01—Abstract
Summary
Summary of the 8-K filed July 1, 2025. Cited figures are marked; the original filing is the authoritative source.
On July 1, 2025, Centene Corporation (NYSE: CNC) withdrew its previously issued 2025 GAAP and adjusted diluted EPS guidance, including all underlying guidance elements.
The primary driver is a sharp deterioration in the Marketplace (ACA exchange) business. Based on its first view of 2025 industry Marketplace data from the actuarial firm Wakely, covering 22 of its 29 Marketplace states (about 72% of Marketplace membership), Centene found that market growth was lower than expected and that implied aggregate market morbidity was significantly higher than its risk adjustment assumptions. The company estimates a reduction of roughly $1.8 billiona in its full-year net risk adjustment revenue transfer expectation, equal to about $2.75 of adjusted diluted EPS.
It also expects an additional, unquantified reduction from its remaining seven Marketplace states. Medicaid, Centene's largest government business, is also under pressure. Medical cost trend has stepped up in behavioral health, home health, and high-cost drugs, most acutely in New York and Florida, where service carve-ins occurred without sufficient rate or risk adjustment.
Management expects the second-quarter 2025 Medicaid Health Benefits Ratio to be higher than the first quarter. On the positive side, Medicare Advantage and Medicare Prescription Drug Plan results are better than expected in Q2, and SG&A leverage remains strong. Centene also said the final 2024 CMS Marketplace risk adjustment results were in line with expectations, though subject to any new CMS information about another carrier's late 2024 submission.
For 2026, Centene has begun refiling Marketplace rates to reflect higher baseline morbidity and expects corrective pricing in states representing a substantial majority of its Marketplace membership. The withdrawal removes the company's prior earnings guidance, leaving investors without a current earnings anchor until management reports Q2 2025 results and provides additional insight on July 25, 2025. Investors should watch the magnitude of the remaining seven-state impact, the Medicaid HBR trajectory, and the durability of 2026 Marketplace repricing.
02—Key points
Key Highlights
- Centene withdrew all previously issued 2025 GAAP and adjusted diluted EPS guidance, including underlying guidance elements.
- Marketplace risk adjustment shortfall: preliminary estimate of about $1.8 billion reduction in net risk adjustment revenue transfer for 22 states (about 72% of Marketplace membership), equal to roughly $2.75 of adjusted diluted EPS.
- Remaining seven Marketplace states are not yet quantified, but management expects an additional reduction in risk adjustment revenue based on observed morbidity trends.
- Medicaid medical cost trend stepped up in behavioral health, home health, and high-cost drugs, with pressure most pronounced in New York and Florida; Q2 2025 Medicaid HBR is expected to exceed Q1 2025.
- Medicare Advantage and PDP performing better than expected in Q2 2025, and SG&A leverage continues on premium and service revenue growth.
- Final 2024 CMS Marketplace risk adjustment results were in line with expectations, subject to pending CMS information on another carrier's late 2024 submission.
- Centene is refiling 2026 Marketplace rates for higher projected morbidity and expects corrective pricing in states representing a substantial majority of Marketplace membership; Q2 2025 results are due July 25, 2025.
03—Questions
Frequently Asked Questions
Why did Centene withdraw its 2025 earnings guidance?
Centene's first view of 2025 industry Marketplace data from Wakely showed slower market growth and much higher market morbidity than the company had assumed for risk adjustment revenue transfers. This implies a material reduction in expected risk adjustment revenue, so the prior guidance no longer reflects the company's outlook.
How large is the financial impact of the Marketplace issue?
For the 22 states analyzed, which represent about 72% of Marketplace membership, Centene estimates a reduction of roughly $1.8 billion in its full-year net risk adjustment revenue transfer, or about $2.75 of adjusted diluted EPS. The remaining seven states are expected to add further, unquantified reductions.
Is the Medicaid business also under pressure?
Yes. Medicaid has seen a step-up in medical cost trend in behavioral health, home health, and high-cost drugs, with greater pressure in New York and Florida, partly due to service carve-ins without adequate rate or risk adjustment. Q2 2025 Medicaid HBR is expected to be higher than Q1 2025.
Are there any positive trends in the business?
Medicare Advantage and Medicare Prescription Drug Plan performance is better than expected for Q2 2025, and the company continues to achieve SG&A leverage on premium and service revenue growth. The final 2024 Marketplace risk adjustment results were also in line with expectations.
When will investors get more clarity, and what is the 2026 outlook for Marketplace?
Centene will report Q2 2025 results and provide additional insights on July 25, 2025. For 2026, the company has begun refiling Marketplace rates to reflect higher baseline morbidity and expects to take corrective pricing actions in states representing a substantial majority of its Marketplace membership.
04—Continue