Q4 2024 Centene Corp Earnings Call
Speaker Change: Good day, and welcome to the Centene Corporation fourth quarter and full year 2024 earnings conference call. All participants will be in listen-only mode.
Speaker Change: It also can be accessed through our website at Centene Dot com.
Speaker Change: Any remarks that Centene may make about future expectations plans and prospects.
Speaker Change: Forward looking statements for the purpose of the Safe Harbor provision under the private Securities Litigation Reform Act of 1995.
Speaker Change: Actual results may differ materially from those indicated by those forward looking statements.
Speaker Change: As a result of various important factors, including those discussed in our fourth quarter 2024 press release, which is available on the Companys website under the investors section.
Speaker Change: Centene anticipates that subsequent events and developments may cause its estimates to change while.
Speaker Change: The company May elect to update forward looking statements at some point in the future, we specifically disclaim any obligation to do so.
Speaker Change: Call will also refer to certain non-GAAP measures a reconciliation of these measures with mostly most directly comparable GAAP measures can be found in our fourth quarter 2024 press release with that I would like to turn the call over to our CEO, Sarah London Sara.
Speaker Change: Thanks, Jen and thanks, everyone for joining us this morning.
Speaker Change: As an enterprise Centene is stepping into 2025 with a clear strategy compelling embedded earnings power and positive momentum within each of our lines of business.
Speaker Change: We have delivered significant operational improvements and see exciting opportunity ahead, as we continue to modernize our platform automate our administrative processes through the deployment of AI and leverage our unparalleled data to create insights that make our business better.
Speaker Change: The quality of health care for our members and transform how the health care system serves millions of Americans.
Speaker Change: Today, we reported fourth quarter adjusted diluted EPS of <unk> 80.
Speaker Change: And full year 2024, adjusted diluted EPS of $7 in 2017.
Speaker Change: Strong results that demonstrate the durability of our earnings power and position the company to execute against our strategic goals in 2025.
Speaker Change: Driven by better than expected results during the Medicare annual enrollment period, and a program expansion in Medicaid we are lifting our full year 2025 revenue guidance by 4 billion.
Our outlook for full year 2025, adjusted diluted EPS remains unchanged at greater than $7.25 and we are pleased with the trajectory. We are on at this early stage in the year.
Speaker Change: To that end, let's talk about the opportunities in each of our business lines and how we are positioned for 2025.
Speaker Change: First Medicaid today, we serve 13 million Americans across our Medicaid portfolio offering critical access to vital medical services and support for some of this country's most vulnerable and complex populations.
Speaker Change: So this COVID-19 era eligibility redetermination generated significant membership transition within the safety net program, but that chapter is now coming to a close.
Speaker Change: In 2025, we expect improved membership stability and a gradual return toward equilibrium with respect to rates and the risk profile of our members.
Speaker Change: We continue to have constructive dialogue with our state partners, providing us with confidence in our ability to command rates that will support a return to target Medicaid margins.
Speaker Change: This is visible through a strong result for 125 effective rates, where we weren't able to achieve a mid 4% composite rate adjustment.
Speaker Change: We continue to expect our full year 2025 composite rate adjustment of 3% to 4%.
Speaker Change: While we have been focused on supporting our members and state partners through the Redetermination process Centene local Medicaid teams never stopped working to develop innovative care programs and solutions to promote access for our unique member base.
Speaker Change: <unk> transforming the health of the communities, we serve means bringing care to our members ensuring it is local integrated and sustainable and working to influence positive health outcomes for our members as early as possible in the care journey in some cases before they are even born.
Speaker Change: To this end in Nevada, we are actively working to address the challenges of rural health care access for expectant moms.
Speaker Change: Our silver summit team is distributing tablets to support increased prenatal and postpartum telehealth visits for mothers in rural counties. We.
Speaker Change: We have also sponsored telehealth training with a particular focus on postpartum behavioral health support.
Speaker Change: Another Great example of innovative programming comes from our Meridian team in Illinois, where we are taking our food as medicine approach to supporting members with uncontrolled high blood pressure.
Speaker Change: <unk> have access to a 12 week comprehensive program that includes nutrition counseling, along with four weeks of medically tailored meals, followed by four weeks of healthy food boxes, followed by four weeks of fresh produce vouchers. The goal is to build and sustain the changes in eating habits that will support long term hypertension control.
Speaker Change: As we move through 2025, we are looking forward to turning the page on the Redetermination era, returning to overall Medicaid program stability and working closely with our state partners on innovations that deliver not only health care, but also better health within our communities.
Speaker Change: Turning to Medicare we are pleased to be generating material progress within our Medicare business.
Speaker Change: The most recently released stars results published during fourth quarter, 2024, and applicable to benefit plan year 2026 are an excellent window into our notable advancement within these results 55% of our members are associated with three and a half star plans or better up from 23% last year.
Speaker Change: We continued to operate and execute with increased precision throughout 2024 driving year over year improvement in many of our core administrative measures.
Speaker Change: We also continue to make progress closing care gaps for our members with year over year performance improvement in our heat as rates as well as medication adherence.
Speaker Change: And in a credit to our teams leadership and effort around continuous improvement 125 go lives for Medicare was the smoothest I've ever seen in 17.
