Q3 2025 Centene Corp Earnings Call

Could you need assistance. Please signal conference specialist by pressing the star key followed by zero.

After todays presentation, there will be an opportunity to ask questions.

To ask a question you May press Star then one on your telephone keypad to withdraw your question. Please press Star then two please.

Please note today's event is being recorded.

I would now like to turn the conference over to Jennifer Gilligan Senior Vice President Investor Relations. Please go ahead ma'am.

Thank you Rocco and good morning, everyone. Thank you for joining us on our third quarter 2025 earnings results Conference call.

Sarah London, Chief Executive Officer, and drew Asher Executive Vice President and Chief Financial Officer of Centene will host this morning's call, which also can be accessed through our website at Centene Dot com.

Any remarks that Centene may make about future expectations plans and prospects constitute forward looking statements for the purpose of the safe Harbor provision under the private Securities Litigation Reform Act of 1095.

Specifically, our discussion today of our expectations for the drivers of adjusted diluted earnings per share for 2025, and any commentary on expected adjusted diluted earnings per share for 2025 are forward looking statements.

Actual results may differ materially from those indicated by those forward looking statements as a result of various important factors, including those discussed in our third quarter 2025 press release than teens. Most recent Form 10-Q filed this morning, and its 10-K filed on February 18th 2025. Additionally.

<unk> other public SEC filings, which are available on the company's website under the investors section.

Centene anticipates that subsequent events and developments may cause its estimates to change while the company may elect to update these forward looking statements at some point in the future, we specifically disclaim any obligation to do so.

Paul 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 third quarter 2025 press release.

With that I will turn the call over to our CEO, Sarah London Sara.

Thanks, Jen and thanks, everyone for joining us to review, our third quarter 2025 financial results and updated full year outlook we.

We are driving significant progress against the milestones we provided to investors in July yielding a better than expected adjusted EPS result in the period.

This morning, we reported third quarter adjusted EPS of <unk> 50.

Head of our previous expectation.

And these results are Medicaid business delivered anticipated H b or improvement in the period. There was further aided by a positive 2025 retroactive revenue adjustments in our Florida business.

SG&A and performance within our noncore segment were both slightly favorable.

Net investment income was stronger than we previously expected and we experienced a lower effective tax rate in the quarter than originally forecasted.

Marketplace experienced additional medical cost pressure in the last month of the quarter, but the segment still produced in on track result for the period.

And our Medicare segment, including M. A N P. D. P performed in line with expectations, we shared on our second quarter call.

With three quarters of the year complete we are increasing our adjusted EPS forecast to at least $2 up from our previous forecast of a dollar and 75 cents per share.

When we came to you in July with Recalibrated earnings expectations, we laid out six key assumptions that bridged us from our April outlook to $1 75 per share forecast.

We'd like to take them them went to up you on how those six factors involved during the quarter and are now treated within our new adjusted EPS outlook of at least $2.

One relative to marketplace morbidity and its corresponding impact on risk adjustment assumptions, we receive the second tranche of wakely data in September improving our visibility with industry level paid claims through July we.

We are pleased this data was consistent with our previous estimates and we have therefore made no changes to our original full year assumption of a 2.4 billion pretax earnings impact within this new forecast.

As a reminder, the next update from weekly is expected in December.

Two also in the forecast with 200 million, we added to account for additional marketplace medical spend in the back half of the year.

Marketplace delivered an in line results for the quarter, but given the uptick in utilization. We saw in September we are holding the remaining $125 million of this provision in Q4 and are adding another 75 million given the volatility around E. P. T CS.

While we may not need this cover as of now we believe this to be a prudent posture given the landscape of uncertainty that remains.

Three in July we pointed to a 2025 Medicaid composite rate of roughly 5% based on the rates in hand at the time.

With all scheduled rate adjustments now finalized we expect the 2025 composite rate adjustment to be roughly five 5%.

Four in July we were targeting a second half Medicaid H B R of 93.5.

Our third quarter Medicaid H B R was 93.4, which included a $150 million in Florida Children's Medical services program revenue of which 90 million or 40 basis points was retro.

As a result, we are now on a trajectory for a back half H B R of approximately 93 point too.

Five we continue to expect the Medicare segment to deliver $700 million of pre tax favorability relative to our April full year forecast.

Medicare advantage and PDP results in the quarter were consistent with our outlook. So no change to this expectation.

Six we are also still on track to deliver $500 million in pre tax benefit from SG&A. In fact, we performed slightly better than expected with administrative expense reduction in Q3, however, given the fluid nature of marketplace open enrollment and the potential for additional enrollment activities surrounding E. P. T C decisions.

We are keeping our full year SG&A assumptions unchanged for the last quarter as of now.

In addition to those items from our Q2 bridge, we want to highlight investment income and tax rate performance in the quarter and how they impact our expectations for the remainder of the year.

As mentioned earlier Q3 investment income was stronger than expected gains were largely driven by one time items and therefore are not expected to recur.

We believe there may be opportunity to take some investment losses in the fourth quarter to improve the trajectory of investment income in 2026, and we are providing flexibility in their guidance to do so if the opportunity arises.

Tax favorability in the quarter was driven by a lower tax rate, which was purely a matter of timing our view of the full year tax rate remains unchanged.

While we continue to track and pull levers to address Medicaid cost trend and are similarly watching marketplace utilization dynamics closely in this uncertain environment. We are pleased with the overall performance of the business in the quarter.

With that let's take a closer look at the performance and trajectory of each core business line starting with Medicaid.

We were pleased to deliver 150 basis points of sequential improvement in our Medicaid H B R. This quarter. While this was aided by improved revenue from the Florida Children's Medical services contract. It also reflects fundamental improvement that is a direct result of the actions. We described on our Q2 call including rate advocacy program.

[noise] changes clinical management network optimization, and more aggressive fraud waste and abuse interventions among others.

Those efforts yielded tangible proof points in Q3.

During our second quarter call, we identified two states, Florida, and New York, where we were experiencing outsized Medicaid medical cost pressure.

In Florida, you'll recall, we saw significant trend pressure in the CMS population of members receiving a be a services were transitioned into that sole source contract.

We engaged in constructive dialogue with the state and shared real time data throughout the summer in September the state moved to address the underfunding of that program going back to February 1st.

Additionally, the state provided a rate update for the coming year that better reflects the underlying medical demand within that population.

In New York, we made real progress on the fraud waste and abuse front, particularly in the behavioral health space.

The Dallas team was able to terminate a provider group that engaged and suspicious billing practices and drove sizable excess medical costs at the expense of New York taxpayers.

The state has simultaneously taken several serious actions against the same provider.

It's a great example of the confidence our state partners in Albany have in Centene.

Through these and other performance improvement efforts. The New York team is currently on track to deliver meaningful H b or improvement in the back half of the year compared to Q2 results.

We continue to see trend in Medicaid with the same drivers. We described in Q2, namely behavioral health with a b a primary contributor home and community based services with home health as a major driver and high cost drugs, though high cross drug trend did show slight moderation in the period.

You heard on the Q2 call. We are organized enterprise wide to address these dynamics and saw solid momentum in the quarter on those initiatives.

Examples.

<unk> been actively working with states on solutions to address high cost drugs and have seen multiple states make movements over the last quarter to implement drug specific carve outs and revised formulary decisions, including two states, who have reverse course on G. L. P. One.

Additionally, our a b a task force successfully leveraged our multistate experience and unique breadth of data to drive important policy advancements with our state partners.

One state established increased precision in a be a clinical service definition as well as more stringent supervisory and caregiver engagement requirements.

This drove a 45% reduction to outlier payment rates, which results in tangible financial improvement for the state's program and aligns members to higher quality services.

We are pleased to be making real progress on our Medicaid margin improvement agenda, but we are certainly not declaring victory.

With behavioral health still driving 50% of above baseline trend, we continue to aggressively pull levers internally to appropriately manage medical costs and advocate for rates that reflect the medical demand in the ecosystem.

All part of returning Medicaid margins to a more normalized long term levels.

Despite the challenges we have navigated over the last few years, our commitment to serving low income and underserved populations has never been stronger we are pleased to be making progress against our financial goals and making good on our commitment to be responsible stewards of state taxpayer dollars, all while continuing to provide high quality care and access to vital health.

Care services for our members.

Hmm.

Turning to marketplace.

From a membership standpoint, we ended the quarter with roughly $5 8 million members slightly better than expectations.

As you heard earlier the business produced an in line results inclusive of medical cost pressure in September.

Given what we saw in September and the reality that we are supporting a population staring down E. P. T C exploration and potentially the wholesale loss of affordable health care coverage next year. We felt it was prudent to provide for additional coverage in Q4 against a potentially more pronounced year end utilization push.

