of the 2025 charges primarily relate to external consulting spend.

In addition, we recorded impairment charges of $253 million, $200 million and $91 million in 2025, 2024 and 2023, respectively.

The impairment charges included impairment of indefinite-lived intangible assets for $128 million, $200 million and $55 million in 2025, 2024 and 2023, respectively, included within operating costs in our consolidated statements of income.

The remaining impairment charges were included within investment income in our consolidated statements of income.

In addition to the value creation initiatives, we also 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.

Business Segments

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The Insurance segment consists of Medicare benefits, marketed to individuals or directly via group Medicare accounts, as well as our contract with CMS to administer the Limited Income Newly Eligible Transition, or LI-NET, prescription drug plan program and contracts with various states to provide Medicaid, dual eligible demonstration, and Long-Term Support Services benefits, which we refer to collectively as our state-based contracts.

This segment also includes products consisting of employer group commercial fully-insured medical and specialty health insurance benefits marketed to individuals and employer groups, including dental, vision, and other supplemental health benefits, as well as administrative services only, or ASO.

This segment also includes products consisting of specialty health insurance benefits marketed to individuals and employer groups, including dental, vision, and other supplemental health benefits.

In addition, our Insurance segment includes our Military services business, primarily our T-5 East Region contract, as well as the operations of our PBM business.

The CenterWell segment includes our pharmacy, 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 hospice operations.

The CenterWell segment includes our pharmacy solutions, 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.

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

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

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.

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.

Our Medicare benefit costs rise as members pay their contractual portion of claims responsibility, progress through their annual deductible and maximum out-of-pocket expenses, as well as incurring higher episodic cost of care resulting in a higher benefit ratio throughout the year.

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 stand-alone prescription drug plan, or PDP, 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.

Effective January 1, 2025, the Medicare Part D coverage gap was eliminated as mandated by the Inflation Reduction Act of 2022, or IRA.

The benefit design changes reduced out-of-pocket costs for beneficiaries, resulting in greater cost sharing and a leveling of net prescription costs throughout the year as compared to the historical seasonal decline prior to the IRA.

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 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.

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.

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

At the core of this strategy is our integrated care delivery model, which unites quality care, high member engagement, and sophisticated data analytics.

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• Net income attributable to Humana was $1.2 billion, or $9.84 per diluted common share, and $1.2 billion, or $9.98 per diluted common share, in 2025 and 2024, respectively.

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.

This comparison was significantly impacted by put/call valuation adjustments associated with non-consolidating minority interest investments, charges associated with value creation initiatives, impairment charges, loss on sale of business and settlement of certain 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 2025 and 2024 periods:

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Put/call valuation adjustments associated with our non-consolidating minority interest investments $ 513 $ 296

Transaction and integration costs — (48)

Accrued charge related to certain anticipated litigation expenses — 105

Value creation initiatives 449 281

Impairment charges 253 200

Loss on sale of business 67 —

Settlement of certain litigation expenses 15 —

Total $ 1,297 $ 777

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Put/call valuation adjustments associated with our non-consolidating minority interest investments $ 4.25 $ 2.45

Transaction and integration costs — (0.38)

Accrued charge related to certain anticipated litigation expenses — 0.84

Value creation initiatives 3.72 2.33

Impairment charges 2.09 1.65

Net tax impact of transactions (1.50) (1.67)

Loss on sale of business 0.55 —

Settlement of certain litigation expenses 0.13 —

Cumulative net tax impact (3.36) (1.50)

Total $ 7.38 $ 4.93

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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, 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);

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, reductions in reimbursement rates, 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 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.

Transactions between reportable segments primarily consist of sales of products and 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.

Comparison of Results of Operations for 2025 and 2024

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Income from operations 2,704 2,562 142 5.5 %

Loss on sale of business 67 — 67 100.0 %

Interest expense 631 660 (29) (4.4) %

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Premiums Revenue

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.

