Centene Corporation, a healthcare company, reported its quarterly financial results for the period ended September 30, 2024. The company’s revenue increased by 12.1% to $34.4 billion, driven by growth in its Medicaid and Medicare Advantage businesses. Net income rose to $444.8 million, or $1.03 per diluted share, compared to $343.8 million, or $0.83 per diluted share, in the same period last year. The company’s operating cash flow was $1.4 billion, and its free cash flow was $1.1 billion. Centene’s balance sheet remained strong, with cash and investments of $4.3 billion and debt of $12.4 billion. The company’s management discussed its financial performance and outlook, highlighting its growth strategies and investments in its business.
Financial Performance Overview
Centene Corporation, a leading provider of government-sponsored healthcare, reported strong financial results for the third quarter and first nine months of 2024. The company’s total revenues increased 10% year-over-year in Q3 2024 to $42.0 billion, driven by Medicaid rate increases, membership growth in the Marketplace business, and higher premium tax revenue. For the first nine months of 2024, total revenues grew 7% to $122.3 billion.
Centene’s managed care membership increased by 670,000, or 2%, from September 2023 to September 2024, ending the quarter at 28.6 million members. This growth was primarily due to expansion in the company’s Marketplace plans, which saw a 22% increase in membership year-over-year. However, Medicaid membership declined due to the ongoing Medicaid redetermination process, which the company expects to be largely complete by the end of 2024.
Profitability and Margins
Centene’s profitability was impacted by higher medical costs, with the health benefits ratio (HBR) increasing to 89.2% in Q3 2024 from 87.0% in the prior-year quarter. This was driven by higher acuity in the Medicaid business as a result of the redetermination process, as well as the impact of lower Medicare Advantage Star quality ratings.
The company’s selling, general and administrative (SG&A) expense ratio improved to 8.3% in Q3 2024, compared to 8.7% in the same period of 2023. This was primarily due to the divestiture of the higher-cost Circle Health business, as well as ongoing SG&A savings initiatives and leveraging of expenses over higher revenues. Centene’s adjusted SG&A expense ratio, which excludes certain one-time items, also improved to 8.3% from 8.6% in the prior-year quarter.
Overall, Centene’s diluted earnings per share (EPS) increased 56% to $1.36 in Q3 2024, compared to $0.87 in Q3 2023. On an adjusted basis, diluted EPS was $1.62, down from $2.00 in the prior-year quarter, reflecting the impact of higher medical costs and the Star quality ratings decline.
Segment Performance
Centene operates in four main segments: Medicaid, Medicare, Commercial, and Other. The performance of these segments is summarized below:
Medicaid Medicaid revenues increased 7% in Q3 2024, driven by rate increases, but gross margin declined 27% due to lower membership and higher acuity resulting from the redetermination process. The company continues to work with states to match rates to the changes in member acuity.
Medicare Medicare revenues grew 4% in Q3 2024, but gross margin declined 30% due to lower Medicare Advantage membership and the impact of the lower Star quality ratings. Centene’s Medicare Prescription Drug Plan (PDP) membership increased 49% year-over-year.
Commercial The Commercial segment, which includes the company’s Marketplace plans, saw a 35% increase in revenues and a 27% increase in gross margin in Q3 2024. This was driven by a 22% increase in Marketplace membership, as well as improved margin performance through strong product design and execution.
Other The Other segment, which includes the company’s pharmacy, vision, dental, and international operations, saw a 15% decline in revenues and a 58% decline in gross margin in Q3 2024. This was primarily due to the divestitures of Operose Health and Circle Health in late 2023 and early 2024.
Liquidity and Capital Structure
Centene’s operating cash flows used $1.0 billion in the third quarter of 2024. As of September 30, 2024, the company had $17.6 billion in total debt, with a current portion of $111 million. Centene’s Board of Directors has authorized a $10 billion stock repurchase program, of which $3.2 billion remained available as of September 30, 2024.
Regulatory and Industry Trends
Centene continues to navigate the evolving healthcare landscape, including changes to Medicaid eligibility and coverage requirements. The Consolidated Appropriations Act, 2023 delinked the Medicaid continuous coverage requirements from the COVID-19 public health emergency, leading to the start of Medicaid redeterminations in April 2023. While the majority of states have substantially completed their unwinding processes, Centene continues to work with its state partners to match rates to the changes in member acuity.
Additionally, the company is monitoring new regulations related to Medicare Advantage plans, including the requirement for beneficiaries dually enrolled in Medicare and Medicaid to have aligned enrollment with their Medicaid Managed Care Organization starting in 2027. Centene believes it is well-positioned to navigate these changes given its overlapping Medicaid and Medicare Advantage footprint.
Outlook and Strategic Initiatives
Looking ahead, Centene expects the Medicaid redetermination process and the impact of lower Medicare Advantage Star quality ratings to continue to affect its financial performance. The company is focused on working with states to match rates to the changes in member acuity and is appealing the CMS scoring of its TTY (Text-to-Voice teletypewriter services for the hearing impaired) measure, which could improve its Medicare Advantage Star ratings.
Centene’s strategic initiatives include the successful implementation of its new third-party pharmacy benefits management (PBM) contract, which commenced in January 2024, as well as the continued expansion of its Marketplace plans. The company has also completed several divestitures, including the sales of Operose Health, Circle Health, and Collaborative Health Systems, to streamline its operations and focus on its core government-sponsored healthcare business.
Overall, Centene remains well-positioned to navigate the evolving healthcare landscape and continue delivering high-quality, affordable healthcare to its members. The company’s strong market presence, diversified product portfolio, and focus on operational efficiency position it for long-term success.