In the meantime, we have been laser focused on positioning our marketplace book for 2026 margin expansion in Q3 was the critical window for that effort.

We were data driven and the buildup of our revised rates, which ultimately averaged in the mid thirties, taking into account increased 2025 baseline morbidity a prudent assumption for year over year trend and the combined risk pool impacts of expiring E. P T CS and program integrity measures.

Consistent with what we shared in September we were able to reprice our products for 2026 and states that cover 95% of our current membership and where we were not able to fully reflect the expected morbidity in the rates. We took additional actions to minimize margin impact for the remaining membership.

Those rates have now been officially approved and absent any late breaking policy changes will drive open enrollment as it launches this weekend.

Congressional dialogue around E. P. T. CS is obviously gained traction in recent weeks.

The outcome remains uncertain.

While our products are priced to support year over year margin improvement in the scenario where E. P. T. CS expire we believe these tax credits offer critical support for hard working Americans small business owners and rural health care infrastructure, and we are hopeful Congress can find a path forward.

In the meantime, we are ready to.

Open enrollment with strengthen digital tools and well trained call center personnel to aid members. During this time of uncertainty.

Regardless of the outcome, we remain confident in the long term importance and viability of the individual health insurance market as a critical cover solution for millions of Americans.

As we move beyond this moment of policy evolution, we continue to see a greater role for this platform to support a more affordable portable individual insurance experience that we are excited to lean into and lead forward.

Finally Medicare.

Both of our Medicare segment businesses performed well during the quarter producing results consistent with our updated outlook provided this summer.

Our reported Medicare segment, H B R was 94.3, reflecting typical cost of care patterns within Medicare advantage as well as the inverted seasonality of pharmacy costs within PDP, owing largely to changes related to the I R. A.

Note that these dynamics are even more pronounced now that PDP is half of our Medicare segment revenue.

Medicare advantage medical cost trend remains elevated compared to historic levels, but was consistent with our expectations for the quarter.

E D. P performance was consistent with our previous view and is now largely contained by risk corridors, providing for increased visibility into the fourth quarter as the corridor serves to narrow the band of outcomes through downside protection for the product.

E. P is live and we are actively enrolling members in our 2026 Medicare products margin recovery. Once again took priority over membership as we constructed in Medicare advantage bids, but we are pleased with both the value proposition, we are offering beneficiaries as well as our competitive positioning.

We continue to invest in our member experience, providing enhanced digital tools and resources for members and prospective members.

Dual eligible populations are a strategic focus for Centene and we recently launched the first phase of our enhanced integrated duals model across eight states as part of the broader transition of M. P's integrated decent it effective January one 2026.

We look forward to the opportunity to serve these beneficiaries as their needs and our capabilities continue to align and evolve.

Earlier this month CMS released 2026 star ratings that impact 2020 seven financial results and we are pleased to have generated another year of progress.

During this cycle, we elevated our performance. Despite continued cut point headwinds to 60% of members in plans at or above three and a half stars versus 55% from the prior year with roughly 20% of members enforced our plans.

These results demonstrate a true one son team effort with the initiatives being planned and executed at every level of the organization and provide us with increased confidence in our ability to achieve breakeven pre tax margin in 2027.

We are proud of the Medicare advantage Star score advancements we've achieved over the last three years, but remain focused on the opportunity for continued improvement in the near term we are leaning into provider interoperability multimodal member engagement and advanced B B C partnerships as levers for the future.

Overall, we were pleased to have maintained strong Medicare segment results, including positioning P. D P well to achieve results better than the one protect percent pre tax margin guidance, we began the year with and putting Medicare advantage on an even stronger path to achieve breakeven in 2027.

As we reflect on the quarter, we were pleased to have made material and necessary progress in on Medicaid profitability and delivered solid results across the balance of the business.

It is a testament to the resilience and discipline of this entire organization that we are able to raise the outlook today and while a tremendous amount of work remains ahead of us we intend to harness the positive momentum we have generated here in the third quarter to help power the balance of the year.

Looking ahead, given that we will not be hosting an investor day in December our plan is to provide detailed 2026 guidance on our Q4 earnings call in early February.

In the meantime, we wanted to offer some initial comments on the major building blocks of our 'twenty 'twenty six plan.

In marketplace as we've shared we were able to successfully take actions to account for baseline morbidity trend E. P. T C expiry and program integrity impacts for 2026 across 95% or more of our membership.

While the policy landscape remains uncertain based on what we know today, we believe we have positioned the portfolio well for meaningful margin improvement in 2026.

As a result of thoughtful bid construction and disciplined management, we believe our Medicare advantage business is also well positioned for margin improvement in 2026.

C. P continues to outperform in 2025, but you can assume we would not guide to a similar level of outperformance as we step into 2026, making this a year over year headwind as we set initial guidance.

And Medicaid in light of our now better than expected full year trajectory, we believe a prudent posture for 2020 six is profitability consistent with our current full year outlook in 2025.

Additionally, you should assume that a lower tax rate environment makes net investment income headwind and that our tax rate increases.

Overall, we remain focused on driving margin improvement across the enterprise and delivering EPS growth in 2026.

The current dynamic policy landscape has presented significant challenges in 2025, but also offers meaningful opportunity in the months and years to come.

We have incredible runway ahead of us in the form of operational improvements and efficiency gains and margin expansion all in service of our dual mandate to ensure quality health outcomes and serve as responsible stewards of taxpayer dollars.

None of this would be possible without the tireless work of more than 60000 and send teamers across the nation, serving and supporting our nearly 28 million members.

You once again for showing up day in and day out in service of our mission.

With that I'll turn it over to drew.

Thank you Sir.

Today, we reported third quarter 2025 results, including 44.9 billion in premium and service revenue and adjusted diluted earnings per share of 50 cents.

GAAP loss per share of $13.50 was the direct result of a 6.7 billion dollar noncash goodwill impairment charge recorded in the quarter more on that in a minute.

And then the 50 cents of adjusted EPS, We had a temporarily low adjusted effective tax rate in the quarter, which contributed about 10 cents.

Compared to them and their expected full year 2025, adjusted tax rate of 20% to 21%, let's go through the drivers for the quarter and then map that to the full year.

Starting with Medicaid.

Pleased to report our Q3, H B R of 93.4% better than we expected for the quarter and heading in the right direction.

Of the three previously discussed high trending areas Medicaid high cost drug trends shuttle the little in the quarter.

We successfully advocated for much improved revenue and or Florida children's medical services or CMS business, where we've seen very high a be a costs.

We recovered we received a net 150 million positive revenue adjustment in Q3 for the Florida Cmo's program for the two one February 1st for September 30 of 'twenty to 'twenty five period of which about $90 million was retro to Q1 and Q2 2025.

Retro piece was worth about 40 basis points on the Q3 Medicaid H P. R.

We also made some progress in New York, but there's more work to do to further improve performance.

Overall, given the Q3 results and momentum we are seeing from actions. We have taken the 2025, we're little ahead of our back half Medicaid H be our goal.

On the rate front, the nine one to 10, one cohort that represents about 28% of annualized premium averaged in the mid fives consistent with the full year of 2025 composite rate.

We were focused on one one in four one ridge representing about half of our 2026 annualized premium revenue and that advocacy is in process.

Medicaid membership is a 12.7 million and we would expect slight attrition over the next few quarters.

Stepping back we are pleased with the sequential progress in Medicaid with opportunity for improvement ahead.

Our commercial segment, our H B R was on track for Q3 at 89, 9%.

Sarah indicated in September we received and evaluated the second run of market players Wakely data, which represents updated claims through July.

You have this data is consistent with the $2 4 billion.

Forecast change we described on the Q2 call.

Also our previous guidance had accounted for a pickup in marketplace trend in the back half of the year, especially given the level of public discourse around the a P. T shoes, we did see a pick up in utilization in September including E. R.

And as we assess risks and opportunities for Q4, we added another 75 million to a prior marketplace medical expense forecast.

The more critical activity. During Q3 was focused on 2026 rate filings and E. P. T C education and advocacy.

We sit here today based upon our rate filings in 29 states, we have priced for estimates of one.

2025, baseline correction plus to 2026 forecasted trend plus three.

In fact, a program integrity rules implemented in 2025, and those amounts for 2026 and <unk>.

For the Sunset of V. A P T CS.

Unlike 2025, which is expected to run at a slight loss. We expect these pricing actions to support margin expansion in our marketplace business in 2026.

For Medicare segment was also on track in the quarter Medicare advantage continues to show progress toward our 2027 goal of breakeven and.

