Q1 2024 Earnings Summary
- Centene is successfully navigating Medicaid redeterminations, maintaining higher-than-expected membership levels at 13.3 million members , and capitalizing on growth opportunities in new contracts such as Oklahoma (commenced April 1) and pending Arizona LTSS win, positioning the company for future Medicaid growth.
- Centene's Marketplace business continues to perform well, demonstrating strong ability to manage rapid growth while improving margins. The company maintains confidence in its overall Health Benefits Ratio and has implemented strong clinical initiatives, with potential upside if they can grow membership during the Special Enrollment Period.
- Centene is making progress toward improving its Medicare Advantage STARS ratings, which is crucial for increasing profitability in its Medicare business. The company has maintained last year's progress and made additional advancements in administrative and operational metrics, expecting to see positive results reflected in future ratings.
- The Medicare Advantage business is facing challenges, including higher-than-expected inpatient authorizations and elevated outpatient trends, coupled with an insufficient 2025 rate environment and potential negative impacts from the Inflation Reduction Act, which may pressure profitability in Medicare.
- The Medicaid Health Benefits Ratio (HBR) was 90.9% in the first quarter, higher than expected, as the company continues to work through appropriate matching of rates and acuity, which may pressure margins in Medicaid.
- There are concerns about the sustainability of margins in the Marketplace business due to rapid membership growth and potential impacts from the Change Healthcare cybersecurity incident, which may affect claims visibility and margin durability.
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Medicare Advantage Strategy and 2025 Bids
Q: Will Medicare Advantage membership be flat or down in 2025?
A: We're focused on rebuilding our Medicare franchise, especially for low-income complex members, and remain committed to the business. While the 2025 rate environment is more challenging, we can't discuss bid strategy yet. We see volume as a lever and are making county-by-county decisions to improve profitability. It's too early to comment on another PDR, but we're considering all factors. -
Medicaid Redeterminations and Margin Outlook
Q: When will you see the impact of redeterminations on margins?
A: We're about 90% through redeterminations and expect the tail of membership to run through Q2 and Q3. We've proactively modeled the shifting risk pool and addressed rate discussions with states. We anticipate the tailwind of margin improvement to pick up in '25 and possibly into '26, aiming for 30 basis points of margin expansion in Medicaid. -
Exchange Margins and MLR Performance
Q: How confident are you in exchange MLR outperformance?
A: We're confident in our Health Benefit Ratio, having tracked well over the last two cycles as our Marketplace book more than doubled in two years. We expect our Marketplace margins to be within our target 5% to 7.5% range in 2024. -
PDP Strategy and Impact of IRA
Q: How will IRA changes affect your PDP business in 2025?
A: The Inflation Reduction Act brings significant changes in 2025, including an increase in direct subsidy likely by over $100, driven by the catastrophic phase moving from 20% to 60%. We're underwriting this now, and while cautious, we have extensive data from our experience since 2006. -
SG&A Leverage and Cost Reductions
Q: Are you on track to reduce Medicare SG&A by 200bps?
A: Yes, we need to reduce SG&A by at least 200 basis points over the next few years in Medicare Advantage, and plans are on track. We're not concerned about being subscale, even with some expected attrition. -
Investment Income Expectations
Q: What's the outlook for investment income this year?
A: Excluding gains, we had a bit over $400 million in Q1. We expect full-year investment income to be above the $1.4 billion guided at Investor Day, though you can't simply annualize Q1 due to potential rate cuts. -
PBM Migration and Savings
Q: Are PBM savings levers fully active, or ramping up?
A: We didn't want to wait for economics; we have a step-up benefit as of 1/1/24. We're constantly working with our partner ESI to deliver value and manage costs, expecting normal course improvements going forward.