Consolidated premiums revenue increased $10.7 billion, or 9.6%, from $112.1 billion in the 2024 period to $122.8 billion in the 2025 period primarily due to higher per member Medicare premiums, largely driven by an increased direct subsidy due to the IRA, and higher per member state-based contracts premiums, as well as membership growth in the state-based contracts and stand-alone PDP businesses.

These factors were partially offset by the membership decline within the individual Medicare Advantage business, inclusive of the decision to exit certain unprofitable plans and counties in 2025.

Services Revenue

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.

Consolidated services revenue increased $1.4 billion, or 31.6%, from $4.4 billion in the 2024 period to $5.8 billion in the 2025 period primarily due to higher revenues associated with external growth in the primary care and pharmacy solutions businesses, partially offset by the impact of the v28 risk model revision impacting the primary care business.

Investment Income

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.

Investment income decreased $0.2 billion, or 17.9%, from $1.2 billion in the 2024 period to $1.0 billion in the 2025 period primarily due to lower interest income on our debt securities, as well as non-cash impairment charge in the fourth quarter of 2025 related to our minority ownership interest in a joint-venture investment, deemed unrecoverable based on recent market activity.

Benefits Expense

Consolidated benefits expense increased $10.1 billion, or 10.1%, from $100.7 billion in the 2024 period to $110.8 billion in the 2025 period.

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.

The consolidated benefit ratio increased 40 basis points from 89.8% in the 2024 period to 90.2% in the 2025 period primarily due to a shift in line of business mix resulting from growth in the state-based contracts and stand-alone PDP businesses that carry a higher benefit ratio, combined with a reduction in individual Medicare Advantage membership, incremental investments to improve member and patient outcomes and support operational excellence, and the year-over-year increase in the Medicare stand-alone PDP benefit ratio driven by the impact of the IRA.

These factors were partially offset by individual Medicare Advantage pricing inclusive of plan exits and benefit design changes that more than offset claims trend and the funding environment, as well as the anticipated higher favorable prior-period medical claims development in the 2025 period.

Consolidated benefits expense included $1.0 billion of favorable prior-period medical claims reserve development in the 2025 period and $701 million of favorable prior-period medical claims reserve development in the 2024 period.

Prior-period medical claims reserve development decreased the consolidated benefit ratio by approximately 80 basis points in the 2025 period and decreased the consolidated benefit ratio by approximately 60 basis points in the 2024 period.

Prior-period medical claims reserve development excludes the effects of provider risk-sharing arrangements, which are accounted for separately based on contractual settlement terms.

Operating Costs

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Consolidated operating costs increased $1.8 billion, or 12.8%, from $13.7 billion in the 2024 period to $15.5 billion in the 2025 period.

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 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.

The consolidated operating cost ratio increased 20 basis points from 11.8% in the 2024 period to 12.0% in the 2025 period primarily due to business mix changes, including within the CenterWell segment that runs a significantly higher operating cost ratio than the Insurance segment, the operating leverage impact associated with the loss of individual Medicare Advantage membership, as well as higher charges associated with the value creation plan.

These factors were partially offset by administrative cost efficiencies resulting from the value creation initiatives, operating leverage associated with increased revenues from the impact of the IRA, and a lesser operating cost impact from impairment costs in the 2025 period compared to the 2024 period.

Depreciation and Amortization

Depreciation and amortization increased $60 million, or 7.7%, from $779 million in the 2023 period to $839 million in the 2024 period primarily due to capital expenditures.

Depreciation and amortization decreased $141 million, or 16.8%, from $839 million in the 2024 period to $698 million in the 2025 period primarily due to decreased capital spending.

Interest Expense

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.

Interest expense decreased $29 million, or 4.4%, from $660 million in the 2024 period to $631 million in the 2025 period primarily due to decrease in interest rates and average debt balances.