And we were pleased with the progress with the October stars announcements zero cupboard.

Within PDP, well trends are still high and the non low income P. D. P population they weren't as high as we had planned for in Q3.

That's good for our cash flow and forward forecasting what is largely offset against the risk corridor receivable for current earnings purposes.

As we discussed at a webcast conference. During Q3, we were pleased with our 2026 P. D P product positioning relative to the relevant benchmarks and direct subsidy estimates more to come on the Medicare segment after a P.

Our adjusted SG&A expense ratio continues to be strong at 7.0% in the third quarter compared to eight 3% last year.

Seven 3% year to date compared to eight 3% year to date last year.

This is largely due to growth in 2025 P. D. P revenue and continued leveraging of expenses over higher revenues coupled with good discipline.

Given the amount of activity expected in Q4 with open enrollments and member Communications. We are assuming for now that we will spend any remaining Q3 SG&A outperformance in Q4.

You will notice investment and other income is up $79 million in Q3 compared to Q2, we had a few games in the quarter plus temporarily higher cash balances than expected.

Do we think about Q4, we may harvest some unrealized losses like we did a couple of years ago in Q4 as.

As we think about reinvesting in higher yielding instruments for 2026 and beyond so for now we are assuming a Q3 investment and other income outperformance will be earmarked for that purpose.

Overall, the fundamental business performance was good in Q3 relative to our July forecast.

Our GAAP results you can see a reduction or write down of about 38% of our goodwill during Q3.

The recovered on the Q2 call the drop in market cap.

Third is to accelerate our annual goodwill evaluation into Q3.

After going through an accounting promulgated and detailed review of our goodwill we took a one time noncash charge of $6 7 billion and our GAAP results. This has no impact on statutory capital cash or adjusted EPS results are sole credit.

<unk> financial Covenant is a debt to cap limit at 60% and we sit at 45.5% on 930 25. After this right though.

The topic of the balance sheet, we had zero drawn on our $4 billion revolver that has a duration until 2030.

Also had a strong cash quarter with cash flow provided by operations of $1 4 billion in Q3, primarily driven by net earnings and the net timing of pass through and other payments.

Unregulated cash on hand at quarter end was $357 million.

As you can see in the 10-Q, we expect to receive net 200 million in dividends from subsidiaries in Q4.

Medical claims liability totaled 21, 5 billion and represents 48 days in claims payable and increase of one day as compared to the second quarter of 2025.

We look at the full year 2025, we are increasing our 2025 of adjusted EPS forecast from the previous dollar 75, two at least $2 driven by early execution on improved Florida CMS revenue.

2026, we look forward to providing 2026 guidance on our next quarterly call in early February once we have closed out 2025, but as you heard from Sara we look forward to growing adjusted EPS in 2026. Thank you for your interest in Centene and weekend Rocco, we can open it up for questions.

Yeah.

Thank you well now begin the question answer session.

To ask a question you May press Star then one on your telephone keypad.

If you're using a speakerphone please pick up your handset before pressing the keys.

If at any time your question has been addressed.

Yourself from too.

So stores them too.

At this time, we'll pause for just a moment to assemble our roster.

And today's first question comes from Josh Raskin with Nephron Research. Please go ahead.

Hi, Thanks, Ed Good morning, I guess my question really would be how do you get comfortable that you are getting ahead of trend in the exchanges and competitor exits make the pool less stable for 2026 and is there a point where this adverse selection spiral causes you to rethink certain markets or maybe even the segment entirely.

Yeah. Thanks, Good morning, Josh Thanks for the question, let me let me hit.

Utilization in trend in marketplace, both as we think about the back half of 2025, and then how we thought about it for 2020 six so as we said we saw a slight uptick in utilization in September primarily outpatient E. D. It you know correlate it from a time standpoint with the direct uptick in.

In dialog nationally around both rate increases for 2026, and the a P. T C discussion at the congressional level, so not a perfect correlation or causation, I guess, but I'm sort of correlation there and and as we thought about Q4 and thought about sort of that 200 million dollar provision pushing the remainder of.

The 125 in Q4, and then adding another 75 was really based on taking what we saw in September extrapolating that out and assuming that given just the volatility in the landscape and the fact that some folks are going to be concerned about their ability to access health care next year, we may see more of a an uptick than we normally do in terms of that Q4 utilization.

So we feel like we've put prudent coverage in Q4 as we as we run out the year relative to 2026, we obviously did a lot of work and just want to call out again, the the marketplace team jumping on top of the Wakely data in July really through that and understanding the drivers of what we are seeing.

And the fact that there were indicators and that data of what the extrapolated morbidity shifts would be above and beyond what we're seeing in 'twenty five for 26. So what we built into the revised rates that we talked about filing across 95% of membership or four major components. One was that adjusted 2025.

Baseline morbidity and obviously the fact that the September Wakely data came in consistent with our extrapolation off the July data is a strong reinforcing data point. So that's one two is a healthy provision for trend as we step in year over year trend as we step into 2026 mm three is that the assumption of the exploration of <unk>.

A P. T sees because that is current law of the land and what that will do to risk pool shifts and then the last is a sort of a composite view of the additional risk pool shifts it would be driven by both the continuation of the 2025 program integrity measures and sort of enrollment hurdles that were put in place as well as those hurdles that are.

We're in the final rule and also in Ob three.

And so all of that was loaded as part of that revised rate and that gives us confidence that our average step up as I mentioned in the thirties them really with a focus on margin over membership sets us up well for meaningful margin recovery in 'twenty six now there are multiple.

All pieces that are still moving right. Obviously, we don't know where EAP Ts CS will land the the payment a program integrity measures that were in the final rule have been stayed in the courts in our view is it's unlikely that those move ahead of Saturday and possibly not even through at least the.

Original planned open enrollment period, and so you know what we need to see where those land, but the bottom line is that our pricing took into account sort of all of those actually being in place. During the open enrollment period Lastly, just relative to your comment on overall stability. We do feel like there is still a competitive market.

We feel like peers were thoughtful about 26 in terms of understanding the.

The risk pool shifts and we do think that sort of the fundamental construction of the market with those advanced premium tax credits prevents you know any kind of a sort of a death spiral, but we've been cautious as we constructed our view of 2026.

Thank you and our next question today comes from.

Rice of UBS. Please go ahead.

Thanks, maybe just.

Follow up on that and then maybe just talk about Medicaid as well on.

So presumably they open enrollment people are you open enrollment gain enrollees you then see will reflect the loss of these.

Tax credits.

There may well be a move by Congress to extend them in some form or fashion.

Do you have the ability to quickly reengage people to get them to sign up I assume the people that are sicker.

Sicker and dealing with the health system through their providers will get prompted to suddenly side, but I'm thinking about those that are younger healthier and healthier and have less frequent entre contracts many of those still using the exchanges.

How easy is it to notify.

Notify them that now it may make sense to re sign up and what efforts you have in place for that and then just quickly on your comment about stable margins were stable contribution can Medicaid next year.

You know, there's a lot of discussion about some states trying to adopt work rules early.

And also putting in place a program integrity measures on that.

Outside of the business.

How are you thinking about that when you think about your outlook for Medicaid that here or is that a meaningful swing factor.

Yeah.

Yeah, Thanks, a J great questions E.

D question. So let me hit marketplace first and you're right sort of what we are navigating through is the idea that traditional open enrollment launches on Saturday. The a P. T. C. Discussion is you know we assume live as we speak.

And with the possibility that there may be action before the end of the year and so I think what you're really asking about is sort of breakage. So even if we got a P. T. C extension are we able to go and and recapture folks who maybe got an initial letter made a decision about the affordability of their insurance.

At our view of 2026.

Thank you. And our next question comes from AJ Rice at UBS. Please go ahead.

Just on that data point, and don't actually reengage or return them on.

Of their own volition to understand how that landscape may change. So that is something that we are paying a lot of attention to and in fact, if you think about our commentary about rolling forward. Some of the SG&A favorability that we saw in Q3 because of this idea that we may be going through sort of a multi layered enrollment process. We may.

Uh thanks maybe just uh follow up on that. And then maybe answer something on Medicaid as well. Um, on. So presumably the Open Enrollment people. Uh, you open enrollment that um, enrollees are going to see will reflect the loss of these, um, uh, tax credits. Um, and there may well be a move by Congress to extend them in some form or fashion. Um,

Find ourselves with them a special enrollment period or an extension we may want to be you know I'm, putting forward additional marketing efforts I'm, obviously mobilizing our our broker relationships to go and find those members if and as the landscape changes midstream.

Our view is that there will still be some degree of breakage and so even if the E. P. T. CS are extended in the middle of the cycle and you go forward for example, with an additional 60 days special enrollment period, and our view of market contraction for 2020 six.

