Q2 2025 Centene Corp Earnings Call
Good morning and welcome to the centene corporation second quarter earnings conference call.
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I would now like to turn the conference over to Jennifer Gilligan senior vice president, finance and investor relations. Please go ahead. Ma'am.
Jennifer Gilligan: Thank you, Rocco and good morning everyone. Thank you for joining us on our second quarter, 2025 earnings results conference call.
Jennifer Gilligan: Access through our website at centene.com.
Jennifer Gilligan: Any remarks that send you 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
Jennifer Gilligan: specifically, our discussion today of our expectations, for the drivers of adjusted ups for 2025 and any commentary on expected adjusted EPS for 2025, our forward-looking statements,
Jennifer Gilligan: 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 second quarter of 2025 press release, send teens most recent form 10q filed this morning, and it's 10K filed on February, 18th, 2025 and other public SEC filings which are available on the company's website, under the investor section.
Jennifer Gilligan: 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.
Jennifer Gilligan: The call 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 second quarter, 2025 press release. We are unable to reconcile our commentary on adjusted. Uh, expected adjusted EPS for 2025 to the corresponding Gap, measures due to the difficulty of predicting the timing and amounts of various items within a
Jennifer Gilligan: Reasonable range. Finally following the call, the teams prepared remarks will be posted on the investor section of our website.
Jennifer Gilligan: With that. I would like to turn the call over to our CEO. Sarah London. Sarah.
Sarah London: Thanks Jen. And thanks everyone for joining us. We have a lot to cover this morning. So let me start by outlining a few key elements of my prepared remarks.
First I'll provide more detail on the marketplace risk adjustment challenge. We previewed earlier this month, including what happened? And what actions were taking to mitigate the financial impact with an eye to restoring the book to profitability in 2026?
Sarah London: Second, I will address the elevated medical cost Trend, that drove our higher Q2, Medicaid hbr results. How we are addressing it and an updated view on the positive progression of Medicaid rates.
Third, I'll review our updated outlook for 2025.
Sarah London: And finally, I'll share our perspective on how the policy landscape in the wake of the 1, big beautiful, bill act or ob3 and how that informs our view of 2026 and Beyond.
Sarah London: Before we jump in, let's level set with what we printed this morning.
Sarah London: We reported second quarter results for 2025 inclusive of an adjusted per share, loss of 16 cents.
We are disappointed by this performance and frustrated to have fallen short of the financial goals we set at the start of the year.
Sarah London: Our primary focus is restoration of our earnings trajectory and the entire team is Unified behind that goal operating with a sense of urgency and discipline. As we work to improve performance across the portfolio and drive results that will generate tangible shareholder. Returns
Sarah London: As you will hear, we are aggressively taking actions to put our Marketplace business on a path to recovery and enhanced profitability for 2026.
Sarah London: In Medicaid, we have clear line of sight into what is driving our Trend. And we are actively pulling the levers necessary to correct our trajectory.
And finally our Medicare Advantage, business is achieving significant, operational progress, saving our path to break, even in 2027 and profitability in the years to follow.
With that, let's dig in beginning with Marketplace.
Sarah London: We reported second quarter Marketplace membership of 5.9 million members as the book continued to grow driving more than 10 billion of commercial premium and service Revenue in the period.
Revenue in the quarter was negatively impacted by the previously. Disclosed shortfall in projected, 2025 risk, adjustment, transfer Revenue, generating a drag of approximately 1.2 billion in pre-tax for the segment.
We have Incorporated this elevated utilization into our full year 2025 Outlook, which we will address in a few moments.
Sarah London: On July 1st, we announced that with information on approximately 72% of our membership. We were tracking to earnings pressure of 1.8 billion in 20225, as a result of a change in Marketplace risk, adjustment transfer assumptions.
Sarah London: This was based on data from weekly and independent Actuarial firm that Aggregates market growth and morbidity information on behalf of carriers on the individual Marketplace.
Sarah London: Additional files and spend meaningful time, reviewing the findings.
Sarah London: Based on the complete data set. We now expect full year, 2025 Marketplace, earnings to be pressured by 2.4 billion, which represents 100% of the membership impact.
Sarah London: Analysis of the full data confirmed. A significant shift in the marketplace risk pool in 2025, which we now believe is primarily being driven by 3 things.
Sarah London: First a higher than expected percentage of healthy. Andor low utilizing members left the marketplace during open enrollment, which was likely the result of program Integrity measures that were introduced after 2024 pricing was finalized and implemented for the 2025 open enrollment cycle.
Sarah London: Second new signups to the market had higher morbidity, likely reflecting changes in the underlying member mix from redetermination. And those same program Integrity guard rails deterring new healthy signups in 2025,
Sarah London: And third a step up in Marketplace, utilization, more broadly, combined with more aggressive provider coding is likely driving higher in-year, documented morbidity.
together, these Dynamics have shifted the morbidity of the market in some states as much as 16 to 17% year-over-year,
Sarah London: and better was underpriced for this morbidity shift as a result. We now expect the product to run slightly below break, even for the remainder of 2025, instead of within our Target margin range of 5 to 7 and a half percent.
Sarah London: This is obviously, a disappointing outcome, but we are not taking it standing still. We immediately turned our Focus to mitigating the impact of this price, with the goal of returning, the business to profitability in 2026,
Sarah London: As of this morning, we have already filed 2026, pricing in 17 States.
We expect to submit adjusted pricing files in up to 12 additional States within the next week and anticipates, state certification of rates over the next month.
Sarah London: Based on what we know today we continue to believe that we will be able to reprice the 2026 portfolio to account for substantial majority of our Marketplace membership. And our goal is to
Sarah London: Importantly, our 2026 pricing adjustments account for the morbidity shifts. We observed in the 2025 data but they also account for shifts. We now expect to see in certain markets in 2026 informed by the scale of our data and our unique ability to see correlations across the 29 State footprint.
Sarah London: As a reminder initial 2026 pricing was already set to current law of the land. Which means we have accounted for the potential expiration of EA ptc's.
Sarah London: In addition to addressing pricing, we are actively looking at ways to leverage our position in the market, to create more transparency around market dynamics earlier in the year.
Sarah London: We are also engaged with the administration as they prepare to implement the next wave of program. Integrity measures to ensure the Mechanics for open enrollment 2026. Both achieve their goals and ensure that eligible members can readily access, high-quality affordable, health insurance, on the federal Exchange.
While the individual Marketplace will be absorbing the impact of regulatory changes for, at least 1 more cycle, it does not change the fact that millions of Americans rely on this critical infrastructure to access HealthCare coverage.
Sarah London: We remain committed to supporting our almost 6 million members in getting the care. They need to keep themselves and their families healthy. And as we do, so we are focused on returning, our Marketplace portfolio to profitability in the short term and sustainable profitable growth over the long term.
Sarah London: Turning to Medicaid.
Sarah London: our Medicaid portfolio, also fell short of expectations in the second quarter producing an unanticipated and unacceptable, health benefits ratio of 94.9
Sarah London: Driving. This underperformance was a step up in medical cost Trend in 3. Areas Behavioral Health home health and high-cost drugs.
