Centene's Q3 2025: Contradictions Emerge on Exchange Membership, Medicaid Margins, Marketplace Pricing, and Rate Assumptions

Date of Call: October 29, 2025

Financials Results

• Revenue: $44.9B in premium and service revenue (Q3 2025 reported)
• EPS: $0.50 adjusted diluted EPS (Q3); GAAP loss per share $13.50 due to $6.7B non-cash goodwill impairment; Q3 included ~+$0.10 benefit from a temporarily low adjusted effective tax rate vs expected full-year 20%–21%
• Gross Margin: Medicaid HBR 93.4% (Q3); Medicare segment HBR 94.3% (Q3); company guiding to ~93.7% full-year Medicaid HBR (2025)

Guidance:

• Raised 2025 adjusted EPS outlook to at least $2 (prior $1.75).
• Detailed 2026 guidance to be provided on Q4 call in early February.
• Marketplace: repriced >95% of membership with average rate increases in the mid-30s to support 2026 margin expansion; holding $125M of a prior $200M provision into Q4 and adding $75M as precaution.
• Medicaid: 2025 composite rate now expected ~5.5%; prudent posture for 2026 is profitability consistent with 2025 (aim to improve further).
• Medicare: expect $700M pretax favorability vs April to hold; MA on path to breakeven pretax margin in 2027; PDP positioned to outperform prior 1% pretax guide.
• Investment/tax: Q3 investment gains largely one-time; may realize Q4 losses to reposition for 2026; full-year tax rate view unchanged.

Business Commentary:

• Financial Performance and Guidance:
• Centene reported adjusted EPS of $0.50 for Q3 2025, exceeding the previous expectation, and increased its 2025 adjusted EPS forecast to at least $2, up from the earlier forecast of $1.75 per share.

• This improvement was driven by better-than-expected results in Medicaid and Marketplace segments, favorable investment income, and a lower effective tax rate.

• Medicaid Segment Improvements:

• The Medicaid segment delivered a Q3 HBR of 93.4%, including a $150 million Florida Children's Medical Services program revenue adjustment.

• Medicaid profitability was aided by advocacy for improved revenue adjustments and operational initiatives like rate advocacy, program changes, and fraud interventions.

• Marketplace Segment Adjustments:

• Centene added $75 million to its Marketplace medical expense forecast for Q4, reflecting September's utilization uptick and expected continued volatility.

• The company repriced its products for 2026 with rate increases averaging in the mid-30s, accounting for baseline morbidity, trend, and eAPTC expiry.

• Investment Income and Tax Rate:

• Investment income in Q3 exceeded expectations and was primarily driven by onetime items, resulting in a temporarily low adjusted effective tax rate of 20% to 21%.
• The company is prepared to take investment losses in the fourth quarter to improve the trajectory of investment income for 2026.

Sentiment Analysis:

Overall Tone: Positive

• Management raised 2025 adjusted EPS to at least $2 from $1.75 and reported Q3 adjusted EPS of $0.50, citing Medicaid HBR improvement (Q3 Medicaid HBR 93.4%) and stronger-than-expected investment income; CEO: “we are pleased with the overall performance” and highlighted operational progress across Medicaid, Marketplace repricing and Medicare positioning toward breakeven in 2027.

Q&A:

• Question from Joshua Raskin (Nephron Research LLC): How do you get comfortable that you are getting ahead of trend in the exchanges? Do competitor exits make the pool less stable for 2026? Is there a point when adverse selection causes you to rethink markets or the segment?
  Response: We used updated Wakely/weekly data and repriced >95% of membership layering baseline morbidity, trend, eAPTC expiry and program-integrity impacts; we held Q4 provisions ($125M retained + $75M added) as prudent and believe the market remains competitive and not in a death spiral given advanced premium tax credits.

