Humana Inc.

After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to Lisa Stoner, Vice President, Investor Relations. Please go ahead.

Thank you and good morning. I hope everyone had a chance to review our press release and prepared remarks, which are available on our website. We will begin this morning with brief remarks from Jim Recton, Humana's President and Chief Executive Officer, and Chief Financial Officer Celeste Millay, which will be followed by a Q&A session where Jim and Celeste will be joined by George Runadin, President of Humana's Insurance Segment. Before we begin our discussion, I need to advise call participants of our cautionary statement. Certain of the matters discussed in this conference call are forward-looking and involve a number of risks and uncertainties. Actual results could differ materially. Investors are advised to read the detailed risk factors discussed in our latest form 10-K, our other filings with the Securities and Exchange Commission, and our fourth quarter 2024 earnings press release. as they relate to forward-looking statements along with other risks discussed in our SEC filings. We undertake no obligation to publicly address or update any forward-looking statements in future filings or communications regarding our business or results. Today's press release, our historical financial news releases, and our filings with the SEC are all also available on our investor relations site. Call participants should note that today's discussion includes financial measures that are not in accordance with generally accepted accounting principles or GAAP. Management's explanation for the use of these non-GAAP measures and reconciliations of GAAP to non-GAAP financial measures are included in today's press release. Any references to earnings per share or EPS made during this conference call refer to diluted earnings per common share. Finally, this call is being recorded for replay purposes. That replay will be available on the investor relations page of Humana's website, Humana.com, later today. With that, I'll turn the call over to Jim Recton.

