HUMHumana

Consolidated operating costs benefits expense increased $0.5 $10.1 billion, or 3.9%, 10.1%, from $13.2 billion in the 2023 period to $13.7 $100.7 billion in the 2024 period to $110.8 billion in the 2025 period. The consolidated operating cost benefit ratio decreased 70 increased 40 basis points from 12.5% in the 2023 period to 11.8% 89.8% in the 2024 period. The ratio decrease was period to 90.2% in the 2025 period primarily due to scale efficiencies associated 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 growth a reduction in individual Medicare Advantage membership, administrative cost efficiencies resulting from our value creation initiatives, a lesser impact of commission expense for brokers incremental investments to improve member and patient outcomes and support operational excellence, and the year-over-year increase 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 stand-alone PDP benefit ratio driven by the impact of the accrued charge related to certain anticipated litigation expenses in the 2023 period. IRA. 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 individual Medicare Advantage utilization trends, 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 impairment costs favorable prior-period medical claims development in the 2024 2025 period.

In December 2023, September 2025, the FASB issued Accounting Standards Update No. 2023-07, Segment Reporting 2025-06 — Intangibles — Goodwill and Other — Internal Use Software (Subtopic 350-40): Targeted Improvements to Reportable Segment Disclosures. the Accounting for Internal-Use Software. The new guidance modernizes consideration of different methods of software development, updating the requirements for capitalization of software costs. The new guidance requires incremental disclosures related to a public entity’s reportable segments but does not change the definition of a segment, the method for determining segments, or the criteria for aggregating operating segments into reportable segments. prospective application (with retrospective application permitted). The new guidance became will be effective for us beginning with our annual 2024 year-end interim 2028 financial statements. The statements, with early adoption of ASU 2023-07 in 2024 did not have a material permitted. We are currently evaluating the impact on our consolidated results of operations, financial statements. Our segment footnote disclosure was updated to reflect adoption of the standard. position, and cash flows.

CMS uses a risk-adjustment model which 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. Under this model, rates paid to MA plans are based on actuarially determined bids, which include a process whereby our prospective payments are based on our estimated cost of providing standard Medicare-covered benefits to an enrollee with a "national average risk profile." That baseline payment amount is adjusted to account for certain demographic characteristics and health status of our enrolled members. Under the risk-adjustment methodology, all MA plans must collect from providers and submit the necessary diagnosis code information to CMS within prescribed deadlines. The CMS risk-adjustment model uses the diagnosis data, collected from providers, to calculate the health status-related risk-adjusted premium payment to MA plans, which CMS further adjusts for coding pattern differences between the health plans and the government fee-for-service (FFS) program. We generally rely on providers, including certain providers in our network who are our employees, to code their claim submissions with appropriate diagnoses, which we send to CMS as the basis for our health status-adjusted payment received from CMS under the actuarial risk-adjustment model. We also rely on these providers to document appropriately all medical data, including the diagnosis data submitted with claims. In addition, we conduct medical record reviews as part of our data and payment accuracy compliance efforts, to more accurately reflect diagnosis conditions under the risk adjustment model.

We believe that the Final RADV Rule fails to address adequately the statutory requirement of actuarial equivalence and violates the Administrative Procedure Act (“APA”). CMS failed to meet its legal obligations in the federal rulemaking process to give a reasoned justification for the rule or provide a meaningful opportunity for public comment. They also chose to apply the rule retroactively rather than prospectively, as required by law. Humana’s actuarially certified bids through PY 2023 2026 preserved Humana’s position that CMS should apply an FFS Adjuster in any RADV audit that CMS intends to extrapolate. CMS confirmed its intent to apply the Final RADV Rule, including the first application of extrapolated audit results to determine audit settlements without the use of a FFS Adjuster, to CMS audits conducted for PY 2018 and subsequent years when it selected certain of Humana's MA contracts for PY 2018 RADV Audits. audits. Further, on May 21, 2025, CMS announced that it will conduct RADV audits for all eligible MA contracts for each payment year in all newly initiated audits and expedite the completion of RADV audits for PY 2018 through PY 2024 by early 2026. The Final RADV Rule, including the lack of a FFS Adjuster, and any related regulatory, industry or company reactions, the expansion of CMS's auditing efforts to include all eligible MA contracts, the acceleration of RADV audits for PY 2018 through PY 2024, other changes CMS may make to the RADV audit methodology for these years, and combination of these expanded auditing efforts with the application of the Final RADV Rule, could each have a material adverse effect on our results of operations, financial position, or cash flows.