Speaker Change: We expect these and other advancements in our processes in key metrics to support stars results as we take on 2025.
Speaker Change: As you've heard from us before we pruned, our Medicare advantage footprint coming into 2025 to better align with our Medicaid presence and capabilities enhancing our ability to leverage centene size scale and expertise.
Speaker Change: With this refined footprint and refresh products, we produced very good results relative to our expectations during the 2025 annual enrollment period.
Speaker Change: We now expect Medicare enrollment in the low to mid 900 thousands.
Speaker Change: Product design successful management of our distribution channels and local market knowledge contributed to the better than expected results.
Speaker Change: It is still early but based on things we can know today, such as demographics and retention levels. We are pleased with the membership mix, we are carrying into 2025, including a duals mix around 40%.
Speaker Change: Amid program changes related to the inflation reduction Act Medicare part D presented centene with a nice growth opportunity in 2024, and the team executed well against that strategic plan part.
Speaker Change: Part D or PDP is positioned to be a larger business for us once again in 2025, both by revenue and membership.
Speaker Change: During open enrollment we went to market with a deliberate focus on value for our members including premium affordability.
Speaker Change: This plan complemented by the CMS demonstration program yielded strong AEP results that are expected to generate 2025 revenue of approximately $16 billion better than our previous expectations.
Speaker Change: Here too we are early relative to observed experience, but as we look at factors such as member demographics and product selection, we remain confident in the financial objectives, we set forth at December's Investor day, including a 1% target margin for the PDP business in 2025.
Speaker Change: Finally, a brief comment on the Medicare advantage advance rate notice released last month for the 2026 revenue year.
Speaker Change: While the information is not final we are pleased to see the potential for a positive directional shift in funding for this important program, including the incorporation of a higher level of base rate medical cost trend.
Speaker Change: Final rates are expected in April and we will continue to assess the various program changes anticipated for 2026, and the funding necessary to maintain compelling plans and create value for seniors as we build out our preliminary 2026 strategy.
Speaker Change: Within our Medicare segments 'twenty 'twenty four performance is a strong jump off point, we are excited to build upon the operational progress we made last year, while taking important steps on our path towards breakeven in Medicare advantage in 2027.
Speaker Change: Finally marketplace.
Speaker Change: Across our footprint our marketplace team has demonstrated consistently strong results through disciplined pricing strong distribution relationships as well as unmatched local knowledge of the marketplace population.
Speaker Change: Better delivered an outstanding performance in 2024 and carry that momentum into their 12th open enrollment period, once again executing well on fundamentals and positioning our portfolio of products for another year of strengths in 2025.
Speaker Change: According to CMS enrollment across the HCA market grew roughly 13%, but given them program integrity changes such as F. T R or failure to report on the agent of record lock our focus has been on effects related membership.
Speaker Change: Or am better January as actuated enrollment turned out to be a little stronger than what we had incorporated into our outlook for the business at our Investor day in December driven by strong member retention.
Speaker Change: Overall infection rates to date are directly in line with historical norms for amateur which positions us for a peak marketplace membership during the first quarter slightly above 5 million members.
Speaker Change: Looking down one level deeper and the demographic of RF actuated membership is similar to the member mix in 2024, our book is expected to be roughly 51% female with an average age of 39 point for continuing our year over year trend slightly younger membership.
Speaker Change: At the same time, our metal tiers shifted slightly towards silver, while we have been near 70 per cent silver over the last few years in 2025, we expect to have nearly 75% of our membership in silver plans consistent with earlier years of the program.
Speaker Change: As a reminder, our outlook continues to provide for an anticipated return to the pre Covid era membership seasonality with net attrition down to the mid four millions by year end.
Speaker Change: Overall, we are pleased with the early indicators around our marketplace business and believe that we positioned ourselves well in 2024 by being the first carrier to introduce an agent of record locks RV.
Speaker Change: Our views your January suggest a more muted impact to membership from the program integrity changes than originally anticipated, but we believe some may require a longer tail to play out and then it will be a few months until if actuated enrollment results are fully understood.
Speaker Change: As you would expect we will continue to closely monitor its actuation rates voluntary member terminations and other trends within our book as we move through the first quarter.
Speaker Change: As we think about future trends in the individual market I did want to call out the strong results. We saw during open enrollment in our Georgia markets.
Speaker Change: We were pleased to be able to support commissioner King and the state of Georgia as they made their transition to being a state based exchange and we are excited to see how Georgia access provides a model for advancing the growth of the individual market, both on and off exchange, which includes access to aircraft.
Speaker Change: As we shared in December we continue to view <unk> as the future of health insurance for working Americans and is an important part of Centene future earnings power.
Speaker Change: In January we announced the addition of Alan's silver to our leadership team.
Speaker Change: Alan is now president of and better health solutions, which focuses on aircraft or individual coverage health reimbursement arrangements Alan.
Speaker Change: Allan previously led retiree medical in Accra initiatives at Willis Towers Watson and we are thrilled that he has joined our team.
Speaker Change: As we turn the page to a new year. It is important to acknowledge the incredible amount of hard work and tenacity from the Sun team then enabled centene to deliver on our financial commitments in 2024.