Sarah London: Behavioral Health was the most significant driver of the quarter over quarter increase with ABA or applied behavioral analysis, as an accelerating pressure point across a number of our markets.
In response, we have formed Enterprise wide, Behavioral Health, and ABA task forces, to further. Support our markets in aggressively managing this trend.
Sarah London: Together. They are focused on aligning members to high-quality providers, educating State Partners around evidence-based clinical guidelines advocating for Behavioral Health specific rate adjustments and rooting out fraud waste and abuse in service of better member outcomes.
Within the underlying Abba Trend, the largest concentration of pressure was isolated to a single program in a single state.
Sarah London: As a reminder earlier. This year, we inherited the ABA population in Florida within the Children's Medical Services contract for which we are the sole source provider.
Sarah London: The use of managed care strategies to effectively manage services and Associated costs.
Sarah London: This provision listed as of June 1st. And we are already seeing the impact of clinical and administrative interventions.
At the same time, we are also advocating with our state partner to address the underlying rate Gap, both retroactively and prospectively.
Home Health was the next largest contributor to Trend across markets in Q2 with Home and Community Based Services or HCBS related to complex populations as the top driver.
Sarah London: Here too. We are leveraging across Enterprise approach to select high-quality and high integrity providers in this space and ensure states, have sufficient data to inform both rate and policy decisions.
We saw each CBS pressure manifest in an outsized way in New York, in Q2, due to rate insufficiency and state driven program changes.
Sarah London: as we saw this emerge, we deployed additional leadership resources to the New York market and are executing against a very clear road map to correct the overall trajectory, which is showing good progress as we move into Q3
I cause drugs were the final driver of the Q2 step up with cancer drugs and Gene therapies among the major categories contributing pressure.
In addition to working with our partners to ensure clinical appropriateness for these treatments. We have also been ramping up, efforts to educate our states on a sustainable Cost Containment including through corridors or carve outs.
Sarah London: This is another place where the benefit of a 30 State Medicaid footprint means we can readily Source. Best practices to inform Solutions and we are seeing States moving more quickly to make policy and program changes to better regulate this cost driver.
Sarah London: In addition to pulling these more direct levers, we are hyper focused on securing rates that reflect current trends in order to deliver meaningful margin Improvement for the Medicaid business.
Sarah London: As a reminder 88% of our Medicaid franchise gets rated between 7125 and 111126.
Sarah London: Over the last 18 months, we have demonstrated the ability to secure outsized rate increases and engage constructively with our state Partners to infuse, more real-time data into the process.
Sarah London: We are activating that same playbook in light of this recent Step Up in Trend to push for faster rate correction.
Sarah London: Our 71 and 91 rates have materialized better than our previous expectations. And we now expect a 2025 composite rate adjustment of 5% compared to 2024,
Sarah London: this is stronger than the previous expectation of 4% Plus
we have important rate updates upcoming in our 101 States, including Florida, and we are already feeding current Trend data to those States who will update rates 11 126 for 40% of our membership,
Sarah London: Despite the current dislocation, we remain confident in our ability to secure rates that are sufficient to address the current Acuity and Healthcare demand within the Medicaid population and support sustainable margins over the long term.
Sarah London: Turning to Medicare.
PDP membership ended the quarter at 7.8 million members, roughly flat on a sequential basis.
Sarah London: Our performance in this product, exceeded our expectation, in the period, allowing us to improve our outlook for full year results in PDP.
Sarah London: The PDP program absorbed a number of regulatory changes in 2025 and with half the year behind us. We are now more comfortable with the assumptions. We made around the impact of some of these changes
Sarah London: While our outlook for the product remains prudent, PDP is providing some earnings upside relative to our previous outlooks.
Sarah London: Meanwhile Medicare Advantage is making important progress on its path to margin recovery. Thanks to effective 2025 pricing an optimized footprint and continued operating discipline.
Sarah London: To date. The book is running slightly favorable to expectations and we continue to closely monitor components of cost such as outpatient, surgery and phy to ensure that we appropriately manage any evolving pressure.
Sarah London: Relative to Stars. We are pleased with our continued performance improvements across multiple categories, and particularly with gains, we have seen in our clinical measures for members with chronic illnesses.
We are still waiting for cahps results and Final Cut points from CMS. But based on the data, we have today we still anticipate year-over-year progress in stars but challenging cut points, may make our 85% Target difficult to hit.
Sarah London: As a reminder, we anticipated cut Point headwinds coming into 2025 and have built a path to our 2027 Break. Even Target that does not rely on further Stars improvements.
Sarah London: Based on our performance in 2025 to date as well as the advancements. We have made and expect to continue to make relative to clinical interventions sgna and value-based Care alignments. We feel good about our past to break, even in 2027 for Medicare Advantage and are pleased with the consistent progress, we are making turning around this business.
Sarah London: 95.
Sarah London: The following 6 items can help you bridge from our previous full year 2025, adjusted EPS, guidance of 7.25, representing 4.55 billion of pre-tax to the 175.
Sarah London: 1. As I mentioned earlier, we now estimate that the marketplace morbidity shift relative to our previous 2025 forecasts will create a 2.4 billion full year headwind to the 2025 pre-tax earnings.
Sarah London: 2. Also, in Marketplace, we have built in an additional 200, million in pre-tax margin. Pressure from expected back, half utilization, including the impact of members seeking care in advance of the expiration that the aptc,
Sarah London: 3 in Medicaid, we've reflected the rate increases we know for 71 and 91 but have been balanced about our assumptions for the 101 cohort.
Sarah London: 4. We have also assumed that we will continue to have Trend pressuring the back half of the Year such that the Medicaid hbr in the second half is approximately 93.5.
Sarah London: The overall change in full year, Medicaid hbr represents an approximate 2.1 billion headwind on pre-tax earnings compared to our prior forecast.
5. We expect a Medicare segment to deliver approximately 700 million in pre-tax favorability in our compared to our prior forecast. Largely driven by PDP but supported by better Medicare Advantage results as well.
Sarah London: Embedded in this 700 million is the expectation of continued specialty Trend in PDP and site. Outpatient pressure in MA.
Sarah London: And finally, through continued aggressive sgna management and natural leverage on growth. We expect to deliver an approximate net. 500 million in pre-tax earnings in the build-up to a $1.75 compared to our prior forecast.
Sarah London: As we think about variation to that forecasts, we believe the largest swing factor that could pressure. The $1.75 would be a further acceleration of Medicaid Trend in the back half of the year.
Sarah London: To frame the downside for you. If we made no progress on hbr in the back half of the year compared to the first half, that could push the 175 as low as a1.25.
Sarah London: With respect to upside to the dollar 75, we have tangible momentum, and Medicaid on rate updates and policy changes progress on clinical interventions and network design and increasingly effective initiatives to Stamp Out fraud, waste and abuse.