Is in the high teens to mid Thirty's range. So again it that's based on sort of all of the different factors that could be at play, but it tells you that even that bottom end where for example, the program integrity rules remain stayed in E. P. T. CS are extended that there is going to be some degree of market contraction.

Do you have the ability to quickly re-engage people, um, to get them to sign up? I I assume the people that are, uh, sicker and dealing, uh, with the health system, through their providers, will get prompted to some resign. But I'm thinking about those that are younger, healthy healthier, and have less frequent Contra. Uh, contacts many of those still using the exchanges. Um, how how easy is it to notify them? That? Now, it may make sense to resign up and and what efforts do you have in place for that and then just quickly on your comment about stable margins, uh, or stable contribution in Medicaid next year. Um, you know, there's a lot of discussion about some states, trying to adopt work, rules early, um, and also, uh, putting in place, uh, program Integrity measures on that,

That side of the business had, uh, does. How, how are you thinking about that? When you think about your outlook for Medicaid next year? And is that a meaningful swing Factor?

And again some of that is the roll through of 25 program integrity enrollment hurdles, but also a view that there will be some abrasion and breakage on members who get that initial letter and don't come back, but we are certainly prepared to do everything we can to go find those members and help them understand in the event of.

Yeah. Thanks, AJ. Great questions. Um,

And extension that they do have access to affordable insurance and you know and certainly have done all of the work kind of both mathematically and administratively to be prepared frankly for any of these scenarios. So.

So that we can help be a good partner boast to the administration as they navigate through this but also supportive of our member base.

That's marketplace medic.

Medicaid so a couple of things embedded there relative to work requirements. We saw some movement over the summer for states that we're putting in waivers and thinking about potential early start call. It you know seven 126 implementation of work requirements as of now.

Any questions. So let me hit Marketplace first um and and you're right sort of what we are navigating through is the idea that traditional open enrollment Launches on Saturday, the eapc discussion is, you know, we assume live as we speak. Um, and with the possibility that there may be action before the end of the year. And so, I think what you're really asking about is sort of breakage. So even if we got eapc extension, are we able to go and, and recapture folks who maybe got an initial letter, made a decision about the affordability of their insurance, based on that data point and don't actually re-engage or return. Um, on of their own ition to understand how that landscape, uh, may change. So, that is something that we are paying a lot of attention to. And in fact, if you think about our commentary about rolling forward, some of the sgna favorability that we saw in Q3 because of this idea that we may be going through, sort of a multi-layered in

Those states that were sort of early in that have all moved back to a one one twenty-seven start date. So we don't have any firm data points of states that I'll have our intent or have explicitly.

And Oh seven.

Seven 126 start dates there's also quite a bit of important guidance that is still to come from CMS that is not scheduled to come down and rulemaking until this summer and those are really important provisions relative to state flexibility how to define able bodied what additional populations start states maybe.

To carve out and what the data capture and reporting requirements are going to be what the frequency is of all of us. So you know the face can certainly and it should be and we are working very closely with them to plan ahead, but there's a lot about what this is actually going to look like that is not even scheduled to become clear until the summer which means that 2000.

Enrollment process, we may find ourselves with, um, a a special enrollment period or an extension. We may want to be, you know, um, putting forward additional marketing efforts, um, obviously mobilizing our, uh, our broker relationships to go and find those members. If, and as the landscape changes Midstream, our view is, um, that there will still be some degree of breakage. And so even if the EC's are extended in the middle of the cycle, and you go forward, for example, with an additional 60-day, special enrollment period, um, our view of Market contractions for 2026, is in the High Teens to mid-30s range. So, again that's based on sort of all of the different factors that could be at play, but it tells you that even that bottom end where, for example, the program Integrity rules, remain stayed, and eapt C's are extended that there is going to be

27, and for some states beyond that is going to be the more rational sort of implementation timeframe of that and then you know what what therefore the impact as we think about 'twenty six we don't see a huge impact in 'twenty six relative to work requirements as we think about the the OS.

We're all sort of margin profile and our ability to.

Retain as we as we said sort of initial views twenty-six sort of consistent profitability and then the program integrity measures. Similarly, we are expecting some degree of a membership attrition next year, just as we're seeing states get better at the Reverify patient process, but we don't see that as a huge swing factor.

Some degree of Market contraction. Um and again some of that is the the role through of 25 program Integrity enrollment hurdles. But also a view that um there will be some abrasion and breakage on members who get that initial letter, um, and don't come back, but we are certainly prepared to do everything. We can to go find those members and help them understand in the event of, uh, an extension that they do have access to Affordable Insurance. Um, and you know, and certainly have done.

On all of the work, kind of both mathematically and administratively, to be prepared, frankly, for any of these scenarios. Um, so that we can help be a good partner both to the administration as they navigate through this, but also supportive of our member base.

So, that's Marketplace.

Thank you and our next question today comes from just the months of Wolfe Research. Please go ahead.

Thanks. Good morning, first just a quick follow up on the exchanges. Appreciate you sharing your thoughts on the market contractual potential wanted to hear your view on competitive positioning for 26 versus 25.

Would you expect your growth overall in line with that markets are better worse about how much and then maybe any color you could share with us in terms of how much of that $700 million of part D. Upside, we should think about unwinding next year.

Yeah, Thanks, Justin so a little bit about market competitive position, so again sort of a slightly refined view of overall market contraction them in.

In that sort of high teens to mid thirties, obviously, it depends on sort of which scenario lands and we you know we need to see how open enrollment which may be extra complex plays out but it is possible that we end up slightly on the higher end of that range, however, relative to our competitive positioning as sort of the landscape.

Relativity, we had 55% of our portfolio in the low cost silver positions in 25 mm and 42% in 'twenty six so not a huge change, but a change that I think reflects the fact that we were very focused on margin recovery time over.

Have all moved back to a 1127, start date. So we don't have any firm data points of states that have are intent or have explicitly, um, you know, pinned a, a 7126 start date. There's also quite a bit of important guidance. That is still to come from CMS. That is not scheduled to come down in rulemaking until the summer. And those are really important. Provisions relative to um State flexibility how to define able-bodied what additional populations start States, may be able to carve out um what the data capture and Reporting requirements are going to be what the frequency is of all of this. So you know, states can certainly and it should be and we are working very closely with them to plan ahead but there's a lot about what this is actually going to look like. That is not even scheduled to become clear until this summer. Um, which means that 2027. And for some states beyond that is going to be, the more rational sort of implementation time, frame of that.

Our membership as we stepped into those 2026 pricing decisions and then I'll kick it over to drew on PD.

Yeah P. J good question, Justin So assertion in her remarks PDP is now about half of our 37 billion of full year 'twenty five Medicare segment revenue.

So you can keep that in mind on the impact on the full segment and then underneath that PDP.

And then, you know what, what therefore, the impact, um, as we think about 26, we don't see a huge impact in 26 relative to work requirements as we think about the, um, the overall sort of margin profile and our ability to, you know, uh, retain as we, as we said, sort of initial view of 26 sort of consistent profitability. Um, and then the program Integrity measures, similarly, we are expecting some degree of, uh, member

Think about it this way we're running our we expect to run in the threes in terms of pretax margin in 2025, and while we're still constructing all the elements of the plan and we need to see how open enrollment plays out.

Ship attrition next year, just as we're seeing states get better at the reverification process, but we don't see that as, um, a huge swing factor.

Thank you. And our next question. Today comes from Justin lakes, and Wolfe research. Please go ahead.

You know, we would probably come out of the gate something less than that as we think about initial guidance that we will give it in February for 2026.

Thank you and our next question today comes from Andrew Most of Barclays. Please go ahead.

Hi, Good morning last quarter, you expressed confidence in margin improvement across all business lines, including Medicaid now it sounds like you're not expecting much improvement in Medicaid profitability first was that comment framed through the lens of earnings dollars or margins, because I think there might be some pressure on the revenue line from this enrollment in <unk>.

Thanks, good morning. Uh, first just a quick follow-up on the exchanges. Appreciate you sharing your thoughts on the market contraction potential wanted to hear your view on competitive positioning for 26 versus 25 and would you expect your growth overall to be in line with that market Sarah, or better or worse in my how much and then, maybe Drew any color you could share with us in terms of how much of that 700 L of Part? D upside, we should think about unwinding next year. Thanks.

Contract losses, and second was there a change in underlying performance across the broader portfolio when excluding some of the idiosyncratic events in Florida.