Speaker Change: Alice obstacles and macro level challenges faced by our team in our industry at large required focus and execution by colleagues from across our organization.
Speaker Change: As a result of staying tightly aligned to our strategic goals and our mission. We are now well positioned to capitalize on the important opportunities that we see ahead of us in 2025 and beyond.
Speaker Change: In 2025, we expect to collaborate with our state partners to achieve better alignment for Medicaid rates and member acuity.
Speaker Change: Our Medicare advantage business following successful execution during AEP will focus on key operational initiatives to drive us forward on our journey to breakeven in 2027 and as the category leader our marketplace team will once again offer access to high quality and affordable health care. This year to approximately 5 million Americans.
Speaker Change: There is significant earnings power embedded in this business with.
Speaker Change: It was between three and $4 of adjusted EPS opportunity to unlock overtime. We are eager to achieve our next set of enterprise milestones deliver on our commitments to our members and generate shareholder value in 2025 and beyond with that I'll turn it over to drew.
Drew: Thank you Sarah.
Drew: Today, we reported fourth quarter 2024 results included $36 3 billion in premium and service revenue and adjusted diluted earnings per share of 80 cents in the quarter.
Drew: For the full year, we reported $7.17 of adjusted EPS well ahead of our previous guidance. In addition to ending the year strong. Our results include a 29 said net benefit for our marketplace cost sharing reductions where CSR settlement related to prior years.
Drew: For Q4 consolidated H B R was 89, 6%, while our full year consolidated H B R was 88, 3% consistent with our previous guidance range.
Drew: Q4, Medicaid H B R was 93, 4% up 30 basis points from Q3, we were expecting a couple of late year 2020 for retro adjustments that did not come in by year end.
Drew: Medicaid shrunk story is similar to our last discussion stable trends overall now that we are essentially through Redetermination algorithm behavioral health and some pockets of home health costs consistent with past commentary.
Drew: Our full year 2024, Medicaid H b are at 92.5% temporarily high driven by re determinations presents us meaningful earnings power over the next couple of years as we turn the page on 2024 and better match rates and acuity going forward is important.
Drew: We are yielding around the mid fours and net rate increases for the one 125 cohort, which now represents about 40% of our annual Medicaid premium.
Drew: The Medicaid membership settled out right in that 12 nine to 13 million zone, we had targeted in our 2025 guidance is predicated on staying in this membership zone throughout 2025.
Drew: Medicare segment performance was strong in Q4, including a very good overall 2020 for performance in PDP.
Drew: A few of you were concerned with your inflation reduction act at the beginning of 'twenty 'twenty four.
Drew: So Q4 PDR related costs in Medicare advantage, we're consistent with what we last told you.
Drew: Commercial segment results were strong in Q4 due to the CSR settlement.
Drew: Was there were right on track.
Drew: Overall exiting 'twenty 'twenty, four and a position of strength should bode well as we enter 2025.
Drew: And continued Medicaid rate action as well as execution on initiatives designed to improve quality and the affordability of health care should enable us to achieve our 2025 Medicaid goals.
Drew: Moving to other P&L and balance sheet items, our adjusted SG&A expense ratio was eight 9% in the fourth quarter compared to nine 7% last year, a continued blend of business mix and disciplines.
Drew: Cash flow provided by operations was only 154 million for the full year driven by the timing of pharmacy rebate collections the reduction in risk adjustment payables and a buildup of state premium payments receivable as these items normalize in future periods. It sets us up for.
Drew: Stronger operating cash flow in 2025.
Drew: Our unregulated and unrestricted cash on hand at quarter end was $248 million.
Drew: During the fourth quarter, we repurchased 14 4 million shares of our common stock for $930 million for.
Drew: For the full year 2024, we repurchased 42 million shares for 3 billion.
Drew: We have taken out over 100 million shares in the past few years.
Drew: At the same time, our debt to adjusted EBITDA was only two nine times for year round.
Drew: Our medical claims liability totaled $18 3 billion at year end and represents 53 days in claims payable compared to 51 in Q3 of 2024 and 54 in Q4 of 2023.
Drew: One D. C. P. Note looking ahead, given the meaningful growth in Pvp in 2025, largely driven by the inflation reduction Act and the fact of pharmacy claims complete very quickly compared to medical claims this should lower our consolidated D. C. P by a few days in 'twenty.
Drew: 25.
Drew: While 2024 was certainly a challenging year, we still grew adjusted EPS over 7%.
Drew: Powered through re determinations made some great progress in Medicare stars and seized meaningful growth opportunities in marketplace and PDP.
Drew: Let's turn the page and look ahead.
Drew: As you heard from Sara our marketplace open enrollment period reflects very good execution by our team and keeps us on track for our 2025 forecast elements covered at Investor day.
Drew: We expect the peak right above 5 million marketplace members. During Q1, and then a trip the remainder of the year back to the mid fours consistent with pre COVID-19 enrollment patterns, where Q1 was typically the annual peak of membership.
Drew: And we need to see the pattern of membership throughout Q1 2025, before we touch commercial revenue guidance of $34 billion.
