Item 8. Financial Statements and Supplementary Data

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Item 8. Financial Statements and Supplementary Data

Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors

Centene Corporation:

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Centene Corporation and subsidiaries (the Company) as of December 31, 2022 and 2021, the related consolidated statements of operations, comprehensive earnings (loss), stockholders' equity, and cash flows for each of the years in the three‑year period ended December 31, 2022, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the years in the three‑year period ended December 31, 2022, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 21, 2023 expressed an unqualified opinion on the effectiveness of the Company's internal control over financial reporting.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit and compliance committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Evaluation of the estimated medical claims liability

As discussed in Note 2 to the consolidated financial statements, the Company's medical claims liability includes claims reported but not yet paid, estimates for claims incurred but not reported, and estimates for the costs necessary to process unpaid claims. As discussed in Note 8 to the consolidated financial statements, the balance at December 31, 2022 was $16,745 million.

We identified the evaluation of the estimated medical claims liability as a critical audit matter. The Company estimates its medical claims liability using actuarial methods. Specialized skills were required to evaluate these actuarial methods, which include analyzing historical claims data in order to estimate the medical claims liability. The medical claims liability included an estimate for medical claims developing under moderately adverse conditions, which represents the risk of adverse deviation in the Company's actuarial methods of reserving, which required auditor judgment to evaluate.

The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to the critical audit matter. This included controls over the Company's process to evaluate the estimate of the medical claims liability. We involved actuarial professionals with specialized skills and knowledge who evaluated the actuarial methods used by the Company to estimate the medical claims liability. With the assistance of the actuarial professionals, we challenged the Company's estimate of the medical claims liability, including the effects of moderately adverse conditions, by developing an independent estimate for certain health plans using the Company's medical claims data, and relative range. We assessed the potential for management bias by evaluating the Company's position and movement within the actuarial professionals' relative range.

Evaluation of the estimated Affordable Care Act risk adjustment accruals

As discussed in Note 2 to the consolidated financial statements, the Affordable Care Act (ACA) established a permanent risk adjustment program. This program transfers funds from qualified individual and small group insurance plans with below average risk scores to those insurance plans with above average risk scores within each state. The final settlement of the December 31, 2022 ACA risk adjustment accruals is scheduled to be determined by the Centers for Medicare and Medicaid Services (CMS) in June 2023, based on data submitted by insurance companies through April 2023. As discussed in Note 9, the Company recorded an estimated asset and liability (the ACA risk adjustment accruals) of $838 million, and $780 million, respectively at December 31, 2022.

We identified the evaluation of the estimated ACA risk adjustment accruals as a critical audit matter. Specialized skills and a higher degree of auditor judgment were required to evaluate the Company's estimates. The Company's estimates are based on its analysis of member data, claims data, and projections of claims data expected to be submitted by the Company, and other insurance plans, to CMS for settlement.

The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls over the Company's process to develop the estimated ACA risk adjustment accruals. We involved actuarial professionals with specialized skills and knowledge who assisted in evaluating the Company's methodology used in estimating the ACA risk adjustment accruals for consistency with the federally developed risk adjustment methodology. Additionally, the actuarial professionals assisted in evaluating the projections of claims data utilized to estimate the ACA risk adjustment accruals, and assessed the methodologies utilized by the Company for consistency with industry practice. We assessed the Company's process to estimate the ACA risk adjustment accruals, in order to consider the potential for management bias, by performing a retrospective review of the prior period ACA risk adjustment accruals and assessing the consistency of those estimated balances with the subsequent settlement.

/s/ KPMG LLP

We have served as the Company's auditor since 2005.

St. Louis, Missouri

February 21, 2023

CENTENE CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In millions, except shares in thousands and per share data in dollars)


	December 31, 2022		December 31, 2021
ASSETS
Current assets:
Cash and cash equivalents	$	12,074	$	13,118
Premium and trade receivables	13,272		12,238
Short-term investments	2,321		1,539
Other current assets	2,461		1,602
Total current assets	30,128		28,497
Long-term investments	14,684		14,043
Restricted deposits	1,217		1,068
Property, software and equipment, net	2,432		3,391
Goodwill	18,812		19,771
Intangible assets, net	6,911		7,824
Other long-term assets	2,686		3,781
Total assets	$	76,870	$	78,375
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND STOCKHOLDERS' EQUITY
Current liabilities:
Medical claims liability	$	16,745	$	14,243
Accounts payable and accrued expenses	9,525		8,493
Return of premium payable	1,634		2,328
Unearned revenue	478		434
Current portion of long-term debt	82		267
Total current liabilities	28,464		25,765
Long-term debt	17,938		18,571
Deferred tax liability	615		1,407
Other long-term liabilities	5,616		5,610
Total liabilities	52,633		51,353
Commitments and contingencies
Redeemable noncontrolling interests	56		82
Stockholders' equity:

Preferred stock, $0.001 par value; authorized 10,000 shares; no shares issued or outstanding at December 31, 2022 and December 31, 2021	—		—
Common stock, $0.001 par value; authorized 800,000 shares; 607,847 issued and 550,754 outstanding at December 31, 2022, and 602,704 issued and 582,479 outstanding at December 31, 2021	1		1
Additional paid-in capital	20,060		19,672

Accumulated other comprehensive earnings (loss)	(1,132)		77
Retained earnings	9,341		8,139
Treasury stock, at cost (57,093 and 20,225 shares, respectively)	(4,213)		(1,094)
Total Centene stockholders' equity	24,057		26,795
Nonredeemable noncontrolling interest	124		145
Total stockholders' equity	24,181		26,940
Total liabilities, redeemable noncontrolling interests and stockholders' equity	$	76,870	$	78,375

The accompanying notes to the consolidated financial statements are an integral part of these statements.

CENTENE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In millions, except shares in thousands and per share data in dollars)


	Year Ended December 31,
	2022		2021		2020
Revenues:
Premium	$	127,131	$	112,319	$	100,055
Service	8,348		5,664		3,745
Premium and service revenues	135,479		117,983		103,800
Premium tax and health insurer fee	9,068		7,999		7,315
Total revenues	144,547		125,982		111,115
Expenses:
Medical costs	111,529		98,602		86,264
Cost of services	7,032		4,894		3,303
Selling, general and administrative expenses	11,589		9,601		9,380
Depreciation expense	614		565		487
Amortization of acquired intangible assets	817		770		719
Premium tax expense	9,330		8,287		6,332
Health insurer fee expense	—		—		1,476
Impairment	2,318		229		72
Legal settlement	—		1,250		—
Total operating expenses	143,229		124,198		108,033
Earnings from operations	1,318		1,784		3,082
Other income (expense):
Investment and other income	1,279		819		480
Debt extinguishment	30		(125)		(61)
Interest expense	(665)		(665)		(728)
Earnings before income tax	1,962		1,813		2,773
Income tax expense	760		477		979


Net earnings	1,202		1,336		1,794
Loss attributable to noncontrolling interests	—		11		14
Net earnings attributable to Centene Corporation	$	1,202	$	1,347	$	1,808






Net earnings per common share attributable to Centene Corporation:



Basic earnings per common share	$	2.09	$	2.31	$	3.17




Diluted earnings per common share	$	2.07	$	2.28	$	3.12

Weighted average number of common shares outstanding:
Basic	575,191		582,832		570,722
Diluted	582,040		590,516		579,135

The accompanying notes to the consolidated financial statements are an integral part of these statements.

CENTENE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS (LOSS)

(In millions)


	Year Ended December 31,
	2022		2021		2020
Net earnings	$	1,202	$	1,336	$	1,794
Change in unrealized gain (loss) on investments	(1,475)		(296)		251
Change in unrealized gain (loss) on investments, tax effect	349		75		(60)
Change in unrealized gain (loss) on investments, net of tax	(1,126)		(221)		191

Reclassification adjustment, net of tax	11		(20)		(3)
Foreign currency translation adjustments, net of tax	(94)		(19)		15
Other comprehensive earnings (loss)	(1,209)		(260)		203
Comprehensive earnings (loss)	(7)		1,076		1,997
Comprehensive loss attributable to noncontrolling interests	—		11		14
Comprehensive earnings (loss) attributable to Centene Corporation	$	(7)	$	1,087	$	2,011

The accompanying notes to the consolidated financial statements are an integral part of these statements.

CENTENE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(In millions, except shares in thousands and per share data in dollars)


	Centene Stockholders' Equity
	Common Stock									Treasury Stock
	$0.001 Par Value Shares	Amt		Additional Paid-in Capital		Accumulated Other Comprehensive Earnings (Loss)		Retained Earnings		$0.001 Par Value Shares	Amt		Noncontrolling Interest		Total
Balance, December 31, 2019	421,508	$	—	$	7,647	$	134	$	4,984	6,460	$	(214)	$	108	$	12,659
Net earnings (loss)	—	—		—		—		1,808		—	—		(24)		1,784
Other comprehensive earnings, net of $60 tax	—	—		—		203		—		—	—		—		203
Common stock issued for acquisitions	171,225	1		11,526		—		—		—	—		—		11,527
Common stock issued for employee benefit plans	5,923	—		29		—		—		—	—		—		29
Common stock repurchases	(407)	—		(24)		—		—		10,310	(602)		—		(626)
Stock compensation expense	—	—		281		—		—		—	—		—		281
Contribution from noncontrolling interest	—	—		—		—		—		—	—		28		28

Balance, December 31, 2020	598,249	$	1	$	19,459	$	337	$	6,792	16,770	$	(816)	$	112	$	25,885
Net earnings (loss)	—	—		—		—		1,347		—	—		(21)		1,326
Other comprehensive loss, net of $(75) tax	—	—		—		(260)		—		—	—		—		(260)
Common stock issued for employee benefit plans	4,781	—		38		—		—		—	—		—		38
Common stock repurchases	(326)	—		(19)		—		—		3,455	(278)		—		(297)
Stock compensation expense	—	—		203		—		—		—	—		—		203
Contribution from noncontrolling interest	—	—		—		—		—		—	—		46		46
Divestiture of noncontrolling interest	—	—		(9)		—		—		—	—		5		(4)
Acquisition resulting in noncontrolling interest	—	—		—		—		—		—	—		3		3
Balance, December 31, 2021	602,704	$	1	$	19,672	$	77	$	8,139	20,225	$	(1,094)	$	145	$	26,940
Net earnings (loss)	—	—		—		—		1,202		—	—		(13)		1,189
Other comprehensive loss, net of $349 tax	—	—		—		(1,209)		—		—	—		—		(1,209)


Common stock issued for employee benefit plans	5,143	—		71		—		—		—	—		—		71
Fair value of unvested equity awards in connection with acquisition	—	—		60		—		—		—	—		—		60
Common stock repurchases	—	—		23		—		—		36,868	(3,119)		—		(3,096)
Stock compensation expense	—	—		234		—		—		—	—		—		234



Reclassification to non-redeemable	—	—		—		—		—		—	—		17		17
Divestiture of noncontrolling interest	—	—		—		—		—		—	—		(14)		(14)
Dividend to noncontrolling interest	—	—		—		—		—		—	—		(10)		(10)
Purchase of noncontrolling interest	—	—		—		—		—		—	—		(1)		(1)
Balance, December 31, 2022	607,847	$	1	$	20,060	$	(1,132)	$	9,341	57,093	$	(4,213)	$	124	$	24,181

The accompanying notes to the consolidated financial statements are an integral part of this statement.

CENTENE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions)


	Year Ended December 31,
	2022		2021		2020
Cash flows from operating activities:
Net earnings	$	1,202	$	1,336	$	1,794
Adjustments to reconcile net earnings to net cash provided by operating activities
Depreciation and amortization	1,553		1,476		1,259
Stock compensation expense	234		203		281
Impairment	2,318		229		72
(Gain) loss on debt extinguishment	(25)		125		57
(Gain) on acquisition	(2)		(309)		—
Deferred income taxes	(631)		(132)		(51)
(Gain) on divestitures	(772)		(88)		(104)
Loss on disposal of equipment	221		12		5
Other adjustments, net	(31)		(23)		(5)
Changes in assets and liabilities
Premium and trade receivables	(1,627)		(2,453)		(52)
Other assets	128		(99)		(30)
Medical claims liabilities	2,397		1,802		1,117
Unearned revenue	31		(109)		(528)
Accounts payable and accrued expenses	421		1,141		585
Other long-term liabilities	842		1,093		1,078
Other operating activities, net	2		1		25
Net cash provided by operating activities	6,261		4,205		5,503
Cash flows from investing activities:
Capital expenditures	(1,004)		(910)		(869)
Purchases of investments	(6,736)		(7,400)		(7,402)
Sales and maturities of investments	3,802		5,458		4,921
Acquisitions, net of cash acquired	(1,460)		(534)		(4,049)
Divestiture proceeds, net of divested cash	2,477		68		466

Other investing activities, net	—		19		(22)
Net cash (used in) investing activities	(2,921)		(3,299)		(6,955)
Cash flows from financing activities:
Proceeds from long-term debt	360		9,267		5,107
Payments and repurchases of long-term debt	(1,490)		(7,434)		(4,067)
Common stock repurchases	(3,096)		(297)		(626)

Proceeds from common stock issuances	70		35		28
Payments for debt extinguishment	(14)		(157)		(81)
Debt issuance costs	—		(72)		(120)
Other financing activities, net	(27)		20		19
Net cash (used in) provided by financing activities	(4,197)		1,362		260
Effect of exchange rate changes on cash, cash equivalents, and restricted cash	(11)		(11)		18
Net increase (decrease) in cash, cash equivalents, and restricted cash and cash equivalents	(868)		2,257		(1,174)
Cash and cash equivalents reclassified (to) from held for sale	(16)		—		—
Cash, cash equivalents, and restricted cash and cash equivalents, beginning of period	13,214		10,957		12,131
Cash, cash equivalents, and restricted cash and cash equivalents, end of period	$	12,330	$	13,214	$	10,957
Supplemental disclosures of cash flow information:
Interest paid	$	657	$	658	$	725
Income taxes paid	$	1,222	$	678	$	1,191
Equity issued in connection with acquisitions	$	60	$	—	$	11,526
The following table provides a reconciliation of cash, cash equivalents, and restricted cash and cash equivalents reported within the Consolidated Balance Sheets to the totals above:
	2022		2021		2020
Cash and cash equivalents	$	12,074	$	13,118	$	10,800
Restricted cash and cash equivalents, included in restricted deposits	256		96		157
Total cash, cash equivalents, and restricted cash and cash equivalents	$	12,330	$	13,214	$	10,957

The accompanying notes to the consolidated financial statements are an integral part of these statements.

