Hi, welcome back to the Barclays Global Healthcare Conference. My name is Andrew Mok. I'm the Facilities and Managed Care Analyst here at Barclays. I'm pleased to have joining me on stage, Sarah London, CEO, and Drew Asher, CFO of Centene. Welcome.
Thank you.
Maybe to kick it off, Sarah, I think you have some remarks on the current state of the business coming out of the quarter.
Sure. Thanks for having us. Good morning, everyone. Just a couple of framing comments, and then we can jump into questions. As you saw from the 8-K this morning, we are reaffirming our greater than $3 of adjusted EPS for 2026. It is obviously still early in the year, so we have January and a preliminary look at February, but results for all three of our core business lines are on track so far. Medicaid is on track, and we are feeling good about what we're seeing in terms of execution and impact of the ongoing trend initiatives that we've been working on. Medicare and PDP are tracking nicely with forecast, and as you know, our Medicare Advantage business is set up this year to take another step in 2026 toward our 2027 goal of breakeven.
Marketplace still has a number of moving parts, but we have additional visibility as we've moved through the quarter, so maybe a couple of points there. One, around paid and effectuated membership. That trajectory is still in line with expectations and consistent with what we talked about on our Q4 call. As a reminder, we were at 5.5 million members in December. That stepped down to 4.6 million members in January. We are now at 3.6 million members as of February, so again, on track for that roughly 3.5 million members by the end of the quarter, with still some movement as we work through the grace period of March.
From a metal tier perspective, still largely consistent with what we shared in early February, with mid-30s% in Bronze, high teens in Gold, and then just under 50% of those members in Silver, which is obviously lower for us than it has been in past years. Based on early data, without any risk adjustment offset, we are seeing some higher utilization patterns in specialty pharmacy really isolated into that Silver tier. Obviously, what really matters for that business is the relative risk across the industry, which is what we will see when we get the first set of claims from Wakely in June.
We are tracking an earlier milestone this year for the first time, which is a Wakely report that is due out at the end of this month, which will give us a view of what actually happened to the total market, and in this case, the total level of contraction. The distribution of metal tiers across the competitive set, so not just ours, but how membership tracked across those tiers for everybody. The statewide average premiums, which are an important input to the risk adjustment calculation, and some other data, in terms of stayer and leaver risk score. Not the totality of what we'll need to make risk adjustment assumptions, but some directional indicators that I think will be very helpful and that we haven't had before.
The other major milestone we are tracking along with everybody else is the final CMS rates. We gave comments to CMS on the Advance Rate Notice. We are hopeful the final rates will more accurately reflect the level of medical trend that the industry has seen over the last couple of years. In the meantime, we continue to build our path to breakeven for Medicare Advantage in 2027. Still early, but obviously pleased to have all three of our core businesses on track so far and looking forward to some of these additional inputs that will come over the next few months and give us increased visibility across the portfolio.
Great. A lot to unpack there. Let's start with the ACA. Based on your membership comments and guidance, I think, you know, you're expecting year-end ACA to be down close to 40%, whereas I think previously you were expecting industry attrition in the high teens to mid-thirties. How should we think about that difference? Is industry attrition tracking worse than initially expected, or are you losing modest market share, or is it some combination of the two?
Sure. Our view was that the market would shrink somewhere between the high teens and the mid-thirties. We were pretty consistent in a view that we would be at the higher end of that and possibly higher than the top end of that, partly because of our FPL mix and partly because the pricing actions that we took coming into the year and our focus on margin over membership. The membership trajectory is actually tracking, as we just talked about, very nicely in line with our expectations, including that big step down from January to February. We feel good about that view of, again, roughly 3.5 million members at the end of Q1, and then modest attrition throughout the rest of the year, which is really just a function of a return to more normal seasonality in that product line.
Great. With the overall membership decline, metal tier mix, you noted, is also shifting pretty meaningfully this year. I think Bronze is expected to increase from low 20% to over 30%. Do you expect these newer Bronze members to behave more like traditional Bronze members or more like the Silver tier that they're transitioning from?
We do see it as more of a mixed metal, if you will. Not the Bronze tier of five years ago pre-EAPTC, which were largely younger, healthier members. As you noted, there are a number of members who have bought down into bronze because they don't wanna walk away from coverage, but they are looking for more affordable options. That was something we anticipated and really underwrote that business with that in mind, that you wouldn't just have the same profile as the past. It's also why we're watching that cohort pretty closely as we came through open enrollment and these early months, just to understand kind of the behavior patterns and the blend. I would say not the Bronze tier of the past, because you will have some mix. We are seeing some of that traditional bronze behavior in there.
It's not a total tilt to Silver, but it is definitely more of a blend than we've seen in the past.
