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Centene Corp (CNC) has pulled its 2025 earnings guidance due to unexpected shifts in the health insurance marketplace. The company expects a $1.8 bln shortfall in net risk adjustment revenues and a $2.75 impact on adjusted diluted EPS. Despite better-than-expected performance in Medicare Advantage and Medicare PDP segments, Medicaid is facing challenges due to rising costs. CNC plans to adjust rates to account for higher morbidity baseline in 2026.

Centene Corp (CNC) has withdrawn its 2025 earnings guidance due to significant changes in the health insurance marketplace. The company expects a $1.8 billion shortfall in net risk adjustment revenues and a $2.75 impact on adjusted diluted EPS. Despite strong performance in Medicare Advantage and Medicare PDP segments, Medicaid is facing challenges due to rising costs. CNC plans to adjust rates to account for higher morbidity baseline in 2026 [1].

Centene's decision to withdraw its 2025 earnings guidance was rooted in a stark disconnect between its assumptions and reality. An independent actuarial analysis revealed a 72% membership base with significantly higher morbidity than expected, leading to a preliminary $1.8 billion reduction in risk adjustment revenue transfers. This translates to a $2.75 per share hit to adjusted diluted EPS. The company also noted a "step-up" in Medicaid costs in key states like New York and Florida, driven by behavioral health, home care, and high-cost drug use [1].

The broader managed care sector is grappling with a perfect storm of regulatory and operational challenges. The v28 risk scoring model for Medicare Advantage (MA) plans, implemented in 2025, has reduced reimbursement accuracy. Insurers like UnitedHealth and Humana are recalibrating their models, with Elevance Health slashing 2025 guidance by $4.15 per share. Post-pandemic enrollment checks have left a sicker, higher-cost population in Medicaid. Elevance and Centene report elevated Medicaid Health Benefits Ratios (HBRs), with costs rising 5–7% year-over-year in key markets [1].

The market's reaction to Centene's guidance withdrawal was severe. Its stock plummeted from $56.65 to $33.78 in days, erasing $11 billion in shareholder value. However, the broader sector mirrored this trend. UnitedHealth's shares fell 49.64% since December 2024, while Elevance and Molina Healthcare dropped 7.2% and 8.1%, respectively. Analysts like CFRA's Paige Meyer argue that “current risks outweigh future opportunities,” with S&P Global placing Centene on CreditWatch Negative due to capital adequacy concerns [1].

Molina Healthcare, another major player, also reported higher-than-expected medical claims, leading to a cut in its annual profit forecast. The company expects adjusted full-year profit to be at least $19.00 per share, compared to its previous range of $21.50 to $22.50 per share. The health insurer projected a full-year medical cost ratio of 90.2%, higher than analysts' expectations of 88.83% [2].

Despite these challenges, Centene's path forward hinges on its ability to reprice 2026 Marketplace rates and navigate Medicaid cuts. The BBBA's $1 trillion Medicaid reduction and ACA subsidy expiration risks could render these efforts insufficient. For investors, the key is to differentiate between short-term volatility and long-term resilience—favoring companies with diversified revenue streams, robust cost controls, and regulatory agility [1].

References:
[1] https://www.ainvest.com/news/centene-earnings-uncertainty-cautionary-tale-investors-shifting-healthcare-landscape-2507/
[2] https://www.reuters.com/business/healthcare-pharmaceuticals/molina-healthcare-lowers-annual-profit-forecast-again-rising-medical-costs-2025-07-23/