Centene Corporation — 2024 Q1

Yes. Thanks, Kevin. I think 2 important points there. One is just the confidence in the overall HBR. And I think as we look back over the last 2 cycles, we have seen rapid growth in the market overall and, obviously, growth in our book. It's more than doubled in the last 2 years. And I think we've tracked very well to the HBR implications of that. So understanding where SEP growth may have pressured margins in year, but then the fact that the sophomore effect of that growth that we accumulated last year starts to play out this year is consistent with our expectations.

Yes, Stephen, in Q1, we did have a fair amount of state-directed payments. In fact, some states, we believe, in response to the Change incident, accelerated a number of those. That actually also had about a 20-basis-point impact on our Q1 Medicaid HBR relative to our expectations of a normal level of state-directed payments. So that also showed up in our premium revenue. So you can't quite annualize Q1.

Thanks, Justin. Yes, as we said before, our expectation for Marketplace is that we will be well within our target 5% to 7.5% range in 2024. That has not changed.

Yes. So PDP, and I hit this at the Barclays conference, which -- for which the replay is available. But let me go over more of this because it's a really good question. And you're right, the impact of the Inflation Reduction Act, we had some of that this year in '24 -- 2024. But the real larger change is coming '25, to your point, Justin. So for '24, the direct subsidy went up for the first time since 2010, and it went from $2 to $29. And to your point, that drives revenue yield because the direct subsidy is what the federal government pays to the payer based upon all the payers' bids.

Yes. Thanks, Josh. Maybe I'll take the last question first and say that as we look at the landscape today the -- again, the tie between Medicare and Medicaid and what that produces in terms of long-term growth opportunity, we see as very compelling. And so we're always evaluating how the landscape changes, but we're very committed to rebuilding our Medicare franchise focused on the low-income complex members and using that to drive growth across both lines of business. Obviously see opportunity for earnings contribution and then longer-term growth in that business.

Yes. You're right on seasonality of the PDP business in our Medicare segment. So unlike a commercial business where you got deductibles in the beginning of the year and your HBR goes up through the year, it's the opposite in PDP. So we still feel good about the range around 90% for our Medicare segment HBR for the full year.

Yes, Nathan, thanks for the question. So we -- and we talked about this a little bit earlier this year, but we intentionally came into the 2024 cycle redesigning our product offerings with the duals population, again, low-income complex population more broadly in mind. And we're really pleased with how the team executed during AEP. And that is inclusive of product design, but it's also being really thoughtful about what distribution channels best reach those members and the experience that really drives loyalty among that population.

Yes. So you're right. We need to take out, I said, at least 200 basis points of SG&A over the next few years to be -- to get to sort of where we want to get to in Medicare Advantage. And the plans are on track to do that. Think about -- WellCare had well below 1 million members, well below 1 million members when WellCare came into the Centene combination. And WellCare was at scale and operating effectively and efficiently. So the scale -- we're not really concerned about scale issues with Medicare even as we expect a little bit more attrition as we prioritize the strategic goals of being in Medicare and the tie-in to Medicaid, to your point, the footprint matching up as well as prioritizing margin recovery over the next few years, driven predominantly by STARS but other levers like SG&A that we're talking about here and clinical initiatives.

Yes. Good questions. Most of the change in the employee base is the divestiture of Circle. That was pretty employee-intensive in Great Britain. So that was a result of divestiture. Although we are constantly managing the right amount of resources, it's our job to, on behalf of taxpayers, on behalf of the federal and state governments, managing efficiently, matching resources with the business that we have and trying to do that efficiently and effectively. But that big move was due to divestiture.

