Centene (CNC) Q4 FY25 earnings call: guidance and Q&A

Why is the 2026 Medicaid rate expectation of 4.5% not higher given elevated trends, and is it conservative? Can mid-year rate increases be expected?

The 4.5% rate assumption for 2026 is prudent, noting that 2025 rates matured favorably to 5.5%. The current rate cycle benefits from two full years of acuity and trend data, informing rate decisions. States are also making program changes, such as addressing ABA outlier providers and PBM control, which act as proxies for rate adjustments and contribute to trend bending.

“we're starting with a prudent assumption around that 4.5% for 2026. I would point to the fact that our 2025 rates matured favorably from where we started at the beginning of 2025 and ended with that composite rate at roughly 5.5%.”

asked by Ann Hynes · answered by Sarah London

What was the 2025 Medicaid trend (H1 vs H2)? How do states justify 4.5% rates in 2026 compared to 5.5% in 2025 given market conditions and acuity?

The 2025 Medicaid trend was in the mid-6s. The 2026 mid-4s net trend assumption reflects aggressive actions taken in the second half of 2025 and actions effective January 1, 2026, which are expected to bend the trend. States are increasingly open to program changes that address trend without explicit rate increases, such as carving out high-cost drugs or addressing ABA overbilling.

“2025 trend was in that mid-6s, which I think we talked about on the Q3 call. And then the view of 2026 around mid-4s is really a net trend assumption.”

asked by Justin Lake · answered by Sarah London

What is the confidence level in Marketplace margin improvement given the significant shift to Bronze plans, which have historically been volatile? What additional color can be provided?

Confidence stems from the Q3 repricing, which incorporated improved visibility from 2025 Wakely data, baseline morbidity, and risk pool impacts, leading to a mid-30% pricing increase for 2026. The increase in Bronze plan enrollment (over 30% vs. 19-24% historically) was factored into the calculus, leveraging historical data on how Bronze products operated pre-eAPTCs. Paid membership data in early February provides good visibility.

“part of the confidence comes from, I think, the work that we did and sort of the assumptions that we made coming into the year. And taking into account, again, the baseline morbidity trend assumptions, the risk pool impacts of both 2025 and anticipated 2026 program integrity measures as well as the expiration of the enhanced APCs, all of which netted out to that mid-30% pricing increase for 2026.”

asked by Kevin Fischbeck · answered by Sarah London

Can you explain the mechanics of the actuarial soundness look-back process, including lag time, and how Centene aims to shorten it for future disruptions like work requirements or redeterminations?

Centene is focused on shortening the look-back period to include more recent data. While the standard actuarial process uses a 2-year look-back, the acuity shifts of 2024 and trend impact of 2025 are now within this period. The company proactively engages with states, providing specific data and highlighting instances of quick rate corrections (e.g., Florida CMS). Program refinements are also discussed with states as an alternative to rate adjustments.

“as time rolls forward, our need to push for that more recent data of being included is just happening organically. And so now those acuity shifts in '24, the rate -- sorry, the trend impact in '25 is now basically sitting in the middle of that 2-year look-back period.”

asked by Sarah James · answered by Sarah London

Could you provide specific segment margins for 2026 guidance and long-term targets? Does the absence of a Premium Deficiency Reserve (PDR) in Medicare Advantage imply it's closer to breakeven in 2026?

For 2026, Medicaid is expected to have a stable HBR, Marketplace a pretax margin around 4% (up from a 1% loss), and Medicare PDP a pretax margin around 2% (down from 3%+ in 2025). Medicare Advantage is not yet at breakeven, still operating at a slight loss on a fully allocated basis, but the elimination of the PDR in Q4 2025 indicates it's not losing money on the margin. Long-term margin targets are premature due to policy volatility.

“The commercial segment, which is largely marketplace, we were at minus one last year. You could do the math on the HBR guidance slide and get to something around 4% pretax for 2026 in marketplace. And then the Medicare segment, as I said in my remarks, PDP around 2% would be our target.”

asked by Joshua Raskin · answered by Andrew Asher

Why does Centene's Medicaid outlook differ from national peers? Is the renegotiated PBM contract contributing to Centene's benefit?

Centene's Medicaid outlook starts from an elevated 2025 baseline (Q2 HBR of 94.9%) and reflects aggressive execution in the second half of 2025, leading to sequential HBR improvement. The company's PBM contract is tailored, transparent, and flexible, providing significant economic benefits and flexibility in collaborating on formulary and network decisions, which contributes to cost structure and margin targets.

“I think we benefit by having $60 billion of pharmacy spend and not owning our own PBM. In other words, every ounce of the economic benefit of that PBM arrangement and how we collaborate with our partner to go to the market together, whether it's pharma or network or other decisioning around formulary benefit plan designs we've got immense flexibility in how we work with our partner.”

asked by Albert Rice · answered by Andrew Asher

Can you elaborate on Part D dynamics, including LIS vs. non-LIS populations, market trends, risk scores, and economics post-IRA, and how the business is positioned for growth and profitability?

In 2025, the expanded risk corridor helped navigate severe non-LIS specialty trend post-IRA. For 2026, bids incorporated the IRA impact on the non-LIS population. Part D membership is growing from $8.1 million to $8.7 million across both LIS and non-LIS populations, with revenue growth primarily driven by premium yield increases and direct subsidy increases. The business benefits from its cost structure, underwriting acumen, and market positioning.

“The good news in '25 is the industry we had that expanded or more protective risk corridor that then reverted in '26 back to the statutory risk corridor that's been in place since the inception of the Part D program. But that gave us some, let's say, breathing room in terms of navigating pretty severe non-low-income specialty trend when the maximum amount of pocket dropped to $2,000.”

asked by Scott Fidel · answered by Andrew Asher

With increased Bronze enrollment, is there enough data to assess if utilization patterns of these members are meeting expectations, particularly regarding declining gross medical costs due to higher individual cost-sharing?

The trade-down to Bronze plans is largely consistent with expectations and was contemplated in overall pricing, considering how Bronze products operated pre-eAPTCs and pre-COVID. While it's very early (January data), there is nothing alarming regarding utilization patterns, suggesting they are aligning with expectations.

“I would say, in general, sort of what we're seeing in terms of trade down again, sort of largely consistent with what we would have expected. We expect that it's probably a market dynamic as well and was contemplated as we thought about overall pricing.”

asked by David Windley · answered by Sarah London