The paragraph details the introduction of Centene Corporation's First Quarter 2025 Conference Call. The call is being conducted by Jennifer Gilligan from Investor Relations, with presentations by CEO Sarah London and CFO Drew Asher. The discussion will include forward-looking statements, with a disclaimer that actual results may vary due to various factors. The company reserves the right to update these statements in the future but is not obligated. Non-GAAP measures will also be discussed, with reconciliations available in their press release. The call aims to review first-quarter results and the updated 2025 outlook.

The paragraph discusses Centene's performance, noting their first-quarter adjusted diluted EPS of $2.90, aligning with investor expectations, and maintaining their full-year 2025 EPS expectations above $7.25. Despite navigating a shifting policy environment, Centene is managing well. On health care policy, there's little support for Medicaid benefit cuts, with some Republican members opposing major reforms. There's also bipartisan agreement on the need to address the expiration of enhanced premium tax credits, which are crucial for voters, small business owners, and rural health care, as well as for the growth of the individual marketplace.

Congress is set to reconvene next week, prioritizing work on a reconciliation bill, potentially targeting Memorial Day for its completion. Following this, government funding will be a key focus, with the potential to address health care issues. Despite challenges, the organization continues to pursue strategic goals and advocate for effective health care policies. During the quarter, important steps were taken towards margin recovery, including rate adjustments that improved Medicaid performance. However, unexpected additional medical expenses due to a more active flu season offset these gains. Discussions with state partners about rates remain positive, with an expectation that Medicaid margins will return to pre-pandemic levels as rate cycles progress and efforts to provide quality, cost-effective care continue.

The paragraph outlines Centene's recent successes in securing key Medicaid contracts, emphasizing the effectiveness of their service model. They continue providing integrated D-SNP services in Illinois for Medicare and Medicaid dual-eligible members. In Nevada, their Silver Summit health plan was reselected to manage Medicaid care, with an expansion into rural areas. These achievements highlight Centene's competence with diverse populations and solidify their status as a valued partner in multiple states. On the Medicare front, they're aiming for a breakeven point by 2027 while managing changes from the Inflation Reduction Act. Due to stronger-than-expected Medicare Advantage membership growth driven by better retention, they have increased their 2025 revenue outlook by $1 billion. Additionally, favorable updates to the 2026 rate calculation, incorporating recent claims data, have resulted in more accurate rates reflecting recent medical cost trends.

The paragraph discusses the company's strategy to achieve breakeven by 2027, focusing on improving Medicare Advantage through various approaches like STARZ results, value-based clinical initiatives, and reducing SG&A costs. Despite challenges from recent methodology changes and competitor performance, the company aims to de-risk its 2027 STARS outcomes. They are confident in achieving breakeven with current star ratings, covering 55% of members under three and a half star plans, and see potential benefits if results improve. Additionally, the company's commercial segment, including marketplace business, showed strong growth with better enrollment and retention than anticipated, partly due to less impact from external factors than expected. Advocating for supportive program funding for Medicare Advantage beneficiaries remains a key focus.

The paragraph discusses the company's current financial performance and future outlook in light of recent CMS guidance and proposed policy changes. The company anticipates the full impact of its growing membership on revenues won't be seen until Q3 due to delayed CMS actions. They are engaging with CMS on new policy proposals that could affect market and membership dynamics starting in 2026, particularly concerning SEP discontinuation and marketplace pricing strategies. Despite sector volatility, the company is optimistic about preserving enhanced tax credits and is focused on maintaining margin and growth. They reaffirm their 2025 adjusted EPS outlook of over $7.25, leveraging their leadership position to navigate industry challenges.

The paragraph discusses the company's cautious but optimistic approach in the early months of the year, focusing on long-term growth and market opportunities while delivering value to shareholders and improving community health. The company, led by Drew Asher, reported strong first-quarter 2025 results with $42.5 billion in revenue and $2.90 earnings per share. The Medicaid segment saw stable membership and showed slight improvement in the Medicaid Health Benefits Ratio (HBR), despite influenza-related costs. Progress is being made in aligning rates and patient acuity, though efforts are ongoing.