Moving on to risk adjustment. You're expecting to be in a net payable position for 2026. You just noted the new Wakely data you're expecting soon. Can you provide more color on what you're anticipating from that Wakely update and walk us through any changes you're making to your risk adjustment approach this year?
Sure. I would describe the report that's coming as valuable and necessary, but insufficient. In the past, to have an understanding of how the overall market moved, there was a reliance on the sign-up data. What we learned, we all learned painfully last year was that the sign-up data is not an accurate way of understanding what members ultimately effectuate and pay. Particularly this year, given the anticipated market contraction and the magnitude of that, having a view of what the total market size is this early in the year will definitely be helpful. We also get that distribution of metal tier, so understanding what the choice patterns were of members in terms of the metal tiers they selected and how our metal distribution compares to competitors.
There are obviously data points out there from other public companies who've shared, but seeing the totality of that and then understanding in each market how that played out is very helpful, as is getting that statewide average premium information. You need to have the full claims data in order to really understand the relative risk. We will have some pockets. I think we'll get risk of renewing members. Is that right?
Yeah, we get risk scores on renewing members and members that left each carrier, but we won't be getting risk scores on members that are new to each carrier. It's something. As Sarah said, it's not the panacea of being able to, like, precisely know your relative positioning, but all of those things added up will be an enhancement from last year in terms of having some degree of visibility and signaling with that data. We'll supplement that with the data that we all get in June, which are paid through April, which is the true medical cost relativity.
As you can imagine, given the experience of last year, we're gonna be very conservative about risk adjustment changes until we actually see the full Monty data set.
Right. On that note, you noted higher specialty utilization within the Silver tier. How do you take that observation and run it through your risk adjustment? Like, do you assume the rest of the industry is also experiencing that? Like, how do you decipher those trends?
In a conservative posture, you assume nothing. Track that and understand and look at what are the therapeutic classes and what are the disease states that are sitting around that to understand what may have a natural risk adjustment offset. Again, until you see the full data, you can sort of do math, but you're not gonna change any assumptions. I don't know if you want to talk a little bit about some of those categories that we're seeing.
Yeah. For instance, the anti-inflammatory cohort for both GI issues and dermatological indications. There's some concentration of the risk, which sort of ties into potential future risk adjustment. To Sarah's point, like, until we know that there's an offset, you know, we're gonna play that pretty conservative. Nonetheless, we're just giving you insights into what we're seeing in the data. Nonetheless, through February, you know, our results are on track in Marketplace.
Right. Understood. Let's move on to Medicaid. For 2026, you're expecting rate and trend to both track in the 4.5% range. First, can you give us a sense of where cost trend exited the year in Q4? Second, can you share how composite Medicaid rates developed for 1/1 renewals and comment how they're tracking for upcoming cycles, such as 4/1 and 7/1?
Sure. Overall Medicaid trend in 2025 was mid-6%, and obviously that was higher for us in the first half than the second. We had that nice progression as we came through Q3 and Q4. Yes, to your point, our assumption is 4.5% net trend in 2026. Think about all of the initiatives that we put in place through the course of 2025, annualizing in 2026, and then a pipeline of additional sort of trend vendors, if you will. 1/1 rates came in in line with our expectation, in line with that framework, and we are at this stage still early. We have one state at 4/1 and then that 7/1 cohort, and don't yet have visibility to any of those, I don't think.
Yeah, we don't yet. Including you know, we've got a small piece of the 4.1 rates, but we don't yet have visibility into the majority, the vast majority of that one state for our 4/1 cohort. So that's a decent sized swing factor in terms of the, you know, achievement of that mid-4s on the rate side.
Great. I'd love to talk a little bit more about these trend vendors that you just mentioned. You've been discussing efforts to weed out, you know, fraud, waste, and abuse in Medicaid for several quarters, and recently brought that to life for us with the ABA Task Force. If we take a step back, what's the scope of these fraud, waste, and abuse initiatives, and what's the response you get from your state partners when you engage on these issues?
Well, if you take the DOJ numbers, their estimate is that 10% of all healthcare spending is fraud, waste, and abuse. That is presumably, you know, inclusive of the actions that MCOs take to stem that. But it is a big portion of what we do. I would say until recently, it's not been talked about as much, but it is a huge part of program integrity and why states choose managed care organizations to help them run the programs. Because of that, we spend a lot of time focusing on it. You heard on the Q4 call, we talked about the fact that we have 75 algorithms that run on a daily basis on the millions of claims that flow through our system.
What that reflects is that we spend a lot of time working on the sophistication of those algorithms so that when we are pulling out suspect claims, and those sit along a continuum, right? You can have. If you think about fraud, waste, and abuse, those are different categories, and you can have providers that are just sloppy in their coding, and it's not ill-intended at all, but it is actually creating waste for the system if we are overpaying for care that was not delivered or not delivered at the right level of acuity. You certainly have bad actors. We've called out the fact that, you know, in one state, there was an ABA provider that was costing the program $10 million a month in fraudulent billing. These can be pretty significant cases.
