The paragraph is an introduction to the Centene Corporation's Third Quarter 2024 Results Conference Call. The operator announces that the call will be in listen-only mode, with opportunities for questions after the presentation. Jennifer Gilligan, Head of Investor Relations, introduces the call and informs listeners that it will be hosted by CEO Sarah London, CFO Drew Asher, with President Ken Fasola available for Q&A. The discussion will include forward-looking statements subject to change, as outlined in their press release, and mention of non-GAAP financial measures. An upcoming Investor Day is scheduled for December 12th in New York City. The paragraph concludes with the call being handed over to CEO Sarah London.

In the article, Sarah London discusses the company's third quarter 2024 financial results amidst recent market volatility impacting managed care. Despite these challenges, the company remains confident in its full year 2024 adjusted diluted EPS guidance of over $6.80 and anticipates growing adjusted EPS in 2025. For the third quarter, the company reported an adjusted diluted EPS of $1.62, exceeding expectations partly due to tax timing. Performance in Medicare and Marketplace was as expected, while Medicaid performed better than anticipated due to rate adjustments and effective advocacy. The company has maintained transparency throughout 2024 amidst significant changes, particularly regarding Medicaid's transformation due to eligibility redeterminations, leading to a stable outlook for 2024.

The paragraph discusses the impact of Medicaid redeterminations on the risk pool and program rates, noting that most states have completed their backlog. The organization has around 13 million members, and membership is stabilizing. The company emphasizes its ongoing support for members and proactive communication with state partners to ensure rates reflect current data and acuity levels. All states have taken steps to adjust rates, but further adjustments are necessary. The expected rate adjustment is between 4.5% and 5%. About 30% of members initially dropped from Medicaid have returned, though many experience coverage and premium gaps, creating temporary pressure on Medicaid's medical loss ratio (MLR). However, the trend of members rejoining is slowing.

The paragraph discusses Centene's positive outlook as Medicaid's churn rate normalizes moving into 2025. The company is focused on data-driven advocacy to secure appropriate rates and acuity adjustments, highlighting temporary rate dynamics throughout 2024. While redeterminations have been significant, Centene also emphasizes its strong RFP performance and long-term Medicaid business growth. The company successfully retained contracts for long-term support services in Pennsylvania, statewide presence in Iowa, and won an RFP in Michigan for integrated Medicare and Medicaid services. Centene is making progress in rate alignment and articulating its value proposition effectively.

The paragraph highlights the company's efforts to improve Medicaid quality, compliance, and innovation, particularly for underserved communities, despite challenges with the redetermination process. The Medicare segment is performing as expected, with Medicare Advantage being a key growth area focusing on improving Stars ratings and reducing costs. Recent 2025 star ratings have shown significant improvement, with 46% of members and plans reaching or surpassing 3.5 stars, indicating a substantial advancement from the previous year. The company is adjusting its Medicare Advantage strategy by focusing on lower-income seniors, exiting six states, and strengthening its presence in key areas.

The paragraph discusses Centene's strategic adjustments in its contract portfolio to focus on its Medicare Advantage and Part D businesses, aiming for significant revenue growth by 2025, partly due to the Inflation Reduction Act. While anticipating a decrease in membership, these changes mark progress towards profitability. The company's robust Medicaid presence creates advantages in serving dual-eligible Medicare members, enhancing long-term growth and margin expansion potential. Additionally, Centene's marketplace business is thriving, with expectations of achieving targeted pre-tax margins of 5% to 7.5% in 2025. The company's leadership in implementing policies, such as the agent of record lock, highlights its influence in the marketplace sector.

The paragraph discusses CMS's introduction of program integrity processes that align with Centene's advocacy to improve exchange enrollment controls. These policies are expected to enhance member experience and market quality, although they may moderate market growth in 2025. The company anticipates modest membership growth during the current open enrollment period and projects mid-single-digit market growth by 2025. Centene is pleased with its marketplace business performance, serving over 20 million bipartisan Americans. As part of its value creation plan, Centene is focusing on operational improvements and efficiencies, including using AI to automate provider contract management and enhance provider performance analytics, supporting value-based care initiatives.