Our effective tax rate was 17.4% and 25.5% for the 2025 period and 2024 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.

The 2025 period effective income tax rate reflects the impact of a tax loss on sale of business, which exceeded the book loss.

The related tax benefit is realizable via capital loss carryback.

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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Medicare Supplement 498,400 377,300 121,100 32.1 %

Commercial fully-insured 300 338,700 (338,400) (99.9) %

State-based contracts and other 1,615,600 1,459,900 155,700 10.7 %

Military services 4,605,400 6,009,100 (1,403,700) (23.4) %

Commercial fully-insured — 300 (300) (100.0) %

Commercial ASO — 4,800 (4,800) (100.0) %

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Total Specialty Membership 4,742,600 4,562,000 180,600 4.0 %

Members may not be unique to each product since members have the ability to enroll in more than one product.

2025 2024 $ %

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Total Medicare 106,261 98,887 7,374 7.5%

Commercial fully-insured 501 3,527 (3,026) (85.8) %

Specialty benefits 989 955 34 3.6%

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State-based contracts and other 14,477 10,915 3,562 32.6%

Commercial fully-insured — 501 (501) (100.0)%

Premiums revenue 122,825 112,104 10,721 9.6%

Commercial ASO 50 237 (187) (78.9) %

Military services and other 1,017 916 101 11.0%

Commercial ASO — 50 (50) (100.0)%

Services revenue 1,017 966 51 5.3%

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Income from operations

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.

Insurance segment income from operations increased $0.4 billion, or 29.1%, from $1.3 billion in the 2024 period to $1.7 billion in the 2025 period primarily due to the same factors impacting the Insurance segment's benefit and operating cost ratios as more fully described below.

Individual Medicare Advantage membership decreased 412,500 members, or 7.3%, from 5,661,800 members as of December 31, 2024 to 5,249,300 members as of December 31, 2025 inclusive of the decision to exit certain unprofitable plans and counties in 2025.

I ndividual Medicare Advantage membership includes 760,500 D-SNP members as of December 31, 2025, a net decrease of 176,600 D-SNP members, or 18.8%, from 937,100 members as of December 31, 2024.

For the full year 2026, we anticipate net membership growth in our individual Medicare Advantage offerings of approximately 25%.

Group Medicare Advantage mem bership increased 22,700 members, or 4.2%, from 545,700 members as of December 31, 2024 to 568,400 members as of December 31, 2025 consistent with expectations as we maintain pricing discipline in a competitive market.

For the full year 2026, we anticipate net membership growth in our group Medicare Advantage offerings of approximately 150,000 members.

Medicare stand-alone PDP membership increased 174,400 members, or 7.6%, from 2,288,200 members as of December 31, 2024 to 2,462,600 members as of December 31, 2025 reflecting shifting competitive dynamics.

For the full year 2026, we anticipate net membership growth in our Medicare stand-alone PDP offerings of approximately 1,000,000 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.

State-based contracts and other membership increased 155,700 members, or 10.7%, from 1,459,900 members as of December 31, 2024 to 1,615,600 members as of December 31, 2025 primarily due to the Virginia contract implemented in 2025 and the allocation of additional membership in Kentucky.

For the full year 2026, we anticipate net membership growth in our state-based contracts of in a range of 25,000 to 100,000 members.

Specialty membership increased 180,600 members, or 4.0%, from 4,562,000 members as of December 31, 2024 to 4,742,600 members as of December 31, 2025 primarily reflecting growth in group dental and vision products.

Premiums revenue

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.

Insurance segment premiums revenue increased $10.7 billion, or 9.6%, from $112.1 billion in the 2024 period to $122.8 billion in the 2025 period primarily due to higher per member Medicare premiums, largely driven by an increased direct subsidy due to the IRA, and higher per member state-based contracts premiums, as well as membership growth in the state-based contracts and stand-alone PDP businesses.