Yes. On membership, we still expect to be in that mid-13s by year-end. And so I think 100,000-member difference on 13 point -- to 13.3 million, some may call rounding, but luckily, it's rounding in the right direction, right? But it's probably more timing of precision around redeterminations, and some of that will carry into Q2. And there's even a few states that will tail off into Q3 as they've stretched out the redetermination process. But all of that is in the mid-13s estimate of membership by year-end, which includes a couple of nice growth opportunities too that we seized, Oklahoma, which commenced 4/1. And as you heard in Sarah's remarks, that went really well operationally. And then subject to protest, the Arizona LTSS win, low membership but high revenue.

Yes. Investment income, if you peel away gains, we disclosed those throughout the Q, which we just filed. So understandably, you haven't ripped through that yet. You get a little bit over $400 million in the quarter. But you can't just multiply that by 4. We expect the full year to be above -- a little bit above the $1.4 billion that we guided to at Investor Day. But the difference between that and just annualizing is we've got multiple rate cut scenarios built into our forecast. Maybe those play out to be conservative, but the Federal Reserve will decide that.

Yes. Thanks, A.J. You're right. So we're 9 -- roughly 90% of the way through redeterminations from a membership standpoint. Obviously, the cumulative member months impact sort of trails that a little bit. And we do think that the tail of membership will run through Q2 and Q3 and sort of largely be complete by that point.

Yes -- okay.

Okay. Sorry. The 75% is a member month view of what we know for the 2024 calendar year member months, and the 25% would be there's 7/1 rates we don't know. We certainly don't know 9/1 or 10/1 rates, but they have a limited impact on the 2024 calendar year. To the macro point, we need -- ultimately, we're going to need to have rates match acuity, and that -- we expect that to shake out. It may not be perfect in this rate cycle, which means sort of the 2025, 2026 time period is when we would expect to get back into the high 89s based upon today's mix of business.

Yes. And the only thing I would add, which is just that as we've watched the team sort of work through the complexity of this process where we have encountered those targeted dislocations, I've just been really impressed with how our teams have stepped up to that dialogue. There is clarity on the drivers. It's a very data-driven approach. They've clearly built really solid collaborative dialogue with our state partners and are really solutions-oriented in how they step into those conversations. And so I think building credibility with our state partners as we work through this process has been consistent throughout and, I think, again sort of creates the framework to get back to a matching state and get that tailwind opportunity.

Sure. Thanks, George. So quality, obviously a top priority for the organization regardless of line of business. But we remain very focused on STARS because of the impact it has for the Medicare trajectory. Very pleased with the work underway, engagement across the organization. We're leveraging a comprehensive governance process, and that has given us great visibility in terms of progress on initiatives at a detailed level.

Yes. And you're absolutely right. The risk model bifurcation between PDP and MAPD, that's a factor as well that needs to be worked into the bid cycle. And I think I did mention that we were able to run risk scores by member and the mechanics and how that rips through the -- not just the risk scores but also the timing of members with cost share and getting to the maximum out of pocket, or the MOOP. Those are all important things to think about. And really, the message is -- that's why there's reason for cautiousness for the industry in bidding PDP for 2025.

Thanks, Lance, for the question, mostly because I don't think I can brag enough about our pharmacy team and the phenomenal job they did in such a massive undertaking. We've talked before about how well that went, January 1. But I think everybody who's been through something that significant knows that you don't just drop the mic the next day. And so these folks have continued to work tirelessly over the last couple of months to make sure that, that process just gets smoother and smoother for our members. We've had great collaboration with ESI. And so trajectory on that front just continues to be really positive.

Yes. So we didn't want to wait for economics. So we do have a stairstep benefit on behalf of our state and federal customers and our members as of 1/1/24. But we're constantly working with our partner at ESI to figure out ways to deliver value to our customers and manage costs. So we expect sort of normal course improvements from that point forward, and we'll continue to try to drive efficiencies in the pharmacy ecosystem.

Thanks, Rocco, and thanks, everyone. Appreciate the time and interest this morning. Overall, we are pleased with how we're powering through a dynamic landscape and with the progress that we've demonstrated so far. So appreciate you joining us, and we'll see you next quarter.