Centene 2026 Q1 Earnings Call - Margin Recovery Gains Momentum Through Medicaid and Medicare Outperformance

Andrew Mok, Analyst, Barclays2: Good day, and welcome to the Centene Corporation 2026 first quarter earnings report. I’d now like to turn the conference over to Jennifer Gilligan, Senior Vice President, Investor Relations. Please go ahead.

Jennifer Gilligan, Senior Vice President, Investor Relations, Centene Corporation: Thank you, Rocco. Good morning, everyone. Thank you for joining us on our first quarter 2026 earnings results conference call. Sarah London, Chief Executive Officer, and Drew Asher, Executive Vice President and Chief Financial Officer of Centene, will host this morning’s call, which also can be accessed through our website at centene.com. Any remarks that Centene may make about future expectations, plans, and prospects constitute forward-looking statements for the purpose of the Safe Harbor provision under the Private Securities Litigation Reform Act of 1995. Specifically, our commentary on our full year 2026 outlook, including the drivers of such outlook, are forward-looking statements.

Actual results may differ materially from those indicated by those forward-looking statements as a result of various important factors, including those discussed in our first quarter 2026 press release and other public SEC filings, which are available on the company’s website under the investor section. Centene anticipates that subsequent events and developments may cause its estimates to change. While the company may elect to update these forward-looking statements at some point in the future, we specifically disclaim any obligation to do so. I will also refer to certain non-GAAP measures. A reconciliation of these measures with the most directly comparable GAAP measures can be found in our first quarter 2026 press release. With that, I would like to turn the call over to our CEO, Sarah London. Sarah?

Andrew Mok, Analyst, Barclays4: Thanks, Jen. Thanks to everyone for joining us. This morning, we reported first quarter adjusted diluted EPS of $3.37, exceeding our previous expectations for the period. The strength of our first quarter performance enables us to increase our full year 2026 adjusted EPS outlook to greater than $3.40, up from our previous expectation of greater than $3.00. We are pleased to be off to a strong start this year as increased visibility and operational improvements are yielding positive momentum and lifting our overall financial performance. Results in the quarter included excellent progress within our Medicaid business as we continue to drive margin improvement through targeted and increasingly scaled initiatives to modernize and standardize processes to better manage medical cost trend. Our Medicare segment results were ahead of expectations without performance from both Medicare Advantage and PDP offerings.

Finally, our commercial segment, the vast majority of which is made up of Marketplace, performed in line with expectations on a pre-tax margin basis as a slightly higher than expected HBR in the period was offset by favorability in segment SG&A. As everyone knows, it is early, so while we are off to a great start, we are taking a prudent outlook for the balance of 2026 as we continue to gain visibility into key factors that will influence the remainder of the year. With that, let’s dig into the results. Medicaid results in the quarter were ahead of our previous projection, outperforming our HBR expectation in the period. Within that, we experienced a flu season that was lighter than our original forecast and saw a slight utilization benefit from weather events.

That said, we were pleased to also deliver solid fundamental outperformance in the quarter, thanks to continued focus and disciplined execution on trend management initiatives across the portfolio. Behavioral health remains the largest driver of trend, with other categories like home health and high cost drugs continuing to be consistent contributors. That said, we are beginning to see pockets of deceleration across this cohort, largely in line with our expectations for how trend would mature from 2025 into 2026. At the same time, we continue to strengthen and scale the multi-pronged trend program we deployed in the back half of 2024 and ramped significantly in the face of elevated trend in 2025.

This includes standardizing best practices on utilization management across our markets, the addition and further expansion of successful clinical programs, ongoing data-driven network optimization to ensure our members have access to the highest performing providers, advocacy around program reform with our state partners, and increasingly aggressive efforts to stamp out fraud, waste, and abuse. We’ve discussed here at some length the work we’ve done around ABA, but with the benefit of more than a year’s worth of data under our belt, we are seeing stabilizing year-over-year ABA trends that we believe are a direct result of the actions we have taken to ensure appropriate high-quality care for ABA members across the country. We continue to strengthen our identification of outlier providers who exhibit suspect or fraudulent billing patterns.

At the same time, we continue to advocate for the ability to more fully address fraud, waste, and abuse in a standardized prevention-focused posture across Medicaid programs. We recently highlighted several potential reforms in response to an RFI from CMS, including allowing proactive payment suspensions, creating safe harbors, and improving two-way data sharing. We look forward to partnering with CMS and the states we serve to better protect tax, taxpayer dollars and strengthen overall program integrity. Looking to the remainder of the year, our guidance assumes net trend, defined as medical costs net of these trends management initiatives, remains in the mid 4% range, and we continue to execute with the goal of outperforming that target. Rates are of course the other major contributor to our margin restoration agenda. We continue to work closely with our state partners to ensure alignment between program revenue and member acuity.

With respect to the full year outlook, we continue to track in line with our expectation for a composite rate yield of roughly 4.5%. Conversations with Medicaid departments remain constructive and we continue to present refreshed data and in many instances, programmatic solutions for challenges our state partners are facing as they look to balance costs and benefits within the Medicaid program. While it is still early, we are pleased with the momentum we are seeing across the Medicaid portfolio, and we continue to see opportunity for advancement in 2026 and beyond. Our Medicare segment also delivered strong results in the quarter. Both Medicare Advantage and PDP exceeded expectations, producing an HBR of 84.9, better than our previous forecast and contributing nicely to the first quarter adjusted EPS beat.

Medicare Advantage, we continue to strategically align our membership with our Medicaid footprint and make great progress on our path to positive earnings. While trend continues to be elevated versus historical baselines, it is so far consistent with what we plan for in our bids, with slight favorability in Q1. Thanks to strong execution during both AEP and OEP, we are seeing a slightly more favorable membership mix, and our D-SNP membership is now at 40% of our overall portfolio. We are also seeing stronger year-over-year member retention, the continuation of a now multi-year theme, reinforcing the value of investments made over the last few years to redesign our sales and onboarding experience. This durable member base gives us the opportunity to deploy differentiated care models and drive both quality and health outcomes for members over the long term.