These factors were partially offset by the membership decline within the individual Medicare Advantage business, inclusive of the decision to exit certain unprofitable plans and counties in 2025.

Services revenue

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.

Insurance segment services revenue increased $0.1 billion, or 5.3%, from $966 million in the 2024 period to $1 billion in the 2025 period.

Benefits expense

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.

Prior-period medical claims reserve development decreased the Insurance segment benefit ratio by approximately 60 basis points in the 2024 period and decreased the Insurance segment benefit ratio by approximately 90 basis points in the 2023 period.

The Insurance segment benefit ratio was unchanged at 90.4% in the 2024 and 2025 periods primarily due to a shift in line of business mix resulting from growth in the state-based contracts and stand-alone PDP businesses that carry a higher benefit ratio, combined with a reduction in individual Medicare Advantage membership, incremental investments to improve member and patient outcomes and support operational excellence, and the year-over-year increase in the Medicare stand-alone PDP benefit ratio driven by the impact of the IRA.

These factors were offset by individual Medicare Advantage pricing inclusive of plan exits and benefit design changes that more than offset claims trend and the funding environment, as well as the anticipated higher favorable prior-period medical claims development in the 2025 period.

The Insurance segment benefits expense included $1.0 billion of favorable prior-period medical claims reserve development in the 2025 period and $701 million of favorable prior-period medical claims reserve development in the 2024 period.

Prior-period medical claims reserve development decreased the Insurance segment benefit ratio by approximately 80 basis points in the 2025 period and decreased the Insurance segment benefit ratio by

approximately 60 basis points in the 2024 period.

Prior-period medical claims reserve development excludes the effects of provider risk-sharing arrangements, which are accounted for separately based on contractual settlement terms.

Operating costs

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.

The Insurance segment operating cost ratio decreased 10 basis points from 9.2% in the 2024 period to 9.1% in the 2025 period primarily due to administrative cost efficiencies resulting from the value creation initiatives and operating leverage associated with increased revenues from the impact of the IRA.

These factors were partially offset by the operating leverage impact associated with the loss of individual Medicare Advantage membership.

CenterWell Segment

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Income from operations

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.

CenterWell income from operations was relatively unchanged at $1.3 billion in the 2024 and 2025 periods, reflecting the same factors impacting the CenterWell segment's revenue and operating cost ratio as more fully described below.

Services revenue

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.

CenterWell services revenue increased $1.4 billion, or 39.0%, from $3.5 billion in the 2024 period to $4.8 billion in the 2025 period primarily due to higher revenues associated with growth in the primary care and pharmacy solutions businesses, partially offset by the impact of the v28 risk model revision impacting the primary care business.

Intersegment revenues

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.

CenterWell intersegment revenues increased $1.2 billion, or 7.2%, from $16.5 billion in the 2024 period to $17.7 billion in the 2025 period primarily due to higher revenues associated with growth in the pharmacy solutions business.

Operating costs

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.

The CenterWell segment operating cost ratio increased 90 basis points from 92.2% in the 2024 period to 93.1% in the 2025 period primarily resulting from the continued phase-in of the v28 risk model revision within the primary care business, as well as the uptick of volume within CenterWell Specialty Pharmacy that carries a higher operating cost ratio than the traditional pharmacy business.

These factors were partially offset by continued maturation of the v28 mitigation activities within the primary are business and administrative cost efficiencies resulting from the value creation initiatives.

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.

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.

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.

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For additional information on our liquidity risk, please refer to Part I, Item 1A, "Risk Factors" of this Form 10-K.

Cash and cash equivalents decreased to $2.2 billion at December 31, 2024 from $4.7 billion at December 31, 2023.

Cash and cash equivalents increased to $4.2 billion at December 31, 2025 from $2.2 billion at December 31, 2024.