Sarah London: The impact of that work could lead us to a better result than 93.5 in the back half of the year. And as a reminder, every 10 basis points of back half hbr, Improvement is 45 million in pre-tax.
In Marketplace, we will get updated Market morbidity data at the end of September and December, which could indicate we don't need the full 2.4 billion change in the marketplace forecast.
Sarah London: As the next few months progressed, we will also have a better view on whether the additional 200 million provision for Marketplace Trend was necessary.
Sarah London: And finally, we will continue to pursue strategic sgna opportunities as we look to rightsize the business for 2026.
Sarah London: All of these factors could drive results higher than a $1.75.
There are a number of very near-term Milestones that will better inform our view of the full year outlook, including July, and August results, 101, rate updates and the next tanch of weekly data. All of which are expected by the end of September.
Sarah London: We look forward to providing updates on our Outlook as we gain additional visibility into these key inputs.
With that, let me take a moment to talk about 2026.
Sarah London: We fully expect to deliver margin improvement in our 3 core lines of business in 2026 relative to the current 2025 forecast.
Sarah London: Let's dig into that in more detail.
Sarah London: We believe We are on track to reprice our Marketplace business for Meaningful margin Improvement in 20126.
While the last month has been incredibly challenging for this business, the team has far more clarity on the trend and Market morbidity dynamics of 2025, as well as the insights embedded in that data, that foreshadow 2026 Dynamics.
Sarah London: We have integrated this view into our 2026 refiling decisions and are making excellent progress against our goal to reprise 100% of the marketplace book.
In Medicaid. We now have far more transparency about the drivers of cost and Trend across our portfolio, and our in command of the levers, to correct, our hbr trajectory as we head into 2026 and Beyond,
Sarah London: With 88% of the book re-rating, over the next 6 months momentum around policy changes and Enterprise aligned execution. On key initiatives we are confident we can meaningfully move the Medicaid hbr in the right direction. Over the next 12 to 18 months.
Sarah London: And finally armed with strong rates and operating discipline, our Medicare Advantage, business will continue to make solid progress in 2026 on its path to break. Even in 2027.
Sarah London: Always evolving and it is our job as a business to evolve with it.
Sarah London: We have spent the last 3 years fortifying, our platform and over the coming months, we will pressure test each of our markets for the future conditions, necessary to support sustainable profitable growth.
We will harvest additional synergies across the platform lean harder into places. We can leverage our unique size and scale and work to ensure. We have the strongest, and most resilient platform to support the new normal that lies ahead.
To that end, a comment on the policy and legislative landscape.
Sarah London: We view ob3 as having established a new and stable policy floor for our programs and we are actively developing a multi-year, implementation strategy.
Sarah London: Many of the Medicaid Provisions include runway for implementation allowing us to leverage the strong Partnerships we have at the state level to help maximize the impact of taxpayer dollars and maximize coverage for vulnerable members.
On the marketplace side. As you heard, we have the benefit of an early look at program Integrity impacts and our baking that into our revised 2026 pricing.
Sarah London: While we expect to see a contraction of the individual Market heading into 2026, regardless of what happens with eapps, just stay on the, on the other side of that. Is it a more stable market for individual and family coverage?
Sarah London: Medicare likely has another wave of policy changes coming from CMS aimed at maximizing efficiency and integrity across the program and we are tracking those closely as we build back that business.
This Clarity allows us to firmly plan for the future and our confidence, in the staying power of Medicaid Medicare. And the individual Marketplace is as strong as it has ever been.
Sarah London: By staying focused and delivering on our mission of transforming the health of the communities. We serve 1 person at a time. We believe we can command a durable differentiated position in a key market and deliver meaningful value to our members, our stakeholders, and our shareholders,
With that, let me turn it over to Drew for some additional detail on the financial results.
Drew: Thank you, Sarah.
Drew: Today, we reported second quarter, 2025 results, including 42, and a half billion in premium in service revenue and a disappointing adjusted delivery loss per share of 16 cents. Let me build on what Sarah covered regarding what happened and more importantly, what actions we are taking
Drew: Let's start with marketplace where Sarah covered a lot of ground. So let me give you a click deeper into 1 of the primary drivers, observed in the data, we received in late June and then tie that to the relevance for refiling 2026 rates.
Drew: We have found a high correlation between increasing 2025 morbidity in a given geography and the degree to which there is disruption in the 2 low cost silver plans from 2024 to 2025 and whether or not that geography was an estate-based exchange or federal exchange for those 2 years.
Drew: In other words were there was a change in the 2. Low cost silver plans in the federally facilitated exchange which would require the member to take an action in order. To maintain a zero dollar premium, we believe the 2025 program Integrity Provisions such as a 3-way call with CMS or Social Security. Verification negatively shifted the risk pool and disproportionately reduced zero, or low utilizers from the market in 2025,
Drew: This same phenomenon appears to have also reduced the entry of similar new members, across all federally facilitated exchange or ffe markets compared to 2024.
Drew: As Sarah mentioned, the morbidity increase was up as much as 17% in states with significant low cost silver disruption.
Drew: Conversely, in an ffe geography with no disruption in the 2 low cost silver plans, the members could Auto renew with their carrier for 2025 without much of a hassle.
Drew: Why is this important? Because based on what we can see across our 29 State footprint, we can form an expectation of what degree of morbidity, lift may be coming in 2026. When all members will have to go through the new program, Integrity steps and validations to ensure eligibility for 2026 Marketplace.
Drew: This has meaningfully influenced our 2026 pricing approach, that Sarah described.
Drew: As of this morning, we have submitted, uh, 17 refills and expect a wrap up the remaining states in the next week or so, with the approval process expected in August.
Speaker Change: Footprint in Medicaid, Sarah covered. The trend drivers, including the acceleration of Behavioral Health, especially ABA and other related, counseling Therapies, in Q2
Speaker Change: We are working with State Partners to get rates corrected for this. And in some cases push for retro, Premium Adjustments for program changes such as Florida, Children's medical service, we where we are the sole source carrier
Speaker Change: And where they're inadequate risk adjustment mechanisms such as in the New York.
Speaker Change: In addition to the 71 and 91, positive rate updates, there are provided. We are working with our state Partners to drive policy improvements across a number of states.
Speaker Change: 1 example, being Pharmacy management responsibility returning to the Medicaid plans in 1 of our states in the fourth quarter which will allow us to directly manage the cost.
Speaker Change: We're also executing on initiatives designed to keep Health Care affordable including clinical interventions payment integrity and choosing the right Network partners.
Speaker Change: Let me go a little bit deeper on PDP as a follow-up from the q1 call.
Speaker Change: Now that we have 2 quarters of P2P data, we can better forecast the trends for the remainder of the year.
Speaker Change: Even though we still see very high Specialty, Pharmacy Trends in our non-. Low-income cohort, we are into the 90% CMS 10% payer part of the risk corridor.
Speaker Change: This should provide us with earnings protection and reasonable predictability, though, we will continue to build a receivable from CMS, which will be increasingly visible in our cash flows in the back half of the year.