The paragraph highlights Centene's strategic initiatives and achievements, including maintaining strong Medicare Advantage Star scores, expanding Medicaid services, and delivering value in the Marketplace. The organization is prepared for various post-election scenarios and is committed to ensuring coverage and affordability for Americans. The efforts of Centene's workforce, including their response to Hurricanes Helene and Milton through financial support, supply coordination, and personal aid, are recognized as key contributors to their ongoing success and momentum.

In the paragraph, Andrew Asher discusses Centene's strong financial performance in the third quarter of 2024, reporting $36.9 billion in revenue and an adjusted diluted earnings per share of $1.62, which exceeds expectations. The quarter's earnings include timing shifts of a marketplace premium tax benefit and an accelerated income tax benefit. Centene's consolidated Health Benefits Ratio (HBR) is 89.2% for Q3 and 87.9% year-to-date. Medicaid membership stands at over 13 million, with a Q3 HBR of 93.1%. Despite small redetermination activities, Medicaid membership is expected to stabilize around 13 million. Progress with state partners on matching rates with acuity continues, and Asher expresses confidence in achieving equilibrium between rates and acuity in the future.

The paragraph discusses the company's performance and strategies in their Marketplace, Medicare Advantage, and PDP (Prescription Drug Plan) businesses. The Marketplace showed significant growth with 4.5 million members, and the company anticipates further growth during the open enrollment period with margin goals set for 2025. Their Medicare segment performed as expected, with strategic exits from smaller states to align with their Medicaid footprint and a reduction in H contracts. Target revenue for Medicare Advantage in 2025 remains between $14 billion and $16 billion. The company is on track with their Stars ratings plan and expects significant revenue growth in PDP due to the Inflation Reduction Act. Their pharmacy cost structure provides competitive low-cost products for seniors, and they remain below the auto-assigned benchmark in most regions for 2025.

The paragraph discusses the company's financial performance and projections. It notes that their zero premium product for seniors is available in 43 states, and they expect their premium yield to more than double in 2025 compared to 2024 due to the IRA, with potential membership growth during the annual enrollment period. They aim for a 1% margin on their PDP in 2025, increasing over time on a larger revenue base. The adjusted SG&A expense ratio was 8.3% for the quarter, improving the outlook for 2024. Operational cash flow used was $1 billion in Q3, with significant factors including marketplace risk adjustment payables and Medicaid rate increases. Unregulated cash on hand at quarter end was $266 million, and $1.6 billion was spent on share repurchases, bringing the year-to-date total to $2.4 billion. Debt to adjusted EBITDA was 2.9 times, and medical claims liability represented 51 days in claims payable. The company updated its 2024 guidance, projecting $2 billion higher premium and service revenue, with a consolidated HBR guidance of 88.3% to 88.5%, and expects Q3 2024 to have the highest Medicaid HBR.

The paragraph discusses the 2024 financial guidance for Centene, highlighting a slight decrease in the SG&A guidance midpoint to 8.6% due to cost management and revenue growth. It anticipates over $1.7 billion in investment income, excluding divestiture gains and losses, and approximately $550 million in depreciation expense. Centene reaffirms its expectation of adjusted diluted EPS of greater than $6.80 for 2024, despite challenges like the temporary Medicaid rate acuity mismatch. The company also expects continued EPS growth in 2025 and beyond. Stephen Baxter from Wells Fargo asks for details about Medicaid MLR expectations for Q4 and related cost growth in the Medicaid business, seeking clarification on margin impacts from rate updates. Sarah London acknowledges the questions and begins to address them.

The paragraph discusses the efforts made over the past 18 months to address the gap between rate and acuity in Medicaid, highlighting the importance of proactive dialogue and data usage with state partners. As a major Medicaid provider, the organization worked early to identify the dislocation between rate and acuity, sharing data with 14 states undergoing rate updates. This led to a composite rate adjustment in the high 4% to 5% range for the year. The company's strategic approach has strengthened state relationships, aiding discussions on future rate adjustments and mid-cycle acuity changes. Andrew Asher notes that Medicaid's Health Benefit Ratio (HBR) in Q3 is expected to be the high point as they progress to Q4.