The change in cash and cash equivalents for the years ended December 31, 2025, 2024 and 2023 is summarized as follows:

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Net cash provided by operating activities $ 921 $ 2,966 $ 3,981

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

Net cash provided by (used in) investing activities 2,273 (2,952) (3,492)

Net cash used in financing activities (1,215) (2,487) (856)

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

Increase (decrease) in cash and cash equivalents $ 1,979 $ (2,473) $ (367)

Cash Flow from Operating Activities

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.

Cash flows provided by operations of $0.9 billion in the 2025 period decreased $2.0 billion from cash flows provided by operations of $3.0 billion in the 2024.

The decrease in our operating cash flows primarily reflected timing impacts, including the year-over-year increase in receivables due to the IRA and the unfavorable impact of working capital items.

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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For additional information regarding our benefits payable and benefits expense recognition, refer to Note 2 to the audited Consolidated Financial Statements included in Part II, Item 8, "Financial Statements and Supplementary Data" of this Form 10-K.

The detail of total net receivables was as follows at December 31, 2024, 2023 and 2022:

The detail of total net receivables (exclusive of Part D IRA impacts) was as follows at December 31, 2025, 2024 and 2023:

2025 2024 2023 2025 2024

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Reconciliation to cash flow statement:

Receivables acquired — (24)

Receivables disposed 4 —

Change in receivables per cash flow statement $ 570 $ 669

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

The changes in Medicare receivables for the 2025 period reflects higher per member Medicare premiums, partially offset by lower individual Medicare Advantage membership.

The change in Medicare receivables for the 2024 period reflects individual Medicare Advantage membership growth.

In addition, both periods further reflect the typical pattern caused by the timing of accruals and related collections associated with the CMS risk-adjustment model.

Significant collections occur with the mid-year and final settlements with CMS in the second and third quarter.

Cash Flow from Investing Activities

During the 2022 period, we completed the sale of a 60% interest of Gentiva Hospice to 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 statement of income for the year ended December 31, 2022.

During the 2025, 2024 and 2023 periods, we acquired various businesses for approximately $81 million, $89 million and $233 million, respectively, net of cash and cash equivalents received.

Net proceeds from the sale of business were $115 million in the 2025 period.

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.

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.

Total net capital expenditures, excluding acquisitions, were $523 million, $568 million and $794 million in the 2025, 2024 and 2023 periods, respectively.

Net proceeds of investment securities were $2.8 billion in the 2025 period.

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

Cash Flow from Financing Activities

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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.

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.

Claim payments were higher than receipts from CMS associated with Medicare Part D claim subsidies for which we do not assume risk by $1 billion and $1.8 billion in the 2025 and 2024 periods, respectively, 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 in the 2023 period.

Our net receivable from CMS for subsidies and brand name prescription drug discounts was $1.5 billion at December 31, 2025 compared to a net receivable of $530 million at December 31, 2024.

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 $74 million and $92 million in the 2025 and 2024 periods, respectively, and reimbursements from the federal government exceeded health care costs payments for which we do not assume risk by $57 million in the 2023 period.

In March 2025, we issued $750 million of 5.550% unsecured senior notes due May 1, 2035, $500 million of 6.000% unsecured senior notes due May 1, 2055, and an additional $250 million of our existing 5.375% unsecured senior notes due April 15, 2031.

Our net proceeds, reduced for the underwriters' discounts and commissions paid, were $1.481 billion.

We used the net proceeds of these offerings to repay the remaining $577 million aggregate principal amount of our 4.500% unsecured senior notes on their maturity date of April 1, 2025.

The remaining net proceeds will be used for general corporate purposes, which may include the repayment of our existing indebtedness, including borrowings under our commercial paper program.

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

In March 2024, we issued $1.5 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.

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

In November 2022, we issued $500 million of 5.750% unsecured senior notes due March 1, 2028 and $750 million of 5.875% unsecured senior notes due March 1, 2033.

Our net proceeds, reduced for the underwriters' discounts and commissions paid, were $1.2 billion.

