Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes included elsewhere in this filing. The discussion contains forward-looking statements that involve known and unknown risks and uncertainties.

EXECUTIVE OVERVIEW

General

We are a leading healthcare enterprise that is committed to helping people live healthier lives. The Company takes a local approach – with local brands and local teams – to provide fully integrated, high-quality and cost-effective services to government-sponsored and commercial healthcare programs, focusing on under-insured and uninsured individuals. Centene offers affordable and high-quality products to more than 1 in 15 individuals across the nation, including Medicaid and Medicare members (including Medicare Prescription Drug Plans) as well as individuals and families served by the Health Insurance Marketplace.

Our results of operations depend on our ability to manage expenses associated with health benefits (including estimated costs incurred) and selling, general and administrative (SG&A) costs. We measure operating performance based upon two key ratios. The health benefits ratio (HBR) represents medical costs as a percentage of premium revenues, excluding premium tax revenues that are separately billed, and reflects the direct relationship between the premiums received and the medical services provided. The SG&A expense ratio represents SG&A costs as a percentage of premium and service revenues, excluding premium taxes separately billed.

Trends and Uncertainties

Operating

We are currently experiencing an accelerated increase in medical cost trend. The drivers of trend include increasing medical demand, expanded access to care facilitated by program changes at the state level, and the rapid release and availability of new, high-cost pharmaceuticals. Increasingly, state healthcare policies are providing for expanded access through carve-ins for incremental coverage (for example, behavioral healthcare and home and community-based services).

The medical cost drivers are likely intensified by an environment where legislative changes to the United States healthcare model have been widely publicized (and with increasing intensity over the last six months). Changes to the model include references to members in certain programs who may lose eligibility and certain provider reimbursement models that may be reduced in the future. Changes in Medicaid and Marketplace, including changes in the availability of enhanced Advance Premium Tax Credits (APTCs) for Marketplace products coupled with the One Big Beautiful Bill Act (OBBBA), create member uncertainty surrounding the future availability, affordability, funding, and access to health insurance. This backdrop may be prompting members to seek care at an increased rate (given potential eligibility and subsidy funding shifts) and providers may be modifying operations, all further exacerbating the medical cost trend.

We continue to work with our state partners to establish Medicaid premium rates that appropriately match the acuity of the population as well as reflect the most recent medical cost trend. We also provide states with data to help them analyze the implications of policy decisions as well as design effective risk adjustment programs. In Marketplace, we commenced the process of refiling 2026 policy year rates to reflect a higher projected baseline of Marketplace morbidity than previously expected, and expect to be able to take corrective pricing actions for 2026 in states representing a substantial majority of our Marketplace membership.

Additionally, we are committed to ensuring that the affordability of healthcare is maintained for our government partners and members and continue to address the cost trend through the implementation of new clinical initiatives and care management plans, thoughtful network design, and ongoing rigor to combat fraud, waste and abuse.

Regulatory: Medicaid

The COVID-19 pandemic impacted our business as it relates to Medicaid eligibility changes. From the onset of the public health emergency (PHE) through March 2023, our Medicaid membership increased by 3.6 million members (excluding new states North Carolina and Delaware and various state product expansions or managed care organization changes). Since March 31, 2023, redeterminations are the primary driver of our Medicaid membership decline. While some states may still be concluding the redetermination process for certain populations of members, we anticipate that any remaining reductions will be limited as the majority of states have substantially completed their unwinding processes as of December 2024. We continue to work with our state partners to match rates to acuity post-redeterminations.

The OBBBA, passed in July 2025, includes requirements that may reduce the number of members eligible for state Medicaid Expansion programs by requiring work or community engagement by members and for state Medicaid agencies to redetermine member eligibility at more frequent intervals, along with adding a "Cost Sharing" or "Co-Pay" for certain medical services. These changes could have the effect of increasing the overall morbidity of the Medicaid Expansion population as early as 2027. Several other provisions of the OBBBA, such as adjustments to provider taxes and state directed payments beginning in 2028, may have the effect of reducing the amount of federal funding for Medicaid, which could result in changes in the design of Medicaid programs, including coverage of benefits, eligibility, and/or provider payment rates.

