Centene's Q1 2025: Unpacking Key Contradictions in Medicaid Rates, MLR Expectations, and PDP Pricing

Medicaid rate adjustments, Medicaid MLR expectations, PDP pricing and margin expansion, and Medicaid utilization trends and redetermination impact are the key contradictions discussed in Centene's latest 2025Q1 earnings call.



Medicaid Margin Recovery:
- Centene's Medicaid membership remained stable at 12.9 million to 13 million members, while the Medicaid HBR excluding flu-related costs improved to approximately 93%.
- The underlying performance improvement was masked by an unexpected $130 million in incremental medical expenses due to a more active flu season.
- Centene anticipates a return to pre-pandemic margin levels as they continue to align rates with member acuity through ongoing rate cycles and member engagement.

Medicare Advantage Growth and Stars Results:
- Medicare Advantage membership outperformed expectations, with an increase in retention rates contributing to a $1 billion increase in premium and service revenue guidance for 2025.
- The Medicare Advantage HBR was 86.3%, with plans to achieve breakeven by 2027 through Stars results improvement and operational efficiency.
- The company is optimistic about Stars outcomes due to data-driven initiatives to mitigate variable performance and external factors.

Commercial Marketplace Growth:
- The commercial segment, including the marketplace business, experienced strong growth with 1.9 million new members in Q1.
- The impact of reintroduction of integrity programs like failure to reconcile was muted, contributing to better-than-expected member retention.
- Despite potential FTR notifications and actions affecting membership in the future, Centene's full-year revenue increase reflects these trends.

PDP and Specialty Drug Trends:
- The PDP segment ended the quarter with 7.9 million members, reflecting strong growth from 2024.
- High specialty drug trend, particularly in non-low-income members, is an area of focus, driven by pharmaceutical behavior and patient assistant programs.
- Centene is accounting for these trends in its 2026 bids and pricing strategies, with the expectation of a continued strong PDP performance.