CENTENE CORP Q4 FY2024 earnings call

• Centene is stepping into 2025 with a clear strategy, having delivered significant operational improvements.
• In Medicaid, post-COVID era eligibility redeterminations are coming to a close, with constructive dialog with state partners for rate command. Local teams are developing innovative care programs, e.g., in Nevada for rural healthcare access and in Illinois for food as medicine approach for hypertension.
• In Medicare, significant progress is made with 55% of members in 3.5 star plans or better, improved HEDIS rates and medication adherence, smooth 1/1/25 go-live, and better-than-expected results in 2025 annual enrollment period.
• In Marketplace, Ambetter had strong open enrollment, with effectuation rates in line with historical norms, and excitement about Georgia markets transitioning to state-based exchange and ICHRA.

Medicaid

• In 2024, Medicaid HBR was 92.5% temporarily high due to redeterminations, but 2025 is expected to have improved membership stability. For 1/1/25 effective rates, a mid-4% composite rate adjustment was achieved, and the full year 2025 composite rate adjustment is expected to be 3% to 4%. As of 2024, Centene serves 13 million Americans across its Medicaid portfolio.

Medicare

• In 2024 Stars results, 55% of members are associated with 3.5 star plans or better, up from 23% last year. 2025 Medicare enrollment is expected in the low-to-mid 900,000, with a duals mix around 40%. PDP business is positioned to be larger in 2025, with 2025 revenue expected to be approximately $16 billion. The 1/1/25 go-live for Medicare was very smooth.

Marketplace

• Ambetter delivered strong performance in 2024 open enrollment. 2025 marketplace membership is expected to peak slightly above 5 million members in the first quarter. The demographic of effectuated membership is similar to 2024, with roughly 51% female and average age 39.4, and metal tier shifting slightly towards silver with nearly 75% in silver plans by 2025.

• Lifts full year 2025 revenue guidance by $4 billion, with consolidated 2025 premium and service revenue guidance range at $158 billion to $160 billion.
• Outlook for full year 2025 adjusted diluted EPS remains unchanged as greater than $7.25.
• Medicare segment is expected to be about $2.5 billion higher in premium revenue in 2025 than discussed at Investor Day, and there is another $1.5 billion in Medicaid revenue from a program change.
• Preliminary percentage rate change for 2026 Medicare is in the low-to-mid 3s, including positive impact from Stars work in 2023 and 2024.

• Uncertainty regarding the impact of program integrity changes such as FTR on membership, with potential longer tail for some impacts to play out.
• Uncertainty in timing of Medicaid rate adjustments and their full impact on margins.
• Uncertainty in the full effect of Medicare program changes related to the Inflation Reduction Act on financial performance.

Q: Josh Raskin asked about expectations around total exchange market growth and subsidy verification process, and the mechanics of member level and when fully effectuated membership totals will be known.

A: Sarah London responded that CMS put out 13% enrollment growth, effectuated membership is important to track due to program integrity changes. There are notifications to members, consumer attestation processes, and multiple checkpoints in February and March, with impact potentially seen in Q2. Effectuation levels are in line with historical norms, but need to see Q2 play out to know net market growth post effectuations.

Q: Justin Lake asked about PYD in the quarter, what drove it, and the net benefit, and about Medicaid retros not hitting in Q4.

A: Sarah London said retros didn't hit as expected, and rate action expected late in the quarter didn't come through. Andrew Asher mentioned prior-year development had about $2.4 billion including CSR, a medical expense item of a couple hundred millions.

Q: Stephen Baxter asked about Medicaid rate assumptions, structurally different dislocation, and conservatism in assumptions.

A: Sarah London said continue to expect full year 2025 composite rate between 3% and 4%, with more robust data and constructive conversations with state partners, but timing of rate updates is a factor.

Q: A.J. Rice asked about Medicaid underlying utilization trend normalization and Medicare medical loss ratio and premium deficiency reserve adjustment.

A: Sarah London said no new trends to report in Medicaid, and Andrew Asher said Medicare finished strong with PDP outperformance in Q4, driven by IRA changes in 2024.

Q: Adam Ron asked about Medicaid MLR seasonality and slope of the curve.

A: Andrew Asher said commercial HBR starts low and ticks up, Medicare HBR starts low and slopes up due to PDP and IRA changes, Medicaid back half better than front half in 2025.

Q: Sarah James asked about bridging old to new guidance, moving pieces, and margins for exchanges and Part D.

A: Sarah London said early to tell, PDP targets 1% margin, marketplace in 5%-7.5% range. Andrew Asher said $4 billion is earnings power for future, real early to pinpoint.