The business also continues to make solid progress on our value-based care strategy. The team has built a disciplined, performance-driven model that is tightly integrated with network strategy, clinical execution, and cost management. We have simplified our contract structure and focused the portfolio to a partner ecosystem that we believe can truly move the needle on quality and cost outcomes. We’re also deploying innovative total cost of care models against high-cost specialties such as oncology, chronic kidney disease, and behavioral health. These are part of a broader portfolio of initiatives designed to build critical momentum as we look to return the business to profitability. Our PDP business ended the quarter with just over 8.7 million members, thanks to the team’s once again thoughtful and data-driven approach to bid design and positioning.

While it is still early, fundamental outperformance in the quarter was driven by slightly lower than assumed specialty drug trends, which gives us increased confidence in the trajectory of the business for the year. We are pleased that our Medicare members will have the opportunity to participate in the CMS Bridge Program, and we support the goal of expanded GLP-1 access for more seniors. As the largest standalone Part D provider in the country, we’ve also been actively engaged in dialogue around the BALANCE Model and remain committed to partnering with the administration to leverage data, best practices, and lessons learned from the Bridge Program to position BALANCE for success in the future. Looking ahead, we are encouraged that the finalized 2027 Medicare Advantage rates showed improvement compared to the advanced rate notice.

While the final rate remains below observed medical cost trend, we continue to see a path to delivering break-even financial results next year. Medicare Advantage and PDP programs play a vital role providing access to care for millions of Americans, including some of the most vulnerable of our nation, and we look forward to working with the administration to identify new and important ways to fortify this program and strengthen the safety net overall. Finally, Marketplace. We ended the quarter with just under 3.6 million members, consistent with our previous commentary about post-grace period membership. Metal tier distribution and age stayed consistent with patterns we reported on in early March, with just under half of our members in Silver, roughly 35% of members in Bronze, and the remainder in Gold. Other member demographics like age and gender remained consistent with expectations and with recent years’ results.

Marketplace results were in line for the quarter with a slightly higher HBR offset by outperformance in SG&A. Within these results, the Q1 HBR was driven by higher than originally expected utilization isolated in our Silver tier membership, a dynamic we foreshadowed in early March. With the benefit of additional visibility, including the new March Wakely report and more complete claims experience, we now view this utilization as consistent with the acuity of the Silver members we enrolled, and we expect this membership to receive a meaningful risk adjustment offset as we look to the balance of the year. Let me talk about the additional insight we have gained since March. After last year’s unexpected volatility, Centene committed to finding ways to create additional and earlier visibility into this market to support long-term stability.

Last fall, we reached out to many of our peers, all of whom were receptive to submitting earlier data on membership demographics. Wakely, the independent actuarial firm that calculates interim risk transfer estimates for the market throughout the year, agreed to aggregate and publish that data at the end of March. As a result of that collaboration, the industry has more visibility than it has ever had at this time of the year about overall market dynamics. Having received this demographic data from almost all of our 29 markets, we are pleased to see that the market overall behaved in line to slightly favorable to our expectations, despite 2026 being a year of unprecedented change. First, the overall market contracted as expected in a post-eAPTC environment.

That said, market-by-market membership loss was in almost every market less than we expected, which suggests that more healthy members stayed in the market in aggregate and that our pricing was appropriate relative to the overall market morbidity. Second, the weekly data confirmed a meaningful market-wide shift from silver members into bronze and to a lesser degree, gold, consistent with our expectations and with the directional shift in our own metal distribution. Finally, and perhaps most importantly, this data, when combined with our final Q1 paid membership and a full quarter’s worth of claims experience, strongly supports the view that Ambetter retains silver membership with higher acuity relative to the market, and that this membership will ultimately receive a meaningful risk adjustment offset. Within our silver tier, 75% of our members were renewals, giving us a high degree of visibility into year-over-year risk score capture.

Through Q1, risk scores tracked closely in line with what we would expect given our claims experience in the period. Weekly data further allowed us to see a strong, consistent correlation between markets where we lost share due to price action and an increase in the overall acuity of our silver population. Both of these data points strongly support the makeshift hypothesis. Looking to the rest of the year, we have taken what we believe to be a prudent posture relative to our forecast for the business, not reflecting the full suggested risk adjustment offset for this population within our new greater than $3.40 guidance. The June weekly data, which consists of claims and risk score data across the market, will be key to allowing us to further refine this assumption.

We continue to believe in our ability to deliver meaningful margin recovery in the Marketplace business and look forward to updating our full year view with the benefit of the June data. Stepping back, we are pleased that the disciplined execution this quarter yielded solid financial results. As we strengthen the fundamental operations of each of our businesses, we are increasingly well-positioned to deliver tangible progress against our margin recovery goals. To support this work, we announced an evolution of our leadership structure earlier this month. We are pleased that Daniel Finke joined the organization to serve as our Group President overseeing the Medicaid and commercial businesses, and we were pleased to elevate Michael Carson to Group President overseeing our Medicare, PDP, and specialty businesses. Their collective experience will be instrumental as we continue to strengthen performance across the portfolio and deliver sustainable, profitable growth.

I’d like to close by calling out two additional bright spots from Q1. First is progress that Centene and the entire industry have made against our prior authorization commitments, including additional commitments announced last week that will make the prior authorization process faster, easier, and less expensive. In our view, this work is not about self-regulating, it’s about self-disrupting. Industry leadership has worked closely together over the last year and a half, not because it is easy, but because it is the right thing to do for our members and for the healthcare system overall. I’d like to thank my peers for their awesome partnership and acknowledge the many team members at those organizations who, along with the Centene team, are committed to transforming our systems and the system overall through an unprecedented level of collaboration and transparency.