Speaker Change: And as Sarah mentioned, our Medicare Advantage. Business is a head for 2025 and on track. For our goal to break, even in 2027.
Speaker Change: Moving to Consolidated, Enterprise topics, cash flow, provided by operations was 1.8 billion for Q2 primarily driven by improved timing on Pharmacy. Rebate, remittances unregulated cash on hand. A quarter end was 234 million.
We do not have any further 2025 share buyback in our current forecast, but will remain open to opportunistic BuyBacks as we continually assess market conditions and changes in our cash positions.
Speaker Change: Our medical claims liability at quarter, end represents, 47 days, in claims payable, a decrease of 2 days as compared to the first quarter of 2025 driven by the timing and types of claims, as well as the impact of State directed payments. And as a reminder, 2025 DCP is structurally lower than 2024, DCP due to our PDP Revenue increase resulting from the inflation reduction Act and the speed at which pharmacy claims complete compared to Medical claims.
Sarah London: Moving to our outlook for 2025 with the visibility. We gained in Q2 we pressure tested each business, operational measures Trend drivers and sgna. The result is a forecast that equals 1.75 per diluted share of adjusted earnings with swing factors on both sides, as Sarah laid out.
Sarah London: A few more miscellaneous items that might answer a couple of questions in advance.
Sarah London: 1. We expect our full year adjusted tax rate in our forecast to be around 19%, which could vary depending on the actual level of pre-tax earnings.
Sarah London: 2, given our market cap change coupled with the passing of the ob3. In July, we will be going through a Goodwill evaluation and test in the third quarter, which prevents us from being able to reconcile prospective adjusted EPS elements to a gap equivalent
and 3, our premium and service Revenue outlook for 2025, has increased to approximately 172 billion, including approximately 89 billion in our Medicaid segment. 41 billion in our commercial segment 37 billion in the Medicare segment and 5 billion in other.
Sarah London: There is substantial future earnings power in this Revenue base.
Sarah London: Coming back to the big picture. There's a real opportunity to make meaningful margin improvements. And these are good long-term businesses. Yes, we have to navigate a major unanticipated. Shift in the marketplace risk pool in 2025,
Sarah London: This is fixable.
Sarah London: We look forward to demonstrating improvements ahead.
Thank you for your interest in centene and uh rockco, please open it up for questions.
Speaker Change: Absolutely, if you'd like to ask a question, please press star 1 on your telephone keypad. If your question has already been addressed, and you'd like to remove yourself from Q. Please press star within 2.
Today's first question comes from Josh Raskin afron, please.
Speaker Change: Go ahead.
Hi thanks. Uh I'm sure they'll be a lot on the operation so I'm going to add. If you could walk us through your Capital position, sort of the amount of capital that you think you'll be adding to your subsidiaries in the second half and maybe how you're thinking about any potential needs for additional Capital, whether that's debt or Equity to the rest of the year.
Yeah, thanks. Josh. We have a
Speaker Change: Yeah, you'll see this in the queue Josh. Uh, we think we'll need to put in net 300 million into our subs, in the back, half of the year, that's net of dividends that we've still expect. Obviously, those dividends will be at a lower level than previous expected. Um, but stepping back to the big picture, you may recall that in uh the first quarter. We renewed our credit facility and we doubled the size of that. So it's a 4 billion dollar credit facility. We had zero drawn at June 30th and there's only 1 Covenant in there which is a 60% debt to cap and we're currently about 39%.
Speaker Change: So we've got quite a bit of runway for Capital and um, you know, look forward to, you know, improving the operation and generating a higher level of earnings in 2026.
Speaker Change: Thank you. And our next question. Today comes from AJ Wright at UBS. Please go ahead.
Thanks.
Speaker Change: The public exchange is first on the risk adjustment. Uh,
Speaker Change: Um, true up or Miss, whatever you want to call it. You're such a big part of the market. Uh you were seeing some of these programs Integrity impacts as well as the underlying Trend Step Up. You is the right interpretation. You thought those were applying to you but not to the broader market and therefore it's only now that you're adjusting your expectations around the true up of and then broadly about next year. I know the repricing of 100% of the book. Can you just update us on your thought about? What are you re-pricing to? What is the updated thought on target margins for the exchange and the environment we're going to see next year and uh, and is there any way to comment on what that might mean for disenrollment um uh, from the exchanges uh, that maybe if not specifically for you for the broad Market? What are you assuming?
Speaker Change: Yeah. Thanks AJ a lot of good questions in there, so thinking about Open, Enrollment 2025. Um, we, uh, I think 1 of the important factors, uh, in terms of assumptions, is looking at new member signups, and then the effectuation rate is, we came through that process. We saw very strong effectuation rates very consistent with what we had seen in the past. Um, and while we were certainly aware of the program Integrity measures as a net grower, in the market, I think it was not necessarily as clear to us. That there were a lot of low or non-utilization out of the market, um, and that is a result of those program Integrity measures. And as Drew said, in some of those markets where the more members had to shop because of the switching of the low-cost silver position, more members, then were put through those program Integrity filters um and left the market. So I think having the full view of the market data, what we're
Speaker Change: Really operating on up until that first set of weekly data is our own information. But having the full View and understanding that, I think a number of other carriers, probably, uh, shed members and these members going to other carriers, they actually left the market. And that's really what drove a significant morbidity shift again. Average 8 to 9%, across the market,
Speaker Change: Are baked into our assumptions for refilling for 2026. We obviously, um, are expecting to improve profitability in the book for 2026, but we won't be able to uh, comment on target margins until we see a little bit more of the full landscape, which will come in the M1A file in September. So stay tuned on that, um, relative to disenrollment for 2026 and sort of overall Market contraction. Again, the commentary on what we saw in those markets that were most disrupted in 2025, I think are really not just a foreshadowing of what's going to happen in 2026. But I actually think what we experienced in 2025, was in some ways, a pull forward of the impact that we would have otherwise expected in 2026. Which means that we have already absorbed some of the market contractions that we would have otherwise estimated for 2026. So again also baking that um, into our assumptions
Speaker Change: Pricing based on an expectation of law of the land. So accounting for the fact that enhanced apc's would expire. Um, and again, all of that is sort of being put into the refilling and the additional pricing, uh, that we have submitted. And I think again, making very good progress on that. The states states have been very receptive, digesting the data. Um, and you know, we believe we've got to pass to reprice a 100% of the marketplace book for profitability in 26.
Justin Lake: Thank you. And our next question. Today comes from Justin lake at Wolf research. Please go ahead.
Speaker Change: Thanks.
Speaker Change: A quick.
Speaker Change: Answer to Josh's question. I think I heard Drew say, do you expect to generate higher earnings in 2026? Just wanted to confirm that many color and then my questions on Medicaid.
Justin Lake: Your guidance for the second half of the Year implies 140 basis points of improvement from the 949, you reported in 2q, it's fairly differentiated in terms of the slope versus your 2 peers, who are actually assuming Medicaid deteriorates in the SEC from the second half versus Q2. So I'm just curious through, is there anything in your second quarter reported mlrs such as negative into your development, that might make it the wrong? Jump off point, or anything else we should consider in terms of 2 2 versus the back half? That might be different versus your peers. Thanks.