• Question from Albert Rice (UBS Investment Bank, Research Division): If eAPTCs are extended mid-cycle, can you quickly reengage enrollees (younger/healthier) and what efforts are in place? On Medicaid, how do potential early work rules and program-integrity measures affect 2026 outlook?
  Response: We can deploy marketing, brokers and SG&A spend to recapture members but expect some breakage; estimate market contraction high teens to mid-30s even with extensions; work-requirement implementations largely moved to 1/1/27 so limited 2026 impact and program-integrity attrition is expected but not a material swing for 2026.

• Question from Justin Lake (Wolfe Research, LLC): How do you view competitive positioning for 2026 vs 2025 and growth relative to the market? Also, how much of the $700M Part D upside unwinds next year?
  Response: We reduced low-cost silver exposure (55% to 42%) and prioritized margin over membership; expect relative positioning to be at least in line or modestly better than market contraction. On PDP, 2025 pretax margin in the low-to-mid single digits (3s); initial 2026 guidance will likely assume something lower than 2025 levels.

• Question from Andrew Mok (Barclays Bank PLC, Research Division): Last quarter you expected margin improvement across lines including Medicaid; now you expect limited improvement — is that in dollars or margins and is there a change in underlying performance excluding Florida?
  Response: Q3 showed underlying operational improvement across levers (rate advocacy, clinical policy, network optimization, FWA) though Q3 was aided by a $150M Florida revenue adjustment; given a high starting HBR, management is prudently assuming consistent profitability in 2026 but expects continued execution to drive further improvement.

• Question from Ann Hynes (Mizuho Securities USA LLC, Research Division): What trend assumptions are you using for Medicaid, Medicare and Marketplace for 2026, and what are initial thoughts on Medicaid composite rate?
  Response: Medicare trend running high single-digits to ~10+, bids assume low-double-digit progression; Marketplace repricing averages mid-30s rate increases (baseline morbidity, trend, program integrity, eAPTC expiry); Medicaid got mid-5s rates and management is modeling stability around ~93.7% HBR as a starting point for 2026.

• Question from Kevin Fischbeck (BofA Securities, Research Division): Is 2026 a trough for Medicaid margins with build in 2027, and will work requirements or rate catch-up materially change that framing?
  Response: Management views a flat 2026 as a prudent starting posture but expects to continue driving margin improvement; work requirements and OB3 impacts are more likely to affect 2027–2028, and the company is organizing state-level planning to mitigate risks and capture opportunities.

• Question from George Hill (Deutsche Bank AG, Research Division): Do your 2026 Medicaid stability assumptions include the Florida retro and New York changes, and what is the contribution from benefit design changes or high-cost drug carve-outs?
  Response: Yes — Florida’s $150M adjustment (including $90M retro to Q1/Q2) is included in 2025 results; full-year 2025 HBR target ~93.7%; levers for 2026 stability include high-cost drug carve-outs, payment/reinsurance pools and other state program design changes.

• Question from Erin Wilson Wright (Morgan Stanley, Research Division): Given regulatory uncertainty, how confident are you in long-term exchange dynamics, margin targets, growth and commitment to ICHRA? What might change your commitment?
  Response: We remain committed; policy (eAPTCs) is the biggest near-term swing but we believe the individual market is a durable platform with long-term growth potential and are pursuing ICHRA and partnerships to expand affordability and choice rather than retreat.

• Question from Stephen Baxter (Wells Fargo Securities, LLC, Research Division): On Florida timing, did Q3 already realize the rate update or should we expect sequential improvement in Q4?
  Response: Q3 included the $150M Florida adjustment (about 40 bps retro benefit to Q3); excluding retro the jump-off is ~94.0% HBR and management expects a sequential lift into Q4 from 9/1 and 10/1 rate cohorts and other seasonality to help get toward ~93% in Q4 and ~93.7% full-year.

• Question from Lance Wilkes (Sanford C. Bernstein & Co., LLC., Research Division): How variable are state rate resets and how are fiscal '26/'27 budget cycles affecting rate increases and competitor behavior/exits?
  Response: State-by-state variability exists but a consistent trend is collaborative, data-driven rate discussion using more recent data; budget pressures create opportunities to align fee-for-service populations and program design with states and we are seeing RFP opportunities; company did not outline significant specific competitor exits but is monitoring market dynamics.