We spend a lot of time tuning our algorithms, leveraging AI to do that suspecting and to do it in a thoughtful way, 'cause if we spend time running down one of those patterns and it's not real, that's also a waste. This is something we focus on a lot. I would say what's been interesting about the last couple of years is that with all of the other macro program pressures, and then frankly, in the last twelve months, with a heightened dialogue around the fact that fraud, waste, and abuse is an appropriate part of managing these taxpayer dollars, we have had increasingly constructive conversations with the states around allowing us to take actions and to be thoughtful, you know, in terms of intercepting, investigating.
You probably saw the letter that we sent to the administration in response to the RFI relative to places where MCOs can lean in and actually do more work in this space, and have greater data sharing. We have seen fraudulent providers who will set up shop in one state, and we shut them down, and then they pop up in the state next door, and then in the state one to the north. Having a more robust national data sharing framework, we actually think is pretty important. Again, I think the conversations with the states have gotten more constructive, and when you can bring them data and show them objectively, empirically what's happening, it is ultimately the right thing for the program, but it's also the right thing for members.
Because if you know those Medicaid members aren't actually getting good care, they're not getting care at the level that is being reported, it's not a good outcome.
Right. Some of these efforts have been underway for over a year or are core to the program. Can you walk us through the typical timeline from detection to intervention to financial impact?
Sure. The reality is every case is a little different, and every state is a little different. In Medicaid, each state has a typical engagement framework where when you suspect a provider of. Again, let me sort of break it out, right? 'Cause, waste and abuse are slightly different, and the ability there to have a robust provider engagement framework where you see a provider who is billing in sort of, an outlier pattern. One of the first things we do is go and actually sit down with the provider face-to-face, the benefit of being local. Sometimes it's just a matter of educating, and that's the best-case scenario. When you have a truly fraudulent provider, then there are processes to bring that data forward to the state.
There's usually a stated process framework that you need to follow before you can take action. Those actions all have, again, state by state, sort of different tails to them, and the contractual relationships with providers have different tails to them. It is, you know, it's a widespread effort, and there is some natural delay in terms of detection to action, and then the financial impact will often have a longer tail than that.
Yeah. Yeah. I mean, you saw the letter that we sent to Dr. Oz. What we're asking for is sort of relief in some of those limitations of actually getting to take action. Usually, those limitations are embedded in Medicaid. You got to clear those, and then sometimes you can see the spigot go off quickly thereafter, or it's a ramping benefit in the financials. To your point, you know, we're working on this stuff 6, 9, 12 months ago, and some of it's just showing up in the financials in Q4 and then rolling into Q1.
Great. Let's move on to Medicare and Part D. We saw individual PDP industry growth accelerate from about 1% in 2025 to looks like close to 3% this year. You also continue to perform well in that product and are taking share again in 2026. Can you share your thoughts around the drivers of the industry growth and comment on your own strategic considerations to continue to grow in that market?
Yeah. There's a little bit of inverse relationship between attractiveness of Medicare Advantage and then either growth or shrinkage in the fee-for-service market, which then is the, you know, the purchaser of a standalone PDP product. I think there's that natural toggle relationship, which you're right, has resulted in, you know, either less shrinkage or maybe a little bit of growth in that PDP market. We continue to take share, given our positioning, I think our cost structure. I think the fact that we don't own a PBM actually really helps because there's no temptation to have the economics sit anywhere other than embedded in the product to the benefit of the member or to achieve a reasonable target margin. Yeah, pretty pleased and on track through February in that PDP business as well.
Great. From a margin perspective, you ultimately outperformed your initial Part D margin expectations in 2025 after calling out some early risk corridor pressure in the first quarter. What drove the favorability in the back half of the year, and how did the slope of the Part D MLR curve ultimately develop as the year progressed?
Yeah, it's a pretty steep slope that will ramp up throughout the year. I mean, quite frankly, similar to commercial businesses, including Marketplace, where you've got a sloping HBR. That's why we described on our earnings call, this Q4 earnings call, the sloping of earnings as well throughout the year for the enterprise as a whole. Yeah, we outperformed last year and you know set that with the bids to you know target a margin of around 2% this year on track for that, which is good through February 'cause pharmacy data completes pretty quickly. You have a decent indication a couple of months in of the run rate, the mix of business. You know, there's still 10 months to play out, but it's, you know, at least started off on the right foot and look forward to seeing if we can beat that 2%.
Great. Stepping into the mechanics a bit, did any of the Part D plans you called out or otherwise finish the year in the corridor, at the end of the year?
Yeah, most of them would have been in the risk corridor last year.