Yeah. Thanks Justin. Uh, so both through and I talked about the fact that we expect to deliver a margin Improvement in all 3 lines of business in 2026 and therefore earnings Improvement. So obviously too early to talk about guidance for 2026, but we we've talked about sort of the progress that we expect to make in each of the lines of business. Let me talk about Medicaid specifically because that's obviously a big piece of it. Um, and, and break down sort of what we saw in Q2 a little bit more and how that relates to how we think about the back half of the year. So obviously not pleased with a 949.
Justin Lake: um, but if we break it down a little bit more,
Justin Lake: As I said, what drove? That was an acceleration of Trend in the quarter in those 3 areas. So Behavioral Health which is about 50% with ABA is sort of a primary driver underneath that home health is about 30% of the total. Uh again HCBS is sort of the big category and then high-cost drugs was the rest. Important to note that we we aren't seeing broad-based Trends. So inpatient looks fine, Ed looks fine. PCP is right on track.
Justin Lake: We also saw a concentration of that Trend acceleration in a, a small handful of States. So we've got a small number of states too that we called out Florida and New York that really account for the majority of the myths in Q2 as an example. Florida alone, counted for 40 basis points of hbr pressure in the quarter.
Justin Lake: So we are really able to be focused and organized around those States. Even more intensively, in terms of pulling levers, obviously pulling them across all states and taking an enterprise-wide approach, but really focused on being able to drive outsized impact in that select number of geographies. Those you know, levers included appropriate utilization management. Um, helping States understand where they've got opportunities relative to clear clinical policy guidelines. This is a big thing in both HCBS and Behavioral Health, um, states are still sort of evolving their perspective on what appropriate dose duration. Looks like we're optimizing networks, um, ensuring that we've got highest quality providers. We're aligning members to those providers, and then pretty aggressively stand.
Justin Lake: Stamping out fraud, waste and abuse. Which um, is not talked about as much, but we are seeing a much higher prevalence of that. In the behavioral, health space partly because of the fragmented provider base.
Justin Lake: In New York, we've got a clear road map. We're seeing progress there on a number of fronts, including really good support from the state to go after fraud waste and abuse. And then, in 2 of the other states. Um, those States, both sit in the 71 to 91 cohort and both got important and healthy rate updates, that do take current Trend into account. 1 of them, is also the state that Drew reference that has made a move away from the single PBM model. And so, as of 101, we'll be able to get them over to ESI, um, and leverage our cost structure. So I think being able to move the needle in in a pretty concentrated way, obviously also pushing, you know, across the portfolio but
Justin Lake: For context, about a third of our health, plans are outperforming their original hbr targets year to date. So we do have a pretty healthy portion of the book we know where to focus in terms of where to significantly move the needle, I think we know what to do. We're aggressively getting after it. And so, you know, taking a step back, that is really the momentum that gives us confidence that, you know, over the next 4 to 6 quarters, we'll be able to deliver meaningful margin Improvement in Medicaid and that informs the view of the back cap as well.
Speaker Change: Thank you. And our next question. Today comes from David windley, at Jeffrey's. Please go ahead.
David Windley: Hi, thanks for taking my questions. Um, I wanted to uh ask on kind of the the weekly date of membership Trend. Um, if implied in the weekly data that that you called out in your pre-announcement, kind of said that the market attrition had been more the growth, I guess you called it. The growth was smaller in the market. Can you talk about what the market size is today?
David Windley: Um, what assumptions you are making about further attrition, over the balance of the year. And therefore further shift in morbidity, over the balance of the year, please.
Yeah, absolutely. So you're right, we called out the fact that um, the way data is really the first time that we have an empirical view of what the total Market is doing, um, and the overall growth in the market. Now obviously, it's different state by state, but the overall growth in the market was lower than, for example. What CMS had put out, uh, at the beginning of the year, in terms of the 13.5% relative to sign up. So obviously that means that the Delta between signups and infections was a lot bigger than it has been in past years. Um, and in and you know, this is not fully, um, validated in the weekly data. I think we'll have a better view of that as we get the tranches in September and December. But based on what we can uh triangulate our view is that the market actually contracted during open enrollment in 2025 and likely is continuing.
Doing to contract month over months, as we go through the year for our part, we are expecting further attrition in 2025. So we're sitting at 9 5.9 million members. Today we expect to end the year at 5.4 million members. Part of that is driven by the FTR failure to report PDM, which excuse me. Um, we talked about back in, on the Q4 call because I think everybody anticipated that that would uh, those impacts would be taken in open enrollment. They actually got shifted to the summer time frame. As we look at the files that are coming in for August 1st. We believe we're seeing the first wave of FTR, starting to get implemented. So we think that will drive further membership, attrition over the back half of the Year and have have counted for the idea that that may also Drive some morbidity shift. Um, although I don't think we see, you know, a huge, uh, Delta in that population. But again, very cognizant of that, given what we saw in weekly and what could it could do for, um, the rest of the year. And then, of course, we expect
David Windley: Further attrition in 2026 open enrollment and, you know, whether you're whether you're doing math on eapd in or out. Uh, if you look at some of the public sources, the numbers that have been thrown out there, anywhere from 15% to 50%, I think the higher end of that probably ignores what we saw in 2025, in terms of being a pull forward of Market contraction into the 2025 year and the bottom end of that probably under shoots the impact of the program Integrity measures.
Based on what we've seen and obviously, what, um, you know, assumes eaps, can continue. So I think somewhere in the middle of that range is probably a safe Zone to assume, um, but we'll have a better view of that as we get further data, uh, in September, uh, and then understand the landscape file from competitors. And have a little bit more Precision from CMS on, uh, the exact process that's going to be in place for program Integrity for 2026.
Lance Wils: Thank you. And our next question. Today comes from Lance wils with bursting. Please go ahead.
Lance Wils: Adjustment payable and in particular, what I'm interested in is, um, what's the strategy? Um, as you go into 26 and Beyond to address, uh, kind of product structure and benefits structure to, um, either reposition yourself to be having a lower payable. Or are you going to be comfortable being a a much higher payable player out there and what would be the other considerations as you go through that strategy, with respect to membership and profitability. Thanks.