Drew: In our Medicare business 2025 volume has started out stronger than expected driven by the annual enrollment period results, notably driven by stronger retention.
Drew: In our PDP business was over seven 5 million members as we entered 2025.
Drew: Accordingly, we expect the Medicare segment to be about $2 5 billion higher in premium revenue in 2025 than what we discussed at Investor Day in December.
Drew: In addition to that two and a half billion. There was another expected one and a half billion in Medicaid revenue from a program change, adding behavioral health coverage and one of our state contracts.
Drew: So we are increasing our consolidated 2025 premium and service revenue guidance range by $4 billion to a range of $158 billion to $160 billion of.
Drew: Premium and service revenue. This is good news as you think about the long term earnings power of Centene.
Drew: At this very early point in the year, we are reiterating.
Drew: Excuse me, our 2025 adjusted diluted EPS guidance floor of greater than $7 in $2027 25 steps.
Drew: Quick comment on 2026 Medicare rates, the preliminary percentage rate change for us is in the low to mid threes, including the positive impact of stars from the work we did in 2023 and 2024.
Drew: It's great to have 2024 behind us and have earnings power consistent with our Investor day discussion in front of us.
Drew: As importantly, we are really excited about a number of initiatives in flight and in our sites designed to make health care simpler more accessible and more affordable.
Drew: Just like we've been able to help shape and marketplace, which has been a great solution for over 23 million Americans.
Drew: Proud and honored to serve members states and the federal government in Medicaid Medicare and marketplace programs into 2025 and beyond. Thank you for your interest in Centene Rocco, Let's open up the line for questions.
Drew: Absolutely.
Drew: To ask a question. Please first one on your telephone keypad.
Drew: We do ask you because I knew him.
Drew: We do so we do ask you to Robert himself his own question machines to withdraw your question. Please press Star then two.
Speaker Change: Today's first question comes from Josh Raskin with Nephron Research. Please go ahead.
Josh Raskin: Hi, Thanks, good morning.
Josh Raskin: I heard the 13%.
Josh Raskin: The exchanges, but maybe you could speak to your expectations around total.
Josh Raskin: Exchange market grows when all is said and done in 2025, and maybe a little bit more color on what youre seeing around that subsidy verification process and then maybe you can just walk us through the mechanics of how that works at the member level and when you think you'll know you're fully effectuate a membership totals.
Josh Raskin: Yeah, absolutely. Thanks for the question, so CMS put out a 13 million Oh, sorry, 13% as the sort of January to January enrollment growth as we've talked about before our view was that it's actuated member ship was gonna be sort of the important number to track partly because of the payment.
Josh Raskin: The program integrity changes that were being put in place and we reference what we are seeing its December investor day in terms of slower throughput relative to over enrollment.
Josh Raskin: Because of the agent of record lock that we saw improved as we moved through O E M. But we still think there's probably a little bit of backlog.
Josh Raskin: That is being worked through there and then again the FTR a failure to report process I think we had anticipated a little bit more impact in the O E period and that appears to be more muted, but that's where we also think there is potentially a longer tail for that to play out and so to your point sort of.
Josh Raskin: Sept hearing that stepping through that as an illustrative process. What happens there is a notification to the member of the need to file taxes.
Josh Raskin: And sort of a.
Josh Raskin: Notification sent to the members relative to the impact that that would have an enhanced C. P. T. CS consumers have the opportunities to attach to having filed taxes and then theres a process of multiple checkpoints as we move through February and March and ultimately into the April window and so that's part of why we think there may be additional impact.
Josh Raskin: That we see in Q2, and so we're continuing to hold our view relative to impact on effectuate it enrollment, but we're going to need to see how that plays out so a little bit stronger in terms of RF actuation in January which means we're starting from a good place which is great.
Josh Raskin: But we want to see a couple more months play out until we know where that's going to settle.
Speaker Change: And I think you said.
Speaker Change: <unk> levels are similar to what you've seen in the past. So what is that delta. If there is 13% total growth. What do you think that translates into Saturater shall we say well if evacuation is the same percentage than 30% market growth is 13% effectuate it grows.
Speaker Change: There's usually a delta between enrollment and then its actuation.
Speaker Change: And again, our what we're seeing from and effectuate churn standpoint is as you said directly in line with historical norms and so are the growth that we saw was a little bit stronger than the 13% and they fluctuate and then that retention from our book is putting our membership at slightly above $5 million.
Speaker Change: But again I think we need to see how the program integrity impacts play out in Q2 to know what the net market growth post its actuation, so will look like.
Justin: Thank you and the next question comes from Justin with Wolfe Research. Please go ahead.
Justin: Thanks. Good morning, just a couple of quick numbers questions first it looks like the <unk> in the quarter was north of 400 million up about 300 year over year can you tell us what drove that drew.
Justin: Drew I know it doesn't all hit the bottom line. So maybe you could tell us that net benefit there and then just quickly on the Medicaid retro that didn't hit in the fourth quarter anything you could share on the size there and is it just the timing issue with all hit in Q1 or did they just not happen at all.
Speaker Change: Yeah, why don't I hit the retro and then if you want to talk about Q I D. So I'm as you heard from drew we had rate actually unexpected late in the quarter. It didn't come through were not counting on that in 2025 today. So to the extent that any of that doesn't materialize. It would be a benefit to 'twenty five we did see pop.