CENTENE CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

1. Organization and Operations

Centene Corporation, or the Company, is a leading healthcare enterprise, committed to helping people live healthier lives, with an established expertise in lower-income and medically complex populations. The Company provides access to high-quality healthcare, innovative programs, and a wide range of health solutions that help families and individuals get well, stay well, and be well. During 2022, the Company operated in two segments: Managed Care and Specialty Services. The Managed Care segment provided health plan coverage to individuals through government subsidized programs, including Medicaid, the Children's Health Insurance Program (CHIP), Long-Term Services and Supports (LTSS), Foster Care, Medicare-Medicaid Plans (MMP), which cover beneficiaries who are dually eligible for Medicaid and Medicare, the Supplemental Security Income Program, also known as the Aged, Blind, or Disabled Program (ABD), Medicare (including Medicare Prescription Drug Plans), and the Health Insurance Marketplace. The Company also offered a variety of individual, small group, and large group commercial healthcare products, both to employers and directly to members in the Managed Care segment. The Specialty Services segment consisted of the Company's specialty companies offering auxiliary healthcare services and products to state programs, correctional facilities, healthcare organizations, employer groups, and other commercial organizations, as well as to the Company's own subsidiaries. The Specialty Services segment also included the government contracts business, including the Company's government-sponsored Managed Care Support Contract with the U.S. Department of Defense (DoD) under the TRICARE program and other healthcare related government contracts.

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying consolidated financial statements include the accounts of Centene Corporation and all majority owned subsidiaries and subsidiaries over which the Company exercises the power and control to direct activities significantly impacting financial performance. All material intercompany balances and transactions have been eliminated.

Certain amounts in the consolidated financial statements and notes have been reclassified to conform to the 2022 presentation. Beginning in 2022, the Company has included a separate line item for depreciation expense on the Consolidated Statement of Operations, which was previously included in selling, general and administrative (SG&A) expenses. Prior period SG&A expense ratios have also been conformed to the current presentation. These reclassifications have no effect on net earnings, cash flow, or stockholders' equity as previously reported.

On January 2022, the Company acquired all of the issued and outstanding shares of Magellan Health, Inc. (Magellan). The acquisition was accounted for as a business combination. Additionally, during 2022 the Company completed the divestitures of PANTHERx Rare (PANTHERx), its Spanish and Central European businesses, and Magellan Rx. See Note 3. Acquisitions and Divestitures for further details.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles in the United States (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Future events and their effects cannot be predicted with certainty; accordingly, the accounting estimates require the exercise of judgment. The accounting estimates used in the preparation of the consolidated financial statements will change as new events occur, as more experience is acquired, as additional information is obtained, and as the operating environment changes. The Company evaluates and updates its assumptions and estimates on an ongoing basis and may employ outside experts to assist in its evaluation, as considered necessary. Actual results could differ from those estimates.

Business Combinations

Business combinations are accounted for using the acquisition method of accounting. The Company allocates the fair value of purchase consideration to the assets acquired and liabilities assumed based on their fair values at the acquisition date. The excess of the fair value of consideration transferred over the fair value of the net assets acquired is recorded as goodwill. Goodwill is generally attributable to the value of the synergies between the combined companies and the value of the acquired assembled workforce, neither of which qualifies for recognition as an intangible asset.

The Company uses its best estimates and assumptions to value assets acquired and liabilities assumed at the acquisition date; however, these estimates are sometimes preliminary and, in some instances, all information required to value the assets acquired and liabilities assumed may not be available or final as of the end of a reporting period subsequent to the business combination. If the accounting for the business combination is incomplete, provisional amounts are recorded. The provisional amounts are updated during the period determined, up to one year from the acquisition date. The Company includes the results of operations of acquired businesses in the Company's consolidated results prospectively from the date of acquisition.

Acquisition related expenses and post-acquisition restructuring costs are recognized separately from the business combination and are expensed as incurred.

Cash and Cash Equivalents

Investments with original maturities of three months or less are considered to be cash equivalents. Cash equivalents consist of money market funds, bank certificates of deposit, and savings accounts.

The Company maintains amounts on deposit with various financial institutions, which may exceed federally insured limits. However, management periodically evaluates the credit-worthiness of those institutions, and the Company has not experienced any losses on such deposits.

Investments

Short-term investments include securities with maturities greater than three months to one year. Long-term investments include securities with maturities greater than one year.

Short-term and long-term investments are generally classified as available-for-sale and are carried at fair value. Certain equity investments are recorded using the fair value or equity method. The Company monitors the difference between the carrying value and fair value of its available-for-sale debt investments and whether declines in fair value are credit related. Unrealized gains and losses on debt investments available-for-sale are excluded from earnings and reported in accumulated other comprehensive earnings (loss), a separate component of stockholders' equity, net of income tax effects. If a loss is deemed to be credit related, the Company recognizes an allowance through earnings. For each security in an unrealized loss position, the Company assesses whether it intends to sell the security or if it is more likely than not the Company will be required to sell the security before recovery of the amortized cost basis for reasons such as liquidity, contractual or regulatory purposes. If the security meets this criterion, the decline in fair value is recorded in earnings through investment and other income. Premiums and discounts are amortized or accreted over the life of the related security using the effective interest method. To calculate realized gains and losses on the sale of investments, the Company uses the specific amortized cost of each investment sold. Realized gains and losses are recorded in investment and other income.

The Company uses the equity method to account for investments in entities that it does not control but has the ability to exercise significant influence over operating and financial policies. Generally, under the equity method, original investments in these entities are recorded at cost and subsequently adjusted by the Company's share of equity in income or losses after the date of acquisition as well as capital contributions to and distributions from these companies.

Restricted Deposits

Restricted deposits consist of investments required by various state statutes to be deposited or pledged to state agencies. These investments are classified as long-term, regardless of the contractual maturity date, due to the nature of the states' requirements. The Company is required to annually adjust the amount of the deposit pledged to certain states.

Fair Value Measurements

In the normal course of business, the Company invests in various financial assets and incurs various financial liabilities. Fair values are disclosed for all financial instruments, whether or not such values are recognized in the Consolidated Balance Sheets. Management obtains quoted market prices and other observable inputs for these disclosures. The carrying amounts reported in the Consolidated Balance Sheets for cash and cash equivalents, premium and trade receivables, medical claims liability, accounts payable and accrued expenses, unearned revenue, and certain other current assets and liabilities are carried at cost, which approximates fair value because of their short-term nature.

The following methods and assumptions were used to estimate the fair value of each financial instrument:

Available-for-sale investments and restricted deposits: The carrying amount is stated at fair value, based on quoted market prices, where available. For securities not actively traded, fair values were estimated using values obtained from independent pricing services or quoted market prices of comparable instruments.
Senior unsecured notes: Estimated based on third-party quoted market prices for the same or similar issues.
Variable rate debt: The carrying amount of the Company's floating rate debt approximates fair value since the interest rates adjust based on market rate adjustments.
Foreign currency swap: Estimated based on Great British Pound to US Dollar foreign exchange rates.
Contingent consideration: Estimated based on expected achievement of metrics included in the acquisition agreement considering circumstances that exist as of the acquisition date.

Property, Software and Equipment

Property, software and equipment are stated at cost less accumulated depreciation. Computer hardware and software includes certain costs incurred in the development of internal-use software, including external direct costs of materials and services and payroll costs of employees devoted to specific software development. Depreciation is calculated principally by the straight-line method over estimated useful lives. Leasehold improvements are depreciated using the straight-line method over the shorter of the expected useful life or the remaining term of the lease. Property, software and equipment are depreciated over the following periods:


Fixed Asset						Depreciation Period
Buildings and improvements						5 - 40 years
Computer hardware and software						3 - 5 years
Furniture and equipment						3 - 10 years
Land improvements						10 - 20 years
Leasehold improvements						1 - 20 years

The carrying amounts of all long-lived assets are evaluated to determine if adjustment to the depreciation and amortization period or to the unamortized balance is warranted. Such evaluation is based principally on the expected utilization of the long-lived assets.

The Company retains fully depreciated assets in property and accumulated depreciation accounts until it removes them from service. In the case of sale, retirement, or disposal, the asset cost and related accumulated depreciation balance is removed from the respective account, and the resulting net amount, less any proceeds, is included as a component of earnings from operations in the Consolidated Statements of Operations.

Goodwill and Intangible Assets

Intangible assets represent assets acquired in purchase transactions and consist primarily of purchased contract rights and customer relationships, provider contracts, trade names, developed technologies, and goodwill. Intangible assets are amortized using the straight-line method over the following periods:


Intangible Asset						Amortization Period
Purchased contract rights and customer relationships						3 - 21 years
Provider contracts						4 - 15 years
Trade names						7 - 20 years
Developed technologies						2 - 7 years

The Company tests for impairment of intangible assets, as well as long-lived assets, whenever events or changes in circumstances indicate that the carrying value of an asset or asset group (hereinafter referred to as "asset group") may not be recoverable by comparing the sum of the estimated undiscounted future cash flows expected to result from use of the asset group and its eventual disposition to the carrying value. Such factors include, but are not limited to, significant changes in membership, state funding, state contracts, and provider networks and contracts. If the sum of the estimated undiscounted future cash flows is less than the carrying value, an impairment determination is required. The amount of impairment is calculated by subtracting the fair value of the asset group from the carrying value of the asset group. An impairment charge, if any, is recognized within earnings from operations.

The Company tests goodwill for impairment using a fair value approach. The Company is required to test for impairment at least annually, absent a triggering event, which could include a significant decline in operating performance that would require an impairment assessment. Absent any impairment indicators, the Company performs its goodwill impairment testing during the fourth quarter of each year. The Company recognizes an impairment charge for any amount by which the carrying amount of goodwill exceeds its fair value.

The Company first assesses qualitative factors to determine whether it is necessary to perform the quantitative goodwill impairment test. The Company generally does not calculate the fair value of a reporting unit unless it determines, based on a qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount.

If the quantitative test is deemed necessary, the Company determines an appropriate valuation technique to estimate a reporting unit's fair value as of the testing date. The Company utilizes either the income approach or the market approach, whichever is most appropriate for the respective reporting unit. The income approach is based on an internally developed discounted cash flow model that includes many assumptions related to future growth rates, discount factors, future tax rates, and other various assumptions. The market approach is based on financial multiples of comparable companies derived from current market data. The Company then compares the fair value of the reporting unit calculated using the income approach or market approach with its carrying amount and recognizes an impairment charge for the amount by which the carrying amount exceeds fair value. The impairment charge is limited to the total amount of goodwill allocated to the reporting unit. Changes in economic and operating conditions impacting assumptions used in the Company's analyses could result in goodwill impairment in future periods.

Medical Claims Liability

Medical claims liability includes claims reported but not yet paid, or inventory, estimates for claims incurred but not reported, or IBNR, and estimates for the costs necessary to process unpaid claims at the end of each period. The Company estimates its medical claims liability using actuarial methods that are commonly used by health insurance actuaries and meet Actuarial Standards of Practice. These actuarial methods consider factors such as historical data for payment patterns, cost trends, product mix, seasonality, utilization of healthcare services, and other relevant factors.

Actuarial Standards of Practice generally require that the medical claims liability estimates be adequate to cover obligations under moderately adverse conditions. Moderately adverse conditions are situations in which the actual claims are expected to be higher than the otherwise estimated value of such claims at the time of estimate. In many situations, the claims amounts ultimately settled will be different than the estimate that satisfies the Actuarial Standards of Practice. The Company includes in its IBNR an estimate for medical claims liability under moderately adverse conditions which represents the risk of adverse deviation of the estimates in its actuarial method of reserving.