Regulatory: Commercial

The American Rescue Plan Act (ARPA), enacted in March 2021, initially enhanced eligibility for APTCs for enrollees in the Health Insurance Marketplace. The enhanced eligibility extended by the Inflation Reduction Act (IRA), enacted in August 2022, expires at the end of 2025.

The Marketplace Integrity & Affordability Final Rule (Final Rule) was published in the Federal Register on June 25, 2025. The Final Rule makes changes to policies to strengthen program integrity measures in the Marketplace. For example, the Special Enrollment Period for those under 150% of the Federal Poverty Level (FPL) has been repealed beginning August 25, 2025. Further, beginning in plan year 2026, consumers who automatically re-enroll into a fully subsidized Marketplace plan will be re-enrolled into the same plan with a $5 premium until the consumer updates their exchange application to confirm APTC eligibility. In addition, exchanges may no longer accept a consumer's self-attestation of projected annual household income when the Internal Revenue Service (IRS) cannot verify it due to lack of tax return data; rather, exchanges must verify household income using other trusted data sources.

In addition, the OBBBA placed additional restrictions on APTC requirements. For example, beginning January 1, 2026, should individuals underestimate their projected income, the OBBBA requires them to reimburse the IRS for the full amount of excess tax credit received. In addition, as of January 1, 2026, the OBBBA prohibits individuals from receiving APTCs if they enroll in health coverage through a Special Enrollment Period associated with their income. We anticipate that the combined effect of the expiration of the enhanced APTCs, the Final Rule, and the OBBBA will reduce 2026 Marketplace membership and continue to increase the overall morbidity of the Marketplace population. We have commenced the process of refiling 2026 policy year rates to reflect a higher projected baseline of Marketplace morbidity than previously expected. We continue to advocate for legislation and regulations aimed at leveraging Medicaid and the Health Insurance Marketplace to maintain health insurance coverage and affordability for consumers.

Regulatory: Medicare

The IRA significantly changed Medicare Prescription Drug Plans (PDPs) in 2025, most notably by eliminating the coverage gap and capping members' annual out-of-pocket costs at $2,000 in order to provide more predictable and affordable prescription drug coverage for Medicare beneficiaries. The IRA changes effective for 2025 result in a meaningful shift in cost-sharing responsibilities between members, drug companies, Centers for Medicare and Medicaid Services (CMS), and PDPs and have resulted in a significant increase in our premiums in consideration for our PDPs' responsibility for a larger portion of total Part D benefit costs. To help mitigate significant premium impacts and address these changes, CMS introduced the Medicare Part D Premium Stabilization Demonstration program. This program began in calendar year 2025 and was intended by CMS to exist for three years. The parameters of the program are expected to be different each year. CMS believes the demonstration will provide plans greater flexibility to manage costs and assist in stabilizing beneficiary premiums. We continue to advocate for policies that promote cost-effective, high-quality care for our PDP enrolled members. We have receivables due to us from CMS for Part D risk-sharing programs attributable to the 2024 and 2025 plan years that we expect to be paid by CMS approximately 12 to 13 months after the plan year closes. If the payments from CMS are delayed, our cash flows may be materially adversely affected.

Regulatory: Dual-Eligible

In addition, the CMS calendar year 2025 Medicare and Part D policy rule and finalized regulations will require beneficiaries dually enrolled in Medicare and a Medicaid Managed Care Plan to receive integrated care through the Medicaid company's Medicare Advantage Dual Eligible Special Needs Plans (D-SNPs) beginning in 2030, with certain provisions beginning in 2027. However, some states have already moved or are planning to exclusively align dual-eligible enrollment under an aligned D-SNP before this timeframe. We believe we are well positioned given our overlapping Medicaid and Medicare Advantage footprints and are committed to navigating evolving regulations.

