Item 1. Financial Statements.

86K characters. Original on sec.gov · Markdown

Item 1. Financial Statements.

CENTENE CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

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


	March 31, 2024		December 31, 2023
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	17,585	$	17,193
Premium and trade receivables	16,824		15,532
Short-term investments	2,082		2,459
Other current assets	1,957		5,572
Total current assets	38,448		40,756
Long-term investments	16,496		16,286
Restricted deposits	1,383		1,386
Property, software and equipment, net	1,988		2,019

Goodwill	17,558		17,558
Intangible assets, net	5,928		6,101
Other long-term assets	823		535
Total assets	$	82,624	$	84,641
LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND STOCKHOLDERS' EQUITY
Current liabilities:
Medical claims liability	$	18,109	$	18,000
Accounts payable and accrued expenses	12,130		16,420
Return of premium payable	1,751		1,462
Unearned revenue	681		715
Current portion of long-term debt	113		119
Total current liabilities	32,784		36,716
Long-term debt	17,887		17,710
Deferred tax liability	734		641
Other long-term liabilities	4,155		3,618
Total liabilities	55,560		58,685
Commitments and contingencies
Redeemable noncontrolling interests	16		19
Stockholders' equity:
Preferred stock, $0.001 par value; authorized 10,000 shares; no shares issued or outstanding at March 31, 2024 and December 31, 2023	—		—
Common stock, $0.001 par value; authorized 800,000 shares; 619,173 issued and 536,383 outstanding at March 31, 2024, and 615,291 issued and 534,484 outstanding at December 31, 2023	1		1
Additional paid-in capital	20,388		20,304
Accumulated other comprehensive (loss)	(630)		(652)
Retained earnings	13,206		12,043
Treasury stock, at cost (82,790 and 80,807 shares, respectively)	(6,007)		(5,856)
Total Centene stockholders' equity	26,958		25,840
Nonredeemable noncontrolling interest	90		97
Total stockholders' equity	27,048		25,937
Total liabilities, redeemable noncontrolling interests and stockholders' equity	$	82,624	$	84,641

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

Table o f Contents

CENTENE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

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

(Unaudited)


	Three Months Ended March 31,
	2024		2023
Revenues:
Premium	$	35,529	$	33,825
Service	808		1,127
Premium and service revenues	36,337		34,952
Premium tax	4,070		3,937
Total revenues	40,407		38,889
Expenses:
Medical costs	30,932		29,434
Cost of services	669		870
Selling, general and administrative expenses	3,218		3,011
Depreciation expense	135		142
Amortization of acquired intangible assets	173		183
Premium tax expense	4,161		4,011

Impairment	13		20

Total operating expenses	39,301		37,671
Earnings from operations	1,106		1,218
Other income (expense):
Investment and other income	545		353

Interest expense	(178)		(180)
Earnings before income tax	1,473		1,391
Income tax expense	315		261
Net earnings	1,158		1,130
Loss attributable to noncontrolling interests	5		—
Net earnings attributable to Centene Corporation	$	1,163	$	1,130

Net earnings per common share attributable to Centene Corporation:
Basic earnings per common share	$	2.17	$	2.05
Diluted earnings per common share	$	2.16	$	2.04

Weighted average number of common shares outstanding:
Basic	535,109		550,779
Diluted	538,060		553,845

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

Table o f Contents

CENTENE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS (LOSS)

(In millions, unaudited)


	Three Months Ended March 31,
	2024		2023
Net earnings	$	1,158	$	1,130
Change in unrealized gain (loss) on investments	(81)		253
Change in unrealized gain (loss) on investments, tax effect	15		(61)
Change in unrealized gain (loss) on investments, net of tax	(66)		192

Reclassification adjustment, net of tax	88		2
Foreign currency translation adjustments, net of tax	—		23

Other comprehensive earnings	22		217
Comprehensive earnings	1,180		1,347
Comprehensive loss attributable to noncontrolling interests	5		—
Comprehensive earnings attributable to Centene Corporation	$	1,185	$	1,347

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

Table o f Contents

CENTENE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

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

(Unaudited)

Three Months Ended March 31, 2024


	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, 2023	615,291	$	1	$	20,304	$	(652)	$	12,043	80,807	$	(5,856)	$	97	$	25,937
Comprehensive Earnings:
Net earnings (loss)	—	—		—		—		1,163		—	—		(4)		1,159
Other comprehensive earnings, net of $(12) tax	—	—		—		22		—		—	—		—		22