The Company uses its judgment to determine the assumptions to be used in the calculation of the required estimates. The assumptions it considers when estimating IBNR include, without limitation, claims receipt and payment experience (and variations in that experience), changes in membership, provider billing practices, healthcare service utilization trends, cost trends, product mix, seasonality, prior authorization of medical services, benefit changes, known outbreaks of disease or increased incidence of illness such as influenza or COVID-19, provider contract changes, changes to fee schedules, and the incidence of high-dollar or catastrophic claims.

The Company's development of the medical claims liability estimate is a continuous process which it monitors and refines on a monthly basis as additional claims receipts and payment information becomes available. As more complete claims information becomes available, the Company adjusts the amount of the estimates, and includes the changes in estimates in medical costs in the period in which the changes are identified. In every reporting period, the operating results include the effects of more completely developed medical claims liability estimates associated with previously reported periods. The Company consistently applies its reserving methodology from period to period. As additional information becomes known, it adjusts the actuarial model accordingly to establish medical claims liability estimates.

The Company reviews actual and anticipated experience compared to the assumptions used to establish medical costs. The Company establishes premium deficiency reserves if actual and anticipated experience indicates that existing policy liabilities together with the present value of future gross premiums will not be sufficient to cover the present value of future benefits, settlement, and maintenance costs. For purposes of determining premium deficiencies, contracts are grouped in a manner consistent with the method of acquiring, servicing, and measuring the profitability of such contracts.

Revenue Recognition

The Company's health plans generate revenues primarily from premiums received from the states in which it operates health plans, premiums received from its members and the Centers for Medicare and Medicaid Services (CMS) for its Medicare product, and premiums from members of its commercial health plans. In addition to member premium payments, its Marketplace contracts also generate revenues from subsidies received from CMS. The Company generally receives a fixed premium per member per month pursuant to its contracts and recognizes premium revenues during the period in which it is obligated to provide services to its members at the amount reasonably estimable. In some instances, the Company's base premiums are subject to an adjustment factor, in the form of a risk score or risk adjustment, based on the acuity of its membership. Generally, the risk score or risk adjustment is determined by the state or CMS analyzing submissions of processed claims and medical record data to determine the acuity of the Company's membership, often relative to the respective program's membership. The Company estimates the amount of risk score and risk adjustment based upon the processed claims and medical record data submitted and expected to be submitted to CMS and records revenues on a risk adjusted basis. Some contracts allow for additional premiums related to certain supplemental services provided such as maternity deliveries.

The Company's contracts with states may require it to maintain a minimum health benefits ratio (HBR) or may require it to share cost-savings in excess of certain levels. In certain circumstances, including commercial plans, its plans may be required to return premium to the state or policyholders in the event costs are below established levels. The Company estimates the effect of these programs and recognizes reductions in revenue in the current period. Other states may require us to meet certain performance and quality metrics in order to receive additional or full contractual revenue. For performance-based contracts, the Company does not recognize revenue subject to refund until data is sufficient to measure performance.

Revenues are recorded based on membership and eligibility data provided by the states or CMS, which is adjusted on a monthly basis by the states or CMS for retroactive additions or deletions to membership data. These eligibility adjustments are estimated monthly and subsequent adjustments are made in the period known. The Company reviews and updates those estimates as new information becomes available. It is possible that new information could require us to make additional adjustments, which could be significant, to these estimates.

The Company's Medicare Advantage contracts are with CMS. CMS deploys a risk adjustment model which apportions premiums paid to all health plans according to health severity and certain demographic factors. The CMS risk adjustment model pays more for members whose medical history would indicate that they are expected to have higher medical costs. Under this risk adjustment methodology, CMS calculates the risk adjusted premium payment using diagnosis data from hospital inpatient, hospital outpatient, physician treatment settings as well as prescription drug events. The Company and the healthcare providers collect, compile, and submit the necessary and available diagnosis data to CMS within prescribed deadlines. The Company estimates risk adjustment revenues based upon the diagnosis data submitted and expected to be submitted to CMS and records revenues on a risk adjusted basis.

For qualifying low-income prescription drug benefit members, CMS pays for some, or all, of the member's monthly premium. The Company receives certain Part D prospective subsidy payments from CMS for these members as a fixed monthly per member amount, based on the estimated costs of providing prescription drug benefits over the plan year, as reflected in its bids. Approximately nine to ten months subsequent to the end of the plan year, or later in the case of the coverage gap discount subsidy, a settlement payment is made between CMS and the Company's plans based on the difference between the prospective payments and actual claims experience.

The Company's specialty services generate revenues under contracts with state and federal programs, healthcare organizations, and other commercial organizations, as well as from its own subsidiaries. Revenues are recognized when the related services are provided, when inventory is shipped, or as ratably earned over the covered period of services. The Company recognizes revenue related to administrative services under the TRICARE government-sponsored Managed Care Support Contract for the DoD's TRICARE program on a straight-line basis over the option period, when the fees become fixed and determinable. The TRICARE contract includes various performance-based measures. For each of the measures, an estimate of the amount that has been earned is made at each interim date, and revenue is recognized accordingly.

Some states enact premium taxes, similar assessments, and provider pass-through payments, collectively premium taxes, and these taxes are recorded as a separate component of both revenues and operating expenses. Additionally, the Company's insurance subsidiaries were previously subject to the Affordable Care Act (ACA) annual health insurer fee (HIF). Beginning in 2021, the HIF was permanently repealed. This revenue was recorded as premium tax and health insurer fee revenue in the Consolidated Statements of Operations. For certain products, premium taxes, state assessments, and the HIF are not pass-through payments and are recorded as premium revenue and premium tax expense or health insurer fee expense in the Consolidated Statements of Operations.

Some states require state directed payments that have minimal risk, but are administered as a premium adjustment. These payments are recorded as premium revenue and medical costs at close to a 100% HBR. In many instances, the Company has little visibility to the timing of these payments until they are paid by the state.

Affordable Care Act

The ACA established risk spreading premium stabilization programs as well as minimum medical loss ratio (MLR) and cost sharing reductions (CSRs). The Company's accounting policies for the programs are as follows:

Risk Adjustment

The permanent risk adjustment program established by the ACA transfers funds from qualified individual and small group insurance plans with below average risk scores to those plans with above average risk scores within each state. The Company estimates the receivable or payable under the risk adjustment program based on its estimated risk score compared to the state average risk score. The Company may record a receivable or payable as an adjustment to premium revenues to reflect the year-to-date impact of the risk adjustment based on its best estimate. The Company refines its estimate as new information becomes available.

Minimum Medical Loss Ratio

Additionally, the ACA established a minimum MLR for the Health Insurance Marketplace. The risk adjustment program described above is taken into consideration to determine if the Company's estimated annual medical costs are less than the minimum MLR and require an adjustment to premium revenues to meet the minimum MLR.

Cost Sharing Reductions

The ACA directs issuers to reduce the Company's members' cost sharing for essential health benefits for individuals with Federal Poverty Levels (FPLs) between 100% and 250% who are enrolled in a silver tier product; eliminate cost sharing for Indians/Alaska Natives with a FPL less than 300% and eliminate cost sharing for Indians/Alaska Natives regardless of FPL when services are provided by an Indian Health Service. In order to compensate issuers for reduced cost sharing provided to enrollees, CMS pays an advance CSR payment to the Company each month based on the Company's certification data provided at the time of the qualified health plan application. In October 2017, the Trump Administration issued an executive order that immediately ceased payments of CSRs to issuers, and beginning in 2018 premium rates for Health Insurance Marketplace were set without factoring in the cost sharing subsidy payments from the federal government.

Premium and Trade Receivables and Unearned Revenue

Premium and service revenues collected in advance are recorded as unearned revenue. For performance-based contracts, the Company does not recognize revenue subject to refund until data is sufficient to measure performance. Premiums and service revenues due to the Company are recorded as premium and trade receivables and are recorded net of an allowance based on historical trends and management's judgment on the collectability of these accounts. As the Company generally receives payments during the month in which services are provided, the allowance is typically not significant in comparison to total revenues and does not have a material impact on the presentation of the financial condition or results of operations. Amounts receivable under federal contracts are comprised primarily of contractually defined billings, accrued contract incentives under the terms of the contract, and amounts related to change orders for services not originally specified in the contract.

Activity in the allowance for uncollectible accounts is summarized below ($ in millions):


	Year Ended December 31,
	2022		2021		2020
Balance, January 1	$	139	$	243	$	157

Amounts charged to expense	70		62		121
Recoveries	—		(43)		—
Write-offs of uncollectible receivables	(79)		(123)		(35)
Balance, December 31	$	130	$	139	$	243

Significant Customers

The Company receives the majority of its revenues under contracts or subcontracts with state Medicaid managed care programs. Customers where the aggregate annual contract revenues exceeded 10% of total annual revenues included the state of New York, where the percentage of the Company's total revenue was 10% and 11% for the years ended December 31, 2021 and 2020. None of the Company's customers exceeded 10% of total annual revenues for the year ended December 31, 2022.

Other Income (Expense)

Other income (expense) consists routinely of investment income, interest expense, and equity method earnings from investments. Investment income is derived from the Company's cash, cash equivalents, restricted deposits and investments. Interest expense relates to borrowings under the senior notes, credit facilities, mortgage and construction loans, and capital leases. Further, other income (expense) includes gains or losses on sales of investments, divestitures, and acquisitions as well as debt extinguishment costs.

Income Taxes

Deferred tax assets and liabilities are recorded for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax law or tax rates is recognized in income in the period that includes the enactment date.

Valuation allowances are provided when it is considered more likely than not that deferred tax assets will not be realized. In determining if a deductible temporary difference or net operating loss can be realized, the Company considers future reversals of existing taxable temporary differences, future taxable income, taxable income in prior carryback periods, and tax planning strategies.

Contingencies

The Company accrues for loss contingencies associated with outstanding litigation, claims, and assessments for which it has determined it is probable that a loss contingency exists and the amount of loss can be reasonably estimated. The Company expenses professional fees associated with litigation claims and assessments as incurred.

Stock Based Compensation

Stock based compensation expense is recognized at grant date fair value over the period during which an employee is required to provide service in exchange for the award. Excess tax benefits related to stock compensation are presented as a cash inflow from operating activities. The Company accounts for forfeitures when they occur.

Foreign Currency Translation

The Company is exposed to foreign currency exchange risk through its international subsidiaries whose functional currencies include the Euro and Great British Pound. The assets and liabilities of the Company's subsidiaries are translated into United States dollars at the balance sheet date. The Company translates its proportionate share of earnings using average rates during the year. The resulting foreign currency translation adjustments are recorded as a separate component of accumulated other comprehensive earnings (loss).

Recent Accounting Guidance Not Yet Adopted

The Company has determined that there are no recently issued accounting pronouncements that will have a material impact on its consolidated financial condition, results of operations, or cash flows.

3. Acquisitions and Divestitures

Magellan Acquisition

On January 4, 2022, the Company acquired all of the issued and outstanding shares of Magellan. Total consideration for the acquisition was $2,491 million, consisting of $2,431 million in cash and $60 million related to the fair value of replacement equity awards associated with pre-combination service. The purchase price has been adjusted to reflect the net effective settlement of preexisting relationships between the Company and Magellan of $70 million. The Company recognized $106 million of acquisition related expenses related to Magellan for the year ended December 31, 2022.

The Magellan acquisition was accounted for as a business combination using the acquisition method of accounting that requires assets acquired and liabilities assumed to be recognized at fair value as of the acquisition date. The valuation of all assets acquired and liabilities assumed was finalized in the fourth quarter of 2022.

The Company's allocation of the fair value of assets acquired and liabilities assumed as of the acquisition date of January 4, 2022 is as follows ($ in millions):


Assets acquired and liabilities assumed
Cash and cash equivalents	$	995
Premium and related receivables	791
Short-term investments	144
Other current assets	145
Long-term investments	43
Restricted deposits	7
Property, software and equipment	72
Intangible assets (1)	889
Other long-term assets	50
Total assets acquired	3,136

Medical claims liability	194
Accounts payable and accrued expenses	495
Return of premium payable	53
Unearned revenue	8
Current portion of long-term debt	5
Long-term debt (2)	542
Deferred tax liabilities (3)	157
Other long-term liabilities	64
Total liabilities assumed	1,518
Mezzanine equity	32
Total identifiable net assets	1,586
Goodwill (4)	905
Total assets acquired and liabilities assumed	$	2,491

Significant fair value adjustments are noted as follows:

(1) The identifiable intangible assets acquired are to be measured at fair value as of the completion of the acquisition. The fair value of intangible assets is determined primarily using variations of the income approach, which is based on the present value of the future after-tax cash flows attributable to each identified intangible asset. Other valuation methods, including the market approach and cost approach, were also considered in estimating the fair value. The identifiable intangible assets include purchased contract rights, provider contracts, developed technologies, and trade names. The Company has estimated the fair value of intangible assets to be $889 million with a weighted average life of 12 years.

The fair values and weighted average useful lives for identifiable intangible assets acquired are as follows:


	Fair Value		Weighted Average Useful Life in Years
Purchased contract rights	$	581	13
Provider contracts	120		15
Developed technologies	101		5
Trade names	87		17
Total intangible assets acquired	$	889	12

(2) Debt is required to be measured at fair value under the acquisition method of accounting. The fair value of Magellan's Senior Notes and Credit Agreement assumed in the acquisition was $535 million. In January 2022, the Company paid off Magellan's debt acquired in the transaction using Magellan's cash on hand.