The paragraph discusses the performance and projections of various segments within a healthcare company's Medicaid and Medicare services, particularly throughout 2025 and into 2026. It notes a projected 4% increase in Medicaid composite rate, with strong Medicare Advantage and PDP membership contributing significantly to a $1 billion increase in premium and service revenue guidance for 2025. The Medicare segment HBR is lower early in the year due to Inflation Reduction Act changes but is expected to increase later. The Medicare Advantage PDR increase aligns with this earning pattern. Commercial membership growth was robust, with an increase in HBR from new marketplace members, although full risk adjustments are pending until mid-year data is available.

In the first quarter, the company experienced strong performance with plans to add $5 billion in premium revenue to its 2025 guidance, despite forecasting some membership attrition. The adjusted SG&A expense ratio improved to 7.9% from 8.7% the previous year, thanks to better expense management and higher revenues. Operational cash flow for Q1 was $1.5 billion, mainly driven by net earnings. The debt to adjusted EBITDA ratio stood at 2.8 times, and medical claims liability was $19.9 billion, equating to 49 days in claims payable—a decrease due to revenue growth in the PDP business. The company maintained its full-year EPS guidance of over $7.25 and raised the premium and service revenue forecast to $165 billion. They also adjusted the consolidated HBR due to marketplace growth, Medicaid HBR expectations, and high specialty drug utilization among non-low-income PDP members, some of which affects the P&L.

The paragraph discusses the company's financial outlook and strategic planning for 2025 and 2026. For 2025, the company aims for a PDP pretax margin in the one percents, has lowered the adjusted SG&A ratio midpoint, and reduced investment income projections. Looking ahead to 2026, the company is preparing for potential market changes due to the expiration of APTCs and the new marketplace integrity and affordability proposed rule, anticipating high single-digit price increases. They are also considering various factors such as specialty drug trends, potential tariffs, and the demo risk corridor assumption when pricing for 2026. Additionally, over half of their states are prepared to accept dual rates depending on the status of enhanced APTCs by July.

The paragraph discusses the expected rise in direct subsidies for the PDP (Prescription Drug Plan) due to forecasted IRA (Inflation Reduction Act) dynamics, with an increase projected from this year's $142 to over $200 in 2025. This rise is attributed to intentional and unintended cost consequences of the IRS. Centene aims to make strategic pricing moves and increase PMPM (per-member-per-month) yield as they plan for 2026 decisions. Following a robust Q1 performance, they opened the floor for questions. Josh Raskin from Nephron Research asked about flu-related costs, noting that $130 million in extra Q1 expenses in Medicaid was from influenza tracking. Sarah London confirmed that this was consistent with their flu definition over the past eight years and clarified it did not impact their Medicare book.

The paragraph discusses the impact of a severe flu season on financial calculations, noting that the CDC reported it as the most acute in the last fifteen years. It mentions a $130 million cost associated with Medicaid flu cases, isolated to Q1. Josh Raskin and Drew Asher discuss the potential for expanding Medicaid margins, the breakeven potential for Medicare Advantage, and the impact of Medicare revenue on long-term earnings. They also touch on revenue growth, with an additional $6 billion added, which presents opportunities for future earnings. The paragraph concludes with A.J. Rice from UBS preparing to ask Washington-related questions.

In the paragraph, Sarah London addresses questions about financial projections and regulatory changes. She confirms that their previous estimate, which stated the impact of the potential removal of enhanced public exchange subsidies would be about a dollar per share, remains valid. The company is assessing the implications of a proposed rule from CMS regarding the marketplace and is providing feedback. They anticipate more clarity on the situation in upcoming quarters and are hopeful that Congress will extend the enhanced subsidies through reconciliation or funding measures. Regarding work requirements, London notes that they are not new and have been implemented in some states, although their presence has fluctuated over time. The company is monitoring these developments to understand their potential impact.

The paragraph discusses the variability and adaptation required in Medicaid programs across 31 states due to differing state-level regulations and definitions, especially concerning the concept of able-bodied adults. The speaker emphasizes their familiarity with these changes and highlights the importance of working with state partners to ensure consistent access to healthcare resources. In anticipation of potential changes, their teams are actively preparing. The paragraph then transitions to a Q&A segment where Justin Lake from Wolfe Research inquires about risk adjustment figures in exchanges and how they compare to peers. He asks whether there have been significant adjustments in risk numbers from the previous year. Drew Asher responds by noting consistency in their risk adjustment between the end of 2023 and the first quarter of 2024, confirmed by continuous weekly data updates.

