Centene's Q2 2025: Key Contradictions Unveiled on Medicaid Margins, Marketplace Growth, and Risk Adjustments

Medicaid MLR improvement and rate adjustments, Marketplace growth expectations, risk adjustment expectations, Medicaid margin improvement, and exchange market membership and growth projections are the key contradictions discussed in Centene's latest 2025Q2 earnings call.



Marketplace Risk Adjustment Challenges:
- Centene's Marketplace business experienced a $2.4 billion impact due to a change in risk adjustment assumptions, resulting in a 100% shift in the morbidity of the market.
- This was primarily driven by a higher-than-expected percentage of healthy or low-utilizing members leaving the market, likely due to program integrity measures introduced after 2024 pricing, and a considerable increase in morbidity driven by aggressive provider coding.

Medicaid Cost Trends:
- The Medicaid portfolio fell short of expectations, producing an unanticipated health benefits ratio (HBR) of 94.9%.
- The increase was driven by a step-up in medical cost trend in behavioral health, home health, and high-cost drugs, particularly in behavioral health, which accounted for about 50% of the trend.

Marketplace Repricing and Profitability:
- Centene aims to return the Marketplace portfolio to profitability in 2026 by repricing 100% of the book, reflecting a substantial majority of the morbidity shifts observed in 2025.
- Adjustments account for shifts expected in 2026, with filings already submitted for 17 states and additional filings expected within the next week.

2025 Earnings Outlook Adjustment:
- Centene revised its full-year adjusted diluted EPS forecast to $1.75, accounting for a $4.55 billion pretax headwind from Marketplace and Medicaid trends.
- The revision reflects an expectation of continued utilization pressure and trend pressure in Medicaid, offset somewhat by a $700 million favorability in Medicare, largely driven by PDP.