Hi, good morning. My name is Andrew Mok. I am the facilities and managed care analyst. Welcome to the Global Healthcare Conference. With me on stage, I'm pleased to welcome Sarah London, CEO, and Drew Asher. Before we get started, I think Sarah has some opening remarks.
Thanks for having us. Good morning. Sorry, I might just give a quick flyover before we get started. I'm sure we'll go deeper into all of these topics. But as you saw from the 8-K yesterday, we remain confident in our 2024 adjusted EPS guidance of greater than $6.70, and our major focus areas have not really changed. So from a Medicaid standpoint, we are working through the back half of redetermination. As of March, we'll have nine of our states substantially through the unwinding process, and that includes some of our bigger states. We remain on track from a membership standpoint through that work, headed towards that 13.2, roughly million member low that's targeted for the end of Q1.
We are seeing rejoiners tick up a little bit, so those mature months are now starting to average out around 30% in terms of the rejoining rate. And then you heard on the Q4 call that we're tracking the rates coming in from states, sort of in that, toward the higher end of that composite range that we gave of 2%-2.5% at Investor Day. So overall, continuing to track through that process from a redetermination standpoint. In Medicaid, we're tracking, as you all know, a number of RFPs, Florida, which is still on track, as far as we know, to give notice by the end of this month. We were disappointed by the early news that came out of Texas last week.
Our teams are in the process of working through and reviewing all of that documentation. We have a number of concerns based on that, and so fully intend to protest there. But I would say the biggest concern for the program overall is the idea that the results are gonna force 1.8 million Medicaid members in Texas, which is a state that has a very high choice rate, to choose a different plan. And we don't think that's the right thing for the Medicaid population in Texas. So more to come there. In Medicare, we're obviously in the early process of thinking about 2025 and bid. We've provided our feedback, as have many others in the industry, I think, along pretty consistent lines to the administration.
So we are hopeful they will take that feedback into account as they think about the final rates, and general concern about the impact to benefits for seniors, in terms of two consecutive years of pressure on those rates relative to overall utilization. And then from a Marketplace standpoint, that still continues to be a great story. As we said, we landed at the end of January at 4.3 million members, which was higher than our expectations going through the open enrollment period. And we still expect to get into our, well into our target margin range, even with that growth. So really solid guardrails around that growth in terms of disciplined pricing and how the team thought about, our region by region approach in terms of balancing the portfolio.
So still feel really good about what we're seeing, relative to the Marketplace story. And then underneath it all, we continue to focus on maturing the organization from an operating discipline and execution standpoint. And I'll give you one example, a little bit off the beaten path, but just really pleased with how our team pulled together and the level of responsiveness, organizing in the face of the Change Healthcare cyberattack.
Everything from within days, shipping medications out of our specialty pharmacy at risk to members to make sure that there was no disruption in care access to critical care, and then mobilizing our entire field team, and additional resources to get out and work directly with providers to help them find additional connections from a clearing house standpoint, and then escalate where there are issues that providers might be dealing with, financial solvency or challenges there and ways that we can step in and help. So just the degree to which across the organization, including at the local level, the teams were able to organize all of that, I think speaks to the progress that we've made, as a company in terms of overall operating maturity. I don't know if there's anything else you want to add, given where we are in the quarter?
Yeah. So at Investor Day, we told you and promised that we would update you along the way once we got through AEP and OEP and the progression of earnings through the year. So, you saw this morning or last night, we reaffirmed the EPS was $6.70. At Investor Day, we said it would be 60/40, 60% first half of the year earnings, 40% back half, which is always good to have more earnings sooner in a year. And then we also said that the first three quarters, there wouldn't be a whole lot of variation. So you guys could actually rip that through an algebraic model and figure out that the first three quarters would be right around $2, $2, $2, and then the fourth quarter, $0.70.
So you know, rough ranges around that, but that's the general sort of progression of earnings now that we've got a couple of months under our belt, and we're looking at how we're going to get through 2024.
Great.
Great. Maybe we can just click on Texas for a minute, and I'm not sure how much you can share at this point, but would love to better understand what you know. Have they released any scoring for the RFP yet? And what does the appeals process look like? Does that start right now, even though they just announced an intent to award?