(3) The deferred tax liabilities are presented net of $102 million of deferred tax assets.

(4) The acquisition resulted in $905 million of goodwill primarily related to synergies expected from the acquisition and the assembled workforce of Magellan. All of the goodwill was assigned to the Specialty segment. The majority of the goodwill is not deductible for income tax purposes.

PANTHERx Rare Divestiture

On July 14, 2022, the Company completed the divestiture of PANTHERx for $1,373 million. The Company recognized a gain of $490 million, or $382 million after-tax, which is included in investment and other income on the Consolidated Statements of Operations.

Spanish and Central European Divestiture

On November 16, 2022, as part of the Company's review of strategic alternatives for its international portfolio, the Company completed the divestiture of its ownership stakes in its Spanish and Central European businesses, including Ribera Salud, Torrejón Salud, and Pro Diagnostics Group.

In 2022, the Company recorded an impairment charge primarily related to intangible assets and goodwill associated with the divestiture of $163 million, or $140 million after-tax.

Magellan Rx Divestiture

On December 2, 2022, the Company completed the divestiture of Magellan Rx for $1,337 million. The Company recognized a gain of $269 million, or $99 million after-tax, which is included in investment and other income on the Consolidated Statements of Operations and is subject to a final working capital adjustment.

Magellan Specialty Health Divestiture

On November 17, 2022, the Company signed a definitive agreement to divest Magellan Specialty Health. As of December 31, 2022, the assets and liabilities of Magellan Specialty Health were considered held for sale, resulting in $645 million of assets held for sale in other current assets and $87 million of liabilities held for sale in accounts payable and accrued expenses on the Consolidated Balance Sheet. The majority of the of held for sale assets were previously reported as goodwill and intangible assets.

On January 20, 2023, the Company completed the divestiture for approximately $646 million in cash and stock, including an estimated working capital adjustment. The Company estimates that it will recognize an initial pre-tax gain of approximately $85 million to $95 million. The Company could also receive up to an additional $150 million in cash and stock in 2024 based on certain 2023 performance metrics. The Company will recognize the appropriate amount of contingent consideration related to the $150 million when realized or realizable.

Centurion Divestiture

On January 10, 2023, the Company signed and closed a definitive agreement to divest Centurion, its prison healthcare business. As of December 31, 2022, the assets and liabilities of Centurion were considered held for sale resulting in $236 million of assets held for sale in other current assets and $198 million of liabilities held for sale in accounts payable and accrued expenses on the Consolidated Balance Sheet. The majority of the held for sale assets were previously reported as premium and trade receivables. The majority of the liabilities were previously reported as medical claims liability and accounts payable and accrued liabilities.

During the fourth quarter of 2022, the Company recorded an impairment charge related to goodwill and other current assets associated with the divestiture of $259 million, or $181 million after-tax.

HealthSmart Divestiture

On November 1, 2022, the Company signed a definitive agreement to divest HealthSmart, its third party health plan administration business. The divestiture was completed on January 5, 2023. As of December 31, 2022, the assets and liabilities of HealthSmart were considered held for sale resulting in $66 million of assets held for sale in other current assets and $34 million of liabilities held for sale in accounts payable and accrued expenses on the Consolidated Balance Sheet. The majority of the held for sale assets were previously reported as cash and cash equivalents, premium and trade receivables, and goodwill.

During the fourth quarter of 2022, the Company recorded an impairment charge related to goodwill associated with the divestiture of $36 million, or $27 million after-tax.

4. Short-term and Long-term Investments, Restricted Deposits

Short-term and long-term investments and restricted deposits by investment type consist of the following ($ in millions):


	December 31, 2022								December 31, 2021
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Debt securities:
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	695	$	—	$	(16)	$	679	$	642	$	—	$	(2)	$	640
Corporate securities	10,127		12		(778)		9,361		8,145		130		(75)		8,200
Restricted certificates of deposit	4		—		—		4		4		—		—		4
Restricted cash equivalents	256		—		—		256		96		—		—		96
Short-term time deposits	204		—		—		204		109		—		—		109
Municipal securities	4,055		6		(280)		3,781		3,398		85		(15)		3,468
Asset-backed securities	1,396		—		(70)		1,326		1,308		5		(5)		1,308
Residential mortgage-backed securities	1,165		2		(121)		1,046		850		10		(7)		853
Commercial mortgage-backed securities	961		—		(99)		862		870		13		(10)		873
Equity securities (1)	5		—		—		5		326		—		—		326
Private equity investments	529		—		—		529		587		—		—		587
Life insurance contracts	169		—		—		169		186		—		—		186
Total	$	19,566	$	20	$	(1,364)	$	18,222	$	16,521	$	243	$	(114)	$	16,650

(1) Investments in equity securities as of December 31, 2021 primarily consisted of exchange traded funds in fixed income securities.

The Company's investments are debt securities classified as available-for-sale with the exception of equity securities, certain private equity investments, and life insurance contracts. The Company's investment policies are designed to provide liquidity, preserve capital and maximize total return on invested assets with a focus on high credit quality securities. The Company limits the size of investment in any single issuer other than U.S. treasury securities and obligations of U.S. government corporations and agencies. As of December 31, 2022, 98% of the Company's investments in rated securities carry an investment grade rating by nationally recognized statistical rating organizations. At December 31, 2022, the Company held certificates of deposit, equity securities, private equity investments, and life insurance contracts, which did not carry a credit rating. Accrued interest income on available-for-sale debt securities was $132 million and $96 million at December 31, 2022 and 2021, respectively, and is included in other current assets on the Consolidated Balance Sheet.

The Company's residential mortgage-backed securities are primarily issued by the Federal National Mortgage Association, Government National Mortgage Association, or Federal Home Loan Mortgage Corporation, which carry implicit or explicit guarantees of the U.S. government. The Company's commercial mortgage-backed securities are primarily senior tranches with a weighted average rating of AAA and a weighted average duration of 4 years at December 31, 2022.

The fair value of available-for-sale debt securities with gross unrealized losses by investment type and length of time that individual securities have been in a continuous unrealized loss position were as follows ($ in millions):


	December 31, 2022								December 31, 2021
	Less Than 12 Months				12 Months or More				Less Than 12 Months				12 Months or More
	Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	(5)	$	342	$	(11)	$	184	$	(2)	$	598	$	—	$	3
Corporate securities	(340)		5,368		(438)		3,400		(66)		4,209		(9)		209
Municipal securities	(142)		2,437		(138)		995		(14)		1,173		(1)		39
Asset-backed securities	(29)		786		(41)		486		(5)		770		—		33
Residential mortgage-backed securities	(55)		629		(66)		352		(7)		472		—		15
Commercial mortgage-backed securities	(49)		513		(50)		330		(8)		380		(2)		32

Total	$	(620)	$	10,075	$	(744)	$	5,747	$	(102)	$	7,602	$	(12)	$	331

As of December 31, 2022, the gross unrealized losses were generated from 6,423 positions out of a total of 6,854 positions. The change in fair value of available-for-sale debt securities is primarily a result of movement in interest rates subsequent to the purchase of the security.

For each security in an unrealized loss position, the Company assesses whether it intends to sell the security or if it is more likely than not the Company will be required to sell the security before recovery of the amortized cost basis for reasons such as liquidity, contractual, or regulatory purposes. If the security meets this criterion, the decline in fair value is recorded in earnings. The Company does not intend to sell these securities prior to maturity and it is not likely that the Company will be required to sell these securities prior to maturity; therefore, the Company did not record an impairment for these securities.

In addition, the Company monitors available-for-sale debt securities for credit losses. Certain investments have experienced a decline in fair value due to changes in credit quality, market interest rates, and/or general economic conditions. The Company recognizes an allowance when evidence demonstrates that the decline in fair value is credit related. Evidence of a credit related loss may include rating agency actions, adverse conditions specifically related to the security, or failure of the issuer of the security to make scheduled payments.

In July 2021, the Company acquired the remaining 60% interest of Circle Health for $705 million. As a result of the acquisition, the Company recorded a non-cash gain of $309 million on its original investment in the year ended December 31, 2021. The gain was included in investment and other income on the Consolidated Statement of Operations. Beginning in July 2021, the Company consolidates 100% of Circle Health.

In September 2021, the Company recorded a $229 million impairment of its equity method investment in RxAdvance, a pharmacy benefit manager. The impairment was the result of the Company’s focus on simplification of its pharmacy operations. The impairment was based on the Company's estimate of RxAdvance's future cash flows and other market indicators of fair value.

The contractual maturities of short-term and long-term debt securities and restricted deposits are as follows ($ in millions):


	December 31, 2022								December 31, 2021
	Investments				Restricted Deposits				Investments				Restricted Deposits
	Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value
One year or less	$	2,207	$	2,179	$	534	$	532	$	1,390	$	1,396	$	368	$	368
One year through five years	7,651		7,147		524		490		6,212		6,294		460		457
Five years through ten years	4,066		3,613		224		195		3,647		3,681		244		243
Greater than ten years	135		129		—		—		73		78		—		—
Asset-backed securities	3,522		3,234		—		—		3,028		3,034		—		—
Total	$	17,581	$	16,302	$	1,282	$	1,217	$	14,350	$	14,483	$	1,072	$	1,068

Actual maturities may differ from contractual maturities due to call or prepayment options. Equity securities, private equity investments, and life insurance contracts are excluded from the table above because they do not have a contractual maturity. The Company has an option to redeem substantially all of the securities included in the greater than ten years category listed above at amortized cost.

5. Fair Value Measurements

Assets and liabilities recorded at fair value in the Consolidated Balance Sheets are categorized based upon observable or unobservable inputs used to estimate fair value. Level inputs are as follows:


Level Input:						Input Definition:
Level I						Inputs are unadjusted, quoted prices for identical assets or liabilities in active markets at the measurement date.

Level II						Inputs other than quoted prices included in Level I that are observable for the asset or liability through corroboration with market data at the measurement date.

Level III						Unobservable inputs that reflect management's best estimate of what market participants would use in pricing the asset or liability at the measurement date.

The following table summarizes fair value measurements by level at December 31, 2022, for assets and liabilities measured at fair value on a recurring basis ($ in millions):


	Level I		Level II		Level III		Total
Assets
Cash and cash equivalents	$	12,074	$	—	$	—	$	12,074
Investments:
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	366	$	5	$	—	$	371
Corporate securities	—		9,328		—		9,328
Municipal securities	—		3,165		—		3,165
Short-term time deposits	—		204		—		204
Asset-backed securities	—		1,326		—		1,326
Residential mortgage-backed securities	—		1,046		—		1,046
Commercial mortgage-backed securities	—		862		—		862
Equity securities	3		2		—		5
Total investments	$	369	$	15,938	$	—	$	16,307
Restricted deposits:
Cash and cash equivalents	$	256	$	—	$	—	$	256
U.S. Treasury securities and obligations of U.S. government corporations and agencies	308		—		—		308
Corporate securities	—		33		—		33
Certificates of deposit	—		4		—		4
Municipal securities	—		616		—		616
Total restricted deposits	$	564	$	653	$	—	$	1,217


Total assets at fair value	$	13,007	$	16,591	$	—	$	29,598

The following table summarizes fair value measurements by level at December 31, 2021, for assets and liabilities measured at fair value on a recurring basis ($ in millions):


	Level I		Level II		Level III		Total
Assets
Cash and cash equivalents	$	13,118	$	—	$	—	$	13,118
Investments:
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	171	$	—	$	—	$	171
Corporate securities	—		8,170		—		8,170
Municipal securities	—		2,999		—		2,999
Short-term time deposits	—		109		—		109
Asset-backed securities	—		1,308		—		1,308
Residential mortgage-backed securities	—		853		—		853
Commercial mortgage-backed securities	—		873		—		873
Equity securities	324		2		—		326
Total investments	$	495	$	14,314	$	—	$	14,809
Restricted deposits:
Cash and cash equivalents	$	96	$	—	$	—	$	96
U.S. Treasury securities and obligations of U.S. government corporations and agencies	469		—		—		469
Corporate securities	—		30		—		30
Certificates of deposit	—		4		—		4
Municipal securities	—		469		—		469
Total restricted deposits	$	565	$	503	$	—	$	1,068
Other long-term assets:
Foreign currency swap agreement	$	—	$	15	$	—	$	15
Total assets at fair value	$	14,178	$	14,832	$	—	$	29,010

The Company utilizes matrix pricing services to estimate fair value for securities which are not actively traded on the measurement date. The Company designates these securities as Level II fair value measurements. In addition, the aggregate carrying amount of the Company's private equity investments and life insurance contracts, which approximates fair value, was $698 million and $773 million as of December 31, 2022, and December 31, 2021, respectively.

6. Property, Software and Equipment

Property, software and equipment consist of the following ($ in millions):


	December 31, 2022		December 31, 2021
Computer software	$	2,224	$	1,825
Building	659		1,116
Computer hardware	604		617
Leasehold improvements	467		732
Furniture and office equipment	366		753
Land	178		248
Property, software and equipment, at cost	4,498		5,291
Less: accumulated depreciation	(2,066)		(1,900)
Property, software and equipment, net	$	2,432	$	3,391

Depreciation expense for the years ended December 31, 2022, 2021, and 2020 was $614 million, $565 million, and $487 million, respectively.