Common stock issued for employee benefit plans	3,882	—		14		—		—		—	—		—		14
Common stock repurchases	—	—		—		—		—		1,983	(151)		—		(151)
Stock compensation expense	—	—		70		—		—		—	—		—		70


Divestiture of non-controlling interest	—	—		—		—		—		—	—		(3)		(3)


Balance, March 31, 2024	619,173	$	1	$	20,388	$	(630)	$	13,206	82,790	$	(6,007)	$	90	$	27,048

Three Months Ended March 31, 2023


	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, 2022	607,847	$	1	$	20,060	$	(1,132)	$	9,341	57,093	$	(4,213)	$	124	$	24,181
Comprehensive Earnings:
Net earnings	—	—		—		—		1,130		—	—		—		1,130
Other comprehensive earnings, net of $61 tax	—	—		—		217		—		—	—		—		217
Common stock issued for employee benefit plans	6,508	—		12		—		—		—	—		—		12
Common stock repurchases	—	—		—		—		—		5,548	(423)		—		(423)
Stock compensation expense	—	—		61		—		—		—	—		—		61
Purchase of redeemable noncontrolling interest	—	—		(12)		—		—		—	—		—		(12)
Balance, March 31, 2023	614,355	$	1	$	20,121	$	(915)	$	10,471	62,641	$	(4,636)	$	124	$	25,166

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

Table o f Contents

CENTENE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In millions, unaudited)


	Three Months Ended March 31,
	2024		2023
Cash flows from operating activities:
Net earnings	$	1,158	$	1,130
Adjustments to reconcile net earnings to net cash (used in) provided by operating activities
Depreciation and amortization	308		325
Stock compensation expense	70		61
Impairment	13		20


Deferred income taxes	104		(159)
(Gain) loss on divestitures, net	(98)		(79)

Other adjustments, net	(2)		7
Changes in assets and liabilities
Premium and trade receivables	(1,211)		(1,938)
Other assets	(474)		(315)

Medical claims liabilities	108		759
Unearned revenue	(34)		1,919
Accounts payable and accrued expenses	(1,411)		1,548
Other long-term liabilities	1,013		970
Other operating activities, net	—		21
Net cash (used in) provided by operating activities	(456)		4,269
Cash flows from investing activities:
Capital expenditures	(151)		(225)
Purchases of investments	(1,317)		(1,619)
Sales and maturities of investments	1,441		1,148

Divestiture proceeds, net of divested cash	879		443

Net cash provided by (used in) investing activities	852		(253)
Cash flows from financing activities:
Proceeds from long-term debt	350		287
Payments and repurchases of long-term debt	(187)		—
Common stock repurchases	(151)		(423)
Proceeds from common stock issuances	14		12

Purchase of noncontrolling interest	—		(58)

Other financing activities, net	(3)		(1)
Net cash provided by (used in) financing activities	23		(183)
Effect of exchange rate changes on cash, cash equivalents and restricted cash	6		2
Net increase in cash, cash equivalents and restricted cash and cash equivalents	425		3,835

Cash, cash equivalents and restricted cash and cash equivalents, beginning of period	17,452		12,330
Cash, cash equivalents and restricted cash and cash equivalents, end of period	$	17,877	$	16,165
Supplemental disclosures of cash flow information:
Interest paid	$	155	$	144
Income taxes paid	$	13	$	11


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:
	March 31,
	2024		2023
Cash and cash equivalents	$	17,585	$	15,853
Restricted cash and cash equivalents, included in restricted deposits	292		312
Total cash, cash equivalents and restricted cash and cash equivalents	$	17,877	$	16,165

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

Table o f Contents

CENTENE CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Organization and Operations

Basis of Presentation

The accompanying interim financial statements have been prepared under the presumption that users of the interim financial information have either read or have access to the audited financial statements included in the Annual Report on Form 10-K for the fiscal year ended December 31, 2023. The unaudited interim financial statements herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Accordingly, footnote disclosures that would substantially duplicate the disclosures contained in the December 31, 2023 audited financial statements have been omitted from these interim financial statements, where appropriate. In the opinion of management, these financial statements reflect all adjustments, consisting only of normal recurring adjustments, which are necessary for a fair presentation of the results of the interim periods presented.