Finally, I’d like to close by congratulating the entire Cen team for being named to the Forbes Best Employers for Company Culture list for the second year in a row, jumping more than 150 spots from our inaugural ranking last year into the top 50 employers in the country this year. While I’m pleased we delivered strong results in Q1, I’m even more pleased by how we delivered those results. Collaborating as one Cen team, living our values and behaviors, and staying focused on our mission of transforming the health of the communities we serve one person at a time. With that, I’ll turn it over to Drew to provide more details on the quarter.

Drew Asher, Executive Vice President and Chief Financial Officer, Centene Corporation: Thank you, Sarah. Today, we reported a strong first quarter, including $44.7 billion in premium and service revenue and adjusted diluted earnings per share of $3.37. This was just under $0.50 better than our expectations, largely driven by outperformance in Medicaid and Medicare segment HBRs. Our consolidated HBR was 87.3% for Q1. Starting with Medicaid, we ended Q1 with 12.4 million members, slightly down from year-end. More importantly, we demonstrated continued progress in the HBR with Q1 at 93.1%, an improvement of 50 basis points from the first quarter of 2025. Sarah indicated our slate of initiatives on both revenue and medical expense are bearing fruit as we continue to navigate an elevated behavioral health and high-cost drug environment.

While we have a ways to go to get back to a reasonable Medicaid margin, this is the third consecutive quarter of progress toward that goal. We expect continued momentum as states reflect base trend and acuity data in rates and work with us to shape successful and sustainable programs. Medicare segment results were better than expected, including an HBR at 84.9%, demonstrating outperformance in both MA and PDP for Q1. Medicare Advantage, this gives us more confidence about the path to breakeven for 2027, and in PDP, it’s always instructed to see how pharmacy trends start the year relative to expectations. To be clear, medical and pharmacy trends are still historically high in those businesses, though were not as high as what we had built into our forecast as we actively manage costs and set bids accordingly.

PDP high trends and high 2025 baseline costs, especially in specialty pharmacy, will be factored into the 2027 bids. This, coupled with the mere mechanic of a risk model that’s calibrated based upon pre-IRA claims data and therefore still insufficient to address non low-income trend should push the direct subsidy up quite a bit again in 2027. In the meantime, we are pleased with the strong start to 2026 in both MA and PDP. Marketplace pre-tax earnings were on track in Q1, with a slightly higher than expected HBR in the quarter, offset by strong SG&A management in the product. Consistent with what we told you at the March conference, our silver metal tier members had higher than originally forecast gross medical costs in Q1 before any incremental 2026 risk adjustment benefit.

We are very pleased with the early insights gained from the March Wakely data and reports. Sarah took you deeper into those observations, but suffice to say that the market size and share shifts when coupled with the metal tier distribution and our observed risk score trends, are consistent with meaningful risk adjustment offsets for the higher silver tier gross claims trends. In our current guidance, we have calibrated these factors in our membership distribution such that our forecasted year-end risk transfer assumption is for a slight receivable versus a prior payable forecast. Let me simplify all this in terms of guidance. We thought it would be prudent to embed in our current guidance a pre-tax margin for Marketplace around 3% for now, compared to our original forecast of approximately 4%.

As you heard from Sarah, this does not reflect the full potential risk adjustment offset suggested by the data we currently have as we await the June Wakely data. I’d also like to thank my industry peers for being receptive to this new Q1 process and recognizing an opportunity to gain visibility earlier in the year, and most importantly, for timely submission of useful data to Wakely. This not only helps with 2026 forecasting, it will also give others earlier visibility of their potential risk transfer position when formulating 2027 pricing. One more thing on Marketplace. We ended the quarter with 3.58 million members, right around where we told you we expected to be after navigating sign-ups, payments, and effectuation. Consistent with our original guidance, we expect a little attrition throughout the remainder of the year, ending 2026 a little over 3 million members.

Consolidated adjusted SG&A expense ratio was 7.6% in the first quarter, compared to 7.9% last year, reflecting continued discipline and product mix. We ended the quarter with $437 million of cash available for general corporate use. During the first quarter of 2026, the company sold $1 billion of our standalone 2025 Part D risk share receivables, and proceeds were used to repurchase $1 billion of senior notes that when coupled with strong Q1 earnings, resulted in a debt-to-cap ratio of 43.2%, down from 46.5% at year-end. Medical claims liability totaled $20.6 billion and represents 48 days in claims payable, an increase of 2 days as compared to the fourth quarter of 2025.

As we look ahead, due to seasonal PDP sloping and the 2026 proportion of PDP to the total company, we would expect this faster completing business to drive down DCP a day or two as the year progresses. Cash flow provided by operations was $4.4 billion for Q1, primarily driven by strong net earnings, partial 2025 CMS PDP receivable sale, and timing of other net payments and receipts. As we look to the rest of 2026, we are pleased to increase full year adjusted EPS guidance to greater than $3.40. Press release table, you can see we added $1 billion of premium revenue to our prior range, largely driven by Texas Medicaid. We expect overall Medicaid membership to be down about 6% from year-end to year end.

We continue to be on track and expect the Medicaid composite rate yield around 4.5%. We also adjusted our consolidated SG&A guidance range down by 10 basis points and added $50 million to expected investment income. No change to our HBR full year range of 90.9%-91.7%. One final topic. Within finance, we are deploying advanced analytics and selective AI-enabled tools across forecasting, medical economics, and payment integrity. Today, these capabilities are used as an independent validation layer alongside our traditional forecasting process, bringing more timely data into how we evaluate emerging medical trend. They’re also helping us identify fraud, waste, and abnormal claims behavior earlier, supporting better prioritization of resources and more disciplined cost management on behalf of state and federal taxpayers.

We are pleased with a great start to 2026 and look forward to continuing to drive the margin recovery opportunity. Thank you for your interest in Centene. Rocco, we can open it up for questions.