In March 2022, we issued $750 million of 3.700% unsecured senior notes due March 23, 2029.

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

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.

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.

In May 2025, 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 and a portion of our $600 million aggregate principal amount of 3.950% senior notes maturing in March 2027 during the period beginning on May 1, 2025 and ending on August 29, 2025.

For the year ended December 31, 2025, we repurchased $200 million principal amount of these senior notes for approximately $194 million cash.

In October 2025, we entered into a Rule 10b5-1 Repurchase Plan to repurchase a portion of our $750 million aggregate principal amount of 2.150% senior notes maturing in February 2032, a portion of our $500 million aggregate principal amount of 3.125% senior notes maturing in August 2029 and a portion of our $750 million aggregate principal amount of 3.700% senior notes maturing in March 2029 during the period beginning on October 3, 2025 and ending on December 31, 2025.

For the period ended December 31, 2025, we repurchased $200 million principal amount of these senior notes for approximately $177 million cash.

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.

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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 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.

We participate in a securities lending program where we loan certain investment securities for short periods of time in exchange for collateral.

Net proceeds from the securities lending program were $220 million and $418 million in 2025 and 2024, respectively.

We have previously 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.

Net repayments from the uncommitted receivables purchase facility were $123 million in 2025.

Net proceeds provided by the uncommitted receivables purchase facility were $123 million in 2024.

We participate in a commercial paper program.

Net repayments from issuance of commercial paper were $5 million in 2025 and the maximum principal amount outstanding at any one time during 2025 was $1.2 billion.

Net repayments from the 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 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.

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.

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 repurchased common shares for $151 million, $817 million and $1.6 billion in 2025, 2024 and 2023, respectively, under share repurchase plans authorized by the Board of Directors and in connection with employee stock plans.

We paid dividends to stockholders of $430 million in 2025, $431 million in 2024, and $431 million in 2023.

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A downgrade by S&P to BB+ or by Moody’s to Ba1 triggers an interest rate increase of 25 basis points with respect to $250 million of our senior notes.

Successive one notch downgrades increase the interest rate an additional 25 basis points, or annual interest expense by $1 million, up to a maximum 100 basis points, or annual interest expense by $3 million.

Successive one notch downgrades increase the interest rate an additional 25 basis points, or annual interest expense by approximately $1 million, up to a maximum 100 basis points, or annual interest expense by approximately $3 million.

In addition, we operate as a holding company in a highly regulated industry.

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Cash, cash equivalents, and short-term investments at the parent company were $1.5 billion at December 31, 2025 compared to $0.6 billion at December 31, 2024.

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.

This increase primarily reflects working capital changes, net proceeds from the issuance of senior notes, and proceeds from sale of business, partially offset by repayments of senior notes, capital contributions to certain subsidiaries, cash dividends to shareholders, capital expenditures, and common stock repurchases.

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).

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Actual dividends paid may vary due to consideration of excess statutory capital and surplus and expected future surplus requirements related to, for example, premium volume and product mix.

On February 13, 2026, we completed the acquisition of a primary care business for consideration of approximately $941 million.

Regulatory Requirements

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The portion of IBNR estimated using completion factors for claims incurred prior to the most recent two months is generally less variable than the portion of IBNR estimated using trend factors.

The following table illustrates the sensitivity of these factors assuming moderately adverse experience and the estimated potential impact on our operating results caused by reasonably likely changes in these factors based on December 31, 2024 data:

The following table illustrates the sensitivity of these factors, experience and the estimated potential impact on our operating results caused by reasonably likely changes in these factors based on December 31, 2025 data:

Completion Factor (a):

Claims Trend Factor (b):

Change (c) Decrease in

Change (c) Change in

Benefits Payable Factor

Change (c) Decrease in

Change (c) Change in

Benefits Payable

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0.03% $27 0.50% $95

0.05% $44 1.75% $318

0.03% $22 1.50% $273

(a) Reflects estimated potential changes in benefits payable at December 31, 2025 caused by changes in completion factors for incurred months prior to the most recent two months.