Certain 2023 amounts in the consolidated financial statements and notes to the consolidated financial statements have been reclassified to conform to the 2024 presentation. These reclassifications have no effect on net earnings or stockholders' equity as previously reported.

Accounting Guidance Not Yet Adopted

In November 2023, the Financial Accounting Standards Board (FASB) issued an Accounting Standards Update (ASU) which is intended to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant expenses. The amendments will require public entities to disclose significant segment expenses that are regularly provided to the chief operating decision-maker and included within segment profit and loss. The new standard is effective for annual periods beginning after December 15, 2023, and for interim periods within fiscal years beginning after December 15, 2024. The Company is currently evaluating the effect of the new disclosure requirements.

In December 2023, the FASB issued an ASU which includes amendments that further enhance income tax disclosures, primarily through standardization and disaggregation of rate reconciliation categories and income taxes paid by jurisdiction. The new standard is effective for annual periods beginning after December 15, 2024. The Company is currently evaluating the effect of the new disclosure requirements.

In March 2024, the SEC adopted the final rule under SEC Release No. 33-11275, The Enhancement and Standardization of Climate-Related Disclosures for Investors. This rule will require disclosure of material climate-related risks and material direct greenhouse gas emissions from operations owned or controlled (Scope 1) and/or material indirect greenhouse gas emissions from purchased energy consumed in owned or controlled operations (Scope 2). Additionally, the rules require disclosure in the notes to the financial statements of the effects of severe weather events and other natural conditions, subject to certain materiality thresholds. The disclosure requirements will begin phasing in for reports and registration statements including financial information with respect to annual periods beginning in 2025. In April 2024, the SEC voluntarily stayed the final rule pending the completion of judicial review by the Court of Appeals for the Eighth Circuit. The Company is monitoring the development of litigation related to the SEC's rule, and is currently evaluating the effect of the new disclosure requirements.

2. Acquisitions and Divestitures

Magellan Specialty Health Divestiture

During the first quarter of 2024, the Company recorded an additional gain on the previously reported divestiture of Magellan Specialty Health of $81 million for achievement of contingent consideration related to the sale, which is included in investment and other income in the Consolidated Statements of Operations.

Circle Health Group Divestiture

On August 28, 2023, the Company signed a definitive agreement to sell Circle Health Group (Circle Health), one of the U.K.'s largest independent hospital operators, which is included in the Other segment.

Table o f Contents

In accordance with the signed definitive agreement in the third quarter of 2023, and subsequently updated in the fourth quarter of 2023, the Company recorded impairment charges related to goodwill associated with the pending divestiture totaling $292 million, or $258 million after-tax.

In order to manage the foreign exchange risk on the sale price associated with the pending divestiture of Circle Health, in August 2023 the Company entered into a foreign currency swap agreement for a notional amount of $931 million, to sell £740 million. The swap agreement was formally designated and qualified as a cash flow hedge. The swap expired on the earlier of the divestiture closing date or March 28, 2024. The gain or loss due to changes in the fair value of the foreign currency swap was recorded in other comprehensive income until the Circle Health divestiture closed, at which time the gain or loss was recorded in earnings to the same line in the Consolidated Statement of Operations as the gain or loss on sale.

On January 12, 2024, the Company completed the divestiture for $931 million. Upon closing the divestiture, the Company settled the foreign currency swap and recorded a corresponding gain of $10 million, which includes the cumulative translation adjustment previously recorded in accumulated other comprehensive income in the Consolidated Balance Sheet. The gain is included in investment and other income in the Consolidated Statements of Operations. The Company realized a net tax benefit of approximately $45 million in the first quarter of 2024 on the loss recognized on the divestiture.

3. 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):


	March 31, 2024								December 31, 2023
	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	$	390	$	—	$	(8)	$	382	$	403	$	—	$	(8)	$	395
Corporate securities	10,262		43		(476)		9,829		9,984		78		(461)		9,601
Restricted certificates of deposit	4		—		—		4		4		—		—		4
Restricted cash equivalents	292		—		—		292		259		—		—		259
Short-term time deposits	289		—		—		289		746		—		—		746
Municipal securities	4,182		13		(177)		4,018		4,135		21		(171)		3,985
Asset-backed securities	1,648		8		(31)		1,625		1,665		8		(35)		1,638
Residential mortgage-backed securities	1,511		2		(120)		1,393		1,503		7		(103)		1,407
Commercial mortgage-backed securities	1,167		4		(80)		1,091		1,149		5		(82)		1,072
Equity securities	16		—		—		16		17		—		—		17
Private equity investments	837		—		—		837		833		—		—		833
Life insurance contracts	185		—		—		185		174		—		—		174
Total	$	20,783	$	70	$	(892)	$	19,961	$	20,872	$	119	$	(860)	$	20,131