Speaker Change: Positive movement in the one one rates and in some cases those are sort of linked them and so that's why you saw the mid four composite rate for one one so very consistent with a theme that we've seen throughout this process, which is I think we've made great progress in terms of being able to influence states with data and get to the right leg.
Speaker Change: All of rates, we just aren't always perfect in predicting the timing.
Speaker Change: Adjusted and you're right with the prior year development. If you look on the last page of the press release, we had about little over $2 4 billion for the full year, including strength in Q4 that includes the CSR. That's a medical expense item of over a couple of hundred millions so that that leaned into it.
Speaker Change: Probably that differential you're referring to in Q4.
Speaker Change: Thank you and my last question today comes from Stephen box through Wells Fargo. Please go ahead.
Stephen Box: Hi, Thanks, I just wanted to ask about the Medicaid rate assumptions I mean based on the rates that youre getting for one one it seems like the rest of the year placeholder something probably at home zone up to two 5% and logically. It seems like every rate update you get going forward should be better informed both from a cost and acuity perspective is there anything structurally different.
Josh Raskin: The dislocation in the rest of the book they suggest that a lower rate update would really be kind of a sensible base case at this point or how should we think about the conservatism potentially as the assumptions you're making in Medicaid rates for the second half of the year. Thank you.
Stephen Box: Yeah.
Stephen Box: Yeah, I mean again, we continue to expect the full year of 2025 composite rate between three and 4%, obviously, a little bit stronger in that one one cohort I think you're right that we are coming into all of these conversations with more robust data just as time has rolled forward and being able to really see.
Stephen Box: The run out and move forward sort of the the prior period from an actuarial standpoint. So I think that is part of why we saw some of the strength in the one 125 rate again really constructive conversations with our state partners and really Databased in how we're looking at everything so I don't think there's any.
Stephen Box: Things structurally different I will point out that as we've gone through the back half of 'twenty for the degree to which states are open to things like retro is mid year adjustments and just understanding that we need to get to a place where the programs are funded sufficiently in order to make sure that we are supporting member.
Stephen Box: The way that they want to I think is probably different than we've seen in the past and so again I think that makes us feel good about how we're positioned moving into 2025, but as you heard it is a question of getting the timing to line up and that's why we think that we'll make progress in 2025 towards that equilibrium.
Stephen Box: In terms of long term margin, but you know it it may play out through the course of the year.
Speaker Change: Thank you and our next question today comes from AJ Rice of UBS. Please go ahead.
AJ Rice: Hi, everybody, maybe just ask about two things one on the Medicaid side. When you look at the underlying utilization trend trying to normalize which I know, it's probably hard.
AJ Rice: For Redetermination impact are you seeing it return to sort of your normal low single digit cost trend or is it still somewhat elevated.
AJ Rice: Just an apples to apples year over year basis, and then on the Medicare.
AJ Rice: Medical loss ratio ended up being better than expected and I know there is reference to an adjustment to the premium deficiency reserve I'm just trying to understand what are you seeing there on the cost trend versus the.
AJ Rice: The adjustment that you made relative to the premium deficiency reserve.
AJ Rice: Yeah on Medicaid I think as you heard from drew no new trends to report them and we continue to look at that cohort of continuous members to evaluate how sort of apples to apples trend is evolving nothing alarming. There. So it's really the same story that we've been sharing.
AJ Rice: Over the last.
AJ Rice: A couple of quarters.
AJ Rice: So felt good about the run rate medical expense that evolved in Q4 and exiting the quarter better than we started so yeah.
AJ Rice: Nothing has really shifted there and then from a Medicare standpoint, do you want to talk about Q4 and full year Medicare finished strong the performance the outperformance in the quarter was largely driven by PDP. So we finished PDP.
AJ Rice: Very strong which is good to see and you know.
AJ Rice: Sort of the first major year of the IRA changes in 2020 four.
AJ Rice: The bids and the execution and the cost structure right. So that that gives us some confidence as we enter 2025 with further changes in the IRI as reflected in the guidance, we laid out at Investor day.
Speaker Change: Thank you next question comes from the autumn room with Bank of America.
Speaker Change: Go ahead.
Speaker Change: Hey, Thanks for the question.
Speaker Change: You guys didn't really touch on seasonality for 2025, we saw it on this call. So I'm curious in terms of Medicaid MLR would you still expect.
Speaker Change: Sequential Medicaid MLR declines in every quarter throughout the year and if there's any indication you can give us sort of like where you think Q1 will add in what the slope of that curve looks like it would be very helpful. Thanks.
Speaker Change: Yeah. That's a good question as we think about so think about our three segments commercial.
Speaker Change: Consistent with the past you expect the H B R to start low and tick up throughout the year as members satisfied deductibles and so on.
Speaker Change: And Medicare pretty big difference instead of sloping down through the year it should start out lower and the Medicare segment and slope up through the year and that's really driven by what's now about half of our Medicare segment revenue coming from PDP and the higher rate changes so that's something to watch.