Andrew Mok, Analyst, Barclays2: Yes, sir. Thank you. We’ll now begin that question and answer session. To ask a question, you may press star then one on your telephone keypad. If you’re using a speakerphone, we ask that you please pick up your handset before pressing the keys. If at any time your question has been addressed and you’d like to withdraw from your question, please press star then two. Once again, we do ask that you please limit yourself to one question. Today’s first question comes from Andrew Mok at Barclays. Please go ahead.

Andrew Mok, Analyst, Barclays: Hi. Good morning. Wanted to follow up on the higher acuity in the ACA silver tier. Can you help us understand why you believe you attracted that higher acuity cohort for this year? It sounds like you’re currently accruing for a partial risk adjustment offset and 3% pretax margins. If you did ultimately get the full risk adjustment offset, you know, what sort of margin would that imply for the full ACA year? Thanks.

Andrew Mok, Analyst, Barclays4: Yeah. Thanks, Andrew. Let me sort of take a step back and sort of anchor on the biggest thing that changed in 2026 for everybody, which is really the expiration of the enhanced APTCs. Thanks to the new weekly report with earlier data, we can confirm that that, as expected, drove a significant number of consumers out of the market. It also, as we’ve seen, as our peers have said, and as the data confirms, drove a shift across the market from silver membership into bronze products as consumers looked for more affordable plans. As a result, the silver tier remaining membership really follows the golden rule of risk pools, that when it shrinks, it becomes more morbid.

Given our market size, our silver footprint, and frankly, our intentional decision not to go as hard at a bronze strategy, which we still very much stand by, we were positioned to retain and attract more silver members who are now more acute in that overall post-eAPTC environment. Now, important to note that in, you know, in other insurance markets, the concept of adverse selection, you know, can be scary, but that’s not actually the case in Marketplace because, as you know, the risk adjustment mechanism is specifically designed to counteract adverse selection, and often it can actually be a profitable strategy to care for sicker members in this market. That’s really based on our view, with more than a decade of experience in the market.

As we think about the additional visibility that we have since March by virtue of the weekly data, which has really confirmed that unlike last year, the market is behaving the way we would expect, in a number of cases, actually favorable to our expectations, and then the additional quarter of claims experience for our paid membership, where we’re seeing those risk scores year-over-year track directly in line with the claims experience that we observed, that gives us confidence in the view that we have a higher acuity silver membership that will attract and get a risk adjustment receivable.

As you heard from both my remarks and Drew’s, we have not accounted for the full range of what that receivable could be in the updated guidance, but that range does wrap around our original 4% target margin for 2026 in Marketplace and frankly higher than that at the top end. You know, bottom line, we believe that what we’ve incorporated into guidance is a prudent posture for now in advance of getting the June weekly data, and we still feel very good about delivering meaningful margin improvement for the business in 2026.

Andrew Mok, Analyst, Barclays2: Thank you. Our next question today comes from A.J. Rice at UBS. Please go ahead.

A.J. Rice, Analyst, UBS: Thanks. Hi, everybody. I think coming into the year, you basically, in Medicaid, were forecasting a cost trend of about 4.5, mid-4s, and the rate updates being at mid-4.5%. It sounds like the rate updates are coming in consistent. The maybe the MLR in Medicaid’s trending a little better. Is that primarily due to the flu and weather that you’re calling out, or are you seeing underlying performance improve there? Does that put you on a glide path if the trend is a little better versus the rate updates to get back to sort of a target margin for Medicaid next year?

Andrew Mok, Analyst, Barclays4: Yeah. Thanks, AJ. You’re right. We came into the year with an assumption of a flat HBR year-over-year, and really the idea that rate in that mid 4.5% would be matched by net trend, which is obviously overall trend, netted against our medical cost initiatives of 4.5%. We obviously saw a better performance in Q1. A bigger piece of that was flu, a little bit of weather, but there was still fundamental solid outperformance on Medicaid HBR driven by the business. That really is a result of that consistent sort of multi-tenant program that we’ve deployed over the last 1.5 years and pulling levers around network optimization, further scaling clinical programs, obviously all the work we’re doing around payment integrity and fraud, waste, and abuse.

We’re also seeing increasing momentum from states around program changes and starting to see states even more receptive. We’ve called out a number of examples of those in the past, whether it be around formulary management or clarifying some of the benefits. We’re now seeing states start to directly intervene on providers themselves around fraud, waste, and abuse. Those conversations are continuing to roll forward. Very pleased with the idea that part of the outperformance in Medicaid in the quarter was driven by delivering on the planned initiatives and also the fact that some of that pipeline of 2026 additional initiatives developed a little bit earlier than expected. Obviously, in the forecast for the rest of the year, we’re not betting or counting on that outperformance to continue, but given sort of the fundamental drivers of that, it obviously leans positive.

And that would mean that we would come in at an HBR, you know, call it 15 or 20 basis points ahead of that 93.7. As you’ve heard me say before, I would be disappointed if we didn’t beat 93.7 given where we stand today. I will reiterate that I will be disappointed if that’s all we can do. As we look ahead to 2027, our goal is to continue to drive margin improvement forward, we obviously have work requirements, a number of policy changes that we’re looking ahead to. As we are strengthening the core operations of the business, we are doing that with a mind to and a goal to continue to drive progressive margin improvement through 2027.

Andrew Mok, Analyst, Barclays2: Thank you. Our next question today comes from Justin Lake at Wolfe Research. Please go ahead.

Justin Lake, Analyst, Wolfe Research: Thanks. Good morning. Just a couple follow-ups. One, you talked to the exchanges, and it sounded like you’re talking to booking a receivable on risk adjustment, not just to the magnitude that you think it might actually come in. Am I right there, and is that true for the whole book or just for the silver business? Then you gave us margins on Medicaid and exchanges, which we appreciate. Can you give us the same on Part D and Medicare Advantage in terms of margins, where you see them now versus coming into the year? Thanks.