Speaker Change: Yeah. Thanks Lance. It's a great question. So as we've been going through 2026, free pricing understanding that we've been operating under a, a very tight window to get all those refiling in, uh, by the deadline. We are also taking into account, sort of the macro dynamics of each market. Um, and and thinking about the degree to, which we'll be able to price for what we think, the ultimate morbidity shift will be and where there may be opportunities or frankly mandates to um, sort of tweak, our presence in a market. What thinking differently about product here thinking differently about Network partners? Because again, the goal is to really maximize margin over membership in 2026 and then I would say as we think about 2027 and Beyond, you know, I I'll make this comment for Marketplace but I think it's a it's true. The portfolio is that it's an opportunity for us to take a step back and make sure that we really have a portfolio in each line of business. That is optimized for our goal of delivering
Speaker Change: Ing sustainable margins, over the long term and so, that'll be a process that I think we can do. You know, as we step into 20126 and think about 2027 pricing, um, relative to the payable receivable. Dynamic, that is obviously an inherent dynamic in the marketplace, um, and 1, we're always being thoughtful about, I think, 1 of the questions that we've, we've spent a lot of time talking about, not just in light of the most current events, but just in general is how we could leverage our size and scale as the largest player in the market to drive an additional level of transparency. And also, make sure that where there are program improvements to create stability. Overall, we're leaning into those. So, just 2 examples, 1 would be the opportunity to make some of the demographic data available earlier in the year. So, think about immediately Post open enrollment. Um, and whether that's through CMS through the Departments of insurance through weekly really, uh, lending our data sort of a first mover in that, um, and creating
Speaker Change: Broader transparency for the entire Market. I think will allow people to make much better assumptions relative to risk adjustment going forward. And then the second would be working with the administration so that where there are policy or process changes that they are locked down before pricing is due. And so, I think this is something that we see in Medicare, that's more mature. Um, but part of the program, Integrity changes that went into effect late last year were introduced after pricing. Um, and so,
Speaker Change: So making sure that if if there are going to be changes that all carriers have visibility to those and can integrate them into their pricing is absolutely going to drive more stability, long term. So those are conversations that we're actively having and um, have thoughts on, I think continue to just look at ways that both in our own forecasting. But then also in how the market operates overall, we can ensure that this is a stable a platform as possible because we do believe that it is a really important platform for individual and family coverage. And as we've talked about a lot before, we are very optimistic that it is actually sort of the ultimate platform for how individuals and families uh purchase HealthCare coverage. And we can talk about the momentum, we're seeing around icra, the momentum we are driving around icra but obviously part of the exact same risk pool. So it's really important that we get the underlying programmatic elements, right? In order to make sure that we can grow that risk pool, which will ultimately bring down premiums, bring down cost of subsidy, um, and create more affordable options.
For Americans.
Speaker Change: Thank you. And our next question. Today comes from Kevin fishbach at Bank of America. Please go ahead.
Kevin fishbach: Okay, great thanks. Um I just wanted to go back to the Medicaid discussion. Um, you know, you made a number of comments about, you know, progress or substantial progress over the next 12 to 18 months. Does that mean that you don't expect to be back to Target margins and Medicaid in in 2027? Um, and it sounds like a lot of what you're pointing to
Speaker Change: Yeah, Kevin thanks for the question and welcome back. Um so uh we did, I went through sort of a number of the levers that we're pulling around driving improvement in the overall Medicaid book again. Uh, focused in the areas where we've got Trend focus in those geographies.
When I think about the momentum, uh, that we are seeing and, again, sort of take a step back, having sort of wrestled, the tale of redetermination, over the last 18 months, and then, and then the Step Up in trend.
we continue to see progress in terms of our ability to
Speaker Change: have productive discussions with the states, relative to rate integrate more real time data. Um, have those actuaries thinking about how Trend shifts and risk pool, shifts can be, uh, more quickly integrated into the view and I think we're seeing that in terms of both the rate increases that we've gotten as well as what we're seeing for 71 and 1091, um, and continue to push going forward. So the question is, uh, to your point is really, um, when not. If, and I think what as we think about the next couple of quarters, I think you introduced correctly, the piece that we're going to want to be thoughtful about as we set the recovery, trajectory for Medicaid. Which is that, as we move into 2027 and 2028, we will have, you know, assuming they uh get, you know, they get upheld on the other side of midterms and implemented on time. Uh, we will have some of the uh ob3 impacts to
Speaker Change: To consider so things like work, requirements, 6 months, verifications. Um, and we do think that, that will shift the risk pool slightly because it will cause members to lose coverage obviously having gone through a version of redetermination. We are smarter now about how that may shift the risk pool, um, but I think we want to take that into account as we think about both what the recovery trajectory is and what the long-term run rate is for hbr, margins. But if you ask me, you know, over the next 4 to 6 quarters in the think about 27 and Beyond. Are we going to improve the Medicaid margins? My answer is yes. Um, and I think we have the ability to take into account those impacts and be thoughtful about, um, not overshooting as we get into 2027 and 2028. But again, we continue to push hard on the various levers that we can control and I think are seeing a different kind of conversation with the states about, you know, being more prospective in the right setting and frankly also thinking about the fact that in this
Speaker Change: Kind of environment with the level of disruption that we've been going through and some of the additional changes that our forthcoming. That resetting rates in Medicaid, on an annual basis. Probably doesn't make sense. And so a number of states, although we don't talk about it a lot. A number of states, actually do leverage a mid-year rate cycle to address or assess where we stand. And I think we have seen again over the last 2 years,
Speaker Change: States leveraging more of those mid-cycle conversations uh to think about how Trends are shifting in real time. And that is a place that we are leaning hard into from an advocacy standpoint. And I suspect that we will get support from our peers on that as well.
Stephen Baxter: Thank you. And our next question. Today comes from Stephen Baxter at Wells Fargo. Please go ahead.
Hi, thanks. Um, just wanted to follow up on on, Justin's question, uh, dollar from the second quarter mlr, to the, the 93 and a half percent, for the back half. He gave us a pretty good sense on, you know, the rate side of things. But it seems like, you know, the vast majority that re needs to basically drop through, um, with minimal cost growth in order to make that mlr, achievable, I was just hoping you could talk a little bit more about the cost assumptions that you're making in the back half of the year and then any kind of sense of what you're expecting in terms of membership and Medicaid for the rest of the year. It would also be helpful. Just wondering if you're planning for more attrition or any kind of impact on some of the CMS announcements that have come out recently. Thank you.
Stephen Baxter: Yeah, sure. Thanks for the question. Um, so
obviously rates are an important factor, but
Stephen Baxter: Really a, a lot of the other levers uh, that I mentioned that are entirely in our control, um, are important in terms of your question, the Assumption on, um, overall costs and what that will do. So, if we think about what's built into the forecast, um, it is really assuming that sort of the level of trend that we have been seeing, you know, the accelerated Trend um, will continue
Stephen Baxter: You to some degree in the back half of the Year. And that way the improvements that we're making, in terms of the levers, we're pulling, um, optimizing Networks.
Making sure that we've got the right clinical policy, guidelines appropriate, utilization management. Those are all opportunities to sort of further, bend the trend. Um, and then I'll let Drew talk a little bit about the membership essent assumptions that we have baked in for the back half.
Stephen Baxter: That, uh, we're getting 5% about 5% and that's 29% of our Revenue stream in the third quarter that breaks down 20% on 71 and 9% on 91 and then we've got another 19%.