Yes. So we have, we have scoring details. We've requested additional information from the state. We have a window that does start now to put in a protest. So that's what the team is working through, so looking at the scoring information we have or all the additional information will give us a sense of how the process unfolded internally. But I think if you take a step back, you know, we have a track record of delivering high-quality outcomes in Texas for 25 years with our Superior team. We have a really strong team on the ground. We have consistent high-quality scores. And again, Texas is a high choice rate, so 7 out of 10 Medicaid members in Texas actually actively choose their plan versus being assigned.
And so sort of voting with their feet, and the strong presence that we have in Texas, is a result of overall performance. And so all of that, in addition to sort of what we've seen so far in the scoring, is part of what will underpin our protest.
Understood. Maybe as we look ahead to some of these other RFPs, Florida, Georgia, you know, what gives you confidence at this point that Centene would be able to defend or even take market share in those states? What's your latest, on just your overall standing and positioning within that state, and things you share?
Yeah, I mean, we've shared this in the past, but as we think about kind of what the important factors are as we go into a process, the first is making sure that we have a strong team on the ground and that we have a well-performing plan. All of the work that we've done over the last two years, and there's certainly more work to do, but around making sure that, you know, we are delivering on the basics, that we are strong operationally, that we're demonstrating high quality and quality improvement. Those are sort of key underpinning factors, and then making sure we understand what the state is trying to achieve in the RFP process.
A number of times, states will use, rightly so, the RFP process to really think about the next wave of innovation or what are the critical factors that they see in the population that they want to push the MCO to address in a different way.
So really understanding what are the goals, what are the definitions of success in the program, and then we combine a team that, you know, very experienced team that works on procurement, sort of has the benefit of the national view with the local team embedded, and, you know, months and months in advance in preparation, making sure that we're being responsive to RFP and engaging with the state in the right way, and then, in general, ensuring that we have the right relationships and the investment and commitment to the community, which again, is sort of bread and butter for how Centene operates locally.
So that's the major part of our scorecard going into any RFP, and, you know, there are different factors in each state that change the strategy a little bit, but always making sure that we have a core piece in place is sort of where we start.
Got it. Let's move on to the exchanges. Heading into the year, you talked about your goals of delivering on target margins. You're outperforming on membership expectations to start the year. How are you thinking about your ability to deliver on those targets, and does that extra membership help you achieve those goals this year?
Well, the extra membership gives us more earnings power, which is actually really important to think about 2025 and 2026 and beyond. And we're, as Sarah said in her opening remarks, still feel really good about, you know, delivering well into that 5%-7.5% pretax range. So, pleased if we could continue to grow. Our guidance right now, our revenue guidance at $30.5 billion for commercial, with $27.5 billion of that is Marketplace. That's predicated on holding the 4.3 million, but if we keep on growing through the back three quarters of the year, there'll be some upside there.
Got it. Are you able to share where your exchange enrollment ended the open enrollment period? I think you shared some stats through January. Any incremental updates from there?
Yeah, we held at the 4.3.
Got it. And then as we look ahead with the enhanced subsidies potentially expiring at the end of 2025, how are you thinking about the likelihood of that, and, you know, how does your business evolve in that scenario?
Well, we don't see it as a binary event, which we think is important, and not, you know, necessarily dependent on who ends up winning the election. So, for those of you who tuned in to the State of the Union, I think you all heard where Biden lands on the subsidies and the desire to make those permanent. I think, you know, some of the interesting points that we've noted in the past, as we think about under a Republican administration, that actually a significant majority of Marketplace members are rural Americans and largely Republican voters. So there is a lot of support out of the base for what these subsidies have provided in terms of access to care.
And then the knock-on benefits of that is economic stability and mobility in that population because of the ability that consistent healthcare and health offers in terms of job stability and then overall economic growth within the community. So there is a lot to like on both sides of the aisle about the impact that the subsidies have had. We've heard a lot of support from Republican governors who understand how important these subsidies are in terms of providing healthcare to their constituents. And so, you know, I think there are a number of factors in play in terms of the question of, you know, potentially capping the subsidies, right? There are sort of different levers that could be pulled. The biggest one to note is that they expire coincident with the Trump tax cuts.
And so the prevailing view that the Republicans are going to want to make those permanent, that intentionally brings both sides of the table together for a conversation. So again, don't see it as a binary event. We think that the subsidies in general have done a lot for Americans on both sides of the aisle, and we also think there's a really interesting conversation that extends off of capacity, as we talked about before, relative to HRAs, and therefore, kind of the ICHRA horizon in terms of how employers want to-
... Great. Let's move on to government margins. Drew, you have a strong track record of improving margins, particularly in the government sector. Can you walk us through the unique margin opportunities and improvement that you potentially see in this sector over the next three years?