Andrew Mok, Analyst, Barclays4: Sure. First, you are correct that we moved our position to expecting a slight receivable in Marketplace. That is across the whole book because it is, as you know, Justin, important to remember that risk adjustment is agnostic of metal tier. It takes into account the relative acuity of the population that you enroll, regardless of where they sit between silver, bronze, and gold. That receivable accounts for the entire population. Again, we did not book the full amount that the data suggests with that range, both wrapping around our original target margin and outpacing that, frankly. In Medicare, again, we’re not reflecting continued outperformance in quarters two, three, and four in either PDP or Medicare Advantage.

As Drew and I both talked to, the fundamental drivers of those, you know, make us feel very good about the trajectory of those businesses. That would suggest that both of those, the segment margin for the full year would come in slightly better.

Andrew Mok, Analyst, Barclays2: Thank you. Our next question today comes from Ann Hynes at Mizuho Securities. Please go ahead.

Ann Hynes, Analyst, Mizuho Securities: Great. Thank you. I want to focus on the balance sheet. It looks like that you paid off about $1 billion of senior notes that were due in 2027 by selling some receivables. Based on our calculation, you have another $1.2 billion due in 2027 and another $2.3 billion in 2028. Just for modeling purposes, should we assume that you’ll have to refi-finance that at higher rates, or do you hope to pay some of that debt down? Thanks.

Drew Asher, Executive Vice President and Chief Financial Officer, Centene Corporation: Yes. Good question, Ann. Thanks for paying attention to the balance sheet, like we do. Yeah, we’re acutely aware that we’ve got some maturities coming up in December 2027 and in the summer of 2028. We would look to refinance those or maybe to your point, part of those, you know, at least a year out or so as we prepare for, you know, sort of rolling those into, you know, additional, you know, senior notes. We’re taking a look at our cash position. It has improved quite a bit in the last 6 to 12 months, not just because of the PDP receivable sale. We still have, as you can read in the K and the Q, you know, sort of the ability to sell more of that 2025 receivable.

Ultimately, we’ll collect that, we think, no later than October from CMS. As we establish, let’s say, a new receivable for the 2026 year, if that’s where we end up in that position, then we’ll think about that as well. Really pleased with the cash generation of the business. You saw that in the cash flow from operations this quarter. We’ll evaluate sort of continued modification of debt balances as we think about the volatility of this business over the last couple of years and think about what’s the right debt load for the company to open up other avenues for deployment of capital.

Andrew Mok, Analyst, Barclays2: Thank you. Our next question today comes from John Stansel at JP Morgan. Please go ahead.

John Stansel, Analyst, JP Morgan: Great. Thanks for taking my question. I want to talk about rate development in Medicaid. I know the CMS rate development guide kind of alludes to the idea of, like, the work requirements. As we kind of enter the back half of this year, you’re gonna have states giving rate updates that will have to contemplate or could contemplate work requirements impacting the acuity of the population, I guess. How are you thinking about those discussions when you go talk to states? I know we’ve got Nebraska kicking off work requirements, I guess, what, on Friday. You know, how have your state discussions gone as we start, you know, fulsome implementation of work requirements? Thanks. Yeah. Thanks for the question.

Andrew Mok, Analyst, Barclays4: You are right that we’ve got Nebraska that’s gonna kick off earlier than others, although they’re a seven-one state, and really, they’re the only state that has pulled forward into 2026 so far. Given that we operate in that state, I think that will be instructive. As we step into rate conversations this year, we are, as you noted, very conscious of the fact that some of those member months will carry into 2027. Depending at the rate and pace with which states roll out or implement the work requirements, and obviously CMS has given them some flexibility around that, the need to incorporate any anticipated acuity shifts in those rates. We’re absolutely bringing that forward into the conversation. As I said earlier, those conversations continue to be constructive.

You know, just as we think about the kind of backwards looking experience, we are seeing more of 2025 data and frankly the back half of 2024 data, which had that, you know, the major acuity shift from redeterminations in it, the trend that we saw in 2025 really make their way into the base period. That’s supportive of having rates that match overall acuity and trend. Very appreciative, as you mined out in the fine print, a really important set of guidance that CMS provided to states relative to when they come to seek certification on rates, being very explicit about how they have incorporated the impacts of the OBRA and work requirements and what that might mean in terms of an acuity shift.

We think that is very helpful in terms of creating a level of consciousness and guardrail around that, and sort of expectation management as those rates come up to CMS. There is also, I think, a really helpful set of guidance around the fact that in these kinds of instances, Medicaid rates and retros are also warranted. Broadly, what I think we are seeing is the system flex the muscles that we built during the redeterminations process. Again, increasingly actuarial, you know, actuaries not being hard tied to retro periods, but thinking about material program changes that may come and how they need to account for that.

Broadly, I would say that the flexibility that has been given to the states, the fact that this is, you know, on balance, a smaller, more focused population, we’re seeing states actually get really precise a lot earlier in the process. I was talking to 1 state in particular that has already run their frailty definition on their population, has a very clear view of what the at-risk pool is. It’s actually probably smaller than you would expect, and already thinking hard about, okay, what does that mean in terms of making sure that members who are eligible because they are correctly engaged, or they are in, you know, that ex parte population get coverage, and then how do we support the others to find opportunities? All of that, I think, you know, gives us confidence.

It’s certainly a policy change, and there’s implementation, and therefore is likely to be some degree of risk pool impact. I think the way it’s being rolled out is much more thoughtful, much more informed by data, much more aligned relative to our work, the state’s work, CMS’s work. I think that makes us look at 2027 and 2028 as something that we feel confident that we can manage through.

Andrew Mok, Analyst, Barclays2: Thank you. Our next question today comes from Erin Wright at Morgan Stanley. Please go ahead.

Erin Wright, Analyst, Morgan Stanley: Great. Thanks. Kind of more of a modeling question, but just the quarterly progression in terms of MLR and earnings from here. I know there’s some moving pieces and unknowns and some assumptions you’re making in Marketplace as well. You know, what is your guidance right now assume, or can you give us anything in terms of that quarterly cadence around MLR and earnings that we should be embedding in the model, just given some of the maybe mismatch in terms of relative to your expectations this quarter and where the street was, would like to get that right? Thanks.