Speaker Change: Out for as we go through the year and once again, a sloping upward Medicare H B R. And then Medicaid as we said at Investor day back half should be better than the front half in terms of H B R. The front half H B R of 2025, certainly expect that to be better than the back half of <unk>.
Speaker Change: 24, H B R. So you put all those things together and what we said at Investor Day was about 60 40 in terms of earnings per share first half versus second half.
Speaker Change: It should be better than 60% or greater than 60% in the first half of the year relative to the back half.
Speaker Change: Thank you. The next question today with total sales rooms with Cantor Fitzgerald. Please go ahead.
Speaker Change: Thank you I'm, hoping you can help us bridge the old to the new guidance, a little bit so you've got $4 billion more in revenue.
EPS stayed the same is there any other moving pieces or is it just conservatism and then specifically to how youre thinking about now for exchanges and part D.
Speaker Change: Would those margins be flat up or down year over year.
Speaker Change: Yeah, So I would say.
Speaker Change: We haven't yet closed January so it's a little bit early and you know I think we've pointed to.
Speaker Change: Some solid early results that wanting to see how those play out in terms of our membership and experience and then in terms of.
Speaker Change: P. D. P margin, we said, we're still targeting that 1% for the PDP book and relative to marketplace. We've sat in containers continue hold that we will be well into the five to seven 5% range for our marketplace and.
Speaker Change: And that includes you know what we've seen so far.
Speaker Change: So you're right to point out the 4 billion that's earnings power for the future. It's just real early to sort of pinpoint exactly how much of that will show up.
Speaker Change: In 2025, but we're really excited as we create additional revenue sources that bodes well for long term earnings power for the company.
Speaker Change: Thank you.
Speaker Change: Question comes from Scott Fidel with Stephens. Please go ahead.
Scott Fidel: Hi, Thanks, Good morning, I was hoping just given some of the moving pieces that we saw in 2024 and operating cash flow.
Scott Fidel: Whether you would be comfortable maybe just giving us a bit more about sort of fine tuning on <unk>.
Scott Fidel: Your expectations for for operating cash flow.
Scott Fidel: In 2025.
Scott Fidel: And then just related to that.
Scott Fidel: Maybe sort of your updated thinking around.
Scott Fidel: What's what's embedded at this point for buybacks in terms of full year buybacks and then.
Scott Fidel: Any sort of pacing around that just curious on whether 2020 for operating cash flows influence the trajectory of that but at the same time you ended the year at a pretty solid spot in terms of our unregulated cash at the parent.
Scott Fidel: Good questions and I'm sure you understand this or those that understand the HMO industry understand that there's a difference between the cash flow operations on the cash flow statement, which is really the activity of receivables and payables down embedded in our statutory entities.
Scott Fidel: But when that rolls up if you look at the last actually three to five years, we've averaged one three to one four times our.
Scott Fidel: Adjusted net income so that's if you're if you sift through any given year of satisfying risk adjustment payables or building up pharmacy rebate receivables and looked at an extended time period, that's a pretty good indicator of a multi year view.
Scott Fidel: Underneath that what really matters as you point out are appropriately as the cash youre able to dividend up to the parent from the subs and we've got no change in view.
Scott Fidel: Compared to what we rolled out at Investor Day, where we expect about 2 billion of share repurchase that's embedded in our guidance for 2025. So the fact that we had let's say weak cash flow from operations on the cash flow statement in 2024, because of those shifts in receivables and payables.
Scott Fidel: That had no bearing on our ability to go buy back $3 billion of shares.
Scott Fidel: $3 billion worth of shares in 'twenty to 'twenty, four, but it's something to track and we'll keep you updated as we move through 'twenty five on sort of having some of those payables and receivables turn.
Scott Fidel: And the underlying cash flow from operations.
Andrew Mok: Thank you and our next question comes from Andrew Mok of Barclays. Please go ahead.
Andrew Mok: Hi, Good morning quick clarification, and then a question I think you mentioned that HCA is actuated enrollment turned out to be a little stronger than you expected, but I didn't hear how much better. It came in so can you clarify that 0.1st and then secondly, I wanted to revisit your assumption that a membership could be down 20% to 30% enhanced ptc's expire or buy.
Andrew Mok: <unk> contemplated within that assumption and can you walk us through the impact of that buy downs would have and how your products are positioned relative to the market. If there is a shopping event next year. Thanks.
Andrew Mok: Sure so let.
Andrew Mok: Let me, let me sort of take a step back because there you know this was this sort of a unique open enrollment period because of the program integrity checkpoints that were added to that process and so when we think about what was expected versus what we saw you also have to think about the degree to which our assumptions in terms of the.
Andrew Mok: Pact of those programs came into play during the various time periods. So when we talked in December about our expectations. It was overall market enrollment growth and muted by the agent of record lock and failure to report periodic data matching things like that what were seeing in January is a more muted.
Andrew Mok: Impact of those program integrity checkpoints and so the saturation rates, which are in line with historic norms for us are slightly higher than what we had been expecting that's leading to the $5 million and slightly above 5 million peak that we're expecting but as we look through the rest of Q1 and into Q.
Andrew Mok: Two in particular are particularly on the FTR process, which is going to hinge on that tax filing date, and then post tax filing reconciliation. We still think that there is potential membership impact that will play out in Q1 and Q2. So we're tracking ahead of what we expected that.