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The following table summarizes the changes in estimate for incurred claims related to prior years attributable to our key assumptions.

As previously described, our key assumptions consist of trend and completion factors estimated using an assumption of moderately adverse conditions.

As previously described, our key assumptions consist of trend and completion factors.

The amounts below represent the difference between our original estimates and the actual benefits expense ultimately incurred as determined from subsequent claim payments.

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(a) The factor change indicated represents the percentage point change.

As previously discussed, our reserving practice is to consistently recognize the actuarial best estimate of our ultimate liability for claims.

Actuarial standards require the use of assumptions based on moderately adverse experience, which generally results in favorable reserve development, or reserves that are considered redundant.

We experienced favorable medical claims reserve development related to prior fiscal years of $701 million in 2024, $872 million in 2023, and $415 million in 2022.

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.

As previously discussed, our reserving practice is to consistently recognize the actuarial best estimate of our ultimate liability for claims, which generally results in favorable reserve development, or reserves that are considered redundant.

We experienced favorable medical claims reserve development related to prior fiscal years of $1.0 billion in 2025, $701 million in 2024, and $872 million in 2023.

The favorable medical claims reserve development for 2025, 2024, and 2023 primarily reflects the consistent application of trend and completion factors.

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.

We continually adjust our historical trend and completion factor experience with our knowledge of recent events that may impact current trends and completion factors when establishing our reserves.

Because our reserving practice is to consistently recognize the actuarial best point estimate using an assumption of moderately adverse conditions as required by actuarial standards, there is a reasonable possibility that variances between actual trend and completion factors and those assumed in our December 31, 2024 estimates would fall towards the middle of the ranges previously presented in our sensitivity table.

Because our reserving practice is to consistently recognize the actuarial best point estimate as required by actuarial standards, there is a reasonable possibility that variances between actual trend and completion factors and those assumed in our December 31, 2025 estimates would fall within the ranges previously presented in our sensitivity table.

Revenue Recognition

We generally establish one-year commercial membership contracts with employer groups, subject to cancellation by the employer group on 30-day written notice.

Our Medicare contracts with CMS renew annually.

We generally establish one-year specialty membership contracts, subject to cancellation on a 30-day written notice.

Our military services contracts with the federal government and certain contracts with various state Medicaid programs generally are multi-year contracts subject to annual renewal provisions.

We receive monthly premiums from the federal government and various states according to government specified payment rates and various contractual terms.

We bill and collect premiums from employer groups and members in our Medicare and other individual products monthly.

Changes in premium revenues resulting from the periodic changes in risk-adjustment scores derived from medical diagnoses for our membership are estimated by projecting the ultimate annual premium and recognized ratably during the year with adjustments each period to reflect changes in the ultimate premium.

We bill and collect member premiums on a monthly basis.

Changes in Medicare premium revenues resulting from the periodic changes in risk-adjustment scores derived from medical diagnoses for our membership are estimated by projecting the ultimate annual premium and recognized ratably during the year with adjustments each period to reflect changes in the ultimate premium.

Premiums revenue is estimated by multiplying the membership covered under the various contracts by the contractual rates.

We estimate policyholder rebates by projecting calendar year minimum benefit ratios for the small group and large group markets, as defined by the Health Care Reform Law using a methodology prescribed by HHS, separately by state and legal entity.

Medicare Advantage products are also subject to minimum benefit ratio requirements under the Health Care Reform Law.

Premiums revenue is recognized as income in the period members are entitled to receive services, and is net of estimated uncollectible amounts, retroactive membership adjustments, and adjustments to recognize rebates under the minimum benefit ratios required under the Patient Protection and Affordable Care Act and The Health Care and Education Reconciliation Act of 2010, which we collectively refer to as the Health Care Reform Law.