Drew: On 101 in terms of the proportion of the revenue for the year. Uh, and we think we've made a really prudent, uh, assumption there. As we're pushing that. Those 101 States for appropriate rate, increases and the cost side. Uh, when we take a look at the trajectory of, uh, you know, Med expense PMP PMS. We've baked in uh, over 4% lift in the second half of the Year versus the first half of the year. So we think that's appropriate given what we've seen and there's a lot of things that were not banking. We're not betting on, we're not baking in, including I mentioned to my script.
Drew: Florida. We absolutely need and can justify and deserve a retro for the Children's Medical Services population. Uh that is not in our in our forecast, as 1 example and as well.
Drew: Some of the risk adjustment improvements that we need in the state of New York. So we've been really uh, we think you know, prudent with the back half 4. Uh but you know don't underestimate the power of that Revenue coming in uh the 88% between 71 and 11 of 26.
Andrew Mock: Thank you. And our next question. Today comes from Andrew mock at Barkley.
Andrew Mock: Hi, good morning. Just wanted to follow up on the ACA outlook for next year. I think in the prepared remarks, you said that ACA was slightly below Break Even margins this year and you're targeting to restore that back to profitability, which I think could be interpreted as very modest margin Improvement. Then you later said that you're repricing for a meaningful margin Improvement. So can you 1 help clarify and level set the expectations for margin Improvement next year and maybe walk us through the framework for the range of outcomes on both margins and membership. Thanks.
Sure. So, you're right that we are, um, expecting to operate slightly below break, even for, uh, 2025. We are pricing to return to profitability in 2026. It is too early to understand whether um, you know, what sort of the that range will be. Um, but as we thought about the briefing and the pricing that we're putting in state by state, as I mentioned, we're very focused on margin over membership. We are being thoughtful about trying to bake in all of
Andrew Mock: The assumptions, um, that we see. And now expect, as we think about further morbidity, shifts in 2026 and so being sort of proven and conservative in our view and leaning on margin is what gives us the view of being able to um deliver meaningful margin Improvement, the the view of 2026 gets clearer as we get um, 1 through the rate filings 2 through the state certifications in August and then in September towards the end of September, we get the first view of um, the land, the equivalent of the landscape file which is the Imp 1, a file for Marketplace and understand where our pricing landed relative to peers that will start to give us a better sense of what is possible for 2026. Um, and then I think moving through, open enrollment and seeing how the impacts of the program Integrity rules play out, will obviously be sort of the key final Factor. So as we get through that, we'll certainly give you updates on The View. But I think at this moment, it's too early to give, um, any real
Real solid ranges around uh, Marketplace guidance for 2026.
Andrew Mock: Other than a return to profitability, which we think is pretty meaningful.
Speaker Change: Thank you. And our next question. Today comes from John stansel at JP Morgan, please go ahead.
John Stansel: Great. Thanks for taking my question. I just wanted to drill down on the part D update. Now, I think you called out approximately 700 million of pre-tax favorability for the overall, uh, Medicare segment.
John Stansel: With a portion of that attributable part D. Sounds like you're getting GNA leverage. Their uh as you progress through the year, what are you seeing kind of around your assumptions that are giving kind of comfort? And then it sounds like you're well above the kind of the previous 1% margin Target in that business. How are you thinking about that from a market perspective and with national bids coming out in the next week or so? You know, any updated thoughts around what 2026 and Part D looks like without with, or without the demo. Thanks.
John Stansel: You know, coming into the year, the changes in the ira. What that did to Specialty Trend. And you're right, we're, we're north of our 1% budget margin. Of course. We, you know, we bid for a higher margin than 1% but that's where we started our initial guidance at. So really, really pleased with what we're seeing and uh, you know, it's pretty stable membership in terms of q1 to Q2. And with the IRA, you can anticipate a sloping upward in terms of the Medicare segment hbr which is highly influenced by PDP as you as we get through the year.
Sarah James: Thank you. And our next question. Today comes from Sarah James, ater, please go ahead.
Sarah James: Thank you. Can you talk about how exchange progressed to the quarter? So was there a trend acceleration in claims or a noticeable Market with school to generation in June compared to earlier in the quarter? And if so are you assuming that uh it continues to accelerate throughout the end of the year?
Sarah James: There. Thanks for the question. Just to clarify. You're asking about Marketplace and exchanges.
Sarah James: Yes.
Sarah James: Okay. Yes, absolutely yep. Um, so again, as we talked about sort of the biggest factor for Marketplace was the morbidity shift but we also saw um broad utilization across categories. Um so that's you know inpatient outpatient ER PCP um and as we said earlier but continued the new member Trend was more significant than um renewing members. I think there have been a number of interesting hypotheses about. What's driving that um, 1 that, you know, has been put forward, is the idea that there are redetermination are driving that trend.
Sarah James: What's interesting is, you know, obviously having the largest Medicaid and Marketplace book, we looked at that and the volume of Shifting members from our book to book in 24, and 25 was actually not different. I mean, almost exactly the same. What is interesting is that we are seeing higher utilization in the 2025 cohort, which does suggest that there is sort of a step up in demand among the population. Um, I'll I'll sort of take a step back and just make an observation from a behavioral economic standpoint. If you think about Marketplace and Medicaid members, um, what these folks have been hearing from every major media outlet for the last 6 months is that Congress is going to take away their health insurance. Um, and that I think
Sarah James: Does drive a certain level of behavior when compounded with macroeconomic uncertainty, we've seen this before in healthcare and health insurance? And then those folks are coming into the system and colliding with a provider ecosystem, that is largely still operating in a fee for service. Um, manner is concerned about losing revenue and that's where we're seeing. I think some of the aggressive billing and coding. So, all of that collides to that sort of third point I mentioned, which is a higher Step Up in documented morbidity, that is being, um, connected to the utilization. Now, to your specific question, um, we didn't see, you know, any specific, you know, we're sort of seeing that level of utilization, pretty consistent. Um, and we are expecting and have baked in, which you heard in my remarks, uh, Trend in the back, half of the Year consistent with that, as well as a potential Step Up related to folks, um, using the system in advance of a potential, expiration of enhanced apc's now.
What I think will be interesting to see is whether some of the pressure we've seen in the first half of the Year actually represents essentially preemptive demand, or a seasonal shift, and we've already accounted for some of that utilization in, in advance of the expiration of the subsidies, but we have accounted for it regardless just in an effort to be prudent. As we think about the back half of the year,
Speaker Change: Thank you. And our next question. Today comes from an Hinds mizuho Securities. Please go ahead.