Yeah, thanks Justin. Um, so look, um, Market competitive position. So again, sort of a slightly refined view of overall Market contractions, um, in that sort of High, Teens to mid-30s. Um, obviously it depends on sort of which scenario lands. Um, and we we, you know, we need to see how

Yeah. So let me monies aren't stepped through Medicaid and I'll take your last question or last piece of the question first and just reinforced that for first obviously very pleased to be delivering second sequential H b R improvement quarter over quarter and the fact that what we delivered is reflective of the improvement that we.

We were expecting them in the in the July guidance. It was further aided by the $150 million in Florida, which actually I think is a great proof point of the fact that rate advocacy is an important lever and that while in Medicaid. We don't set the rates, we can influence the rates and those rates are old.

Open enrollment may be extra complex plays out, but it's possible that we end up, you know, slightly in the higher end of that range. However, relative to our competitive, positioning is sort of the landscape. Um, relativity we had 55%, um, of our portfolio in the low cost silver positions in 25 and 42 in 26. So, not a huge change, um, but a change.

I think that reflects the fact that we were very focused on margin recovery over membership as we stepped into those 2026 pricing decisions. And then I'll kick it over to Drew on PDB.

<unk> data driven so what influences our view of twenty-six now versus July the biggest shift is really that we're on a better than expected trajectory than we were in July but a couple of factors as you think about how we're looking at.

The progression and important to note that regardless, we are not taking our foot off the gas on H B R improvement overall as an organizational focus, but we were jumping off of very high starting point in Q2, and first half H B R. 94 point too. So we're going we're expecting to have a lower H b R. In Q4, even then.

Q3, which was lower than Q2, we have the benefit of solid rates at 5.5% composite which is sitting in that sort of back half cohort annualizing into 2026 mm will also have be lapping the acceleration of trend and so does trend step up at the same.

Yeah, PDP good question, Justin. Um, so as Sarah said in her remarks, PDP is now about half of our 37 billion of full year, 25 Medicare segment Revenue. Uh so you can keep that in mind on the impact on the full segment. And then underneath that PDP, uh, think about it this way. We're running, uh we expect to run in the threes in terms of pre-tax margin in 2025 and while we're still constructing all the elements of the plan. And we need to see how open enrollment plays out. Um, you know, we would probably come out of the gate, something less than that, uh, as we think about initial guidance that we will give in February, uh, for 2026.

Thank you. And our next question. Today comes from Andrew mock at barklay, please. Go ahead.

Accelerated rate you know our belief is that it is more likely to moderate to some degree but that is also something that we are very focused on controlling where we can and so big proof point for us in Q3 was the fact that we were able to put points on the board against every one of those major levers that we talked about so.

Hi, good morning. Last quarter, you expressed confidence in margin improvement across all business lines, including Medicaid. Now it sounds like you're not expecting much improvement in Medicaid profitability. First, was that comment framed through the lens of earnings dollars or margins? Because I think there might be some pressure on the revenue line from this enrollment and contract law.

Great advocacy touches in Florida, but the fact that the 10, one rates materialize better than expected clinical policy design in states and you know I talked about a couple of those examples where we are influencing states to change their approach to high cost drugs and in fact some of those changes that I described are effective one 126, so we have hard day.

And second was there a change in underlying performance across the broader portfolio? When excluding some of the idiosyncratic events uh in Florida. Thanks.

The points about how states are making changes we got another great example of the states that are adding C. C ph D as to their program and the fact that we have experienced where that can drive unintended high costs in states from other parts of our portfolio have been able to inform states about what could happen. If you don't put those.

[noise] in place with the right guardrails and so they're stepping into those program changes in the right way in the first instance network optimization and I talked about some examples of that not just from a fraud waste and abuse perspective, but we have a great program called partnerships in care. When we go out to outlier providers and provide them with data and really talk about sometimes it's just.

A question of education about a better path of care for members and then of course, you know stamping out fraud waste and abuse, so really strong proof points of that work in the quarter and the and the fact that we've been at this now for almost a year. So a real good visibility into additional opportunities and additional tactical efforts that.

Until hbr Improvement quarter over quarter. And the fact that what we delivered is reflective of the Improvement that we were expecting, um, in the in the July guidance, it was further aided by the 150 million in Florida, which actually, I think is a great proof point of the fact that rate advocacy is an important lever and that, while in Medicaid, we don't set the rates we can influence the rates and those rates are ultimately um, data driven. So what influences our view of 26 Now versus July, the the biggest shift is really that we're on a better than expected trajectory than we were in July. Um, but a couple of factors as you think about, you know, how we're looking at.

How what their.

They're in pet and will manifest in 'twenty six we ought to have almost 40% of the membership that re rates in the one one cohort. So our view as we stand here today, you know sitting on a better than expected trajectory with important dates in 2025 still to play out which will tell us a lot about Q4 trends will tell us about.

The right jump off point for next year, we only had about visibility into 50% of one one rates and those are only draft. So if asked you know what Bob point for 'twenty six we believe its prudent to say consistent.

The progression and important to note that regardless we are not taking our foot off the gas on hbr Improvement overall um as an organizational Focus but we were jumping off very high starting point in Q2 and a first half uh hbr of 94.2. So we're going, we're expecting to have a lower hbr in Q4 even than Q3 which was lower than Q2. We have the benefit of um solid rates at 5 and a half percent composite, which is sitting in that sort of back, half cohort, annualizing into 2026. Um we'll also have you know be lapping the acceleration of trend um and so does Trends step up at the same accelerated rate, you know, our belief is that it is more likely to moderate the

Our profitability and margin as we go from 25 to 26 I will tell you that I will be disappointed if that's all we can deliver but we think that that is a prudent assumption at this time, given where we stand and what we know and also what we don't yet know, but we absolutely look forward to giving much more detailed perspective and formal guidance on the Q4 call.

Thank you and our next question today comes from Ann Hynes with Mizuho. Please go ahead.

Good morning. Thank you just in your main businesses Medicaid Medicare Uh Huh.

Can you tell us what you had that initial 2026 outlook, what you're assuming the trend is in each segments and then with Medicaid can you tell us what your initial thoughts are for the composite rate increase thanks.

Some degree. But that is also something that we are very focused on controlling where we can. And so, a big proof point for us in Q3 was the fact that, you know, we were able to put points on the board against every one of those major levers that we talked about. So, great advocacy conscience in Florida, but the fact that the 101 rates materialized better than expected, clinical policy design in states. And, you know, I talked about a couple of those examples where we are influencing states to change their approach to high-cost drugs. In fact, some of those changes that I described are effective 11/26. So, we have hard data points about how states are making changes. Um, we've got another great example of states that are adding CCBHC to their program. And the fact that we have experience where that can drive unintended high costs in states from other parts of our portfolio has been able to inform states about what could happen if you don't put those in place with the right guardrails, and so they're stepping into those programs.

Yeah, so thanks and.

Let's start with Medicare Medicare trend has been running high single digit to even maybe 10 plus for the last couple of years and so we're assuming that that continues if you can parse it.

Now with respect to our bids and what's baked into that progression towards breakeven that would be low double digits.

And at some point, that's going to start being reflected in the fee for service rates, but we all get as an industry. So we look forward to getting an advance notice in February and seeing what that looks like in marketplace. You have to think of the four buckets that I laid out in my remarks, because they foot too.

Changes in the right way. In the first instance, um, network optimization. And I talked about some examples of that, not just from a fraud-based and abuse perspective. But we have a great program, um, called Partnerships in Care. When we go out to outlier providers and provide them with data and really talk about, sometimes, it's just a question of education about a better path of care for members. And then, of course, you know, stamping out fraud, waste, and abuse. So, really strong proof points of that work in the quarter. And the fact that we've been at this now for almost a year.

so a good visibility into additional opportunities and additional

Efforts that are out.

There and head and will manifest in 26. We also have almost 40% of the membership that re-rates in the 1, 1 cohort. So our view.

Like a mid thirties.

Average rate inquiries, and certainly fundamental trends a component of that but probably even more important than trend in marketplace as the expected risk pool shifts and we learn and back to an earlier question. We learned a lot in 'twenty to 'twenty five.

Which we've talked about in the Q2 call like what happens to risk pools. When program integrity measures were put in place and it was fortuitous that we were able to see that and learn that before we undertook the repricing effort that was largely successful as Sarah indicated so you've got to add a bunch of things.

As we stand here today, you know sitting on a better than expected trajectory with important dates in 2025 still to play out which will tell us a lot about Q4 Trends. We'll tell us about sort of the right jump off point. For next year, we only have about visibility into 50% of 11 rates and those are only draft. Um, so if asked, you know what buff point for 26, we believe it's prudent to say consistent.

Uh, profitability and margin as we go from 25 to 26.