Andrew Mok, Analyst, Barclays4: Yeah. Thanks, Erin. Overall, EPS progression follows the same arc that we described coming into the year, but I’ll let Drew go into a little bit more detail and then click down into the specific lines of business.

Drew Asher, Executive Vice President and Chief Financial Officer, Centene Corporation: The EPS sloping, just like we said last quarter, we expect a step down in earnings from Q1 to Q2, still profitable. Q3 around break even, and then Q4 in a loss position given the seasonality of the business. Maybe, Erin, more importantly underneath that, you know, what’s driving that underlying sloping? In Medicaid, obviously, we had a good first quarter. We would expect Q2, Q3 HBRs to be higher than average, and then Q1 and Q4 to be lower this year, lower than average. Think about the traditional sloping of commercial businesses, including Marketplace. That’s like a steady uptick of HBR throughout the year, given the benefit plan designs and seasonality of deductibles. Medicare similarly, largely driven by PDP, you can see a steady march of HBR increase throughout the year.

The slope line should be tilted a little bit higher this year just because of the mathematical impact of PDP being a larger proportion of the Medicare segment. Think about that as you’re modeling the Medicare segment HBR throughout the rest of the year. SG&A, you go back multi-years, always the heaviest in Q4, given open enrollment and preparing for, you know, the 1/1 season. That, you know, helps drive that, you know, us into a loss position for Q4.

Andrew Mok, Analyst, Barclays2: Thank you. Our next question today comes from George Hill at Deutsche Bank. Please go ahead.

George Hill, Analyst, Deutsche Bank: Hey, good morning, guys. I’ve kind of an esoteric question, Sarah, which is, as we think about your guys’ initiatives in fraud, waste, and abuse, in particular in ABA, as we’ve had conversations with like state representatives, when those issues get addressed, they tend to come out of the rate from a state perspective. Actually fixing fraud, waste, and abuse winds up being a headwind to rate from a state perspective. I wanna know, is that something that you guys see, and is that a headwind that you guys navigate? Would just love to understand how those conversations go on with your state counterparts.

Andrew Mok, Analyst, Barclays4: Yeah, absolutely. I think there are probably two components to that. One is where we see excess use or fraudulent behavior. Unfortunately, we have seen a lot of that, both in terms of, I think we went into quite a bit of detail on this on the last call, but as an example, providers who were just prescribing the maximum number of hours every single week for every single patient. Within that, frankly, sort of all the way down the continuum to more fraudulent behavior, that is a real opportunity to save taxpayer dollars and make sure that the fidelity of the rates that are in place for ABA are actually going to the right care.

And then I think similarly, making sure that whether with, you know, units per utilizer or the number of utilizers are getting correctly prescribed the right therapy path and getting the right amount. A lot of what we’ve been focusing on is what I would call sort of excess trend. And then, you know, to your point, ultimately, if there is a tightening of the benefit design, that would then allow for some degree of savings in rates. I think we’ve got a ways to go before we get to that point, and it’s really making sure that, you know, the state is paying for the right therapy for the right members at the right level. And that’s all good, right? That is exactly what we wanna have happen.

Our focus has been in what we consider that kind of excess trend domain. Frankly, we’re also seeing states, as I mentioned earlier, take more direct action and intervention on some of these suspect or fraudulent ABA providers, not even relying on the MCOs, but actually doing that directly because of an acknowledgment of, I think, the drag that is creating on the system overall.

Andrew Mok, Analyst, Barclays2: Thank you. Our next question today comes from Stephen Baxter at Wells Fargo. Please go ahead.

Andrew Mok, Analyst, Barclays6: Yeah. Hey, thanks. Actually, another balance sheet question. It looks like the net payable for risk adjustment is up by, I think, over $300 million sequentially versus year-end. I think you’re obviously now speaking to a receiver position. Is that just more about how you booked Q1 versus how you’re now thinking about the rest of the year in terms of guidance? If we think about, you know, basically the range around the potential upside and downside on the risk adjustment change that you’re discussing and the potential benefit if it fully comes to a point estimate, is it right to think that, like, the downside scenario, if you go back to the original assumption, is similar in terms of order of magnitude? Thank you.

Drew Asher, Executive Vice President and Chief Financial Officer, Centene Corporation: Stephen, no, an astute observation in the Q that we filed this morning. Different, different thought process for what we actually book in the first quarter and, you know, waiting to see, say, corroboration from the June Wakely data in terms of the accounting around that, which then think about our forecast. We forecast by year-end to be in that slight receivable position. That’s sort of the difference when you’re evaluating that table in the Q.

Then as Sarah said, in the range of upside and downside, yeah, you’re always thinking about, you know, and believe me, as we raise guidance in Q1, we’re thinking about, you know, what could swing either way in all of our businesses and feel pretty good about, you know, what we think is a cautious, prudent stance at a Marketplace margin around 3% pre-tax embedded in current guidance. As Sarah said, with the opportunity, you know, to the extent we get the corroboration that the data that we’re seeing currently supports, then that would present some degree of upside to that current guidance.

Andrew Mok, Analyst, Barclays4: Yeah. I would just add maybe specifically to sort of the downside scenario, again, emphasizing everything Drew said, that we feel like we’ve anchored in a conservative point. That the downside would not be going back to where we started in terms of the meaningful payable assumption that went into the initial guidance for the year, ’cause I think that was maybe embedded in the question.

Andrew Mok, Analyst, Barclays2: Thank you. Our next question today comes from David Windley at Jefferies. Please go ahead.