Well, first of all, I'm the guy who gets to come up and talk about it. There's a lot of talented people behind Sarah and myself, making things happen. The opportunities across our three lines of business, we've talked about Medicaid over the 2025, 2026 time period, settling back into that high 89 zone in terms of the HBR, relative to our current year guidance, mid 30.1%. So there's a little bit of margin expansion opportunity there. You know, Medicare is a big opportunity. It'll take a while, as we've talked about, over the back half of the decade, but, particularly, there's nowhere to go but, you know, improving margins off of the situation for 2024. So that's a pretty big lever for the company as we think about the next 3 to 5 years.
With the goal of trying to sort of hold in that $14 billion-$16 billion range as we power through the period where we don't yet have the Stars revenue to support positive margin Medicare. And then Marketplace is sort of holding in that zone, getting into that, you know, well into that 5%-7.5% zone, and then holding and growing. The overlay on top of that would be leverage as we continue to grow on SG&A. So that's why, in our long-term growth algorithm, we have 1%-2% of margin expansion, because, you know, Medicare over the next 5+ years, it's also leverage on growth.
On the Stars point, I think you're targeting 85% of members by the October announcement this year.
Next year.
Can you talk about 2025, sorry. 2025. Can you talk about some of the initiatives underway to deliver on that target?
Yeah, so that's a major focus area for the company, obviously. Not just, and again, we said this before, not just to drive Stars performance, but because quality is really important in all our lines of business. And it's actually a great area where we can invest and get a high, high degree of synergy in terms of investments to support the Stars agenda, but it actually improves our Medicaid HEDIS performance, and then the emerging focus on quality performance in Marketplace as well, which we see as coming. We did a lot of work in the first cycle on the core admin and ops areas, right? Those that were in our control and frankly, were kind of ground zero for the Stars issue that we inherited and are working through.
Now we've shifted our focus and added to the focus, around this and CAHPS, which are those chapters that are really focused on making sure that members are getting access to providers, they're being seen for wellness visits, they're being seen for chronic care, and then the result of that high degree of correlation between members getting access to care and then feeling good about the services that we as a health plan have delivered, and that's where CAHPS comes in. So that's been a big focus in 2023 and in 2024. We talked a little bit about some of the initiatives on the Q4 call in terms of, again, mobilizing field resources, to get our members connected to providers, to get members in for annual wellness visits, some of those intentional quality initiatives that that we did in Q4.
We redesigned the onboarding experience for every single one of our Medicare members who came through this. Everything from a personalized welcome to direct phone calls to make sure that they understand the benefits, we understand who their preferred provider is, that we're proactively making those connections. We did a lot of work behind the scenes on data connectivity, because the supplemental files, the charts coming in, are a really critical piece of getting credit for the work that everybody is doing.
So 600,000 additional digital provider connections coming through that work, which I think is going to be really, really important in terms of, supplemental chart tape and some of the things that will play out over Q1 and Q2 as we start to get visibility into the results for this October, and then, still targeting that 85% of members in 3.5 hours for October 2025.
Great. As you look to improve margins in Medicare, you took the PDR in the fourth quarter of 2023. Can you help us understand the mechanics of that PDR a little bit, how that's going to impact reported margins in 2024 and 2025, and contrast that against the performance margins of the business?
Yes. So the PDR, the $250 million in the fourth quarter of 2023, essentially carries into 2024 and acts as sort of a smoother, HBR in Medicare throughout 2024. And I said this on the Q call, most of that unwinds in the fourth quarter, so it does carry through the year. It will be reevaluated, at the end of each quarter, thinking about, you know, the next three quarters, two quarters, one quarter, as we get through the year, then that would be fully unwound by the time we get to the calendar year end of 2024.
Got it. From a reported margin perspective, it might stay relatively flat, but your underlying performance will improve over that 2024, 2025.
Yeah, for 25, I mean, we first need to see where the final rates come out and think about the degree to which we, and I suppose the industry as well, you know, a little bit different situation, but we certainly need to cut benefits to some degree. We're very thoughtful about where and how, and which products to emphasize or de-emphasize, but the macro picture, I think for most of the industry as well as some of our customers, just take what degree will need to trim benefits, which frankly, will make the products less attractive for seniors. Still quite attractive relative to future service, but on a relative basis, the companies compete this year.