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. Private equity investments include direct investments in private equity securities as well as private equity funds. 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 March 31, 2024, 99% of the Company's investments in rated securities carry an investment grade rating by nationally recognized statistical rating organizations. At March 31, 2024, 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 $161 million and $153 million at March 31, 2024 and December 31, 2023, respectively, and is included in other current assets in the Consolidated Balance Sheets.

Table o f Contents

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 AA+ and a weighted average duration of 4 years at March 31, 2024.

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):


	March 31, 2024								December 31, 2023
	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	$	—	$	136	$	(8)	$	214	$	—	$	79	$	(8)	$	232
Corporate securities	(14)		1,462		(462)		6,031		(6)		658		(455)		6,260
Municipal securities	(9)		972		(168)		2,223		(4)		553		(167)		2,237
Asset-backed securities	(2)		411		(29)		479		(2)		197		(33)		855
Residential mortgage-backed securities	(6)		357		(114)		805		(2)		153		(101)		814
Commercial mortgage-backed securities	(3)		145		(77)		744		(2)		114		(80)		754
Short-term time deposits	—		3		—		—		—		31		—		—
Total	$	(34)	$	3,486	$	(858)	$	10,496	$	(16)	$	1,785	$	(844)	$	11,152

As of March 31, 2024, the gross unrealized losses were generated from 4,915 positions out of a total of 6,742 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.

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


	March 31, 2024								December 31, 2023
	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	$	1,932	$	1,906	$	641	$	639	$	2,308	$	2,284	$	566	$	564
One year through five years	7,848		7,518		488		465		7,738		7,431		527		504
Five years through ten years	4,038		3,832		281		267		3,905		3,735		298		283
Greater than ten years	178		175		13		12		155		154		34		35
Asset-backed securities	4,326		4,109		—		—		4,317		4,117		—		—
Total	$	18,322	$	17,540	$	1,423	$	1,383	$	18,423	$	17,721	$	1,425	$	1,386

Table o f Contents

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.

4. 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 March 31, 2024, 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	$	17,585	$	—	$	—	$	17,585
Investments:
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	59	$	—	$	—	$	59
Corporate securities	—		9,791		—		9,791
Municipal securities	—		3,292		—		3,292
Short-term time deposits	—		289		—		289
Asset-backed securities	—		1,625		—		1,625
Residential mortgage-backed securities	—		1,393		—		1,393
Commercial mortgage-backed securities	—		1,091		—		1,091
Equity securities	14		2		—		16
Total investments	$	73	$	17,483	$	—	$	17,556
Restricted deposits:
Cash and cash equivalents	$	292	$	—	$	—	$	292
U.S. Treasury securities and obligations of U.S. government corporations and agencies	323		—		—		323
Corporate securities	—		38		—		38
Certificates of deposit	—		4		—		4
Municipal securities	—		726		—		726
Total restricted deposits	$	615	$	768	$	—	$	1,383


Total assets at fair value	$	18,273	$	18,251	$	—	$	36,524

Table o f Contents

The following table summarizes fair value measurements by level at December 31, 2023, 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	$	17,193	$	—	$	—	$	17,193
Investments:
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	62	$	—	$	—	$	62
Corporate securities	—		9,564		—		9,564
Municipal securities	—		3,232		—		3,232
Short-term time deposits	—		746		—		746
Asset backed securities	—		1,638		—		1,638
Residential mortgage-backed securities	—		1,407		—		1,407
Commercial mortgage-backed securities	—		1,072		—		1,072
Equity securities	15		2		—		17
Total investments	$	77	$	17,661	$	—	$	17,738
Restricted deposits:
Cash and cash equivalents	$	259	$	—	$	—	$	259
U.S. Treasury securities and obligations of U.S. government corporations and agencies	333		—		—		333
Corporate securities	—		37		—		37
Certificates of deposit	—		4		—		4
Municipal securities	—		753		—		753
Total restricted deposits	$	592	$	794	$	—	$	1,386



Total assets at fair value	$	17,862	$	18,455	$	—	$	36,317

Liabilities
Accounts payable and accrued expenses:
Foreign currency swap agreement	$	—	$	13	$	—	$	13
Total liabilities at fair value	$	—	$	13	$	—	$	13

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 $1,022 million and $1,007 million as of March 31, 2024 and December 31, 2023, respectively.