Okay. On the MAPD side, you're expecting another year of membership contraction as you prioritize margins. Can you share where your MA margins exited 2025 and how we should think about the cadence of margin recovery over the next two years as you work towards your break-even target in 2027?
Sure. 2025 margins were obviously negative. We've said in 2026 they're gonna be slightly below break even, and then in 2027, the goal is to get to break even. You know, we've been working on initiatives internally around medical management, SG&A, stars, all of that has sort of built the path to get to break even in 2027. Obviously thinking about how to do that with a number of different scenarios ahead of seeing the final Medicare rates, but certainly hopeful that those rates are a little bit more reflective of the underlying trends.
Right. Maybe on that point, can you talk a little bit about the dialogue you've had with CMS, particularly on those rates, you know, anything on, you know, trend assumptions, the risk model calibration, just what arguments are resonating with the administration?
Yeah. I think we really focused around the underlying trend assumption and feeling like that was low compared to what we've seen, but also a view that there were some issues with with some of the risk adjustment factors and the thought that we may wanna layer those in more thoughtfully or, over time to make sure that they're complete. I don't know if there's anything [crosstalk]
Yeah. For instance, they were proposing to use a five-year rolling average, including 2021, which was a COVID year. We made the argument, like, you should really kick that out of the data. It's not indicative of current. Going back to Sarah's point, you know, using the most recent objective claims data and trend data, there's just an inconsistency between the reality of Medicare's fundamental Medicare trend going back to Q2 of 2023 and forward, and where the rates came out. Maybe more unique to us asking for, you know, continued and enhanced visibility on what they might do on the Part D demo.
Mm-hmm.
Great. Moving on to capital deployment, you're assuming no share repurchase in your 2026 guidance. What milestones do you need to achieve in order to turn share repurchase back on?
Well, one of them we put in the 8-K this morning, which is we're doing a partial redemption of our 2027 notes, $1 billion, and we expect to execute that by the end of this quarter. That's another step towards a de-levering effort to sort of recalibrate our debt load with not today's earnings level, but as we look over the next few years. We're excited about that, and that's on the heels of, and you guys stayed up late and read our 10-K a couple of weeks ago. We talked about a master receivable sales agreement we entered into with a syndicate of banks.
The source of funding for that $1 billion of redemption of partial redemption of notes is selling a receivable, our PDP receivable, a piece of that, so that we actually collect that early as opposed to waiting until October. I think think some pretty good financial engineering to lower you know take a big bite out of debt and get out ahead of our December 2027 maturity. Just sort of normal course things. We're always thinking about how do we generate more cash and monetize assets. That's the priority now, and then we'll see. You know, most of our dividends from subs, as you guys know, come in the back half of the year. We'll see sort of when we wanna step into other methods of deploying capital.
Great. Maybe in the last minute here, we'd love to circle back to Medicaid and sort of the forward view on some of the policy. Medicaid membership has declined modestly over the past two years following redeterminations and, you know, certain states are going to expand this tightening of the eligibility more broadly to the national level, right? With OB3, can you share any preliminary thoughts on how membership levels and margins might evolve through that transition?
Sure. One piece of it is the assumption in 2026 of continued sort of slight attrition, to your point, that we've seen just with states being tighter on that re-verification process because of what everybody went through over the last couple of years with redeterminations. In terms of the overall impact of OB3 and work requirements, that to me is really sort of a back half of 2026 in terms of getting more visibility because it is state by state, right? States that have expanded Medicaid versus those who haven't, we're getting increasing guidance from CMS. You all probably saw the note recently in terms of giving states the option to either run the work requirements eligibility verification on a date certain versus on the anniversary date of eligibility.
That's gonna play a meaningful role in terms of what the impact would be at the state level if they try to do it all at once versus doing it over a twelve-month period. Then the additional criteria that we expect over the next couple of months in terms of the definition of different populations like frailty, what are the different, you know, work programs, what latitude will the states have to leverage MCOs and other community organizations to help with that. You know, we've got about 20% of our population that is – o ur Medicaid population that is expansion.
And then looking through that and saying, "Okay, as that gets overlaid to the various states, where do we think there will be the most impact, the most potential contraction?" All of that is calculus that I think plays out as we get closer to states making those actual decisions. We have a task force that's been set up to track those, you know, on a state-by-state basis.
The other thing that I would just point out to wrap up that I think has been helpful was the recent guidance that also came out from CMS to the states on rate setting, and the fact that as those Medicaid rates get set at the state level and sent up to be certified by CMS, they need to be explicit about how they've accounted for the OB3 provisions and impacts, which I think is a good signal in terms of at least CMS paying attention to the fact that there needs to be both forward and potentially retro risk adjustment to account for where there may be risk pool shifts as a result of this.
Great. Well, we're just about out of time, so let's end it there. Sarah, Drew, thank you so much for joining, and please enjoy the rest of the conference.
Great.
Thank you.
Thank you.