During the second quarter of 2022, in connection with the adoption of a more modern, flexible work environment, the Company undertook a real estate optimization initiative to evaluate future real estate needs and downsize its real estate footprint for owned and leased properties. As a result of this evaluation, the Company substantially changed the use or abandoned various properties and assessed for impairment. The Company engaged a third-party real estate specialist to determine the fair value of its owned properties. The valuation primarily considered comparable properties in each market as well as future cash flows.

As a result of the optimization, the Company recognized impairment charges related to owned real estate of $808 million for the year ended December 31, 2022. The Company also recognized impairment on fixed assets related to leased real estate of $242 million for the year ended December 31, 2022. These impairments are primarily related to the Managed Care segment. The remainder of the $1,627 million charge relates to right-of-use (ROU) asset impairments, which is included within other long-term assets on the Consolidated Balance Sheet, refer to Note 11. Leases.

7. Goodwill and Intangible Assets

The following table summarizes the changes in goodwill by operating segment ($ in millions):


	Managed Care		Specialty Services		Total
Balance, December 31, 2020	$	16,974	$	1,678	$	18,652
Acquisition and purchase accounting adjustments	1,139		29		1,168
Divestitures	—		(24)		(24)
Reallocation	250		(250)		—

Translation impact	(25)		—		(25)
Balance, December 31, 2021	18,338		1,433		19,771
Acquisition and purchase accounting adjustments	172		905		1,077
Divestitures	—		(1,533)		(1,533)
Reallocation	4		(4)		—
Impairments	(66)		(304)		(370)
Translation impact	(133)		—		(133)
Balance, December 31, 2022	$	18,315	$	497	$	18,812

The decrease in the Specialty Services segment goodwill in 2022 was primarily driven by the ongoing portfolio review divestiture related activity during the year as discussed in Note 3. Acquisitions and Divestitures. In 2022, divestiture related reductions to goodwill included the completed divestitures of PANTHERx and Magellan Rx, as well as goodwill reclassified to other current assets associated with the divestiture of Magellan Specialty Health, which was considered held for sale as of December 31, 2022. The acquired goodwill in 2022 represents goodwill associated with the Magellan acquisition.

The Company's Specialty Services segment impairments in 2022 was primarily the result of the impairment of Federal Services business, which included $216 million of goodwill, in conjunction with the December 2022 announcement from the DoD that the Company was not awarded a TRICARE Managed Care Support Contract. The Managed Care segment impairment was the result of the divestiture of the Spanish and Central European businesses.

The majority of the increase in the Managed Care segment goodwill in 2021 was related to the acquisition of the remaining 60% interest in Circle Health.

Intangible assets at December 31, consist of the following ($ in millions):


					Weighted Average Life in Years
	2022		2021		2022	2021
Purchased contract rights and customer relationships	$	7,850	$	8,068	13.4	13.5
Trade names	983		1,107		15.4	13.3
Provider contracts	612		492		14.0	13.8
Developed technologies	390		369		5.3	5.4
Intangible assets	9,835		10,036		13.4	13.2
Less accumulated amortization:
Purchased contract rights and customer relationships	(2,193)		(1,642)
Trade names	(263)		(206)
Provider contracts	(183)		(139)
Developed technologies	(285)		(225)
Total accumulated amortization	(2,924)		(2,212)
Intangible assets, net	$	6,911	$	7,824

As described above, the decrease in intangible assets in 2022 was primarily driven by divestiture related activity, which included related impairments, during the year as discussed with goodwill above and in Note 3. Acquisitions and Divestitures.

Amortization expense was $817 million, $770 million, and $719 million for the years ended December 31, 2022, 2021, and 2020, respectively. Estimated total amortization expense related to the December 31, 2022 intangible assets for each of the five succeeding fiscal years is as follows ($ in millions):


	Estimated Total Amortization Expense
2023	$	723
2024	707
2025	706
2026	689
2027	678

8. Medical Claims Liability

The following table summarizes the change in medical claims liability ($ in millions):


	Year Ended December 31,
	2022		2021		2020
Balance, January 1	$	14,243	$	12,438	$	7,473
Less: reinsurance recoverable	23		23		20
Balance, January 1, net	14,220		12,415		7,453
Acquisitions and divestitures	105		—		3,856

Incurred related to:
Current year	112,896		100,385		86,765
Prior years	(1,367)		(1,783)		(501)
Total incurred	111,529		98,602		86,264
Paid related to:
Current year	97,799		87,427		78,838
Prior years	11,336		9,370		6,320
Total paid	109,135		96,797		85,158
Balance, December 31, net	16,719		14,220		12,415
Plus: reinsurance recoverable	26		23		23
Balance, December 31	$	16,745	$	14,243	$	12,438

Reinsurance recoverables related to medical claims are included in premium and trade receivables. Changes in estimates of incurred claims for prior years are primarily attributable to reserving under moderately adverse conditions. The impact from COVID-19 on healthcare utilization and medical claims submission patterns provided increased estimation uncertainty on the IBNR liability. Additionally, as a result of minimum HBR and other return of premium programs, the Company recorded approximately $198 million, $492 million, and $86 million of the "Incurred related to: Prior years" as a reduction to premium revenues in 2022, 2021, and 2020, respectively. Further, claims processing initiatives yielded increased claim payment recoveries and coordination of benefits related to prior year dates of service.

Changes in medical utilization and cost trends and the effect of population health management initiatives may also contribute to changes in medical claim liability estimates. While the Company has evidence that population health management initiatives are effective on a case by case basis, population health management initiatives primarily focus on events and behaviors prior to the incurrence of the medical event and generation of a claim. Accordingly, any change in behavior, leveling of care, or coordination of treatment occurs prior to claim generation and as a result, the costs prior to the population health management initiative are not known by the Company. Additionally, certain population health management initiatives are focused on member and provider education with the intent of influencing behavior to appropriately align the medical services provided with the member's acuity. In these cases, determining whether the population health management initiative changed the behavior cannot be determined. Because of the complexity of its business, the number of states in which it operates, and the volume of claims that it processes, the Company is unable to practically quantify the impact of these initiatives on its changes in estimates of IBNR.

The Specialty Services segment has an insignificant amount of medical claims liability and, therefore, disclosures related to medical claims liabilities have been aggregated and are presented on a consolidated basis.

Information about incurred and paid claims development as of December 31, 2022 is included in the table below. The claims development information for all periods preceding the most recent reporting period is considered required supplementary information. Incurred and paid claims development as of December 31, 2022 is as follows ($ in millions):


Cumulative Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
For the Year Ended December 31,
Claim Year	2020 (unaudited)		2021 (unaudited)		2022
2020	$	88,206	$	86,502	$	86,433
2021			100,385		99,087
2022					112,896
	Total incurred claims				$	298,416

Cumulative Paid Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance
For the Year Ended December 31,
Claim Year	2020 (unaudited)		2021 (unaudited)		2022
2020	$	76,722	$	85,593	$	86,021
2021			87,427		98,024
2022					97,799
	Total payment of incurred claims				281,844
	All outstanding liabilities prior to 2020, net of reinsurance				147
	Medical claims liability, net of reinsurance				$	16,719

Incurred claims and allocated claim adjustment expenses, net of reinsurance, total IBNR plus expected development on reported claims and cumulative claims data as of December 31, 2022 are included in the following table. For claims frequency information summarized below, a claim is defined as the financial settlement of a single medical event in which remuneration was paid to the servicing provider. Total IBNR plus expected development on reported claims represents estimates for claims incurred but not reported, development on reported claims, and estimates for the costs necessary to process unpaid claims at the end of each period. The Company estimates its liability using actuarial methods that are commonly used by health insurance actuaries and meet Actuarial Standards of Practice. These actuarial methods consider factors such as historical data for payment patterns, cost trends, product mix, seasonality, utilization of healthcare services, and other relevant factors. Information is summarized as follows (in millions):


	December 31, 2022
	Incurred Claims and Allocated Claim Adjustment Expenses, Net of Reinsurance		Total IBNR Plus Expected Development on Reported Claims		Cumulative Paid Claims
2020	$	86,433	$	—	568.8
2021	99,087		273		623.2
2022	112,896		11,081		608.1

9. Affordable Care Act

The ACA established risk spreading premium stabilization programs as well as a minimum annual MLR and cost sharing reductions.

The Company's net receivables (payables) for each of the programs are as follows ($ in millions):


	December 31, 2022		December 31, 2021
Risk adjustment receivable	$	838	$	522
Risk adjustment payable	(780)		(536)

Minimum medical loss ratio	(103)		(196)
Cost sharing reduction receivable	—		69
Cost sharing reduction payable	(99)		(42)

In June 2022, CMS announced the final risk adjustment transfers for the 2021 benefit year. As a result of the announcement, the Company increased its risk adjustment net receivables by $403 million from December 31, 2021. After consideration of minimum MLR and other related impacts, the net pre-tax benefit recognized was approximately $368 million for the year ended December 31, 2022.

10. Debt

Debt consists of the following ($ in millions):


	December 31, 2022		December 31, 2021
$2,500 million 4.25% Senior Notes, due December 15, 2027	$	2,393	$	2,484
$2,300 million 2.45% Senior Notes, due July 15, 2028	2,303		2,304
$3,500 million 4.625% Senior Notes, due December 15, 2029	3,277		3,500
$2,000 million 3.375% Senior Notes, due February 15, 2030	2,000		2,000
$2,200 million 3.00% Senior Notes, due October 15, 2030	2,200		2,200
$2,200 million 2.50% Senior Notes, due March 1, 2031	2,200		2,200
$1,300 million 2.625% Senior Notes, due August 1, 2031	1,300		1,300
Total senior notes	15,673		15,988
Term loan credit facility	2,183		2,195
Revolving credit agreement	58		149
Construction loan payable	—		184
Finance leases and other	253		493
Debt issuance costs	(147)		(171)
Total debt	18,020		18,838
Less: current portion	(82)		(267)
Long-term debt	$	17,938	$	18,571

Of the Company's total debt, approximately 13% is variable rate debt. Approximately 12% uses the London Interbank Offered Rate (LIBOR) as a reference rate pursuant to the terms of the Company Credit Facility and approximately 1% uses the Sterling Overnight Index Average (SONIA) as a reference rate. The Company believes that the credit agreement will allow Secured Overnight Financing Rate (SOFR) to be used as the new reference rate upon LIBOR's discontinuance. The debt agreements that may be impacted by the discontinuation of LIBOR have provisions included that are sufficient for the Company to transition from the existing LIBOR rates to the prevailing successor market rates as necessary. The document governing the Company Credit Facility includes provisions to convert from LIBOR to SOFR at the time LIBOR ceases to be published.

Senior Notes

2022

In connection with the Magellan acquisition in January 2022, the Company paid off Magellan's debt of $535 million acquired in the transaction using Magellan's cash on hand. Specifically, the Company redeemed Magellan's existing outstanding 4.4% Senior Notes due 2024 and paid off the existing Credit Agreement. The Company recognized an immaterial net pre-tax gain on extinguishment including related fees and expenses and the write-off of the unamortized premium.

During 2022, the Company utilized a portion of the proceeds from the PANTHERx divestiture to repurchase $95 million of its par value Senior Notes due 2027 and $223 million of its par value Senior Notes due 2029 through the Company's senior note debt repurchase program. The Company recognized a $14 million gain on the redemptions of the notes.

2021

In February 2021, the Company issued $2,200 million 2.50% Senior Notes due 2031 (the 2031 Notes). In conjunction with the 2031 Notes offering, the Company completed a tender offer (the Tender Offer) to purchase for cash, subject to certain conditions, any and all of the outstanding aggregate principal amount of the $2,200 million 4.75% Senior Notes due 2025 (the 2025 Notes). The Company used the net proceeds from the 2031 Notes, together with available cash on hand, to fund the purchase price for the 2025 Notes accepted for purchase in the Tender Offer (approximately 36% of the aggregate principal amount outstanding) and used the remaining proceeds to redeem any of the 2025 Notes that remained outstanding following the Tender Offer, including all premiums and accrued interest. The Company recognized a pre-tax loss on extinguishment of $46 million on the redemption of the 2025 Notes, including the call premium, the write-off of the unamortized premium and debt issuance costs, and expenses related to the redemption.

In July 2021, the Company issued $1,800 million 2.45% Senior Notes due 2028 (the 2028 Notes). The Company used the net proceeds from the offering of the 2028 Notes to finance a portion of the cash consideration payable in connection with the acquisition of Magellan Health Inc., which closed in January 2022, and to pay related fees and expenses.

In August 2021, the Company issued $1,800 million aggregate principal amount of Senior Notes which included $500 million aggregate principal amount of additional 2028 Notes at a premium to yield 2.31% and $1,300 million aggregate principal amount of new 2.625% Senior Notes due 2031. The Company used the net proceeds of the offering, together with cash on hand and term loan facility borrowings, to redeem all of its outstanding 5.375% Senior Notes due 2026 and WellCare Health Plans, Inc.'s outstanding 5.375% Senior Notes due 2026 (together the 2026 Notes), including all premiums and accrued interest. The Company recognized a pre-tax loss on extinguishment of $79 million on the redemptions of the 2026 Notes, including the call premium, the write-off of the unamortized premium and debt issuance costs, and expenses related to the redemptions.

