The operator welcomes participants to the Centene Corporation's second quarter financial results conference call. Jennifer Gilligan, Head of Investor Relations, introduces the CEO, Sarah London, and other participants. Jennifer also mentions that any remarks made may constitute forward-looking statements and that the company may update these statements in the future. Non-GAAP measures will also be discussed and a reconciliation can be found in the press release. Sarah then begins her remarks.

The company reported strong second quarter adjusted EPS of $2.42, driven by strong performance in the marketplace but offset by pressure in Medicaid due to redeterminations. The company is actively addressing this issue and has established communication with state partners to adjust rates for the second half of the year. This has resulted in an uptick in the expectation for the annualized composite rate adjustment. The company's diversified platform is helping them navigate the changing healthcare landscape.

Despite the impact of redeterminations on the Medicaid business, Centene anticipates a return to normal rates and operations. They are focused on improving operations and driving health outcomes, such as with their HALO program for substance use disorder. The company remains committed to long-term growth in Medicaid and has recently won contracts in key states. Dave Thomas, CEO of Markets and Medicaid, will be leaving the company after 25 years of service.

Centene is preparing for growth and innovation in the Medicaid market by leveraging the leadership of Nathan Landsbaum, who has extensive experience in the organization. The company's Ambetter Health is performing well in the individual market and is expected to contribute to margin expansion in 2024. The marketplace landscape is shifting in Centene's favor, providing an opportunity for growth in the individual market. The company is focused on executing well and harnessing positive momentum with members, providers, and distribution partners.

Centene is optimistic about the future of affordable healthcare and believes that their company is well positioned for growth in the coming years. They see potential in the individual marketplace and are confident in their Medicare platform, which is approaching an important milestone. They are on track to achieve their goal of having 85% of their Medicare Advantage members enrolled in highly-rated plans by 2025, and have already made significant operational progress towards this goal.

The company has seen good results in admin and ups, with improvements in appeals, CTMs, and health risk assessments. They have also made progress in HEDIS scores through member outreach and plan to continue investing in quality improvement. They are pleased with the progress towards their 2024 milestone and remain focused on their product strategy for serving lower income seniors. They are also keeping an eye on election dynamics and focusing on policy rather than politics.

Centene has had success over the past 25 years under both Republican and Democratic administrations by focusing on their mission and collaborating with state and federal partners. The CEO has met with various lawmakers and believes that improving community health is a bipartisan goal. Despite challenges, the company is making progress and remains confident in their outlook for future growth. In the second quarter of 2024, Centene reported $36 billion in revenue and a 15% increase in adjusted diluted earnings per share.

The results in the quarter were consistent with previous expectations and showcase the benefits of a diversified enterprise. The company remains on track to deliver adjusted diluted earnings per share in excess of $6.80 in 2024. Medicaid medical expenses were higher in Q2 due to the acuity of membership, but the company is working with state partners to address this issue. The back half of 2024 is expected to see a 4% increase in Medicaid composite rates, which will positively impact the company's HBR.

The company has a positive outlook for the long-term matching of rates and acuity in their Medicaid business. Their marketplace business is performing well and they have improved their execution in accumulating and submitting data for revenue. This has resulted in a net favorable pickup of $600 million in their 2024 P&L. Their Medicare segment is also on track and they have increased their 2024 revenue guidance by $5 billion. This includes increases in Medicaid, commercial, and Medicare segment revenue.

The company is optimistic about its future revenue and EPS growth, with expected improvements in investment income, SG&A expenses, and cash flow. The first half of 2024 has been successful for the company, and they anticipate further improvements in the second half due to rate actions and other factors. While it is too early to give specific guidance for 2025, the company expects tailwinds such as HBR improvement, Medicaid growth, and increased revenue in PDP. They also plan to continue improving operational efficiency and deploying capital in 2025.

The company is facing headwinds in 2025, including the impact of a previous redetermination, the absence of a marketplace risk adjustment benefit, and the gradual impact of Federal Reserve rate actions on investment income. They are focused on matching rates with acuity, improving Stars, and delivering on their 2024 adjusted diluted EPS guidance. The first question from an analyst asks about the expectations for Medicaid MLR in the second half of the year and the bridging assumptions to get there. They also ask for a sense of the company's normalized profitability for states that have updated rates.

The speaker believes that the Medicaid HBR will improve in the second half of the year and will continue to improve until 2025. They expect multiple rate cycles to influence this improvement. The next question asks for clarification on the core stayer book MLR for Medicaid, and the speaker explains that the primary driver of the HBR pressure is the increased acuity of the membership post-redeterminations, which they believe is a temporary and fixable dynamic. They suggest that Drew will provide more specific data on this.

The company is actively monitoring trends in behavioral health and changes in preferred drug lists at the state level. They have identified a shift in acuity as the main driver of costs, and are able to isolate different cohorts within their membership to better understand trends. The spread between stayers and leavers has widened due to certain states pushing out lower utilizers, and the rejoiners cohort is growing as more people seek care.

The speaker discusses the impact of various dynamics on the higher health benefit ratio (HBR), including a widening eligibility gap in coverage and a decrease in the number of months where premium is not received. They also mention that this will level out over the next year. They then address the question of MLRs and provide an update on their original guidance. Finally, they discuss the changes in Part D and how it will affect their profitability and risk in the future.