Table o f Contents

5. Medical Claims Liability

The following table summarizes the change in medical claims liability for the three months ended March 31, 2024 ($ in millions):


	Medicaid		Medicare		Commercial		Other		Consolidated Total
Balance, January 1, 2024	$	10,814	$	3,612	$	3,460	$	114	$	18,000
Less: Reinsurance recoverable	5		—		44		—		49
Balance, January 1, 2024, net	10,809		3,612		3,416		114		17,951

Incurred related to:
Current year	20,179		5,495		5,884		373		31,931
Prior years	(684)		(156)		(204)		(5)		(1,049)
Total incurred	19,495		5,339		5,680		368		30,882
Paid related to:
Current year	12,823		3,266		3,339		258		19,686
Prior years	6,993		2,050		1,973		108		11,124
Total paid	19,816		5,316		5,312		366		30,810
Plus: Premium deficiency reserve	—		50		—		—		50
Balance, March 31, 2024, net	10,488		3,685		3,784		116		18,073
Plus: Reinsurance recoverable	4		—		32		—		36
Balance, March 31, 2024	$	10,492	$	3,685	$	3,816	$	116	$	18,109

The following table summarizes the change in medical claims liability for the three months ended March 31, 2023 ($ in millions):


	Medicaid		Medicare		Commercial		Other		Consolidated Total
Balance, January 1, 2023	$	11,253	$	3,431	$	1,921	$	140	$	16,745
Less: Reinsurance recoverable	7		—		19		—		26
Balance, January 1, 2023, net	11,246		3,431		1,902		140		16,719

Incurred related to:
Current year	20,813		5,163		4,177		418		30,571
Prior years	(803)		(155)		(172)		(7)		(1,137)
Total incurred	20,010		5,008		4,005		411		29,434
Paid related to:
Current year	12,679		2,988		2,541		294		18,502
Prior years	6,834		2,145		1,063		132		10,174
Total paid	19,513		5,133		3,604		426		28,676
Balance, March 31, 2023, net	11,743		3,306		2,303		125		17,477
Plus: Reinsurance recoverable	9		—		18		—		27
Balance, March 31, 2023	$	11,752	$	3,306	$	2,321	$	125	$	17,504

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. Additionally, as a result of development within "Incurred related to: Prior years," the Company recorded $54 million and $159 million as a reduction to premium revenue in the three months ended March 31, 2024 and 2023, respectively, for minimum health benefits ratio (HBR) and other return of premium programs.

Table o f Contents

Incurred but not reported (IBNR) plus expected development on reported claims as of March 31, 2024 was $12,311 million. 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.

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 and expected investment income is excluded. In December 2023, the Company recorded a premium deficiency reserve of $250 million related to the 2024 Medicare Advantage contract year, which was increased to $300 million in the first quarter of 2024 consistent with the intra-year flow of seasonality.

6. Affordable Care Act

The Affordable Care Act established risk spreading premium stabilization programs as well as a minimum annual medical loss ratio (MLR) and cost sharing reductions.

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


	March 31, 2024		December 31, 2023
Risk adjustment receivable	$	1,124	$	893
Risk adjustment payable	(3,266)		(2,553)
Minimum medical loss ratio	(237)		(164)
Cost sharing reduction receivable	18		—
Cost sharing reduction payable	(113)		(114)

7. Debt

Debt consists of the following ($ in millions):


	March 31, 2024		December 31, 2023
$2,500 million 4.25% Senior Notes due December 15, 2027	$	2,396	$	2,395
$2,300 million 2.45% Senior Notes due July 15, 2028	2,303		2,303
$3,500 million 4.625% Senior Notes due December 15, 2029	3,277		3,277
$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	15,676		15,675
Term Loan Facility	2,088		2,115
Revolving Credit Agreement	350		150
Finance leases and other	3		11
Debt issuance costs	(117)		(122)
Total debt	18,000		17,829
Less: current portion	(113)		(119)
Long-term debt	$	17,887	$	17,710

Table o f Contents

8. Stockholders' Equity

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. The Company is authorized to repurchase up to $10,000 million, inclusive of past authorizations. As of March 31, 2024, the Company had a remaining amount of $5,178 million available under the stock repurchase program. In April 2024, the Company repurchased an additional 2.7 million shares for $200 million.