Summary

We remain focused on the promise of delivering high-quality healthcare services on behalf of states and the federal government to under-insured and uninsured families and commercial organizations. Our decades of experience and deep industry knowledge has allowed us to deliver cost-effective services to our government partners and our members. With a focus on the personalization of healthcare technology, we continue the use of data and analytics to improve the provider and member experience. We continue to believe we have both the capacity and capability to successfully navigate industry changes to the benefit of our members, customers, providers, and shareholders.

Second Quarter 2025 Highlights

Our financial performance for the second quarter of 2025 is summarized as follows:

• Managed care membership of 28.0 million, a decrease of 473 thousand members, or (2)% year-over-year.

• Total revenues of $48.7 billion, representing 22% growth year-over-year.

• Premium and service revenues of $42.5 billion, representing 18% growth year-over-year.

• HBR of 93.0%, compared to 87.6% for the second quarter of 2024.

• SG&A expense ratio of 7.1%, compared to 8.0% for the second quarter of 2024.

• Adjusted SG&A expense ratio of 7.1%, compared to 8.0% for the second quarter of 2024.

• Operating cash flows provided cash of $1.8 billion in the second quarter of 2025.

• GAAP diluted loss per share was $(0.51) for the second quarter of 2025 primarily driven by a reduction in our net 2025 Marketplace risk adjustment revenue transfer estimate.

• Adjusted diluted loss per share of $(0.16) for the second quarter of 2025 primarily driven by a reduction in our net 2025 Marketplace risk adjustment revenue transfer estimate.

A reconciliation from GAAP diluted earnings (loss) per share to adjusted diluted earnings (loss) per share is highlighted below, and additional detail is provided above under the heading "Non-GAAP Financial Presentation":

We reference an adjusted SG&A expense ratio, defined as adjusted SG&A expenses, which excludes acquisition and divestiture related expenses and other items, divided by premium and service revenues. A reconciliation from GAAP SG&A to adjusted SG&A and additional detail is provided above under the heading "Non-GAAP Financial Presentation." We also reference effective tax rate on adjusted earnings, defined as GAAP income tax expense (benefit) excluding the income tax effects of adjustments to net earnings divided by adjusted earnings (loss) before income tax expense.

			Three Months Ended June 30,
			2025						2024
GAAP diluted earnings (loss) per share attributable to Centene			$	(0.51)					$	2.16
Amortization of acquired intangible assets			0.35						0.33
Acquisition and divestiture related expenses			—						0.01
Other adjustments (1)			0.12						—
Income tax effects of adjustments (2)			(0.12)						(0.08)
Adjusted diluted earnings (loss) per share			$	(0.16)					$	2.42

(1) Other adjustments include the following pre-tax items:

2025:

(a) intangible asset impairment related to the wind-down of certain contracts in the Other segment of $55 million, or $0.11 per share ($0.08 after-tax), and a reduction to the previously reported gain on real estate transactions of $3 million, or $0.01 per share ($0.01 after-tax).

2024:

(a) gain on the previously reported divestiture of Circle Health Group (Circle Health) of $10 million, or $0.02 per share ($0.02 after-tax), an additional loss on the divestiture of our Spanish and Central European businesses of $7 million, or $0.01 per share ($0.01 after-tax), severance costs due to a restructuring of $4 million, or $0.01 per share ($0.01 after-tax), reduction to the net gain on the sale of property due to closing costs of $3 million, or $0.00 per share ($0.00 after-tax), and net gain on the finalization of working capital adjustments for the previously reported divestiture of Magellan Specialty Health of $2 million, or $0.00 per share ($0.00 after-tax).

(2) The income tax effects of adjustments are based on the effective income tax rates applicable to each adjustment.

Current and Future Operating Drivers

The following items contributed to our results of operations as compared to the previous year:

Medicaid

• In February 2025, our subsidiary, Sunshine Health, commenced the expanded Statewide Medicaid Managed Care (SMMC) program, including integrated Managed Medical Assistance, Long-Term Care services, Serious Mental Illness, Child Welfare and HIV specialty products. The expanded SMMC program now includes coverage for Behavior Analysis services. The contract has a six-year term. Additionally, coverage for Behavior Analysis services was also added to the existing Children's Medical Services contract beginning February 2025.