Up to get to that mid thirties, but that would include food you know one of the four pieces is the fundamental trend and then in Medicaid.

I will tell you that I will be disappointed if that's all we can deliver. But we think that that is a prudent assumption um at the time given where we stand and what we know and also what we don't yet know but we absolutely look forward to giving much more detailed perspective and formal guidance on the Q4 call.

Thank you. And our next question. Today comes from an Hinds with Missoula. Please go ahead.

You think about this year.

Your H B ours.

Probably 120 basis points from 2024, and we got mid Fives rage and as Sarah said.

30% of that will roll into next year in 2026 in terms of annualized <unk> of what we got in seven one in nine one in 10 one in.

Good morning, thank you. Um, just in your main businesses—Medicaid, Medicare, and health exchanges—can you tell us what your initial 2026 outlook is? What are you assuming the trend is in each segment? And then with Medicaid, can you tell us what your initial thoughts are for the composite rate increase? Thanks.

And then we have a little bit the visibility into the one one cohort and jumping off of a high baseline, including a serious of like a 94 nine in Q2 and 94 two for the first half of the year and then with the levers we've been able to pull a couple of things Sara mentioned in her script the.

yeah, so thanks an um,

Two maybe even three states are rolling back on G O b ones for weight loss.

Hi caused drug pools being formed carve outs of high cost drugs or xeljanz months a lot of this.

Jenny.

So examples of where we're able to pull levers impacting the trajectory of even in home health with private duty nursing management.

And behavioral health with the what we're being able to do with the task Force. We think we're taking sort of a bite out of forward trends. So we'll give more details on the components, but all of that goes into the formula where we can sit here today once again with with the visibility we have and the visibility we don't have.

About 2026 and feel like stability that H B R relative to 93, seven if you do the math on 20 to 25 expecting to be able to maintain that in 2026 is the starting point.

And what's baked into that progression towards break even? Um, that would be low double digits, um, and at some point that's going to start being reflected in the fee for Service rates that we all get as an industry. So we look forward to getting an advanced notice in February and seeing what that looks like. Um, in Marketplace you have to think of the 4 buckets that I laid out in my remarks because they foot to like a mid-30s, um, average rate increase and certainly fundamental trends of component of that, but probably, even more important than Trend in Marketplace is the expected risk, pool shift, and we learned and back to an earlier question. Uh, we learned a lot in 2025, um, which we talked about in the Q2 call like what happens to risk Bulls when program Integrity measures are put in place and it was fortuitous that we were able to see that and learn that

Our forecasting for 2026.

Thank you. The next question today comes from Kevin Fischbeck.

Please go ahead.

Great. Thanks, I was wondering if you could talk a little bit about Medicaid margins, obviously flat next year.

Um, before we undertook the repricing effort that was largely successful with Sarah indicated, so you've got to add a bunch of things up uh to get to that mid-30s. But that would include uh you know, 1 of the 4 pieces is the fundamental Trend and then in Medicaid

Expecting that 2026 is going to be.

Basically more of a trough here in that you should be expecting to build on that in 2007, it sounds like youre assuming.

Requirements more of an issue and 27% is that enough of a risk pool shifts to.

I'll set the catch up of prior rates or is it clear at this point that probably 26 is where do you think the low point will be thanks.

Yeah. Thanks, Kevin It's a fair question and you know as we look out over the next couple of years. Our goal continues to be to drive back to more normalized Medicaid margins as drew walked through and I I reference you know I think we've got a lot of momentum as we think about stepping into 2020.

If you think about this year, um, you know, hbr's up probably 120, basis points from 2024 and we got mid fives rates and as Sarah said, you know, 30% of that will roll into next year in 2026, in terms of the annualization of what we got in 71 and 91 and 101. And then we have a little bit of visibility into the 11 coin off of a high Baseline, including a Sarasota like a 949 in Q2 a 942 for the first half of the year. And then with the levers, we've been able to pull

And our view of flat profitability again, it's sort of a prudent posture.

As I said, you know I will be disappointed if we don't do better than that because I think that the enterprises really organized around pulling the levers that we are in control of and those that we can influence a 'twenty 'twenty seven and 'twenty 'twenty eight to your point is where we will start to see I think the real.

Introduction of impacts of Ob, three and what that means for work requirements within the expansion population. There is a lot as I mentioned, a lot still there to play out including how much of that programmatic change actually takes route and how it manifests state.

a couple of things. So I mentioned in our script, the uh 2 maybe even 3 states. Uh, rolling back on, GL p1's for weight loss. Uh, high cost drug pools, being formed carve outs of high-cost drugs, like, zil, jensma elevatus with genya. And so the examples of where we're able to pull levers impacting, the trajectory of even then home health with private duty nursing management and, uh, Behavioral Health with, you know, the, the what we're being able to do with the task force, we think we're taking sort of a bite out of forward Trends, so we'll give more details on the components, but all of that goes into the formula where we can sit here today. Once again, with with the visibility we have and the visibility we don't have about 20

By state and so the way that we're approaching that is really leveraging lessons learned from the redetermination process leaning into state conversations we've got a formal team that has already been organized around this over the last six months and starting to plan again at the enterprise level of coordinating with each one of our.

2026 and feel like stability in that hbr, relative to 937. If you do the math on 2025 expecting to be able to maintain that uh, in 2026 is the starting point of our forecasting for 2026.

Our boots on the ground health plan team to understand how the states are thinking about this where we can step in and leverage the data that we have is an M. C owed any expertise to help make sure that as you know every member who is eligible and who is contributing to their community and who is working has access to.

Thank you. Our next question comes from Kevin Fishbach at Bank of America. Please go ahead.

So we feel like we are preparing very well for that we also feel like we have the precedent now of our state's incorporating more recent data and also understanding that as there are seminal program shifts they need to to make different decisions in terms of how the risk pools are going to shift.

Great, thanks. Um, let's see if you could talk a little bit about, um, Medicaid margins. Uh, obviously you know, flat next year. Are you guys expecting the 2026 is going to be basically more of a of a trough Year and that you should be expecting to, to build on that in 27. It sounds like you're assuming work requirements is more of an issue in 27. Is that, is that enough of a risk? Pool shift to offset the catch up of of Prior rates. Um, or is it clear from this point that probably 26 is where you think the, the low point will be thanks.

Prospectively, and so bringing forward a very concrete view of the expansion population the specific rate that they're getting what we think the shift is going to be some of the states think about the 27 rate setting process as early as 2026 back half of 'twenty six that we're having those conversations as well so we obviously can't guarantee.

T that states are going to perfectly nailed the rate relative to what that shift will be and so you know we're thinking about how that will play through in 27 28, but doing everything we can to set up the organization to continue to drive consistent margin improvement over the next couple of years to get to a place where we're back at long term margins in Medicaid.

Yeah. Thanks Kevin. It's a fair question. And you know, as we look out over the next couple of years, our goal continues to be to drive back to more normalized, Medicaid margins. Um, as as Drew walked through and I I referenced, you know, I think we've got a lot of momentum as we think about stepping into 2026 and our view of flat profitability again this sort of a prudent posture. As I said, you know, I will be disappointed if we can do better.

Thank you. Our next question today comes from George Hill Deutsche Bank.

Uh huh.

Hey, good morning, guys. Thanks for taking the question I guess this was more for drew I guess can you talk about any of the assumptions that underpin the margin stability for Medicaid and 26 in particular does that include the Florida retro.

And what's changed in New York and I'd be interested if you'd be able to talk about the contribution of benefit cuts. Your benefit design changes you called out the high cost drugs carve outs is it really just as it relates to margin stability in 'twenty six.

Yeah.

Yeah, George Thanks for the question. So if you think about you asked about the retro that's actually not retro to a prior year. It's just retro the Florida retro was retro to Q1 and Q2. So when you look at the full year. Once again around 93, seven and you guys can do the maths from ours will tell you the 93.

Seven is sort of what we're forecasting for 2025 and stability the goal of stability in that and I agree with Sarah like that's that's our initial goal, but we'd be disappointed if we don't move that down a little but 93 seven.

Root and how it manifests state by state. And so, the way that we're approaching that is really leveraging Lessons Learned From the redetermination process, um, leaning into State conversations, we've got a formal team that has already been organized around this over the last 6 months, um, and starting to plan, again, at the Enterprise level coordinating with each 1 of our boots on the ground. Health Plan, team to understand how the states are thinking about this, where we can step in and leverage the data that we have, as an MCO and the expertise to help make sure that as you know, every member who is eligible and who is contributing to their community. And who is, you know, working has access

Some of the things I covered with an including you know the levers that we're pulling you mentioned the high cost drugs and so yeah. Those would get you know in one case in one large state they're gonna do a carve out in another state there's a kick pool kick payment pool for those payers that have those encounters and you know.