The following represents the Company's share repurchase activity ($ in millions, shares in thousands):


	Three Months Ended March 31,
	2024			2023
	Shares	Cost		Shares	Cost
Share buybacks	681	$	51	4,852	$	377
Income tax withholding	1,302	100		696	46
Total share repurchases	1,983	$	151	5,548	$	423

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.

9. 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):


	Three Months Ended March 31,
	2024		2023

Earnings attributable to Centene Corporation	$	1,163	$	1,130

Shares used in computing per share amounts:
Weighted average number of common shares outstanding	535,109		550,779
Common stock equivalents (as determined by applying the treasury stock method)	2,951		3,066
Weighted average number of common shares and potential dilutive common shares outstanding	538,060		553,845

Net earnings per common share attributable to Centene Corporation:
Basic earnings per common share	$	2.17	$	2.05
Diluted earnings per common share	$	2.16	$	2.04

The calculation of diluted earnings per common share for the three months ended March 31, 2024 and 2023 excludes 684 thousand shares and 1,606 thousand shares, respectively, related to anti-dilutive stock options, restricted stock and restricted stock units.

Table o f Contents

10. Segment Information

The Company operates in four segments: (1) a Medicaid segment, (2) a Medicare segment, (3) a Commercial segment and (4) an Other segment.

The Medicaid, Medicare and Commercial segments represent the government-sponsored or subsidized programs under which the Company offers managed healthcare services. The Other segment includes the Company's pharmacy operations, Envolve Benefit Options' vision and dental services, clinical healthcare, behavioral health, international operations, and corporate management companies, among others. The Company's international businesses, Operose Health Group (Operose Health) and Circle Health, were divested in December 2023 and January 2024, respectively.

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

Segment information for the three months ended March 31, 2024, is as follows ($ in millions):


		Medicaid		Medicare		Commercial		Other/Eliminations		Consolidated Total
Premium		$	21,438	$	5,935	$	7,750	$	406	$	35,529
Service		22		—		1		785		808
Premium and service revenues		21,460		5,935		7,751		1,191		36,337
Premium tax		4,070		—		—		—		4,070
Total external revenues		25,530		5,935		7,751		1,191		40,407
Internal revenues		—		—		—		4,080		4,080
Eliminations		—		—		—		(4,080)		(4,080)
Total revenues		$	25,530	$	5,935	$	7,751	$	1,191	$	40,407

Medical costs		$	19,495	$	5,389	$	5,680	$	368	$	30,932

Cost of services		$	21	$	—	$	—	$	648	$	669

Gross margin (1)		$	1,944	$	546	$	2,071	$	175	$	4,736

(1)	Gross margin represents premium and service revenues less medical costs and cost of services.

Segment information for the three months ended March 31, 2023, is as follows ($ in millions):


		Medicaid		Medicare		Commercial		Other/Eliminations		Consolidated Total
Premium		$	22,227	$	5,876	$	5,252	$	470	$	33,825
Service		—		—		—		1,127		1,127
Premium and service revenues		22,227		5,876		5,252		1,597		34,952
Premium tax		3,937		—		—		—		3,937
Total external revenues		26,164		5,876		5,252		1,597		38,889
Internal revenues		—		—		—		3,867		3,867
Eliminations		—		—		—		(3,867)		(3,867)
Total revenues		$	26,164	$	5,876	$	5,252	$	1,597	$	38,889

Medical costs		$	20,010	$	5,008	$	4,005	$	411	$	29,434

Cost of services		$	—	$	—	$	—	$	870	$	870

Gross margin (1)		$	2,217	$	868	$	1,247	$	316	$	4,648

(1)	Gross margin represents premium and service revenues less medical costs and cost of services.

Table o f Contents

11. Contingencies

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, compliance with CMS Medicare and Marketplace regulations, including risk adjustment and broker compensation, compliance with 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 (HIPAA) 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, vendor disputes 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, vendors 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 previously disclosed in the Company's 2023 Annual Report on Form 10-K 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. The Company has reached no-fault settlement agreements related to services previously provided by Envolve with the vast majority of states impacted. Such agreements have provided for payment amounts consistent with the initial reserve estimate established in the second quarter of 2021 related to this issue. 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. 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.

Table o f Contents

Previous: Cover and table of contents · Next: Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.