Medicare Advantage and Medicaid products are subject to minimum benefit ratio requirements.

Estimated calendar year rebates recognized ratably during the year are revised each period to reflect current experience.

Retroactive membership adjustments result from enrollment changes not yet processed, or not yet reported by an employer group or the government.

Retroactive membership adjustments result from enrollment changes not yet processed, or not yet reported by the federal government and various states.

We routinely monitor the collectability of specific accounts, the aging of receivables, historical retroactivity trends, estimated rebates, as well as prevailing and anticipated economic conditions, and reflect any required adjustments in current operations.

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Medicare Risk-Adjustment Provisions

CMS uses a risk-adjustment model which adjusts premiums paid to Medicare Advantage, or MA, plans according to health status of covered members.

CMS uses a risk-adjustment model that adjusts premiums paid to Medicare Advantage, or MA, plans according to health status of covered members.

The risk-adjustment model, which CMS implemented pursuant to the Balanced Budget Act of 1997 (BBA) and the Benefits Improvement and Protection Act of 2000 (BIPA), generally pays more where a plan's membership has higher expected costs.

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Approximately 97% of our debt securities were investment-grade quality, with a weighted average credit rating of AA- by S&P at December 31, 2025.

Most of the debt securities that were below investment-grade were rated B+, the higher end of the below investment-grade rating scale.

Most of the debt securities that were below investment-grade were rated B.

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.

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Total debt securities $ 2,331 $ (16) $ 8,740 $ (851) $ 11,071 $ (867)

Under the current expected credit losses model, or CECL, expected losses on available for sale debt securities are recognized through an allowance for credit losses rather than as reductions in the amortized cost of the securities.

Under the current expected credit losses model, or CECL, credit losses on available for sale debt securities are recognized through an allowance for credit losses rather than as reductions in the amortized cost of the securities.

For debt securities whose fair value is less than their amortized cost which we do not intend to sell or are not required to sell, we evaluate the expected cash flows to be received as compared to amortized cost and determine if an expected credit loss has occurred.

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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.

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.

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All issuers of debt securities we own that were trading at an unrealized loss at December 31, 2025 remain current on all contractual payments.

After taking into account these and other factors previously described, we believe these unrealized losses primarily were caused by an increase in market interest rates in the current markets since the time the debt securities were purchased.

At December 31, 2025, we did not intend to sell any debt securities with an unrealized loss position in accumulated other comprehensive income, and it is not likely that we will be required to sell these debt securities before recovery of their amortized cost basis.

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At December 31, 2025, goodwill, indefinite-lived and other long-lived assets represented 27% of total assets and 74% of total stockholders’ equity, compared to 29% and 83%, respectively, at December 31, 2024.

The decrease in goodwill, indefinite-lived and other long-lived assets as a percentage of total assets is primarily attributable to the increase in investment securities.

The decrease in goodwill, indefinite-lived and other long-lived assets as a percentage of total assets is primarily attributable to the increase in cash and cash equivalents and other assets, partially offset by the decrease in investment securities.

The decrease in goodwill, indefinite-lived and other long-lived assets as a percentage of total stockholders' equity is primarily attributable to the increase in retained earnings and the decrease in accumulated other comprehensive loss.

For goodwill, we are required to test at least annually for impairment at a level of reporting referred to as the reporting unit, and more frequently if adverse events or changes in circumstances indicate that the asset may be impaired.

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Key assumptions in our cash flow projections, including changes in membership, premium yields, medical and operating cost trends, and certain government contract extensions, are consistent with those utilized in our long-range business plan and annual planning process.

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, 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.

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 expectations and 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 2025, 2024, and 2023 did not result in an impairment loss.

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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 $790 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.

Impairment tests completed on our indefinite-lived intangible assets for 2025, 2024 and 2023 resulted in impairment charges of $128 million, $200 million and $55 million, respectively.

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

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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