The speaker discusses the company's approach to providing guidance for 2025, stating that they are not at a stage where they can give specific guidance but that PDP revenue will be a tailwind for 2025. They mention their experienced team and upcoming data from CMS. They also mention that the company views their product line as being able to stand alone from a profitability standpoint. The speaker then briefly discusses the MLR by segment and seasonality in the commercial business. They also mention the expectation of a significant increase in premium yield due to the direct subsidy for PDP. The speaker concludes by stating that they will have a better understanding of membership and competitive positioning in September.

The operator introduces a question from Josh Raskin about the risk adjuster on the exchange. Raskin asks why it has developed better than expected and what the changing dynamics are. He also asks about the hurdles for 2025 and whether the consensus of $7.53 is accurate. Andrew Asher responds by explaining that the risk adjuster involves estimating data from the next four months and executing it into the edge server. He also mentions that they have to estimate the relativity and that it is a zero sum game. He believes they executed strongly and that this was good news.

The speaker thanks their team for strong execution and declines to give guidance on consensus. They mention risk adjustment and getting paid appropriately for their population. In regards to public exchange trends, they confirm their official guidance for MLR and believe they can carry it into next year. They also discuss Medicaid rate updates and the natural look back process involved.

The speaker believes that the company has seen positive trends in their rate updates and has a strong dialogue with the states. They expect this momentum to continue into the next year. The company's exchange performance is on track, and they are being cautious with their approach to 2024 risk adjustment. They are pleased with the execution of their marketplace team.

The speaker discusses how their team has been managing the Medicaid pressures and optimizing their Medicare business. They mention that they will be exiting a few states in order to align with their long-term strategy. They also mention that the risk corridors have been in a steady state since the peak during the COVID era, with $2.3 billion in payables on their balance sheet for Medicaid.

The company's return to premium payable and current liabilities are split between line items, with some of it being in other long-term liabilities. This process can take years for states to collect and retrieve. The next question is about the exchange margins and how they factor into the company's guidance for pretax margin. There have been timing dynamics with operating cash flow, but the first half of the year can be used as a reasonable depiction. Predicting cash flow quarter-to-quarter is difficult due to government programs, but the focus is on getting cash out of subsidiaries and deploying capital.

The company is excited about capital deployment and has performed well in the first half of the year with $850 million of share repurchases. The commercial segment is on track for a 5% to 7.5% pretax margin, and the company expects to have another good year in marketplace in 2025. The G&A ratio was favorable in the quarter and is still on track for the previously provided range of 8.4 to 9.0 for the full year. The company was aided by having more revenue in the denominator due to a settlement from 2023 risk adjustment in marketplace. The company is pleased with its execution and there is more to come.

The speaker discusses their company's plans to reduce SG&A expenses in their Medicare business and mentions multiyear initiatives that are already being implemented. They state that they are not satisfied with their current progress and plan to do more in the coming years. The speaker then addresses a question about the outlook for Medicaid growth and provides updates on RFP results and rejoiners. They also mention recent successes in Florida, Michigan, and Kansas and express excitement for future organic growth opportunities in Medicaid.

The company has demonstrated its ability to capture new opportunities in the last 24 months, such as entering new states and markets, expanding into new programs, and taking advantage of expansion opportunities. The company's local approach and experience allow it to understand the priorities of state leaders and design solutions for the health of its members. The pipeline of potential opportunities is active and the rejoiner rate is increasing. The company is also in a strong position in the PDP market, with $50 billion in pharmacy spend under its control.

The company has a strong position in the auto-assign market, with three different products. They have been considering upcoming changes in the IRA and are willing to provide demographic data upon request. The peak of Medicaid pressure is expected to be in the second quarter, with a 92.8% MLR. The company's SG&A is lower on Medicaid compared to their other businesses, and they expect to see a 2% margin by the end of the year with the balance recovered in 2025.

In the paragraph, the speaker discusses the company's expectations for the second half of the year, including a projected 4% rate impact on half of their revenue in Medicaid. They also mention their progress in the MAA star ratings, with improvements in each key chapter and a projected step up in results in October. The company attributes their success to various factors, such as internal efforts, investments, and organizational changes.

The company has made significant improvements to its digital data and member onboarding processes, which will positively impact its results in 2025. This work will not only benefit the company's Stars program, but also improve the quality scores in other lines of business, particularly in Medicaid. The company is confident in its ability to deliver sustainable programmatic improvement in both Stars and overall quality. In terms of SG&A, the company's current guidance is in the high 8s, with Medicare and marketplace/commercial activities in the double digits. There was no need to call out the impact of operating in the same state as another company mentioned yesterday. There was no mention of Medicare Advantage, but the company's priority is likely to focus on margin improvement rather than enrollment growth in 2025.

Andrew Asher discusses the company's expectations for shrinking in 2025 and focusing on the convergence of Medicaid and Medicare. He also mentions the expected revenue for 2025 and the impact of PDR bookings. The company is aiming for break even and excited about the progress of the Stars program. George Hill asks about the sustainable run rate for the exchange business and any changes to the Part D product, specifically regarding pharmacy networks. Sarah London responds that the company is well positioned for 2025 and expects profitable growth in the marketplace product.

The speaker discusses the recent changes in the PDP and how they affect payers. They mention the increase in the catastrophic phase and the decrease in member out-of-pocket costs. They also mention considering manufacturer behavior and optimizing network access and cost. The speaker expresses excitement about the future opportunities for the business and emphasizes the progress and potential for growth. The call ends with a thank you to participants and an invitation for future updates.

This summary was generated with AI and may contain some inaccuracies.