Thank you, Lisa, and good morning, everyone. Thank you for joining us. I have three topics today. First, we have some new members of the team to introduce. I'm going to spend a minute talking about our performance through the framework of the four levers that drive this business. Those are the levers that were introduced in the CEO letter last summer. And I'll spend a minute on industry context. First, let me just reinforce a couple of headlines. 2024 adjusted DPS is in line with our initial guidance. This does include the investment that we made in STARS and in growth in the back portion of the year. We are reaffirming our 2025 outlook. We remain committed to achieving at least a 3% margin in individual MA. And we do view 2025 as a key year in that journey. and we have some new management team members to help us bring fresh perspectives to that task. I'm pleased to introduce them today. I'll start with Celeste Millay, our new Chief Financial Officer. Celeste joins us with a lot of experience leading finance in organizations that have worked their way through difficult external headwinds. This is a good experience given the circumstances in our sector over the past couple of years. and today. This includes her experience at Morgan Stanley and at Fannie Mae. You will, of course, be hearing from Celeste today, and I look forward to introducing you in a moment. We also have Michelle O'Hara joining us as Chief Human Resources Officer. Her experience has been focused on evolving HR capabilities through periods of change. She comes to us from SAIC. And we're introducing Joppen Mehta as our new Chief Information Officer. Joplin brings a wealth of experience managing large IT organizations in scale-regulated industries. He also has experience using data and digital to better engage customers. This is a big part of our future, we believe. He was most recently at Citi. Now let me turn to the four things that drive this business. The first of those four levers is product experience, which drive customer growth, retention, and lifetime customer value. In this area, we feel that we are moving in the right direction, though we also believe that we're just scratching the surface of what can be done. As a reminder, in 2024, we proved to have a good year of growth with nearly 5% membership growth, despite repricing our product to reflect the elevated medical cost trend that we began to see nearly two years ago. When we look at the most recent AEP and expectations for 2025, We are accomplishing the things we wanted to achieve. We're shedding unprofitable plans, we're resetting expectations and lower margin plans, and we're shifting our membership mix with a focus on sustainable long-term value. The membership losses that we've experienced have largely been consistent with our strategy. The exception to this is our position in the D-SNP space. However, we are comfortable that we can quickly improve our positioning in this space. I also want to emphasize that we feel very good about the new member mix that we've been attracting. The second lever is clinical excellence. This is the engine of the business. When we deliver better outcomes for our members and our patients, we also reduce system costs. When we reduce system costs, we improve our own product profitability. Clinical excellence starts with delivering on STARS performance. In the fourth quarter of 2024, we closed 650,000 care gaps. This is a significant improvement from where we started in September. We feel good about the progress that we made over the last quarter of the year. And the question, of course, is will these steps that we've taken be enough to return us to an industry-leading position in 2027? As we acknowledged back in October, it will be tight, and ultimately it will depend on the final threshold. Having said that, I will reemphasize that we feel good about the progress we made in the fourth quarter. We are right now putting all of our energy into measurement year 2025, that is bonus year 2028, where we have a full year of runway to drive operating improvements. Our third lever is operating with a highly efficient back office. We have made a lot of progress in this domain over the course of the last couple of years. In 2024, we improved our operating expense ratio by 40 basis points. Just to provide a few examples of what enabled this, we optimized our care model, we unified shipping activities across the enterprise, we outsourced some non-core capabilities, and we streamlined our internal distribution capability. I'd like to note that our internal distribution team performed better this year than ever, even while driving efficiency. Efficiency does not mean a decline in performance levels when we do it the right way. It is important for our team to note this and for our investors to recognize it. Despite the good progress over the past few years, we believe there is more to do, and we expect to communicate a path towards additional efficiencies in the upcoming months. Finally, let me touch on the last lever, which is capital allocation and growth. We feel good about the opportunities we found to expand our primary care footprint in the second half of 2024. We also feel good about the continued expansion of Medicaid organically. However, in the near future, we will need to strike a balance. Priority number one is recovering MA margin, as we have repeatedly said. This will require our being prudent with our balance sheet as we navigate the STARS recovery. We must continue to grow our earnings capacity through organic reinvestment and through acquisitions. This is clearly a second priority, but it is a priority nonetheless. Both CenterWell and Medicaid are important enablers of our long-term strategy. We will be thoughtful in identifying opportunities that make sense in our current environment that allow us to continue to grow our earnings capacity while being prudent with our balance sheet. Now let me spend just a moment on the insurance industry and on Medicare Advantage. It's been a volatile couple of years and more so it's been a volatile few months. The US healthcare system is complicated, it's fragmented and it's expensive. I think all of that has been pretty well established. Americans understandably want high quality affordable care that is easy to navigate. Too often that is not what they are receiving today. There is no one company and there is no one sector that is responsible for this. It is a system challenge. It is the challenge of our American healthcare system. Still, as I mentioned in my CEO letter last summer, Medicare Advantage plays an important role. Medicare Advantage delivers better outcomes than original Medicare. If you need evidence of this, look at the steady improvement in HEDIS performance that has been driven by MA programs. Medicare Advantage operates more efficiently than Original Medicare. This can be demonstrated in a recently published value-based care report or through the work done jointly with Harvard University looking at value-based primary care, which operates inside of a Medicare Advantage system. Medicare Advantage also enables more affordable healthcare access to seniors. There is a reason that more than 50% of eligible Americans choose Medicare Advantage. It is of good value. It makes healthcare more affordable and easier to access. And, of course, the Medicare Advantage program can be improved. We are open to partnering with anyone interested in engaging constructively to do that. In the meantime, there are things that we, Humana, can do on our own. While we cannot fix the entire healthcare system on our own, we can make it easier for our patients and our members to navigate. We can make it easier to understand what our members will have to pay when they see a doctor or require a procedure. We can do more to support our members with reminders to do preventative care and to manage their chronic illnesses. We can take complicated healthcare topics and we can communicate about them more clearly and simply to our members. We can provide them better service every time they call us with a question of concern. Those are the things that we can do, that is our intent, and that is the work that is underway within Humana. With that, I will turn it over to Celeste for her to share a few words on her first month at Humana. Celeste.