Centene Q1 Earnings Call Highlights

Key Points

• Centene beat Q1 expectations with adjusted EPS of $3.37 and raised its full-year 2026 adjusted EPS outlook to greater than $3.40, supported by a consolidated HBR of 87.3%.
• Outperformance was driven by Medicaid and Medicare: Medicaid HBR improved to 93.1% amid trend-management initiatives (Medicaid membership ~12.4M, net trend assumed mid‑4%), while Medicare HBR was 84.9% with PDP membership just over 8.7M.
• The company took a cautious stance on Marketplace margins (now guiding to ~3% pre-tax) while strengthening the balance sheet—selling $1B of Part D receivables to repurchase $1B of senior notes, lowering debt-to-cap to 43.2% and ending the quarter with $437M of cash.

Centene NYSE: CNC reported first-quarter 2026 results that came in ahead of management’s expectations, prompting the company to raise its full-year profit outlook as it cited improving performance in Medicaid and better-than-expected medical cost trends in Medicare.

Quarterly results and updated 2026 outlook

Chief Executive Officer Sarah London said the company delivered first-quarter adjusted diluted earnings per share (EPS) of $3.37, “exceeding our previous expectations for the period.” Chief Financial Officer Drew Asher added that the quarter included $44.7 billion in premium and service revenue.

On the strength of the first quarter, London said Centene increased its full-year 2026 adjusted EPS outlook to greater than $3.40, up from its prior expectation of greater than $3.00. Asher said the quarter’s adjusted EPS was “just under $0.50 better than our expectations,” largely due to outperformance in Medicaid and Medicare health benefit ratios (HBRs). Consolidated HBR was 87.3% for the quarter.

Asher said guidance changes also included adding $1 billion to the prior premium revenue range “largely driven by Texas Medicaid,” lowering the consolidated adjusted SG&A guidance range by 10 basis points, and increasing expected investment income by $50 million. He said there was “no change” to the company’s full-year HBR range of 90.9% to 91.7%.

Medicaid: HBR improvement and trend management initiatives

London highlighted progress in Medicaid margin improvement initiatives, pointing to “targeted and increasingly scaled initiatives to modernize and standardize processes to better manage medical cost trend.” Asher said Centene ended the quarter with 12.4 million Medicaid members, “slightly down from year-end.”

Medicaid HBR for the quarter was 93.1%, which Asher said was an improvement of 50 basis points compared with the first quarter of 2025 and marked the “third consecutive quarter of progress” toward a “reasonable Medicaid margin.” London said the quarter benefited from a lighter-than-forecast flu season and “a slight utilization benefit from weather events,” but added that Centene also delivered “solid fundamental outperformance” due to execution on trend management.

London said behavioral health remained the largest driver of trend, with home health and high-cost drugs also contributing, though she noted “pockets of deceleration” beginning to emerge. She described the company’s multi-pronged program as including:

• Standardizing utilization management best practices across markets
• Expanding clinical programs
• Data-driven network optimization
• Advocacy with state partners around program reform
• More aggressive efforts to address fraud, waste, and abuse

London also discussed applied behavior analysis (ABA) services, saying Centene is seeing “stabilizing year-over-year ABA trends” that it believes reflect actions taken to ensure appropriate care and to identify outlier providers with “suspect or fraudulent billing patterns.” She said the company recently highlighted reforms to CMS, including “allowing proactive payment suspensions, creating safe harbors, and improving two-way data sharing.”

For the remainder of the year, London said guidance assumes net trend in Medicaid “remains in the mid 4% range.” On rates, she said the company was tracking in line with an expected composite rate yield of roughly 4.5%, and Asher reiterated that Centene expects overall Medicaid membership to be down about 6% from year-end to year-end.

Medicare: Better-than-expected HBR and Part D commentary

Centene’s Medicare segment also performed ahead of management’s expectations. London said Medicare results were ahead of plan with contributions from both Medicare Advantage (MA) and prescription drug plans (PDP), while Asher reported a Medicare segment HBR of 84.9% for the quarter.

In Medicare Advantage, London said the company is aligning membership with its Medicaid footprint and “make great progress on our path to positive earnings.” She said Centene saw a “slightly more favorable membership mix” following annual and open enrollment periods, with dual-eligible special needs plan (D-SNP) membership now at 40% of the overall MA portfolio. London also pointed to improved member retention and ongoing work in value-based care, including simplified contract structures and “total cost of care models against high-cost specialties such as oncology, chronic kidney disease, and behavioral health.”

In PDP, London said membership ended the quarter at “just over 8.7 million,” while Asher said the company is “about a third” in the basic low-income subsidy (LIS) product and “about two-thirds” in the enhanced product that is “largely non-low income.” Both executives cited slightly lower-than-assumed specialty drug trends in the quarter as a driver of outperformance.

Asher also discussed the Inflation Reduction Act (IRA) impacts on non-LIS members, describing “very high” trends and noting that both members and pharmaceutical companies were taking advantage of the $2,000 maximum out-of-pocket feature. He said Centene’s 2026 bids and forecasts assumed continued high non-LIS specialty pharmacy trend, though actual experience in early 2026 was “not as high as what we assumed.”

Marketplace: Silver-tier utilization, risk adjustment, and cautious margin stance

In the commercial segment, which London said is “the vast majority” Marketplace, results were “in line with expectations on a pre-tax margin basis,” with a slightly higher HBR offset by favorable SG&A.

Centene ended the quarter with Marketplace membership of 3.58 million to 3.6 million, consistent with prior commentary about post-grace period membership. London said metal tier distribution remained consistent with patterns discussed earlier in the year: “just under half” in Silver, roughly 35% in Bronze, and the remainder in Gold.

London said first-quarter Marketplace HBR was pressured by higher utilization “isolated in our Silver tier membership,” but she said additional data—including a new March Wakely report and more complete claims experience—suggests the utilization is consistent with the acuity of Silver members enrolled and should be offset by risk adjustment as the year progresses.

London described an industry effort to submit earlier membership demographic data that Wakely aggregated and published at the end of March, which she said improved early-year visibility into market dynamics in a post-enhanced APTC (eAPTC) environment. She said market contraction and shifts from Silver to Bronze were consistent with expectations, and said Centene’s Ambetter brand appears to retain Silver members with higher relative acuity, supporting a risk adjustment receivable position.

Asher said the company’s forecast now assumes “a slight receivable versus a prior payable forecast” for year-end risk transfer. However, he said management opted for caution in its guidance, embedding a Marketplace pre-tax margin around 3% compared with an original forecast of approximately 4%, as the company awaits June Wakely data that will include claims and risk score data across the market.

On the balance sheet, Asher said Centene ended the quarter with $437 million of cash available for general corporate use. He said the company sold $1 billion of standalone 2025 Part D risk share receivables and used the proceeds to repurchase $1 billion of senior notes, helping reduce the debt-to-cap ratio to 43.2% from 46.5% at year-end. Cash flow provided by operations was $4.4 billion in the quarter.

About Centene NYSE: CNC

Centene Corporation NYSE: CNC is a diversified, multi-national healthcare enterprise that specializes in providing services to government-sponsored and national health programs. The company primarily acts as a managed care organization, delivering healthcare coverage and administering benefits for Medicaid, the Children's Health Insurance Program (CHIP), Medicare Advantage, and individual marketplace plans. Centene also contracts with federal and state agencies to manage specialty care programs and community-based services for vulnerable populations.

Centene's offerings extend beyond traditional insurance to include a range of specialty and support services.

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