The indentures governing the senior notes listed in the table above contain restrictive covenants of Centene Corporation. At December 31, 2022, the Company was in compliance with all covenants.

Foreign Currency Swap

In order to manage the foreign exchange risk associated with an intercompany note receivable related to the Circle Health acquisition, the Company entered into a foreign currency swap agreement for a notional amount of $705 million, to purchase £509 million. The swap agreement was formally designated and qualified as a fair value hedge. All gains and losses due to changes in the fair value of the foreign currency swap completely offset changes in the remeasurement of the intercompany note receivable within investment and other income in the Consolidated Statement of Operations, resulting in no net impact to the Consolidated Statement of Operations.

The fair value of the swap agreement as of December 31, 2021 was $15 million, which was recorded in other current assets in the Consolidated Balance Sheet. The offsetting changes in fair value of the foreign currency swap and the remeasurement on the underlying intercompany note receivable were both recognized in investment and other income in the Consolidated Statements of Operations. The Company does not hold or issue any derivative instruments for trading or speculative purposes.

On March 31, 2022, the foreign currency swap settled in connection with its expiration, and the Company received cash proceeds of $35 million. The Company does not hold or issue any derivative instruments for trading or speculative purposes.

Circle Health Debt Refinancing

In May 2022, the Company refinanced certain debt agreements for its Circle Health subsidiary with a new £250 million credit facility maturing in May 2025. The Company recognized a $13 million pre-tax gain on the extinguishment of the existing debt. As of December 31, 2022, £160 million was drawn on the facility, which is included within Finance leases and other in the table above. The new facility is guaranteed by the Company and has similar borrowing rates and covenants to the Company's Revolving Credit Agreement, except it uses the SONIA as the reference rate for the interest rate payable.

Revolving Credit Facility and Term Loan Credit Facility

In August 2021, the Company amended and restated its existing credit agreement to, among other things, (i) extend the various maturities under the existing Credit Agreement until 2026, (ii) increase the aggregate principal amount of the U.S. dollar unsecured term loan facility under the existing Credit Agreement from $1,450 million to $2,200 million, (iii) increase the maximum total net leverage ratio permitted under the total debt to EBITDA financial covenant from 3.5 to 1.0 to 4.0 to 1.0, (iv) reduce the applicable margin with respect to borrowings to between 1.50% to 1.125%, based on the total debt to EBITDA ratio and type of borrowing and (v) include scheduled amortization payments with respect to the term loan facility equal to 0% for the first year following closing, 2.5% for the second year following closing and 5% thereafter until maturity.

The Company has (i) unsecured $2,000 million multi-currency revolving credit facility (the Revolving Credit Facility), which includes a $300 million sub-limit for letters of credit and a $200 million sub-limit for swingline loans and (ii) a $2,200 million unsecured delayed-draw term loan facility (the Term Loan Facility, and, together with the Revolving Credit Facility, the Company Credit Facility). Borrowings under the Revolving Credit Facility bear interest, at the Company's option, at LIBOR, EURIBOR, CDOR, BBR, or base rates plus, in each case, an applicable margin between 1.50% to 1.125%, based on the total debt to EBITDA ratio and type of borrowing. Borrowings under the Term Loan Facility bear interest, at the Company's option, at LIBOR or base rates plus, in each case, an applicable margin based on the total debt to EBITDA ratio. The Company has an uncommitted option to increase its Company Credit Facility by an additional $500 million plus certain additional amounts based on its total debt to EBITDA ratio. The Company believes that the credit agreement will allow SOFR to be used as the new reference rate upon LIBOR's discontinuance.

The Company Credit Facility contains financial covenants including maintenance of a minimum fixed charge coverage ratio and a restriction on the Company's maximum total debt to EBITDA ratio not to exceed 4.0 to 1.0. It also contains certain non-financial covenants including: limitations on incurrence of additional indebtedness; restrictions on incurrence of liens; restrictions on dividends and other restricted payments; restrictions on investments, mergers, consolidations, and asset sales; and limitations on transactions with affiliates. As of December 31, 2022, the Company was in compliance with all financial and non-financial covenants under the Company Credit Facility.

As of December 31, 2022, the Company had $58 million of borrowings outstanding under the Revolving Credit Facility, with a weighted average interest rate of 4.80%.

The Revolving Credit Facility and the Term Loan Facility will mature on August 16, 2026.

Construction Loan

In October 2017, the Company executed a $200 million non-recourse construction loan to fund the expansion of the Company's corporate headquarters. Until final completion of the project, which occurred in July 2021, the loan bore interest based on the one month LIBOR plus 2.70%, which reduced to LIBOR plus 2.00% at the time construction completed. The agreement contains financial and non-financial covenants similar to those contained in the Company Credit Facility. The Company guaranteed completion of the construction project associated with the loan.

In April 2022, the Company extended the term of the loan for an additional one year. The extension reduced interest on the loan to SOFR plus 1.85% and matures in April 2023. In December 2022, the Company paid off the outstanding balance of the construction loan.

Senior Note Debt Repurchase Program

In June 2022, the Company's Board of Directors authorized a new $1,000 million senior note debt repurchase program in preparation for future debt reductions as part of the Company's strategic value creation initiatives. During the year ended December 31, 2022, the Company repurchased $318 million of its par value senior notes, as described above, for $300 million.

As of December 31, 2022, there was $700 million available under the senior note debt repurchase program.

Letters of Credit & Surety Bonds

The Company had outstanding letters of credit of $217 million as of December 31, 2022, which were not part of the Revolving Credit Facility. The letters of credit bore interest at 0.6% as of December 31, 2022. The Company had outstanding surety bonds of $1,292 million as of December 31, 2022.

Aggregate maturities for the Company's debt for the years ending December 31, are as follows ($ in millions):


	Aggregate Maturities
2023	$	82
2024	122
2025	313
2026	1,963
2027	2,413
Thereafter	13,286
Total	$	18,179

The fair value of outstanding debt was approximately $15,791 million and $19,256 million at December 31, 2022 and 2021, respectively.

11. Leases

The Company records ROU assets and lease liabilities for non-cancelable operating leases primarily for real estate and equipment. Leases with an initial term of 12 months or less are not recorded on the balance sheet. Expense related to leases is recorded on a straight-line basis over the lease term, including rent holidays. The Company recognized operating lease expense of $429 million and $390 million during the years ended December 31, 2022 and 2021, respectively.

The Company considers the existence of options to extend or terminate leases in its analysis of the lease term for the purposes of measuring its ROU assets and lease liabilities. The renewal options are not included in the measurement of the ROU assets and lease liabilities unless the Company is reasonably certain to exercise the optional renewal periods.

The following table sets forth the ROU assets and lease liabilities ($ in millions):


	December 31, 2022		December 31, 2021
Assets

ROU assets (recorded within other long-term assets)	$	2,554	$	3,566

Liabilities
Short-term (recorded within accounts payable and accrued expenses)	$	180	$	204
Long-term (recorded within other long-term liabilities)	3,133		3,619
Total lease liabilities	$	3,313	$	3,823

Cash paid for amounts included in the measurement of lease liabilities, recorded as operating cash flows in the Consolidated Statements of Cash Flows, was $440 million and $385 million during the years ended December 31, 2022 and 2021, respectively. New operating leases commenced resulting in the recognition of ROU assets and lease liabilities of $60 million and $177 million during the years ended December 31, 2022 and 2021, respectively. In connection with the acquisition of Magellan in January 2022, the Company acquired $30 million of ROU assets and lease liabilities. As of December 31, 2022, the Company had additional operating leases that have not yet commenced of $8 million. These operating leases will commence in 2023 with lease terms ranging from one to eight years.

As part of the real estate optimization initiative as described in Note 6. Property, Software and Equipment, the Company vacated and abandoned various domestic leased properties. As a result, the Company assessed the ROU assets for impairment. The Company engaged a third-party real estate specialist to determine the recoverability of the leased properties. The valuation primarily considered comparable leased properties in each market and the assessment of potential future rental income that could be generated by the ROU assets.

As a result of the optimization, the Company recognized $577 million of ROU asset impairments in the year ended December 31, 2022, primarily related to the Managed Care segment. The remainder of the $1,627 million charge was recorded within Property, Software and Equipment, refer to Note 6. Property, Software and Equipment.

The weighted average remaining lease term of the Company's operating leases was 20.5 and 21.1 years as of December 31, 2022 and 2021, respectively. The lease liabilities reflect a weighted average discount rate of 5.7% and 5.7% as of December 31, 2022 and 2021, respectively.

Lease payments over the next five years and thereafter are as follows ($ in millions):


	Lease Payments
2023	$	343
2024	350
2025	325
2026	302
2027	287
Thereafter	4,633
Total lease payments	6,240
Less: imputed interest	(2,927)
Total lease liabilities	$	3,313

12. Stockholders' Equity

Share Repurchases

The Company's Board of Directors has authorized a stock repurchase program of the Company's common stock from time to time on the open market or through privately negotiated transactions. In 2022, in preparation for the closing of divestitures as well as planning for the future, the Company's Board of Directors authorized increases under the program including $3,000 million in June 2022 and an additional $2,000 million in December 2022. With these increases, the Company is authorized to repurchase up to $6,000 million.

During the third quarter of 2022, the Company entered into an accelerated share repurchase (ASR) agreement with Bank of America to purchase $1,000 million of the Company's common stock in aggregate under the Company's stock repurchase program. In July 2022, 8.6 million shares were delivered to the Company, representing 80% of the notional amount under the ASR. In October 2022, an additional 3.0 million shares were delivered upon settlement of the ASR based upon the volume-weighted average price (VWAP) over the term of the agreement, less a discount, of $86.21. In total, 11.6 million shares were purchased through the $1,000 million ASR. In addition, the Company purchased additional shares throughout the year through open market repurchases, including repurchase plans designed to comply with Rule 10b5-1.

Share repurchases in 2022, 2021, and 2020 were primarily funded through divestiture proceeds. The following represents the Company's share repurchase activity ($ in millions, shares in thousands):


	Year Ended December 31,
	2022			2021			2020
	Shares	Cost		Shares	Cost		Shares	Cost
Share buybacks	35,655	$	2,994	2,402	$	200	8,672	$	500
Income tax withholding	1,213	102		1,379	97		2,045	126
Total share repurchases	36,868	$	3,096	3,781	$	297	10,717	$	626

Shares repurchased for income tax withholding are shares withheld in connection with employee stock plans to meet applicable tax withholding requirements. These shares are typically included in the Company's treasury stock, except for the vesting of certain shares assumed in connection with the WellCare acquisition in 2020 and 2021, which were withheld rather than repurchased. Although these shares are not issued, they are treated as common stock repurchases as they reduce the number of shares that would have been issued upon vesting. Shares withheld were 326 thousand shares at an aggregate cost of $19 million, and 407 thousand at an aggregate cost of $24 million, for the years ended December 31, 2021 and 2020, respectively. No shares were withheld under this method in 2022.

As of December 31, 2022, the Company had a remaining amount of $2,806 million available under the Company's stock repurchase program. No duration has been placed on the repurchase program. The Company reserves the right to discontinue the repurchase program at any time.

Shares Issued for Acquisition

In January 2020, the Company issued 171 million shares of Centene common stock with a fair value of $11,431 million and paid $6,079 million in cash in exchange for all the outstanding shares of WellCare common stock. In addition, the Company recorded $95 million related to the fair value of replacement equity awards associated with pre-combination service.

13. Statutory Capital Requirements and Dividend Restrictions

Various state laws require Centene's regulated subsidiaries to maintain minimum capital levels specified by each state and restrict the amount of dividends that may be paid without prior regulatory approval. At December 31, 2022 and 2021, Centene's subsidiaries had aggregate statutory capital and surplus of $16,436 million and $14,039 million, respectively, compared with the required minimum aggregate statutory capital and surplus of $7,979 million and $6,706 million, respectively. As of December 31, 2022, the amount of capital and surplus or net worth that was unavailable for the payment of dividends or return of capital to the Company was $7,979 million in the aggregate.

14. Income Taxes

The consolidated income tax expense consists of the following ($ in millions):


	Year Ended December 31,
	2022		2021		2020
Current provision
Federal	$	1,144	$	507	$	959
State and local	261		114		152
International	4		7		4
Total current provision	1,409		628		1,115
Deferred provision	(649)		(151)		(136)
Total income tax expense	$	760	$	477	$	979

The reconciliation of the tax provision at the U.S. federal statutory rate to income tax expense is as follows ($ in millions):


	Year Ended December 31,
	2022		2021		2020
Earnings before income tax expense	$	1,962	$	1,813	$	2,773
Loss (earnings) attributable to flow through noncontrolling interest	(6)		2		9
Earnings less noncontrolling interest before income tax expense	1,956		1,815		2,782

Tax provision at the U.S. federal statutory rate	411		381		584
State income taxes, net of federal income tax benefit	50		63		106
Nondeductible compensation	49		40		54
Nondeductible PBM legal settlement	(5)		78		—
Nontaxable divestiture (gains) losses	111		(95)		—
Deferred taxes for investments in subsidiaries	84		—		—
ACA health insurer fee	—		—		316
Audit settlement	—		—		(71)
Valuation allowance	(17)		29		(11)
Nondeductible goodwill	69		—		16
Other, net	8		(19)		(15)
Income tax expense	$	760	$	477	$	979

The Company is required to recognize deferred tax assets and liabilities for consolidated subsidiaries that are determined to be held for sale as of December 31, 2022. The Company established a net deferred tax liability of $84 million for these investments in subsidiaries.