Other examples of well run reinsurance pools that other states are considering because of the lumpiness of some of those high cost drugs. So that's just that's one example of sort of the you know sort of a hand to hand combat we have to go through in terms of managing care and in creating affordability for our state partners.

To coverage. Um, so we feel like we are preparing very well for that. We also feel like we have the precedent now of states incorporating more recent data, and also understanding that as there are seminal program shifts, they need to make different decisions in terms of how the risk pools are going to shift prospectively. And so, bringing forward a very concrete view of the expansion population, the specific rate that they're getting, and what we think the shift is going to be, so that the states think about the 2027 rate-setting process as early as the second half of 2026, that we're having those conversations as well. So we obviously can't guarantee that states are going to perfectly nail the rate relative to what that shift will be. And so, you know, we're thinking about.

And our members so.

I won't repeat everything I went over at the end, but those were some of the levers we thought about when we come to <unk> employees being able to have stability as we go into 2026.

About how that will play through in 27 and 28 but doing everything we can to set up the organization to continue to drive consistent margin improvement, over the next couple of years, to get to a place where we're back at long-term margins of Medicaid.

Thank you our next question.

Thank you. All right, next question. Today comes from George Hill at Deutsche Bank. Please go ahead.

From.

Morgan Stanley. Please go ahead.

Hey, Thanks for taking my question.

Youre still very committed to the business and I know last week I think you were at an industry conference talking about a cry silvana compelling area, but how do you just think about you know some of the wrong longer term dynamics across each change business the longer term margin targets and growth profile of that business I guess, a lot is dependent on the regulatory.

Hey, good morning guys. And thanks for taking the question. I guess. This was more for Drew, I guess. Drew. Can you talk about any of the assumptions that underpin? The margin stability for Medicaid in 2016? In particular does that include the Florida retro? Um and which changed in New York and I'd be interested if you'd be able to talk about the contribution of benefit Cuts or benefits design changes, you called out the high cost drug carve outs as it relates to, as it relates to margin, stability in 26,

Right, but just given your level of commitment how confident are you in some of those targets and then and just what would potentially make you change your commitment to that as well. Thanks.

Yeah. Thanks, Erin so we haven't changed our commitment obviously to to this product and not we haven't really changed our view of what you know philosophically, we should be able to price for a long term and as we said.

Yeah, George. Thanks for the question. Um so if you think about, you asked about the Retro that's actually not retro to a prior year. It's just retro. The Florida retro was retro to q1 and Q2. So when you look at

So the work that we did for 2026 was really designed with the intention to make a meaningful step.

Set forward in margin recovery in 2026, but I think to your point towards longer term stability, you're absolutely right first of all a fair amount in the past and although not not ultimately, but some short term certainly depends on what plays out relative to policy changes E. P. T. CS I think it's probably.

The full year once again, around 937. You guys could do the math. So I might as well tell you 937 is sort of forecasting for 2025 and stability. The goal of stability in that, and I agree with Sarah, like that's our initial goal, but we'd be disappointed if we don't, you know, move that down a little. Um, but 937, you know, some of the things I covered with an, uh, including.

The biggest swing factor just in terms of getting to a really really stable base them. So that we can think about building on the platform. There are still millions of millions of Americans, even if he a P. T. CS go away that rely on the individual marketplace for coverage and that have the backstop of the a P. T CS.

And so we believe that this product stabilizes, we still think there is growth or millions of Americans, who are still uninsured and actually you know I think the way that this administration is thinking about them at least in you know in conversations the possibility of getting creative about different product.

You know the levers that we're pulling you mentioned high cost drugs. And so yeah those would get you know in 1 case in 1 large state they're going to do a carve out and in other state there's a Kik pool kick payment pool for those payers that have those encounters and, you know, there's other examples of well-run, reinsurance pools that other states are considering because of the lumpiness of some of those high-cost drugs. So that's just that's 1 example, of sort of the, you know, sort of the hand, to hand combat. We have to go through in terms of managing care and and creating affordability for our state partners and our members. So um, you know, I won't repeat everything. I went over with and but those were some of the levers. We thought about when we contemplate being able to have stability, as we go into 2026.

And different ways to drive affordability and this market is really encouraging we obviously think that the individual market is a compelling chassis as we consider the future of insurance and a view that individuals are going to want more agency, they're going to want more.

Thank you. Our next question comes from Aaron Wright at Morgan Stanley. Please go ahead.

Great. Thanks for taking my question. So,

Affordability portability and as I mentioned last week at the conference, it's really hard to take a small number of benefit options across for Centene 60000 employees and feel like you're really customizing to each individual's needs I use. The example of the fact that you know I'm, a 45 year old healthy women.

You're still very committed to the business, and I know last week, I think you were at an industry conference talking about ICRA. It's a compelling area, but how do you think about some of the longer-term dynamics across the exchange business, the longer term margin targets, and the growth profile of that business? I guess a lot is dependent on the regulatory changes, right? But just giving your level of commitment, how confident are you in some of those targets? And then, what would you know?

You know, potentially make you change your commitment to that as well. Thanks.

And I didn't go to the Doctor until last Saturday, and so I am definitely paying more for health insurance attainment I need.

Yeah, thanks Aaron. Um, so

And so we continue to be excited and lean into aircraft. We're hopeful that this administration is also very interested in Edinburgh. Because you know it is a lot of the legislation is a legacy of Trump's first term and we have leaders in the administration, who have spent careers thinking about how this could be a way to sort of reinvent individuals.

So we are going through you know our policy transition on the base and we.

Feel very confident that we will get through that we're thinking about ways to drive additional transparency and stability in the core business and so how can we partner with CNS. How can we partner with the deal is how can we partner with our peer set and actually do a better job of sharing data as we step through each year. So that the risk adjustment conversation itself is sort of <unk>.

Incremental derisk them, but we're not backing off sort of the view that we can design benefits that drive value and price for that value on the exchange and that this is a platform for future individual growth that I think we are investing in and positioned well to help capture.

Thank you. Our next question today comes from Stephen Baxter of Wells Fargo. Please go ahead.

To make a meaningful, uh, you know, step forward in margin recovery in 2026 but I think, to your point sort of longer term stability. You're absolutely right. First of all, uh, a fair amount depends, although not, not ultimately, but some short-term certainly depends on what plays out relative to policy changes EAP ptc's. I think is probably the biggest swing Factor just in terms of getting to a really really stable base. Um so that we can think about building on the platform there are still millions and millions of Americans. Even if the apcs go away rely on the individual Marketplace for coverage, um, that have the backs of apc's. So we believe that this product stabilizes, we still think there is growth or millions of Americans who are still uninsured. Um and actually you know I I think the way that this Administration is thinking about um at least in the mission of the possibility of getting creative about different product design and different.

Hi, Thanks, I just wanted to ask about the kind of the right mechanics in Florida is obviously good to hear that CMS.

Population there as far as all reason on the rates business in terms of the cadence looks like in the third quarter, Obviously, you got crewed up.

On your performance there so if we're thinking about the Florida rate update.

Different ways to drive affordability and is really encouraging. We obviously think that the individual Market, um, is a compelling chassis, as we, we consider the future of insurance and a view that individuals are going on agency. They're going to want

Florida actually improved sequentially in the fourth quarter now, which is normally what you would expect when you see those rate updates come in but should we think about the Q3 performance effectively.

Showing that <unk> got the right ear to date, rather than getting it in Q4, thanks, hopefully that makes sense.

Yeah no good question on the progression.

And so.

The way I'd, probably look at it is we put up a 90, a 93.4 in the quarter.

And.

The 150 million, if you sort of take that out and you want to sort of judge the progression into Q4 that 60 bps. The full 150 million of which 40 of that related to prior periods. So you're jumping off of 94 O and then yes, you can about how are you.

You know call it mid fives in terms of the nine 110, one cohort in Florida was slightly above that in terms of the mix between C. M. S. MMA.

And the long term care population.

So yeah, we expect a sequential lift going from Q3 to Q4, given the cohort of nine one in 10, one rates and that will be a contributor to the improvement that we expect in Q4, and then obviously, we have trend as well as.