David Windley, Analyst, Jefferies: Hi. Thanks for taking my question. I wanted to come back to the fraud, waste, and abuse topic, and a follow-up to George’s question. We’ve heard some consultants suggest that, like, fraud targets in state rate development can actually create a, you know, air quotes, a go-get for the plans in terms of savings that you need within, you know, again, within the rate development. I wonder if you see any of that, Sarah. Same topic, but in the Marketplace, I’m wondering what, if any, additional, I’ll call them generally program integrity measures, you’re expecting to be applicable in 2027 that are not applicable in 2026. Thanks.

Andrew Mok, Analyst, Barclays4: Thanks. If I take a big step back on fraud, waste, and abuse, I don’t think we’ve explicitly seen the dynamic you’re describing, where states are kind of holding back on rate and saying in, you know, instead you can make up the difference in fraud, waste, and abuse. Frankly, I don’t think we would be against that, right? The idea that states would let us operate more fulsomely against our mandate, which is literally to preserve program integrity. There are a lot of places where I think we are handcuffed on a relative basis, and where we could, I think, again, preserving all of the right benefits and the quality and the member experience, preserve taxpayer dollars. That, that’s a dialogue that I think we would be open to.

You know, I think as states start to think about ways to make program changes that don’t necessarily require more rate changes. That’s a perfect example of one. I mean, we’ve hit this a couple of times, but we feel like this is a place where we have really, really focused, where we are applying the fact that we’ve got 30 states worth of data. We aggregate that data not just to look at best practices, but frankly, to find fraudulent providers who, you know, hang out a shingle and then get kicked out of a program and show up in another state. We uniquely have an ability to get ahead of that. Drew talked about that in his remarks as well in terms of where we’re deploying AI and some of those daily algorithms that we run.

Again, I do think there is opportunity for program reform that doesn’t necessarily create a rate headwind, but creates overall continued margin improvement opportunity and stronger program integrity for our state partners. Then relative to Marketplace, we, you know, we are seeing a cleaner membership base as a result of the program integrity measures that went into place last year and those that rolled forward into this year. Obviously, some of those were stayed, and those are part of a court case that, you know, we estimate may see some resolution as we get through the summer, may not.

It’s possible that some of those roll forward into 2027, and we’re taking that into account as we think about 2027 pricing and what, you know, slight additional impact that may or may not have on the membership base and the risk pool as we roll forward.

Drew Asher, Executive Vice President and Chief Financial Officer, Centene Corporation: As I’m sure you’re aware that we have a shortened open enrollment period for 2027, so we’re preparing for that, according to those rules.

Andrew Mok, Analyst, Barclays2: Thank you. Our next question today comes from Kevin Fischbeck at Bank of America. Please go ahead.

Andrew Mok, Analyst, Barclays0: Great. Thanks. Wanted to dig in a little bit more to some of the comments about Medicaid. I guess you said that you were seeing pockets of deceleration in some areas of trends. Could you just talk a little bit about that a little bit more. What are you seeing around acuity? I guess there’s been a lot of risk pool shifts on the Medicaid side, and some of your competitors are talking about stabilization there. Would love to hear, you know, how you’re thinking about how the risk pool has been trending the last few quarters. Thanks.

Andrew Mok, Analyst, Barclays4: Yeah, absolutely. We’ve talked about behavioral health, home health, high-cost drugs as, you know, three of sort of the top tier trend drivers for over a one year now. Behavioral health has been and continues to be sort of the primary driver of that. We go deep and look at how we think trend is evolving in each of those areas, whether that be a PMPM impact, whether that be, as I mentioned earlier, you know, overall utilizers, units per utilizer, depending on the domain that you’re looking at. As we look across that cohort, we are seeing some pockets of deceleration, particularly around sort of units per utilizer in the behavioral health space.

I think that is probably partly an indicator of our state partners getting more sophisticated about defining the benefit and the provider community getting stronger in terms of articulating evidence-based guidelines, and obviously that is in strong partnership with the work we’re doing. ABA is a subset of that, and you heard me talk about the fact that we are seeing sort of more stabilization in that trend. Those trends are still elevated from past years, but we are seeing a year-over-year sort of relative stabilization, again, in our view, a direct result of all of the work that we’ve done over the past year. It’s not necessarily some huge abatement. It’s really sort of as trend laps.

We’re not seeing the continued year-over-year steps that we’ve seen over the last couple of years, and we believe that a lot of the actions that we’ve taken are actually having an impact. From an acuity standpoint, you know, we talked last year about overall trend, roughly 6.5%. Embedded in that was an assumption of continued attrition in the member base based on tightening redeterminations at the state level, and that the corresponding acuity shift, I think it was a point and a half of membership a quarter, was embedded in that 6.5%.

As we look at 2026, similarly embedded in the net 4.5% trend assumption is an ongoing view of quarterly attrition for that redeterminations work, and any risk pool shift that goes along with that.

Andrew Mok, Analyst, Barclays2: Thank you. Our next question today comes from Lance Wilkes with Bernstein. Please go ahead.

Andrew Mok, Analyst, Barclays1: Great. A couple questions on Medicaid as well. Can you talk a little bit about, kinda the net trend impacts? Really looking at kinda your utilization management, network management efforts, and what is the impact of those that kind of brings you from gross to net? Maybe within that, is there a component of state benefit design changes, and maybe if you could quantify that. Kind of rolling that forward, as you’re looking and interacting with the states, what are they looking at from an RFP perspective and a pipeline perspective, in terms of types of areas of focus, new business they might put out and/or how they’re responding to, you know, the federal pressures they’re seeing? Thanks.

Andrew Mok, Analyst, Barclays4: Yeah, thanks. Let me sort of take those in reverse order. It is after really the bolus of RFP catch-up that I feel like we saw in the post-COVID years, this 2026 is a little bit of a lighter year. We’ve got only a small number of larger states that are either in or planning an RFP process. In general, I would say that we’re starting to see states better align the RFP process for different programs. Indiana, for example, is going to reprocure the entirety of their program all at once, where they were historically on sort of an off cycle schedule relative to the core program versus LTSS.