The tax effects of temporary differences which give rise to deferred tax assets and liabilities are presented below ($ in millions):


	December 31, 2022		December 31, 2021
Deferred tax assets:
Medical claims liability	$	132	$	120
Nondeductible liabilities	202		215
Net operating loss and tax credit carryforwards	341		357
Compensation accruals	96		205

Premium and trade receivables	91		143
Operating lease liability	397		445

Unrealized loss	320		—
Software development costs	209		—
Other	85		112
Deferred tax assets	1,873		1,597
Valuation allowance	(205)		(212)
Net deferred tax assets	$	1,668	$	1,385

Deferred tax liabilities:
Goodwill and intangible assets	$	1,724	$	1,794
Prepaid assets	—		46
Fixed assets	111		409


Right-of-use asset	285		444
Unrealized gain	—		29
Other	163		70
Deferred tax liabilities	2,283		2,792
Net deferred tax liabilities	$	(615)	$	(1,407)

The Company had not historically provided for deferred income taxes on the undistributed earnings of foreign subsidiaries as they were considered indefinitely reinvested outside the U.S. During the fourth quarter of 2022, as part of the Company's review of strategic alternatives for its international portfolio, the Company evaluated its assertion regarding its ability and intent to indefinitely reinvest undistributed earnings of the foreign subsidiaries. Upon evaluating the assertion, the Company determined that any historical or future undistributed earnings of foreign subsidiaries are no longer considered to be indefinitely reinvested. There is no deferred tax liability associated with these earnings.

The increase to the unrealized loss deferred tax asset reflects the change in the fair market value of the Company's investment portfolio. Decreases to the fixed assets and ROU asset deferred tax liabilities are primarily related to the impairments recorded as part of the Company's real estate optimization initiative.

Valuation allowances are provided when it is considered more likely than not that deferred tax assets will not be realized. The valuation allowances primarily relate to future tax benefits on certain federal, state, and foreign net operating loss, federal and state capital loss, and tax credit carryforwards.

Federal net operating loss and credit carryforwards of $69 million expire beginning in 2023 through 2043. State net operating loss and tax credit carryforwards of $51 million expire beginning in 2023 through 2042, while the remaining $15 million have indefinite carryforward periods. Substantially all the non-U.S. tax loss carryforwards of $206 million have indefinite carryforward periods.

The Company maintains a reserve for uncertain tax positions that may be challenged by a tax authority. A rollforward of the beginning and ending amount of uncertain tax positions, exclusive of related interest and penalties, is as follows:


	Year Ended December 31,
	2022		2021
Gross unrecognized tax benefits, January 1	$	355	$	354
Gross increases:
Current year tax positions	52		9
Acquired reserves	7		—
Prior year tax positions	20		12
Gross decreases:
Settlements	(17)		(13)
Prior year tax positions	(3)		(4)
Statute of limitation lapses	(4)		(3)
Gross unrecognized tax benefits, December 31	$	410	$	355

As of December 31, 2022, $303 million of unrecognized tax benefits would impact the Company's effective tax rate in future periods, if recognized.

The table above excludes interest and penalties, net of related tax benefits, which are treated as income tax expense (benefit) under the Company's accounting policy. The Company recognized net interest expense and penalties related to uncertain positions of $23 million and $1 million expense for the years ended December 31, 2022 and 2021, respectively. The Company had $66 million and $43 million of accrued interest and penalties for uncertain tax positions as of December 31, 2022 and 2021, respectively.

The Company files federal tax returns as well as returns for numerous state and international tax jurisdictions and is engaged in multiple audit proceedings for its state and foreign filings. Generally, no further state or foreign audit activity is expected for years prior to 2015. As of December 31, 2022, the Company's tax returns are under federal examination for the tax years 2014 through 2017, only with respect to Internal Revenue Service (IRS) proposed adjustments relating to the Company's claims to the Domestic Production Activities Deduction for these years. The Company has appealed the IRS adjustments and the appeals process is expected to be conducted within the next 12 months. The Company believes it is reasonably possible that its liability for unrecognized tax benefits will decrease by approximately $124 million within the next 12 months if the Company reaches a satisfactory agreement with the IRS during the appeals process and an additional $3 million decrease as a result of the expiration of statutes of limitations and projected audit settlements in certain jurisdictions.

15. Stock Incentive Plans

The Company's stock incentive plans allow for the granting of restricted stock or restricted stock unit awards and options to purchase common stock. Both incentive stock options and nonqualified stock options can be awarded under the plans. However, an immaterial amount of options were granted, exercised, or outstanding in 2022. The plans have 17 million shares available for future awards.

Compensation expense for stock options and restricted stock unit awards is recognized on a straight-line basis over the vesting period, generally three to five years for stock options and one to three years for restricted stock or restricted stock unit awards. Vesting is accelerated by one year for individuals who qualify under the Company's retirement eligible provisions. The fair value of restricted stock and restricted stock units is determined using the previous day's market close price at the time of grant. The fair value of stock options is determined based on the Black-Scholes option-pricing model. Forfeitures for all stock awards are recognized as they occur. Certain restricted stock unit awards contain performance-based as well as service-based provisions. Certain awards provide for accelerated vesting if there is a change in control as defined in the plans. The total compensation cost that has been charged against income for the stock incentive plans was $234 million, $203 million, and $281 million for the years ended December 31, 2022, 2021, and 2020, respectively. The total income tax benefit recognized in the Statements of Operations for stock-based compensation arrangements was $48 million, $35 million, and $34 million for the years ended December 31, 2022, 2021, and 2020, respectively.

A summary of the Company's non-vested restricted stock and restricted stock unit shares as of December 31, 2022, and changes during the year ended December 31, 2022, is presented below (shares in thousands):


	Shares	Weighted Average Grant Date Fair Value
Non-vested balance, December 31, 2021	7,142	$	65.30
Granted	2,944	84.18
Converted (1)	917	82.65
Vested	(3,553)	67.70
Forfeited	(877)	70.38
Non-vested balance, December 31, 2022	6,573	$	74.20

(1) Magellan awards converted in connection with the acquisition.

The total fair value of restricted stock and restricted stock units vested during the years ended December 31, 2022, 2021, and 2020, was $298 million, $264 million, and $364 million, respectively.

As of December 31, 2022, there was $249 million of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under the plans; that cost is expected to be recognized over a weighted-average period of 1.8 years.

The Company maintains an employee stock purchase plan and issued 449 thousand shares, 516 thousand shares, and 487 thousand shares in 2022, 2021, and 2020, respectively.

16. Retirement Plan

Centene has a defined contribution plan which covers substantially all employees who are at least 21 years of age. Under the plan, eligible employees may contribute a percentage of their base salary, subject to certain limitations. Centene may elect to match a portion of the employee's contribution. Company expense related to matching contributions to the plan was $133 million, $105 million, and $91 million during the years ended December 31, 2022, 2021, and 2020, respectively.

17. Commitments

In connection with obtaining regulatory approval of the Magellan Health acquisition, the Company entered into certain undertakings with the Department of Managed Health Care in 2022. These undertakings contain various commitments by the Company effective upon completion of the Magellan Health acquisition. As part of the undertaking, the Company shall contribute $10 million to the Purchaser Business Group on Health (PBGH) to be paid over a five-year period for initiatives consistent with the Company's mission of implementing and spreading innovative programs and best practices to increase health care value. As a result of the closing of the Magellan acquisition, the $10 million contribution to PBGH was expensed during 2022. As of December 31, 2022, the Company has paid $1.5 million.

In connection with obtaining regulatory approval of the Fidelis Care acquisition, the Company entered into certain undertakings with the New York State Department of Health in 2018. These undertakings contain various commitments by the Company effective upon completion of the Fidelis Care acquisition. One of the undertakings includes a $340 million contribution by the Company to the State of New York to be paid over a five-year period for initiatives consistent with the Company's mission of providing high-quality healthcare to vulnerable populations within New York State. The Company has fulfilled this undertaking as of December 31, 2022.

The Company also committed to certain undertakings with the California Department of Insurance and the California Department of Managed Health Care in connection with obtaining regulatory approval of the Health Net acquisition in 2016. The Health Net commitments related to the undertakings are as follows:

invest an additional $30 million through the California Organized Investment Network over the five years following completion of the acquisition; the Company fulfilled this undertaking in 2020;
build a service center in an economically distressed community in California, investing $200 million over 10 years and employing at least 300 people, of which the Company has incurred $109 million through 2022;
contribute $65 million to improve enrollee health outcomes, support locally-based consumer assistance programs, and strengthen the healthcare delivery system, of which the Company has contributed $49 million through 2022 with remaining $16 million scheduled to be paid equally over 2023 and 2024; and
invest $75 million of its investment portfolio in vehicles supporting California's healthcare infrastructure, and the Company fulfilled this undertaking in 2022.

18. Contingencies

Overview

The Company is routinely subjected to legal and regulatory proceedings in the normal course of business. These matters can include, without limitation:

periodic compliance and other reviews and investigations by various federal and state regulatory agencies with respect to requirements applicable to the Company's business, including, without limitation, those related to payment of out-of-network claims, submissions to CMS for risk adjustment payments, or the False Claims Act, the calculation of minimum MLR and rebates related thereto, submissions to state agencies related to payments or state false claims acts, pre-authorization penalties, timely review of grievances and appeals, timely and accurate payment of claims, cybersecurity issues, including those related to the Company's or the Company's third-party vendors' information systems, and the Health Insurance Portability and Accountability Act of 1996 and other federal and state fraud, waste and abuse laws;
litigation arising out of general business activities, such as tax matters, disputes related to healthcare benefits coverage or reimbursement, putative securities class actions, and medical malpractice, privacy, real estate, intellectual property, and employment-related claims; and
disputes regarding reinsurance arrangements, claims arising out of the acquisition or divestiture of various assets, class actions, and claims relating to the performance of contractual and non-contractual obligations to providers, members, employer groups, and others, including, but not limited to, the alleged failure to properly pay claims and challenges to the manner in which the Company processes claims, claims related to network adequacy and claims alleging that the Company has engaged in unfair business practices.

Among other things, these matters may result in awards of damages, fines, or penalties, which could be substantial, and/or could require changes to the Company's business. The Company intends to vigorously defend itself against legal and regulatory proceedings to which it is currently a party; however, these proceedings are subject to many uncertainties. In some of the cases pending against the Company, substantial non-economic or punitive damages are being sought.

The Company records reserves and accrues costs for certain legal proceedings and regulatory matters to the extent that it determines an unfavorable outcome is probable and the amount of the loss can be reasonably estimated. While such reserves and accrued costs reflect the Company's best estimate of the probable loss for such matters, the recorded amounts may differ materially from the actual amount of any such losses. In some cases, no estimate of the possible loss or range of loss in excess of amounts accrued, if any, can be made because of the inherently unpredictable nature of legal and regulatory proceedings, which may be exacerbated by various factors, including but not limited to, they may involve indeterminate claims for monetary damages or may involve fines, penalties or punitive damages; present novel legal theories or legal uncertainties; involve disputed facts; represent a shift in regulatory policy; involve a large number of parties, claimants or regulatory bodies; are in the early stages of the proceedings; involve a number of separate proceedings and/or a wide range of potential outcomes; or result in a change of business practices.

As of the date of this report, amounts accrued for legal proceedings and regulatory matters were not material, except for the reserve estimate as described below with respect to claims or potential claims involving services provided by Envolve Pharmacy Solutions, Inc. (Envolve), as the Company’s pharmacy benefits management (PBM) subsidiary. It is possible that in a particular quarter or annual period the Company's financial condition, results of operations, cash flow, and/or liquidity could be materially adversely affected by an ultimate unfavorable resolution of or development in legal and/or regulatory proceedings, including as described below. Except for the proceedings discussed below, the Company believes that the ultimate outcome of any of the regulatory and legal proceedings that are currently pending against it should not have a material adverse effect on financial condition, results of operations, cash flow, or liquidity.