Contradiction Point 1

Exchange Membership and Morbidity Assumptions

It involves differing expectations regarding membership and morbidity shifts in the marketplace segment, which are critical for financial forecasting and strategy.

How has your competitive positioning changed from 2025 to 2026? How should we factor in the $700 million Part D upside in 2025? - Justin Lake(Wolfe Research, LLC)

2025Q3: We expect slightly higher market contraction in 2026. Competitive positioning focuses on margin over membership, with a 42% share in low-cost silver positions. - Sarah London(CEO)

What are the market size and attrition assumptions for the year, and potential morbidity shifts? - David Howard Windley(Jefferies LLC, Research Division)

2025Q2: We expect further attrition in 2025, ending the year at 5.4 million members. - Sarah London(CEO)

Contradiction Point 2

Medicaid Margin Stability and Improvement

It involves differing expectations regarding Medicaid margin stability and improvement, which are crucial for financial performance and investor confidence.

Will margins worsen in 2026? Will 2026 be a trough year for Medicaid? - Kevin Fischbeck(BofA Securities, Research Division)

2025Q3: We expect Medicaid margins to stabilize and improve over the next few years. Work requirements are more of an issue in 2027, with stability expected in 2026. - Sarah London(CEO)

Regarding Medicaid, is it realistic to achieve target margins by 2027 given potential membership losses and risk pool changes? - Kevin Mark Fischbeck(BofA Securities, Research Division)

2025Q2: We are confident of delivering margin improvement in Medicaid over the next 4-6 quarters. - Sarah London(CEO)

Contradiction Point 3

Marketplace Pricing and Membership Stability

It involves differing perspectives on the stability of marketplace membership and pricing strategies, which directly impacts financial projections and competitive positioning.

How confident are you in outpacing trends in the exchanges? Will competitor exits reduce market stability by 2026? Could adverse selection spiral prompt a reassessment of specific markets or the entire segment? - Joshua Raskin (Nephron Research LLC)

2025Q3: We've seen positive indicators that marketplace morbidity assumptions are in line with our estimates. We believe our pricing strategy supports meaningful margin recovery in 2026. - Sarah London(CEO)

Is the $1 per share headwind estimate still valid if enhanced subsidies are eliminated? How would work requirements impact the business? - A.J. Rice (UBS)

2025Q1: The marketplace can be a bit more difficult because there could be some adverse selection in there, and we're very cognizant of that. And we priced in things like that, and we're going to roll in that type of pricing. And so we're not expecting any breakage there. - Sarah London(CEO)

Contradiction Point 4

Medicaid Market Stability and Profitability

It involves differing perspectives on the stability and profitability of the Medicaid market, which is crucial for the company's financial performance and strategic positioning.

Will margins decline in 2026? Will 2026 be a trough year for Medicaid? - Kevin Fischbeck (BofA Securities, Research Division)

2025Q3: We expect Medicaid margins to stabilize and improve over the next few years. Work requirements are more of an issue in 2027, with stability expected in 2026. We're focused on normalizing Medicaid margins by 2027. - Sarah London(CEO)

What are the underlying trends in Medicaid utilization and how does the Medicare medical loss ratio compare to expectations? - Albert Rice (UBS)

2024Q4: Medicaid expense trend remains stable, and we're focused on member acuity alignment. - Sarah London(CEO)

Contradiction Point 5

Medicaid Rate Assumptions and Guidance

It involves changes in financial forecasts and assumptions regarding Medicaid rates, which are critical for the company's financial performance.