The paragraph discusses financial and business updates, focusing on the company's estimates for 2024 and potential risk adjustments for 2025. They anticipate initial risk adjustment data by mid-2025. Ed Haines from Mizuho Securities inquires about Medicaid rate increases, which the company initially estimated at 2.5% for the second half of the year. Sarah London responds that the composite rate for the full year is now expected to be in the mid-four percent range. She mentions that upcoming rate negotiations, starting with the July 1 cohort, will gain clarity later in the second quarter, and expresses confidence in ongoing discussions with state partners due to improved data supporting their actuarial evaluations.

The paragraph discusses the financial challenges and trends in Medicaid utilization, with specific emphasis on behavioral health and high-cost drugs, specifically citing a single treatment drug called Levitus, which is expensive and has questionable efficacy. Drew Asher, the speaker, explains that the company is partnering with state entities to address behavioral health and home health services. He expresses concerns about the rising costs of high-cost drugs and acknowledges efforts to keep healthcare affordable while adjusting Medicaid Health Benefits Ratio (HBR) expectations. Stephen Baxter from Wells Fargo asks about the Medicaid Loss Ratio (LR) progression and rate adjustments needed to meet year-end guidance.

The paragraph discusses the strategy for improving the Medicaid Medical Loss Ratio (MLR) throughout the year. Sarah London highlights two key factors influencing the MLR progression: rate adjustments and internal clinical initiatives. She emphasizes the importance of evidence-based adjustments and efficient operations to maintain low costs while delivering high-quality care. Drew Asher adds that the company aims for a consolidated Health Benefits Ratio (HBR) of 88.9 to 89.5, with a target of reaching the mid to high 91s for the full year, acknowledging that some improvement will be needed to achieve these goals.

The paragraph discusses a financial update and strategy for a company over the current year. It highlights their goal of achieving over 4% growth for the full year, with the first half performing better than the second half of the previous year, and expectations of improvement in the second half of the current year, driven partially by rate adjustments. They are working with state partners to implement program changes, such as reclaiming pharmacy management, and making improvements in behavioral and home health areas. This is expected to provide a positive impact on Medicaid performance. Dave Wendly from Jefferies then asks questions about risk adjustment and membership growth, seeking clarification on risk pool expectations and the subsidization of membership growth during the first quarter, to which Drew Asher responds, indicating no change in their net payable or receivable from the previous year-end.

The paragraph discusses financial strategies and market observations within a healthcare organization. Initially, it mentions a cautious approach to booking receivables for 2025 risk adjustment in the first quarter, despite having new membership data that could eventually lead to risk adjustment offsets. For 2024, there are no current issues with risk adjustment. The organization's membership largely consists of subsidized individuals, aligning with its focus on low-income marketplace members similar to Medicaid populations. Sarah London notes that there hasn't been a significant shift in the percentage of subsidized members, and Q1 saw strong growth. In a response to Sarah James from Cantor Fitzgerald, London explains that the new exchange members are seeing higher medical loss ratios (MLR) due to not yet reaching typical margins, and she highlights a stronger-than-expected effectuation rate and renewal rates, crediting the Ambetter team for these positive outcomes.

The paragraph discusses a company's membership growth projections and utilization trends. Despite strong Q1 growth leading to a slightly higher starting point, the company expects attrition throughout the year, projecting end-of-year figures in the high four millions. They are observing expected utilization patterns in new and renewal members, which align with care needs and risk adjustments, particularly for primary and chronic care visits. They are cautious about utilization data until late Q2 but have incorporated this into their annual outlook. Additionally, there is a discussion on Part D pretax margins, with a reference to the risk corridor mechanism by CMS that helps manage pharmacy cost assumptions relative to the bid, allowing a net target of 1% pretax margin. Andrew Mok from Barclays asked about this mechanism, and Drew Asher explained its structure.

The paragraph discusses the financial and strategic impact of a risk corridor related to bid assumptions and specialty utilization, particularly in the pharmaceutical sector, which affects costs for federal programs. The speaker notes that high specialty utilization, driven partly by pharmaceutical behaviors, has pushed costs from pharmacy assistance and patient assistance programs to federal government and PDP programs. Despite this, a risk corridor provides some protection against these costs. For future bids, particularly for 2026, there's uncertainty about whether the same level of risk corridor protection will be available unless clarified by CMS, which will impact bidding strategies. The discussion then transitions to a question from Lance Wilkes, who asks about trends in specialty pharmacy utilization across different programs (PDP, MAPD, and Medicaid) and seeks clarification on prescription trends and their impact on HBR guidance. Sarah London begins responding before handing over to Drew for further details.