California

On October 20, 2015, the Company's California subsidiary, Health Net of California, Inc. (Health Net California), was named as a defendant in a California taxpayer action filed in Los Angeles County Superior Court, captioned as Michael D. Myers v. State Board of Equalization, Dave Jones, Insurance Commissioner of the State of California, Betty T. Yee, Controller of the State of California, et al., Los Angeles Superior Court Case No. BS158655. This action is brought under a California statute that permits an individual taxpayer to sue a governmental agency when the taxpayer believes the agency has failed to enforce governing law. Plaintiff contends that Health Net California, a California licensed Health Care Service Plan (HCSP), is an "insurer" for purposes of taxation despite acknowledging it is not an "insurer" under regulatory law. Under California law, "insurers" must pay a gross premiums tax (GPT), calculated as 2.35% on gross premiums. As a licensed HCSP, Health Net California has paid the California Corporate Franchise Tax (CFT), the tax generally paid by California businesses. Plaintiff contends that Health Net California must pay the GPT rather than the CFT. Plaintiff seeks a writ of mandate directing the California taxing agencies to collect the GPT, and seeks an order requiring Health Net California to pay GPT, interest, and penalties for a period dating to eight years prior to the October 2015 filing of the complaint. This lawsuit is being coordinated with similar lawsuits filed against other entities (collectively, Related Actions). In March 2018, the Court overruled the Company's demurrer seeking to dismiss the complaint and denied the Company's motion to strike allegations seeking retroactive relief. In August 2018, the trial court stayed all the Related Actions pending determination of a writ of mandate by the California Court of Appeals in two of the Related Actions. In March 2019, the California Court of Appeals denied the writ of mandate. The defendants in those Related Actions sought review by the California Supreme Court, which declined to review the matter. Upon the return of the matter to the Los Angeles County Superior Court, motions for summary judgment were scheduled. Health Net California's motion for summary judgment was heard by the Court in March 2020. In March 2020, the Court granted Health Net California's motion for summary judgment. In September 2020, the plaintiff appealed the Court's decision. The Company intends to continue its vigorous defense against these claims; however, this matter is subject to many uncertainties, and an adverse outcome in this matter could potentially have a materially adverse impact on the Company's financial condition, results of operations, and cash flows.

Beginning in April 2021, several lawsuits have been filed against the Company and its subsidiaries, alleging that the defendants failed to prevent Health Net members' personal and health data from being exposed in connection with a data breach involving Accellion's File Transfer Appliance. The Company denies any wrongdoing and is seeking indemnification from Accellion for these claims. In December 2021, the plaintiffs in three of the pending actions filed a motion for preliminary approval of a settlement with the Company and its subsidiaries, which, if approved by the court, should resolve most or all of the pending litigation. In addition, claims related to these lawsuits are anticipated to be covered in part by the Company's insurance carrier. As a result, while these matters are subject to many uncertainties, the Company does not believe that an adverse outcome in these matters is likely to have a materially adverse impact on the Company's financial condition, results of operations, and cash flows.

Pharmacy Benefits Management Matters

On March 11, 2021, the State of Ohio filed a civil action against the Company and the Company's subsidiaries, Buckeye Health Plan Community Solutions, Inc. and Envolve, in Franklin County Court of Common Pleas, captioned as Ohio Department of Medicaid, et al. v. Centene Corporation, et al. The complaint alleged breaches of contract with the Ohio Department of Medicaid relating to the provision of PBM services and violations of Ohio law relating to such contracts, including among other things, by (i) seeking payment for services already reimbursed, (ii) not accurately disclosing to the Ohio Department of Medicaid the true cost of the PBM services and (iii) inflating dispensing fees for prescription drugs. The plaintiffs sought an undisclosed sum of money in damages, penalties, and possible termination of the contract with Buckeye Health Plan.

The Company has reached no-fault agreements with the Attorney Generals, including Ohio, to resolve claims and/or allegations made by the states related to services previously provided by Envolve. As a result of the settlement, the Ohio Attorney General's litigation against the Company was dismissed. Additionally, the Company is in discussions to bring final resolution to similar concerns in other affected states. Consistent with those discussions, the Company recorded a reserve estimate of $1,250 million in the second quarter of 2021 related to this issue, inclusive of the above settlements and rebates that the Company determined in the course of the matter are payable across products. Additional claims, reviews, or investigations relating to the Company's historical PBM business across products may be brought by other states, the federal government, or shareholder litigants, and there is no guarantee the Company will have the ability to settle such claims with other states within the reserve estimate the Company has recorded and on other acceptable terms, or at all. This matter is subject to many uncertainties, and an adverse outcome in this matter could have an adverse impact on the Company's financial condition, results of operations, and cash flows.

19. Earnings Per Share

The following table sets forth the calculation of basic and diluted net earnings per common share ($ in millions, except per share data in dollars and shares in thousands):


	Year Ended December 31,
	2022		2021		2020



Earnings attributable to Centene Corporation	$	1,202	$	1,347	$	1,808

Shares used in computing per share amounts:
Weighted average number of common shares outstanding	575,191		582,832		570,722
Common stock equivalents (as determined by applying the treasury stock method)	6,849		7,684		8,413
Weighted average number of common shares and potential dilutive common shares outstanding	582,040		590,516		579,135

Net earnings per common share attributable to Centene Corporation:



Basic earnings per common share	$	2.09	$	2.31	$	3.17




Diluted earnings per common share	$	2.07	$	2.28	$	3.12

The calculation of diluted earnings per common share for 2022, 2021, and 2020 excludes the impact of 187 thousand shares, 44 thousand shares, and 398 thousand shares, respectively, related to anti-dilutive stock options and restricted stock units.

20. Segment Information

Centene operates in two segments: Managed Care and Specialty Services. The Managed Care segment consists of Centene's health plans, including all of the functions needed to operate them. The Specialty Services segment consists of Centene's specialty companies offering auxiliary healthcare services and products. Factors used in determining the reportable business segments include the nature of operating activities, the existence of separate senior management teams, and the type of information presented to the Company's chief operating decision-maker to evaluate all results of operations.

In early 2023, and in conjunction with the Company's updated strategic plan, executive leadership realignment, and corresponding 2023 divestitures, the Company has revised the way it manages the business, evaluates performance, and allocates resources, resulting in an updated segment structure comprised of (1) a Medicaid segment, (2) a Medicare segment, (3) a Commercial segment and (4) an Other segment. The Company will begin reporting under this new segment structure in 2023.

The Company does not report total assets by segment since this is not a metric used to allocate resources or evaluate segment performance.

As further discussed in Note 3. Acquisitions and Divestitures, as part of the Company's ongoing portfolio review various divestitures were pending or completed during the year ended December 31, 2022. The Spanish and Central European businesses were included in the Managed Care segment. The PANTHERx, Magellan Rx, Magellan Specialty Health, Centurion, and HealthSmart businesses were included in the Specialty Services segment.

Segment information for the year ended December 31, 2022, follows ($ in millions):


	Managed Care		Specialty Services		Eliminations		Consolidated Total
Total revenues from external customers	$	135,055	$	9,492	$	—	$	144,547
Total revenues from internal customers	8		13,273		(13,281)		—
Total revenues	$	135,063	$	22,765	$	(13,281)	$	144,547
Earnings (loss) from operations	$	1,913	$	(595)	$	—	$	1,318

Segment information for the year ended December 31, 2021, follows ($ in millions):


	Managed Care		Specialty Services		Eliminations		Consolidated Total
Total revenues from external customers	$	120,119	$	5,863	$	—	$	125,982
Total revenues from internal customers	6		12,789		(12,795)		—
Total revenues	$	120,125	$	18,652	$	(12,795)	$	125,982
Earnings (loss) from operations	$	1,789	$	(5)	$	—	$	1,784

Segment information for the year ended December 31, 2020, follows ($ in millions):


	Managed Care		Specialty Services		Eliminations		Consolidated Total
Total revenues from external customers	$	106,862	$	4,253	$	—	$	111,115
Total revenues from internal customers	5		10,741		(10,746)		—
Total revenues	$	106,867	$	14,994	$	(10,746)	$	111,115
Earnings from operations	$	3,031	$	51	$	—	$	3,082

21. Condensed Financial Information of Registrant

Centene Corporation (Parent Company Only)

Condensed Balance Sheets

(In millions, except shares in thousands and per share data in dollars)


	December 31, 2022		December 31, 2021
ASSETS
Current assets:
Cash and cash equivalents	$	12	$	9

Short-term investments	—		1
Other current assets	6		738
Total current assets	18		748
Long-term investments	66		128
Investment in subsidiaries	42,306		45,117
Other long-term assets	422		271
Total assets	$	42,812	$	46,264
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND STOCKHOLDERS' EQUITY
Current liabilities:
Current liabilities	$	534	$	619
Current portion of long-term debt	69		14
Total current liabilities	603		633
Long-term debt	17,699		18,148
Other long-term liabilities	273		461
Total liabilities	18,575		19,242
Redeemable noncontrolling interest	56		82
Stockholders' equity:
Preferred stock, $0.001 par value; authorized 10,000 shares; no shares issued or outstanding at December 31, 2022 and December 31, 2021	—		—
Common stock, $0.001 par value; authorized 800,000 shares; 607,847 issued and 550,754 outstanding at December 31, 2022, and 602,704 issued and 582,479 outstanding at December 31, 2021	1		1
Additional paid-in capital	20,060		19,672
Accumulated other comprehensive earnings (loss)	(1,132)		77
Retained earnings	9,341		8,139
Treasury stock, at cost (57,093 and 20,225 shares, respectively)	(4,213)		(1,094)
Total Centene stockholders' equity	24,057		26,795
Noncontrolling interest	124		145
Total stockholders' equity	24,181		26,940
Total liabilities, redeemable noncontrolling interests and stockholders' equity	$	42,812	$	46,264

See notes to condensed financial information of registrant.

Centene Corporation (Parent Company Only)

Condensed Statements of Operations

(In millions, except per share data in dollars)


	Year Ended December 31,
	2022		2021		2020
Expenses:
Selling, general and administrative expenses	$	21	$	9	$	13
Contingent consideration	—		—		(1)
Legal settlement	33		1,116		—
Other income (expense):
Investment and other income	55		38		5
Gain on divestiture	13		118		104
Debt extinguishment	14		(125)		(61)
Interest expense	(643)		(641)		(723)
(Loss) before income taxes	(615)		(1,735)		(687)
Income tax benefit	(208)		(308)		(331)
Net (loss) before equity in subsidiaries	(407)		(1,427)		(356)
Equity in earnings from subsidiaries	1,609		2,763		2,150
Net earnings	1,202		1,336		1,794
Loss attributable to noncontrolling interests	—		11		14
Net earnings attributable to Centene Corporation	$	1,202	$	1,347	$	1,808

Net earnings per common share attributable to Centene Corporation:
Basic earnings per common share	$	2.09	$	2.31	$	3.17
Diluted earnings per common share	$	2.07	$	2.28	$	3.12

See notes to condensed financial information of registrant.

Centene Corporation (Parent Company Only)

Condensed Statements of Cash Flows

(In millions)


	Year Ended December 31,
	2022		2021		2020
Cash flows from operating activities:
Dividends from subsidiaries, return on investment	$	1,706	$	2,194	$	739
Payments for legal settlement	(282)		(298)		—
Other operating activities, net	(450)		(582)		(287)
Net cash provided by operating activities	974		1,314		452
Cash flows from investing activities:
Capital contributions to subsidiaries	(880)		(1,217)		(761)
Purchases of investments	(2)		(723)		(111)
Sales and maturities of investments	—		66		11
Dividends from subsidiaries, return of investment	10		241		87
Investments in acquisitions	(2,431)		(151)		(7,188)
Proceeds from divestitures	—		130		533
Intercompany activities	5,785		(1,709)		1,185
Other investing activities, net	3		—		(12)
Net cash (used in) provided by investing activities	2,485		(3,363)		(6,256)
Cash flows from financing activities:
Proceeds from common stock issuances	70		35		28
Proceeds from long-term debt	75		9,066		4,870
Payments and repurchases of long-term debt	(491)		(7,207)		(3,875)
Common stock repurchases	(3,096)		(297)		(626)

Payments for debt extinguishment	(14)		(157)		(81)
Debt issuance costs	—		(72)		(120)

Other financing activities, net	—		22		19
Net cash (used in) provided by financing activities	(3,456)		1,390		215

Net increase (decrease) in cash and cash equivalents	3		(659)		(5,589)
Cash and cash equivalents, beginning of period	9		668		6,257
Cash and cash equivalents, end of period	$	12	$	9	$	668

See notes to condensed financial information of registrant.

Notes to Condensed Financial Information of Registrant

Note A - Basis of Presentation and Significant Accounting Policies

The parent company only financial statements should be read in conjunction with Centene Corporation's audited consolidated financial statements and the notes to consolidated financial statements included in this Form 10-K.

The parent company's investment in subsidiaries is stated at cost plus equity in undistributed earnings of the subsidiaries. The parent company's share of net income of its unconsolidated subsidiaries is included in income using the equity method of accounting. Certain unrestricted subsidiaries receive monthly management fees from the Company's restricted subsidiaries. The management and service fees received by its unrestricted subsidiaries are associated with all of the functions required to manage the restricted subsidiaries including but not limited to salaries and wages for all personnel, rent, utilities, population health management, provider contracting, compliance, member services, claims processing, information technology, cash management, finance and accounting, and other services. The management fees are based either on a percentage of the restricted subsidiaries' revenue or a cost basis reimbursement.

Due to the Company's centralized cash management function, cash flows generated by its unrestricted subsidiaries are utilized by the parent company to the extent required, primarily to repay borrowings on the parent company's credit facilities, repurchase the parent company's common stock, make acquisitions, fund capital contributions to subsidiaries, and fund its operations.

Certain amounts presented in the parent company only financial statements are eliminated in the consolidated financial statements of Centene Corporation.

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