Speaker Change: Hi, good morning. Um, and you're remarks, you talked about, you see an increase in morbidity, morbidity, really driven by coding. Um, can you just talk about what states? You're seeing that that? And I think you said it's in a few States, what type of providers you're seeing increased coding and I guess going forward. How do you underwrite as an insurance company for coding changes? Um, because it is a behavior change that might be difficult to capture. Thanks,
Speaker Change: That the, the recently report that came out earlier this week, spoke to that as well. Um, it's really for us an extrapolation off of what we're seeing. In terms of patterns, there are definitely, um, very clear areas where we have seen a step up in coding, intensity. Um, you know, partly driven, uh, I think likely by, uh, revenue cycle activity at hospitals. Um, and so, you know, they're very targeted areas that we are focused on there and, and making sure that they integrate AI into the revenue cycle. We're integrating AI into payment, Integrity, to make sure that we are sort of keeping a pace with all of that. I do think that some of this idea of the coding intensity we're seeing, as I mentioned earlier, is a little bit of the behavioral economics, byproduct of folks, seeking Services because of scarcity, um, and fear of loss. And then providers concerned about revenue and those 2 things colliding. So, there aren't specific geographies where we would call out, you know, uh,
Speaker Change: pressure points in markets. Um, I think, you know, if you think about the larger Hospital Systems, that's probably where some of that sophistication, um, is more likely to manifest and knowing that, that's obviously, you know, part of our thoughtful investment, as we go forward. Um, to make sure that we are, you know, good stewards of taxpayer dollars. We're staying on top of opportunities for Waste Fraud and Abuse. Um, and just, you know, being thoughtful about the fact that as more members, you know, use Services, we will see a higher documented morbidity as we catch the overall.
Speaker Change: Acuity and can adjust for that going forward. So I think some of this, you know in some ways in Marketplace, what we're seeing is a little bit of a version of redetermination um and getting a clearer picture, redetermination for the marketplace, right? So similar to what we saw in Medicaid and getting a clearer picture of what the Baseline morbidity of that population is, um, so not really concerned that coding. Intensity is sort of going to get away from us. I think that's pretty normal course, and we're paying attention to, um, you know, where we need to get out of that.
Speaker Change: Thank you. And our final question today comes from Michael ha with B, please go ahead.
Thank you as quickly as first on exchanges in the back. Half guide. I know you mentioned. Uh, assumptions on induce utilization FTR, rechecks morbidity shifts. But was there anything included on gmss is identified duplicative members? How that could impact the risk pool and are there any other meaningful buckets worth calling out and then apologies in advance for this longer question? Just following up on Kevin's question. Do you understand? Despite the shift in landscape is still believed the staying power of Medicaid, is as strong as ever. But as we look to 27, work requirements, I understand the actual percentage of Medicaid Lives who are able-bodied expansion, adults, rather small but just based on our Channel checks and talk to them, enrollment analytics professionals, the fear seems to be more on, you know, the negative precedent, the recent, the determination set.
Speaker Change: Procedural. There's enrollment if members who shouldn't even qualify end up being required to submit any type of paperwork, they failed to do. So you see outside procedural disenrollment, you know, that's priced further margin pressure in the next few years. So when you think about that and the learnings from your recent, redetermination and what centene can apply on your own end to help, avoid it, avoid that just wondering, what are those? Uh like tactics or best best practices that you can Implement thank you.
Speaker Change: Great question. Okay, um, let me make sure I hit all these so first back half of uh the year for Marketplace.
Speaker Change: Additional tools where we may see, uh, member attrition. You called out duplicative members, we track that pretty closely. Um we don't anticipate sort of a huge shift from that but we um we're obviously paying attention to it and that's part of accounting. You know, the the provision that we put in the back half of the year, you know, accounts for additional morbidity shifts. And um and uh utilization
FTR. I mentioned. That's another pool that folks. Should be paying attention to because that shifted to Summer. We're now seeing that come in. Uh, we believe we're seeing the first wave of that in August. So that's part of what drives our 5.9 to 5.4. So in that bucket is the the idea that there will be additional attrition and then you know, some degree of morbidity shift um, in the back half of the year so shifting to Medicaid and looking out long.
Speaker Change: Term. So 1, you know, we commented on sort of the staying power of Medicaid. I do want to make just 1 comment and then I'll get very specifically into your question about how we can optimize coverage for members, in light of work requirements. Um, and other sort of Eligibility verifications, when you think about,
Speaker Change: Negative impact may be. I think it's really important to. Also remember that there are a number of far more disruptive Provisions that were discussed and could have been introduced in that so things. Like per capita caps, um, fmap reduction, block, grants all of which really got taken off the table, very early in the conversation. And the reason I point that out is just because what that should tell you is that Medicaid has more by partisan support than it has ever had as a program. So that's really sort of the core of our view of the staying power in Medicaid. And then, to your point 1 of the benefits, and I think 1 of the things that's going to be super important as we go forward. Even more important in the past is size and scale, and that is because we're going to need to operate at a different level of efficiency. And we're going to need to be able to lean in to think about how to reduce the friction of things, like, 6 months verification.
And things like work, requirements to maximize coverage, where it's appropriate. So, again, we have the benefit of a couple of years here, um, relative to implementation worth noting that, you know, we'll have to see what happens in midterms and what that may, or may not do to time frames and sort of have these Provisions. Hold, but we are actively working on strategies to move to more digital enrollment and re-enrollment. Um, as well as work requirement verification, which is something that um, CMS and administration leadership are very passionate about. So really aligned in that, um, and being thoughtful about Innovative partners that could help with.
Speaker Change: With that. Um, we have a number, you know, we have a history, uh, because we have states that have work requirements of, um, actually helping members get work and work programs. And so ramping those up and thinking about how we can make sure that folks who are doing good work, or are going to school or are serving, as caretakers, are really correctly, um, documented as such. And then, the last thing I will point out which is a very small win that went by that. Nobody's really talking about. Um, but we talked about it a lot during redetermination with the idea that because of tcpa, we historically had a harder time reaching out to members digitally, but 1 of the things that's very deep in ob3, is actually a change to that, which I think opens the opportunity for a different level of digital interaction with Medicaid members. And that's something that we need to push hard on to make sure that both the verification process and the work requirement documentation process, take advantage of that. Um and I think that will help again make sure that where members are
Are eligible. They get coverage. Um and then you know, continue to work state by state to ensure that as the state's view of what, you know able-bodied is and the degree to which they want coverage for those populations. We are good partners. Um, and ultimately maximize the coverage for vulnerable Americans
Speaker Change: Thank you. This concludes our question and answer session. I'd like to turn the conference back over to Sarah London, for closing remarks.
Sarah London: Thanks Rocco and thanks everyone as always for your thoughtful questions and your interest in sending. Um we look forward to providing updates as we have in additional visibility in some of these key Milestones. We've talked about this morning over the next, uh, few months.
Speaker Change: I do want to end today.
Speaker Change: By addressing the many members of the sin team who I know are listening this morning.
Over the last 3 years, you all have done tremendous, work to transform this organization and these results do not reflect this progress, nor what you do every day, to ensure that our members, get the care, and the support that they need to lead, healthy lives.
Speaker Change: We are operating in unprecedented times and we have hard work ahead of us, but I have total confidence in this team's ability to tackle those challenges and to deliver meaningful results.
Speaker Change: We are on a mission to transform the health of the communities. We serve 1 person at a time and there is no team. I would rather be on this Mission with. Thank you all.
Speaker Change: Thank you. This concludes today's conference call. We thank you all for attending today's presentation. You may notice that your lines and have a wonderful day,