The paragraph discusses the challenges states face in integrating high-cost specialty drugs into Medicaid and their impact on state rates. It highlights the complexity of managing these drugs through various program strategies, such as carve-outs. The paragraph also addresses the specific challenges related to the Medicare Part D Prescription Drug Plan (PDP), noting that non-low-income members are more affected by changes in maximum out-of-pocket costs. Unexpected barriers, such as restrictions on patient assistance programs, have pushed some patients to the PDP program. Despite these challenges, the organization feels confident in its ability to manage these costs and include them in future bids, with the support of federal safeguards.

The paragraph discusses the shifting of pharmaceutical costs to the federal government due to a risk corridor in place for the current year. The speaker anticipates changes in the 2026 bids, specifically suggesting that the direct subsidy may be increased, thereby raising program costs. The speaker, likely from a healthcare organization, expresses confidence in their ability to predict and incorporate such changes into their bids. During a Q&A session, John Stansell from JPMorgan asks about the strong growth in the Part D side and the behavior of new members. He inquires about the potential dialing back of demo risk corridors in 2026 and whether that's an industry-wide expectation. Drew Asher responds, indicating it would be unwise not to assume changes, as the absence of the demo would increase pressures. He mentions that their organization has effectively managed the business and its significant revenue amidst changes, including the Inflation Reduction Act (IRA).

The paragraph discusses a financial update and Q&A during an earnings call. Sarah London is answering questions about the company's Medicare Advantage (MA) segment, stating that their membership performance is strong and the segment is on track with expectations. Drew Asher highlights their awareness of an increase in outpatient trends since Q2 2023 and the steps they have taken to address it, aiming for stability and breakeven in Medicare Advantage. George Hill from Deutsche Bank asks about pricing pressures related to the Prescription Drug Plan (PDP) and clarification on whether it is pharma or pharmacy pricing pressure. He inquires about maintaining target margins for the upcoming 2026 bid process and seeks insight into potential initiatives to expand margins beyond the bid process.

The paragraph discusses efforts to increase PDP (prescription drug plan) margins from 1% to over 3% over the next few years, with a focus on addressing pressures from the utilization of specialty drugs in non-low-income members, particularly in areas like asthma and eczema. It also touches upon conversations with states about funding necessary improvements in Medicaid rates, highlighting that states have shed members during the redeterminations process, leading to budget savings that facilitate these discussions. Despite budget constraints, states are required to maintain actuarially sound rates, which influences the rate-setting process.

The paragraph discusses state budget pressures leading to a shift towards managed care models due to their predictable budgets and savings opportunities. States that recently moved to managed care have seen significant savings, and this has spurred discussions about including more complex populations, which could drive growth and margin expansion in Medicaid. The speaker expresses confidence in navigating these conversations due to past experiences and available data on redeterminations and acuity shifts. The operator then introduces Michael Hall from Baird, who questions the projected $5 billion revenue increase from increased membership, expressing difficulty reconciling the numbers based on per member revenue projections. Hall also inquires about the expected lower margins for incremental exchange growth in the first quarter, hinting at possible conservatism in the estimates, and seeks clarification on the assumed margin levels for those lives.

Sarah London addresses concerns about potential fraudulent members and broker fraud within the healthcare exchanges. She emphasizes that efforts to enhance program integrity, which were relaxed during the pandemic, have been underway for over a year. These measures are not new, and the organization has historical data to monitor expected rates. London highlights their pioneering agent of record lock, introduced in January of last year, which has been beneficial. The organization closely tracks complaints and broker issues to detect any anomalies. They've factored potential non-reconciliation into their full-year outlook and are experienced in understanding membership dynamics. The detection of new utilizers is seen positively, as it indicates actual usage, which is unlikely with ghost members.

The paragraph discusses the company's financial outlook and expectations. They have enough data to predict outcomes for the rest of the year and into 2026, expecting a margin range of 5 to 7.5% for their marketplace. The renewal members are performing as expected. Drew Asher mentions that they had $10.1 billion in commercial premiums in Q1 and are projecting $39 billion for the year, considering attrition to end up in the high fours. The conference concludes with Sarah London thanking everyone and expressing confidence in managing the business.

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