More affordability, affordability. And as I mentioned last week, a conference really hard to take a summer employee and feel amazing to each individual's needs. I use the example of the fact, I'm a 40. So I am definitely paying more for health insurance. I need, we need to be excited and into era. Um, we're hope that the administration also very interested in icra, because, you know, it is a lot of the legislation is a legacy of, uh, Trump's first term. And we have leaders in the administration who have spent careers thinking at how this could be a way to sort of reinvent individual coverage. So we are going through, you know, a policy tradition on the base, and we feel very confident that we will get through that. We're thinking about ways to drive additional transparency and stability in the best. And so, how can we partner with CMS? How can we partner with the DOI? How can we partner with our peer set and actually do a better job of sharing data as we step through each year? So that the risk adjustment conversation itself is sort of incrementally De

A pretty soft November in terms of the day count if you look at November.

Risked, um, but we're not backing off, sort of the view that we can, you know, design benefits that drive value and price for that value on Exchange and did a platform for future individual growth that I think we are investing in and positioned well.

Looks more like a February in terms of the number of business days in the holidays so that.

That all goes into the Formula of how we can get how we'd expect to get to around 93 for Q4, which then when you add all the other numbers you know would get us to the 93 seven for the full year that we would jump off of and seek to maintain for 2026.

Thank you. Our next question. Today comes from Stephen Baxter at Wells, Fargo.

Thank you and our final question today comes from Lance Wilkes of Bruce.

Uh huh.

Great Yeah could you give some maybe additional.

No color on the resetting environment at this stage what I was interested in is what sort of variability are you seeing across states and rates and then as youre looking at the budget outlook.

Hi, thanks. Um, I just wanted to ask about the kind of rate mechanics in Florida. It’s obviously good to hear that CMS, you know, has been there in Florida and on the rates. But just in terms of the cadence, you know, it looks like in the third quarter, we’re obviously getting trued up on your performance there. So, if we're thinking about the Florida rate update, does Florida actually improve sequentially in the fourth quarter now, which is normally what you would expect when you see those rate updates come in? Or should we think about the Q3 performance, effectively, you know, showing that you got the rate year to date rather than getting it in Q4? Thanks. Hopefully, that makes sense.

The school 26 27, how is how is the budget 25 26, our fiscal year and then the $26 seven kind of conversations that youre seeing impacting the potential for future rate increases and as a result of these things are you seeing any smaller competitors that are looking to either fix it.

Good. Good question, uh, on the progression. And and so

The way I probably look at it is we put up a 90 uh, a 93.4 in the quarter.

and,

Contracts or not re bidding in any other states you participate in.

Yeah. Thanks, Lance. So every state is a little bit different so there's certainly variability in the actual absolute rates, but I would say that what we have seen consistent across the states and consistently now for more than 18 months.

The 150 million if you sort of take that out, you want to sort of Judge the progression into Q4 that's 60 bips the full 150 million of which 40 of that related to Prior periods. So you're jumping off a 940 and then yes you can evaluate, you know, call it mid fives in terms of the 91 101 cohort and Florida was slightly above that.

in terms of the mix between CMS MMA,

Is very constructive collaborative dialogue around race that the IND.

Integration of more recent data. We've obviously now got you know for the one one rates the benefit of a full 12 months with sort of a step up in trend drivers that we're seeing and it's been you know 18 months with the acuity impacts from Redetermination.

And Ah.

And I think this.

This increase sort of cadence and reflects around.

Leveraging more recent data both had sort of a baseline period, but also being able to better anticipate what.

You shouldn't maybe prospectively into the future period, obviously, Florida is a great example of that because they had to use twenty-five rates to make the twenty-five adjustment.

But but again you know that that has become sort of normal course, and it's how we think about them you know what what we expect to see in the one one cohort and and going forward.

And then obviously we have Trend uh, as well as um, a, a pretty soft November in terms of the day count, if you look at November, uh, it looks more like a February in terms of the number of business days and the holidays. So that all goes in the formula of how we can get, uh, how we expect to get to around 93 for Q4, which then when you add other numbers, you know, would get us to the 937 for the full year that we jump off of and seek to maintain 2020.

Thank you. And our final question today comes from Wes wils. Go ahead.

On the budget outlook for the states.

They're obviously concerns that with the changes in legislation that there will start to be budget impacts in 26 states need to balance their budgets and go through those legislative sessions.

One of the things that I would point to and we've said this before but I think this is really a moment, where we will start you know potentially to see this play out because we're seeing it play out from a program design standpoint is this is a moment, where we our partnership with the states can really drive value and they're coming to us and saying we've got a balanced budget we've got.

Or you know sort of guardrails, how can we think about continuing to deliver the core benefits that we want to and continuing to drive health outcomes, but you know make adjustments, where we can to optimize the program and drew and I have both given a bunch of examples of that but we think there are you know there's definitely runway on.

Great. Yeah, could you give some um, maybe additional color on the um, resetting environment State? What it was interested in is what sort of variability are you seeing across States in in rates? And then, as you're looking at the budget, outlook for fisc, 627, how is, how is that budget? You know, the 2526 uh fiscal year and then the 2627 kind of conversations that you're seeing impacting, you know, the potential for future rate increases. And as a result of these things are you seeing any smaller competitors that are looking to either Exit contracts or are not re-bidding in any of the States? You participate in? Thanks.

That front, but then also states thinking about carving in fee for service populations, where you know if you have a state that has a be a in a fee for service disposition over the last 12 months. There. They are struggling right now and so there's opportunity as they go through upcoming procurement cycles to think about aligning some of those fee for service population.

<unk> into kind of the core procurement, we started to see some opportunity for net new program adds are in the RFP pipeline and twenty-six and so yes, we do expect there will be budget pressures, but in in our world. That's actually an opportunity to help them think about managing care in there.

Yeah, thanks Lance. Um, so every state is a little bit different so there's certainly, you know, variability in the actual absolute rates. But I would say that the what we have seen consistent across the states consistently now, for more than 18 months is very constructive collaborative dialogue around race. Um, the the you know, integration of more recent data. Um, we've obviously now got, you know, for the 1 1 Reitz benefit of a full 12 months with sort of a step up in Trend drivers that we're seeing and that then you know 18 months with the Inu impacts from redetermination. Um and and again I think this

For managing you know taxpayer dollars and that's really kind of the the business that we're in.

Thank you.

A question and answer session.

I'll turn the conference back over to London.

Yeah.

Thanks, Rocco and thanks, everyone for the questions and for your time and interest in Centene. This morning.

Only 25 has definitely been a challenging year, but I firmly believes that the sun team is stronger for it and I just want to take a moment to thank my teammates for being unwavering and your focus on and commitment to our mission.

This increased sort of payments and reflects around leveraging more recent data. Um, both at sort of the Baseline period, but also being able to better anticipate what patient may be prospectively into the future period. Um, obviously Florida's a great example of that because we had to use 25 rates to make the 25 adjustable, you know, that that has become sort of normal course, um, and, you know, it's how we think about, um, you know, what, what we expect to see in the 1111 cohort and going forward. Um, the budget, I look for the states,

We look forward to continuing to provide updates on these key inputs and milestones and then obviously provide formal guidance for 2026 on our Q4 call. Thanks everybody.

Thank you.

Today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.

There, there are obviously concerns that changes in legislation that there will start to be budget impacts in 26 as States need to balance their budgets and go through those legislative sessions. 1 of the things that I would point to and we've said this before. But I think this is really a moment where we will start, you know, potentially to see this play out because we're seeing it, play out from a program, design standpoint is, this is a moment where we, our partnership with the states can really Drive value and, you know, they're coming to us and saying, we've got to balance budget. We've got tighter, you know, sort of guard rails. How can we think about continuing to deliver the core benefits that we want to and continue to drive Health outcomes? But, you know, make adjustments where we can, um, to optimize the program and Drew and I have both given a bunch of examples of that. Um, but we think there are, you know, there's definitely runway on that front. But then also States thinking about carving in fee, for sure. Where, you know, if you have a state that has Ava in a fee for service,

Um, disposition over the last 12 months. They're they are growing right now. Um, and so there's opportunity as they go through upcoming procurement Cycles to think about aligning, some of those fee for service populations into, kind of the core procurements. We started to see some opportunity for, um, net new, you know, program adds, uh, in the RFP pipeline in 26. Um, and so yes, we do expect. There will be budget pressures. But, in, in our world, that's actually an opportunity to

help them think about managing care and therefore managing you know taxpayer dollars um and that's really kind of the the business that we're in

Thank you. This includes a question and answer session. I'd like to turn the conversation back over to Sarah London for closing remarks.

Thanks, Rocco. Um, thanks, everyone, for the questions and for your time and interest this morning.

Believe that the sun team is stronger for it. Um, and I just want to take a moment to thank my teammates for being unwavering in your focus on and commitment to our mission.

We look forward to continuing to provide updates on these key inputs, and Milestones and then obviously provide formal guidance, uh, for 2026 on our Q4 call. Thanks everybody.

Thank you. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.