The paragraph contains a discussion about Medicaid utilization trends and rate updates affecting Q4 more than Q3. The speaker, likely from a company's leadership or management, highlights that there are no major changes in Medicaid utilization trends outside of variations in rate and acuity, as previously discussed in Q2 and Q3 updates. The focus is on maintaining an accurate understanding of trends within continuous member cohorts, suggesting the absence of significant underlying trends. The conversation briefly touches on the state's reverification process returning to normal and how it affects rate advocacy with states. Additionally, trends in other areas, like behavioral health, are mentioned but not elaborated upon.

The paragraph discusses the impact of state-level program-specific changes on rates, particularly in the context of behavioral and home health services. It highlights the normal but now more visible administrative adjustments due to broader redetermination processes. The adjustments include adding drugs to preferred lists and altering behavioral health access and prior authorization rules. These adjustments are consistent with previous reports, and no new changes were seen as they exited the quarter. The speaker emphasizes the states' willingness to consider aggregate data impacts on population acuity and rates, aligning with actuarial processes. The response to a question by A.J. Rice from UBS suggests that the company expects rate increases of 4.5% to 5% and anticipates improvement in medical loss ratios with further rate updates.

In this paragraph, Sarah London discusses the variability in state rate updates, highlighting that each state's needs differ. She emphasizes the unprecedented situation and expresses optimism that states recognize the need to adjust rates to reflect actual experiences. Andrew Asher adds that progress is being made, particularly noting high single-digit rate increases in smaller states, and mentions ongoing work through 2025 to align rates more accurately, especially as new cohorts emerge. The conversation then transitions to Justin Lake from Wolfe Research, ready to ask the next question.

In the paragraph, Andrew Asher is addressing a question from Justin about a 4% to 5% composite rate. Asher clarifies that this rate pertains to the latter half of the year and represents net rates, excluding Medicaid pass-through payments and adjustments for programmatic changes. He emphasizes that the focus should be on matching exit medical expense per member per month (PMPM) rates as the redetermination period ends. He notes that in their extensive member base, there is little trend in continuous members over two years, except for some typical trend in high-acuity populations, while Temporary Assistance for Needy Families (TANF) trends remain relatively flat. The goal is to maintain a stable PMPM run rate, which they will focus on in upcoming cycles.

The paragraph discusses the challenge of addressing pent-up demand in healthcare, specifically related to "rejoiners" and GLP-1 medications. Rejoiners are members returning for care, causing financial pressure due to the delay in premium payments. As the backlog of rejoiners decreases, a positive financial impact is expected in 2025. Regarding GLP-1 medications, certain states have included them in their formulary, providing data that can be used to advocate for reimbursement and inform rate discussions in other states considering similar actions.

The paragraph discusses the handling of Medicaid Health Benefits Ratio (HBR) and the visibility into rate updates. Sarah London confirms that Medicaid HBR improvement is expected to be a positive factor for 2025. They have started receiving some rate updates effective from January 1st and plan to provide more insights at their Investor Day in December. Despite a modest setback in Medicaid Medical Loss Ratio (MLR) in the recent quarter, they expect to grow adjusted earnings per share. Questions from Lance Wilkes touch on how states apply rate increases, whether by program or composite level, and if there is enough data to observe normalization in utilization patterns among rejoiner cohorts.

The paragraph discusses various topics related to healthcare rates and data management. It explains that composite rates reflect a buildup of underlying sub-programs managed by different entities. There is a focus on rejoined data, which shows that people are returning due to service needs, and their usage patterns normalize over time. The paragraph suggests that if premiums had been received during gaps, it would have stabilized the Health Benefit Ratio (HBR). This reflects an artificial pressure causing an increase in the Medical Loss Ratio (MLR). The paragraph briefly mentions ongoing discussions with state partners and shifts to a question from Adam Ron of Bank of America, regarding expectations of a 1% margin in the Part D business for the next year and how changes from the Inflation Reduction Act (IRA) affecting member cost-sharing could impact 2025 pricing.