Andrew Mok: They end up being a benefit full year that may end up just being a delay in terms of the impact of those programs and that's why we want to wait and see kind of how the next couple of months play out and obviously, we'll make sure to keep you all posted on what we see as a as those shifts as those programs.
Andrew Mok: Kind of shake out and settle as we get to mid year, and then relative to overall impact of enhanced J P. T. C. As we talked about in December the idea that without sort of major mitigation efforts if enhance a P. T. CS were to go away or not be renewed in their entirety that cause.
Andrew Mok: Would be somewhere between the 20 and 30% membership head to our book the reality is that the iterations anything less than of a you know.
Andrew Mok: The full drop off of the enhance APC Cds are numerous and so whether there is a cap at 400% F. P L or $3 50, or we think about different mechanisms to create more kind of investment of membership and participation in the program. There are lots of different alternatives.
Andrew Mok: Then discuss and explore it and we run scenarios across all of those and think about what the buy down implication might be what product design will matter what the different price sensitivities are of our members along the S. P. L. Continuum. So you can be sure that our team has been spending many hours running.
Andrew Mok: That was over frankly, the last year and looking forward to getting more clarity as we move over the next couple of months about how to prepare for the next cycle, including potentially filing two sets of beds. So lots more to play out there and again, that's one where we will continue to keep you posted as we start to understand kind of what that trajectory.
Andrew Mok: He will be there.
Speaker Change: Thank you and our next question today comes from Lance Wilkes with Bernstein. Please go ahead.
Lance Wilkes: Great. Thanks.
Lance Wilkes: You talked a little bit about pipeline, an appeals process in the Medicaid space.
Lance Wilkes: And in addition to that talking a little bit about where you are.
Lance Wilkes: The priorities are for investments to capability enhancements and M&A as it relates to either Medicaid or other areas like in a.
Lance Wilkes: Vertical integration et cetera. Thanks.
Speaker Change: Yeah, absolutely so as you all well know it's fit.
Speaker Change: Very busy last couple of years in terms of the RFP pipeline and really working through a backlog them. They came through our post COVID-19.
Speaker Change: 2025 will be a return to a more normal pre COVID-19 cadence. So we have a handful of states and programs that are going through normal course re procurements and that our team is obviously always evaluating them net new opportunities and sort of positioning for growth relative to our.
Speaker Change: Protests, we have the Texas issue will continue to make its way through the legislature and the courts through the remainder of 2025 I think as you know the potential impact of 2025 of that was minor.
Speaker Change: Minor to begin with but we think that that will kind of play out here and we'll get more clarity through the rest of the year and then we are still in process on the Georgia protests and I think given the complexity of that process. We expect it will be a number of months before we hear any feedback so more to come on that front and then relative.
Speaker Change: Two investments I think we're you know as we said over the last year to year and a half as we've gotten more oxygen relative to operating bandwidth as we move through sort of the core of the value creation plan, we started to turn our attention to surveillance relative to inorganic growth and M&A in that.
Speaker Change: <unk> continues to be something that we're watching also evaluating where there are interesting opportunities for investment in capabilities for our business lines I would say you know it is a place that we are very interested in and thinking about what the market may need relative to.
Speaker Change: Overall infrastructure to mature and how we could support that through various partnerships and investments. So I think those are sort of the major areas of focus and of course, you know always looking at the relative use of capital and thinking about sort of value. It can create a including you know the value of centene at these prices.
Speaker Change: Thank you and the next question today comes from Michael Hall with Baird. Please go ahead.
Michael Hall: Alright. Thank you just another one on your exchange growth for this year, it's great to hear that affect question rate was consistent with historical norms. I know you mentioned it'll still take a few months until the port changes are well understood, but based on all the visibility you have sitting here today in February I'm curious how much of a potential difference you think.
Michael Hall: There could be now versus the next few months as you hit those checkpoints what is the likelihood basically have a materially negative surprises in April that could compromise your exchange margin targets for the year.
Michael Hall: So I think the question of timing of impact is a good one and that's part of why we said we want to see how the rest of Q1 and part of Q2 play out again, particularly relative to the FTR process and the fact that that is anchored in the <unk>.
Speaker Change: Oh filing dates.
Speaker Change: So I you know the message that we're trying to kind of make sure you. All here is that we built in assumptions around the impact of those programs and we are carrying those assumptions into the next couple of months to let that play out. So that you know ideally with there are no.
Speaker Change: Major negative surprises relative to what that impact might be so I think we're being prudent in terms of how that tail may extend into Q1, and Q2, but baked into that or all of the original assumptions of what the impact would be and what we've seen thus far is more muted than that.
Speaker Change: One thing to add to that the F. T. R. Implications. So lets say someone doesn't file a tax return and they lose or enhanced a P. D. C. In may that's a prospective adjustment as opposed to what we got after in February of 2024, which was the broker the record work for.
Speaker Change: Broker of record so.
Speaker Change: That's something to think through as we get through the next quarter or so with the F. G. R. But certainly pleased on how we started the year strong and it's good to enter or February and then March and a position of strength.
