Release Date: July 26, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Centene Corp (CNC, Financial) reported a stronger-than-expected adjusted diluted EPS of $2.42 for Q2 2024.
- The company's marketplace business, Ambetter Health, demonstrated strong performance and margin expansion.
- Centene Corp (CNC) secured significant contract wins in key geographies like Florida, Kansas, and Michigan.
- The company is actively addressing Medicaid rate and acuity mismatches, with positive rate adjustments expected in the second half of 2024.
- Centene Corp (CNC) increased its full-year premium and service revenue guidance by $5 billion, reflecting strong revenue performance.
Negative Points
- Medicaid redeterminations have caused significant membership shifts and increased acuity, leading to financial pressure.
- The company experienced a disconnect between Medicaid rates and member acuity, which negatively impacted Q2 results.
- Centene Corp (CNC) anticipates continued pressure on Medicaid HBR in the second half of the year.
- The company faces challenges in aligning Medicaid rates with the acuity of its members, requiring ongoing negotiations with state partners.
- Centene Corp (CNC) expects to shrink its Medicare Advantage business in 2025, focusing on long-term strategic alignment.
Q & A Highlights
Q: What are you expecting for Medicaid MLR in the back half of the year, and how does the 4% composite rate impact this?
A: We guided to the top end of our HBR range around 87.9%. We expect improvement relative to Q2, and the 4% plus rate adjustment will benefit us. We anticipate reaching equilibrium in rates and acuity by 2025.
Q: Can you provide insights into the core stayer book MLR for Medicaid this year?
A: The primary driver of HBR pressure is the increased acuity of membership post-redeterminations. Continuous members show stable trends, but the spread between stayers and leavers has widened due to deeper state terminations and rejoiners seeking care.
Q: Could you update us on your MLRs by segment versus original guidance and the impact of Part D changes?
A: We are on track with our full-year guidance. The PDP revenue is a 2025 tailwind, and we expect premium increases due to IRA changes. The commercial segment is performing well, and we expect continued strong margins.
Q: Why did the risk adjuster on the exchange develop better than expected, and how does this impact 2025 guidance?
A: Strong execution in accumulating and submitting data led to better-than-expected results. We aim to be prudent with assumptions, and while we won't opine on consensus, the headwinds and tailwinds provided should offer good color for 2025.
Q: What are your assumptions for public exchange trends and Medicaid rate updates?
A: We are on track with our original MLR guidance for public exchanges. For Medicaid, we expect accelerating momentum in rate updates as we provide more supporting data to states, improving sufficiency in matching rates with acuity.
Q: How do you view the impact of risk corridors on Medicaid pressures and Medicare market exits?
A: Risk corridors are part of our business, with $2.3 billion as a payable on our balance sheet. We will exit a handful of states in Medicare to streamline and align with our Medicaid footprint.
Q: How should we think about exchange margins and operating cash flow for the full year?
A: Excluding the $600 million benefit, we are on track for our original margin guidance. Operating cash flow is subject to timing dynamics, but we expect capital deployment in the back half of the year.
Q: What is the outlook for Medicaid growth and the demographics of your Part D book?
A: We have a strong pipeline for Medicaid RFPs and expect continued growth. Our PDP business is strategically important, with a leading position in auto-assigns and thoughtful bid processes for 2025.
Q: How do you view the margin progression for Medicaid from here?
A: We expect Q2 to be the peak for Medicaid MLR at 92.8%. With the 4% plus rate impact on half of our revenue, we anticipate improvement in the back half of the year and further progress into 2025.
Q: How are you progressing on Medicare Advantage star ratings, and what visibility do you have on results?
A: We are pleased with the progress and momentum in our Stars program. We expect a meaningful step up in results in October, driven by investments in member outreach, provider partnerships, and digital efforts.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