The paragraph discusses the company's positive outlook and strategic positioning in the Prescription Drug Plan (PDP) segment for 2024, while also considering changes expected in 2025 due to the Inflation Reduction Act (IRA). The company is on track in its Medicare segment and anticipates consistency in margins between 2024 and 2025, even though revenue will be higher in 2025. They have effectively managed risks, particularly regarding direct subsidies, and expect growth during the enrollment periods. They are below the benchmark in 33 out of 34 regions and continue to offer zero-premium products in most states. Although pleased with the overall positioning, the company is aiming to increase the current 1% margin in the future.

Sarah London addresses questions about growth expectations and regulatory changes in the Marketplace for the upcoming year. Despite challenges, she remains optimistic about long-term growth, citing factors such as increased stability and awareness. The growth rate is expected to moderate due to the end of redetermination tailwinds and the reintroduction of certain regulatory policies, most of which were halted during COVID-19. One such policy is the agent of record lock, which mandates a single broker per enrollment period to ensure stability. Regarding California, she acknowledges the retroactive rate adjustment in Medicaid but implies it hasn't been as significant for her company.

The paragraph discusses the impact of policy reinstatements on the insurance market, specifically regarding income reporting and overlap between Marketplace and Medicaid eligibility. This is expected to create downward pressure on enrollment growth. The company anticipates returning to more typical market patterns, with growth during open enrollment, peaking in Q1, and then declining throughout the year. Overall, they foresee mid-single-digit growth, with modest growth expected in open enrollment. Despite competition, the company is confident in meeting target margins of 5% to 7.5%. Additionally, there is a brief mention of adjustments made to their Q2 results and a query about Centene's potential to grow beyond mid-single-digit numbers next year.

The paragraph discusses expectations and trends in Medicaid cost for the fourth quarter, with an acknowledgment that Q3 is considered the peak for Medicaid Health Benefit Ratio (HBR). The company expects trends to continue across all business lines, with increased medical expense per member per month noted as they exit the redetermination period. They anticipate improvement in Q4 due to rate benefits effective in September and October. Additionally, the company plans to grow in the Marketplace and aims to deliver margins within a specific pretax range, with more detailed updates to be provided at a future investor event. The conversation then shifts to AI, with questions about quantifying AI benefits, the readiness of AI projects, and general administrative costs (G&A).

In the paragraph, Sarah London discusses the expected increase in SG&A expenses in the fourth quarter due to selling periods for Marketplace and Medicare, noting this is a consistent yearly trend. She highlights the organization's success in achieving operational efficiency and progress beyond initial goals by focusing on higher-order opportunities, and emphasizes that their efforts to standardize processes pave the way for automation and AI integration. This AI adoption aims to optimize non-differentiating administrative processes and concentrate organizational talent on key areas. London also mentions additional SG&A opportunities, particularly in Medicare, as a strategy to mitigate risks and enhance profitability.

The paragraph discusses the company's strategies and outlook, highlighting efforts to improve EPS through digital payments, vendor and portal consolidation, and margin improvements. Andrew Asher gives financial projections for 2024, affected by business mix, and notes Marketplace and Medicare have higher SG&A than Medicaid. He also mentions PDP revenue growth's impact on these projections. An analyst from Deutsche Bank, Maxi, inquires about Medicaid PMPM growth, attributed to rate adjustments and state-directed payments, with expectations that this growth rate is sustainable. The session concludes with Sarah London reaffirming the company's business objectives and 2024 earnings power remain consistent.

The paragraph discusses Centene's progress in aligning Medicaid rates with patient needs and achieving positive outcomes in RFP wins. It highlights strategic gains in Medicare and the company's leadership in the marketplace business due to its extensive experience and execution. The company acknowledges ongoing opportunities and plans to provide further updates at the upcoming Investor Day in December. The speaker thanks attendees for their interest and concludes the conference call.

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