That I think is a good thing in terms of opportunity for us because of the, you know, the strength in the core program, the ability to actually expand membership through those processes. I think similarly, we’re seeing states consider whether this is an opportunity to move additional higher acuity membership cohorts into managed care because they are looking at budget pressures as a result of OBRA and just overall economic pressure. Having kind of that stable view of cost is this is an opportunity to think about what other populations they might roll into the RFP process. We’re tracking that very closely and feel like we’re very well-positioned for that.

Relative to net trend, we haven’t really quantified gross trend, but I do think that, you know, the levers that we’ve talked about pretty consistently around network, clinical programs, payment integrity, fraud, waste, and abuse, all of that really drives us down to that net 4.5%. As you saw in Q1, outperformance from that. We have a really strong pipeline of those initiatives as we think about the rest of the year, which gives us confidence, in, you know, our ambition to outperform even sort of the current run rate. As I mentioned, there are a number of places where states are leaning into program changes.

Not necessarily specific to rate impact, but thinking about where they can get clearer about benefit design and where they can allow the MCOs, you know, to apply our data-driven approach to finding the highest quality, lowest cost care and procuring that on behalf of the state in order to improve margin profile and ultimately give them a little bit of relief on the need to continue to drive rates up as the solution to the problem.

Andrew Mok, Analyst, Barclays2: Thank you. Our next question comes from Sarah James at Cantor. Please go ahead.

Andrew Mok, Analyst, Barclays3: Thank you. If I put together the moving pieces on HBR, you know, total company withheld Medicaid, Medicare the rest of the year, Marketplace up 100 BPS, it kind of implies that Medicare 1Q beat your expectations by about 370 BPS. Is that the right way to think about it, or did your consolidated HBR move within the range? I get that there’s a program change between 2025 and 2026, but the implied slope on Part D and blended Medicare is significant. It to me looks like it’s 1,100 BPS. Can you give us a little bit more detail on how you have confidence that the slope will be so steep on Part D HBR? Thanks.

Drew Asher, Executive Vice President and Chief Financial Officer, Centene Corporation: No, good questions. Let me take those in reverse order. Yes, you’re right. The sloping of our Medicare segment HBR should be steeper this year, that’s really a function of PDP being a higher proportion, you know, what $25 billion of revenue or so of that segment. You know, we’ve got data going back to the inception of Part D in 2006 in terms of the impact of, you know, benefit changes and, you know, how to slope that. I feel really good about our start to the year in PDP. That parlays into your question about Medicare segment HBR as a whole. There was a beat. Certainly, we beat in Q1, not to the extent that you calculated, we’re pleased with both Medicare Advantage and PDP contributing to the outperformance in Q1.

As Sarah said, we sort of assumed that we revert back to our previous assumptions for Q2, Q3, and Q4, although obviously we’re gonna continue to drive both of those businesses to, you know, outperform even the current guidance. Hopefully that helps with the context of the quarter.

Andrew Mok, Analyst, Barclays2: Thank you. Our final question today comes from Scott Fidel at Goldman Sachs. Please go ahead.

Andrew Mok, Analyst, Barclays5: Hi. Thanks. Good morning. I wanted to just ask maybe on Part D, if you can drill in a little bit more on the LIS versus the non-LIS, and maybe first just what the membership mix was at the end of the first quarter? You know, Drew, one thing we’ve been tracking has just been the sort of the variation in the specialty pharmacy sort of spending trends and utilization trends between utilization and LIS versus non-LIS since IRA, and then how sort of the risk scores, you know, may get updated for that from CMS. Just curious, as we sort of, you know, roll forward now into the first quarter, how much of that dynamic have you been seeing?

Are you seeing some convergence between the two around those spending trends, or are they still pretty far, you know, divergent? Then how the risk scores are sort of play underneath that. Thanks.

Drew Asher, Executive Vice President and Chief Financial Officer, Centene Corporation: Yeah, good questions relative to our PDP business. We’re about a third in our basic product, which is essentially the low-income subsidy part, the LIS, at about a third, and the enhanced product, about two-thirds, which is largely non-low income. You know, the motivations of the IRA and the applicability of maximum out-of-pockets, we saw different behaviors in the non-low income population versus the low-income subsidy population that have always been essentially fully cost share protected. Those trends continue to be very high in non-low income. I mean, essentially, you know, members taking advantage of, and quite frankly, pharma taking advantage also of that $2,000 maximum out-of-pocket. Now, the good news is we saw that in 2025.

We managed through that, still produced a pre-tax margin in the 3s, had that data to set bids and quite frankly set forecasts for 2026, assuming a continuation of a very high non-low income trend, especially in specialty pharmacy. That’s reflected in our forecast. It was reflected in our bids. It’s still a very high trend. We’ve been able to curtail it to some degree, but it’s still a very high absolute number, just not as high as what we assumed in our forecasts. You’re right. On the model change, we proposed that the model, you know, accelerate the recognition of the impact of the IRA, especially on the non-low income population. That suggestion was not taken.

That data will naturally work its way into the risk model, it won’t for 2027. That’s why we think that direct subsidy is gonna go up quite a bit again as we think about 2027. Good, you know, good 2026 performance so far, we’re optimistic about continuing to deliver on PDP and believe that we’re well-prepared for 2027.

Andrew Mok, Analyst, Barclays2: Thank you. That concludes our question and answer session. I’d like to turn the conference back over to Sarah London for any closing remarks.

Andrew Mok, Analyst, Barclays4: Thanks, Rocco, and thank you all for joining us this morning, and for your interest in Centene. We are out of the gate in 2026 with solid momentum, and we look forward to updating you on how the business progresses over the coming months. My Centene colleagues, thank you for setting the tone. I’m excited to see what we can deliver for our members, our customers, and our shareholders this year and going forward. Thank you all.

Andrew Mok, Analyst, Barclays2: Thank you. That concludes today’s conference call. We thank you all for attending today’s presentation. You may now disconnect your lines and have a wonderful day.