Speaker Change: Thank you and our next question today comes from George Hill Deutsche Bank. Please go ahead.
Speaker Change: Yeah. Good morning, guys and thanks for taking the question or this is just kind of a point of clarification on the saturation rate I thought you had said there could be some upside in.
Speaker Change: In Q1, if the F T or his later in the year I can get back towards normal guidance range is that correct or well I guess, what I'm trying to worry about it will just create any downside to the exchange membership outlook and guidance.
Speaker Change: Yeah, what we said in my script, where I said it.
Speaker Change: It's too early to touch the 34 billion of commercial revenue, that's basically saying, indicating that we're enthusiastic about our start but we really wanted to look at the sloping of the next few months of membership before we consider any potential raise in that revenue. So we're sticking with the 34 billion.
Speaker Change: For now it's early and we'll see how really the next three or four months of membership play out, but once again, starting from a position of strength as a good position to be in.
Speaker Change: Thank you and our next question today comes from David Windley of Jefferies. Please go ahead.
Speaker Change: Oh listen we lose around unit growth.
Speaker Change: As it happens to be yes. It is thank you thanks for taking my questions.
Speaker Change: I wondered on the on the exchange market.
Speaker Change: If you have drew done a zero utilize or analysis in your plans, maybe particularly in some of the.
Speaker Change: Red states or at the federally facilitated marketplace.
Speaker Change: States to see where potential.
Speaker Change: Pockets of.
Speaker Change: I'll call out a few abuse of enrollment over enrollment program integrity issues might be.
We did pricing for 2025, we thought about first of all we got we got a lot of the broker, let's say disruption out of the way beginning in February 24, and then as you know CMS ultimately adopted our idea, which was great and it puts everyone on the same playing field coming into the open enrollment.
Speaker Change: <unk> for.
Speaker Change: For 2025, so actually incurred some of that membership attrition pressure into 2024, so that's behind us.
Speaker Change: As we thought about pricing for 2025, we did think about the mix of business around failure to report them and put up quite frankly put a pricing load in for that program integrity measure. So we'll see how that plays out but once again feel good about what we're seeing so far even though it's very early and you know.
Speaker Change: Sarasota, we Havent closed January yeah, that's the only the two of the month of February so like the way, we're starting but there's more of a year to play out.
John Smith: Thank you and our next question today comes from John Smith with Jpmorgan. Please go ahead.
John Smith: Great. Thank you for taking my question just one quick one on PDP.
John Smith: Can you give a bit more color on what played out during AEP kind of driving the above expectations enrollment growth and then just thinking longer term, how you see kind of the demo component within Standalone PDP kind of contributing over the next couple of years. Thank you.
John Smith: Yeah No. Good question, we ended the year at $6 9 million members and then as we said earlier were were over seven and a half. So I think it's once again the positioning of our product I mean this is a business we focus on not everybody does I mean, it's good to have both the Medicare advantage and M. A P D biz.
John Smith: <unk> as well as our PDP business, there's some complementary and overlapping nature to those so I think the attractiveness of our products, which is driven by our underlying cost structure, which I think is excellent and that's reflected in the value that we can pass on to members and consumers with respect to the demo.
John Smith: You had to elect into a multiyear a demo, but obviously CMS can modify the premium support each year, but once again when you when you have a product that's driven by what we believe is an outstanding cost structure, then we should be able to sort of sustain that business, regardless of what level of premium support.
John Smith: Makes its way into the demo over the next couple of years.
Speaker Change: Thank you and our final question today comes from Ryan Lynch with <unk>. Please.
Speaker Change: Please go ahead.
Ryan Lynch: Hi, good morning.
Christian on for Ryan.
Ryan Lynch: Could you quantify where PDP margins ultimately made in 2024.
Ryan Lynch: It would be helpful. As we think about the Uda progression marching.
Ryan Lynch: Margin guidance for 2025, and bridging pretty alright.
Thanks.
Ryan Lynch: Well certainly higher than the 1% or so that we had indicated you know coming into Q4, and that's the strength and the full year performance.
Ryan Lynch: Captured in the reported period of Q4, so like you know like how that bodes well for 25, but you have you have to think about also each year from a bid standpoint stands on its own and it was almost a reset in terms of the assumptions that you use and then pricing for the changes in the iras. So.
Ryan Lynch: Certainly I like the way we ended you can't just map that exactly into 'twenty five but.
Ryan Lynch: That should bode wells, we think about execution and performance in 2025, and what's now a 16 billion dollar business for us.
Speaker Change: Thank you and this concludes our question and answer session I'd like to turn the conference back over to chairman for closing remarks.
Speaker Change: Thanks, Rocco and thanks, everyone for time and interest this morning, while it is early we feel good about the progress that we've made in Medicaid matching rates in acuity and how we're positioned coming into 2025, we feel good about our marketplace execution once again in open enrollment and feel.
Speaker Change: Good about our Medicare segment overall, and so you know really looking forward to executing in 2025 and continuing to keep this group updated on our progress as we move through the first quarter.
Speaker Change: Thank you. This concludes today's conference call.
Speaker Change: Thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.
Speaker Change: Mhm.
Speaker Change: [music].
Speaker Change: Hum.