Did your prior comments about Medicaid focus on earnings dollars or margins? Are disenrollment and contract losses pressuring revenue? - Andrew Mok (Barclays Bank PLC, Research Division)

2025Q3: We're on a better-than-expected trajectory in Medicaid. Our focus is on stability at 93.7% HBR for 2026. We're expecting more moderate trend with increased rates and improved rates in Florida. - Sarah London(CEO)

好的，我现在要处理用户的这个请求。用户希望我作为专业的金融文章作者，总结并精简来自美股上市公司财报电话会议的问答环节的问题。首先，我需要理解用户的具体要求。用户给出的例子是：“How should we think about Medicaid rate assumptions for the rest of 2025 given the strong 2025 rates?” 需要简化成更简洁、精准的问题，同时保留原意和结尾的问号。输出必须符合美式英语习惯，并且只输出简化后的问题。首先，我需要分析原问题的结构。原问题中的“given the strong 2025 rates”可能有些冗长，因为“2025 rates”已经被提到过一次，可以简化。例如，可以去掉“given”或者合并重复的部分。比如，原问题可以改为“How should we think about Medicaid rate assumptions for the rest of 2025?” 但这样可能没有完全保留原意，因为原问题提到了“strong 2025 rates”作为背景。另一个角度是，用户可能想问的是在已经知道2025年费率强劲的情况下，如何调整对剩余2025年的Medicaid费率的假设。所以可能需要保留“considering the strong 2025 rates”这样的结构。例如：“How should we adjust Medicaid rate assumptions for the rest of 2025 considering the strong 2025 rates?” 但可能可以更简洁，比如去掉重复的“2025”出现两次的情况。再想，原问题中的“given the strong 2025 rates”可能可以简化为“given the strong 2025 rates”或者“considering the strong 2025 rates”，但用户可能希望更简练。例如，原问题中的“given the strong 2025 rates”可能可以简化为“given the strong 2025 rates”，但可能已经足够简洁了。或者，是否可以将“given”改为“considering”或者“with”来更符合美式英语习惯？另外，用户强调要保留问题的结尾问号，并且不带有过多的装饰词。所以需要确保问题没有冗余的词，比如“How should we think about...”可能可以简化为“How should we adjust...”或者“How should we model...”，但需要确保原意不变。可能的简化版本是：“How should we model Medicaid rate assumptions for the remainder of 2025 given the strong 2025 rates?” 但这里“remainder”可能比“rest”更正式一些，但用户可能希望使用更常见的词汇。或者“remaining”可能更合适。再检查一遍原问题：“How should we think about Medicaid rate assumptions for the rest of 2025 given the strong 2025 rates?” 这里的“given the strong 2025 rates”可能可以简化为“given the strong 2025 rates”已经足够，但是否有重复？比如“2025 rates”出现两次，可能可以合并。例如：“How should we think about Medicaid rate assumptions for the rest of 2025 given the strong rates?” 但这样可能会失去明确的时间范围，即“2025 rates”。所以可能需要保留“2025”在“given”部分。另一个可能性是：“How should we adjust Medicaid rate assumptions for the rest of 2025 considering the strong 2025 rates?” 这里“adjust”可能比“think about”更具体，但用户可能希望保持原意。原问题中的“think about”比较宽泛，而用户可能需要更具体的动词，但如果没有明确指示，可能需要保留原动词。综合考虑，可能最佳的简化是：“How should we model Medicaid rate assumptions for the rest of 2025 given the strong 2025 rates?” 但这里“model”是否合适？或者是否应该保留“think about”？或者是否可以改为“How should we adjust...”？或者，是否可以将“given the strong 2025 rates”改为“with the strong 2025 rates”更简洁？比如：“How should we think about Medicaid rate assumptions for the rest of 2025 with the strong 2025 rates?” 但可能“with”在这里不太合适，因为“given”更常用在假设的上下文中。最终，可能最简洁的版本是：“How should we adjust Medicaid rate assumptions for the rest of 2025 given the strong 2025 rates?” 这里将“think about”改为“adjust”可能更具体，但用户是否允许这样的改动？根据用户的要求，需要不改变原意，所以可能需要保留“think about”或者找到更接近的同义词。 - Stephen Baxter (Wells Fargo)

2024Q4: We expect full-year 2025 composite rate adjustments between 3% and 4%. Strong 2025 rates are due to constructive conversations and data sharing with states. Timing is still uncertain, but our assumptions include a return to target Medicaid margins. - Sarah London(CEO)