Right. Understanding that those companies are in that position with it, they're likely to prioritize margins. It still seems like there's a wide expectations so far this year around the 2024 utilization environment, particularly within the Medicare business. Why do you suspect there's so much diversion right now in that business, the industry?
Yeah, I think so. I think there are three components, and then just maybe talk a little bit about kind of, you know, what we're seeing. But there is core utilization that is, for most of us, and based on what most of us have said, very consistent in terms of what started in Q2 of last year, what's come through the end of the year, what we're seeing so far in Q1. Then that needs to be adjusted a little bit based on the member mix in each company's book. And, you know, where there's a focus, whether you've got more dual members or you're dealing with MA members. And then I think the biggest factor is then that needs to be further adjusted by internal expectations.
And so when you compound those three things, I think that's where you get the range of talk track you've heard. But I don't know that I think there's the huge variation in terms of the underlying trends, where those are, and generally how those have developed in the last 10-11 months or so. But update on what we're seeing.
Yeah, and it reminds you, again, we just reaffirmed that greater than 670. So this is sort of digging a couple layers into the detail to give you some insight to how each of the business lines are moving. So Medicare coming into the year, we had noted back in Q2 of 2023, elevated level of non-inpatient, so largely outpatient, but that elevated level held through the year, 2024. We look at auth, authorizations in the most recent periods to make good judgments, and so our auths were not disrupted through the Change Healthcare. And auths are up a little bit in January and February. We'll see how that plays out. Do those auths make it to admin, make it to actual claims? But the auths do look up a little bit,
Great. Let's switch on to Part D. Centene is growing a lot in Part D, while other companies are notably pulling back in that market. What's driving that differentiated strategy in Part D, and how are you thinking about the upcoming IRA business model in Part D?
Yeah, so we've, we've been in this business since the inception, which was Part D in 2006. So we've got a lot of data, right, coming into the IRA changes. So the IRA took effect for 2024, but reasonably modest changes to the 2024 policy year. That's the point so far. Pleased with that business. Strategically, it gives us pharmacy spend. So we've got north of $45 billion of pharmacy spend that we manage, and you guys have seen the benefits of that when we go to RFP, PBM services. And then also, it's a, it's a great feeder for down the road when our Medicare products are more, more competitive in some cases, or even today, where we've invested in some of our, like our tools.
So it's a great business strategically, but it's got to stand on its own merits. So fast-forward to 2025, knowing that we just reaffirmed 2024, so far, so good, although it's early. 2025, there's a lot to think about. So pretty major changes with the IRA. The direct subsidy, I'm going to get a little granular on you guys now. The direct subsidy in 2024 went from $2 to $29. That's a pretty big jump, right? But the big changes are coming in 2025. So there's reasons for cautiousness as we approach the bids for a number of reasons. One is the, the catastrophic phase of that benefit plan. We, the payer, goes from 15% in 2023 to 20% in 2024, jumping to 60% in 2025.
So we're, you know, more underwritten risk by the payers. Number 2, we really have to think about member behavior because their out-of-pocket is coming back, which is a great benefit for seniors, but you have to think about, member behavior that's underwriting that. There's also a new program called the MPPP, which effectively, enables the members to elect in to smooth their co-payments, so there will be some bad debt there. It's another factor to think about. And then, speculating on manufacturer behavior, drug manufacturers' response to the IRA. So a bunch of things. We love, you know, we love the complexity of that product and done pretty well with it over the years. But thinking about the impact on the direct subsidy, it could go up $100 or so, up to 29.
So a jump in the direct subsidy to 29 could go up quite a bit more, and that is the revenue that's paid by the government to the payer. So there's a lot of interesting moving parts to the IRA and PP business. That also applies to MAPD. Another reason why we think there's going to be cautiousness, the benefit structure on the medical side of it.
Do you think that increases the value proposition of Medicare Advantage broadly, and that will accelerate the industry growth, potentially, the changes to PDP?
Well, the senior can access either a standalone PDP, like through Wellcare, our product, or through the MAPD benefit. Still think even with, I think the cautiousness going into 2025 underwriting, it's still a great proposition for seniors.
Great. Well, we're just about out of time, so why don't we end there? Thanks, everyone, for joining us, and please enjoy the rest of the conference.