• In January 2025, our subsidiary, Sunflower Health Plan, commenced the contract to continue providing managed health care services through KanCare, the State of Kansas' Medicaid and Children's Health Insurance Program. The contract has a three-year term, with two optional one-year extensions, for a total of five possible contract years.

• In October 2024, our subsidiary, Meridian Health Plan of Michigan, commenced the contract awarded by the Michigan Department of Health and Human Services (MDHHS) to continue serving as a Medicaid health plan for the Comprehensive Health Care Program. The contract has a five-year term, with three optional one-year extensions, for a total of eight possible contract years.

• In September 2024, our subsidiary, Superior HealthPlan (Superior), commenced the contract awarded by the Texas Health and Human Services Commission to continue to provide healthcare coverage to the aged, blind or disabled (ABD) population in the state's STAR+PLUS program. The contract has a six-year term with a maximum of three additional two-year extensions.

• In September 2024, our subsidiary, NH Healthy Families, commenced the contract awarded by the New Hampshire Department of Health and Human Services to continue providing physical health, behavioral health and pharmacy services for New Hampshire's Medicaid managed care program, known as Medicaid Care Management. The contract has a five-year term.

• In July 2024, our subsidiaries, Carolina Complete Health and WellCare of North Carolina, began coordinating physical and other health services with Local Management Entities/Managed Care Organizations under the state's new Tailored Plan program. The Tailored Plans are integrated health plans designed for individuals with significant behavioral health needs or intellectual/developmental disabilities.

• In June 2024, our subsidiary, Western Sky Community Care, concluded serving members upon the expiration of its New Mexico Medicaid managed care contract.

• In April 2024, our subsidiary, Oklahoma Complete Health, commenced the statewide contracts to provide managed care for the SoonerSelect and SoonerSelect Children's Specialty Plan programs. The new contracts have a one-year term with five, one-year renewal options.

• In January 2024, our subsidiary, Nebraska Total Care, commenced the statewide Medicaid managed care contract to continue serving the state's Medicaid Managed Care Program, known as Heritage Health. The initial contract term is five years and includes the option for two subsequent, one-year renewals, for a potential total of seven years.

• In January 2024, our California health plan commenced direct Medicaid contracts in 10 counties (Los Angeles, Sacramento, Amador, Calaveras, Inyo, Mono, San Joaquin, Stanislaus, Tulare and Tuolumne). In Los Angeles, a portion of the membership is subcontracted. Prior to January 2024, our California health plan previously served the state's Medicaid Managed Care population with contracts in 13 counties, including San Diego.

• In April 2023, eligibility redeterminations related to the PHE began. States have substantially completed their unwinding processes as of December 2024. We continue to work with our state partners to match rates to acuity post-redeterminations.

Medicare / Dual-Eligible

• Given our strong bid positioning, PDP membership increased 19% year-over-year. Additionally, the IRA changes effective for 2025 result in a meaningful shift in cost-sharing responsibilities between members, drug companies, CMS, and PDPs and have led to a significant increase in our premiums in consideration for our PDPs responsibility for a larger portion of total Part D benefit costs. These changes also result in a change to the quarterly progression of the Medicare segment HBR.

• In December 2024, we recorded a premium deficiency reserve of $92 million related to the 2025 Medicare Advantage contract year. The premium deficiency reserve was increased to $270 million in the first quarter of 2025 and to $389 million in the second quarter of 2025 based on the progression of earnings during the year (with higher earnings at the beginning of the year and lower at the end of the year, given cost sharing progression). The premium deficiency reserve related to the 2025 Medicare Advantage contract year will be released in the fourth quarter of 2025.

• In 2025, Wellcare is offering Medicare Advantage plans in 32 states, including its newest state, Iowa. Wellcare discontinued offering Medicare Advantage products in Alabama, Massachusetts, New Hampshire, New Mexico, Rhode Island and Vermont in 2025. Consistent with our strategic positioning and bid strategy, Medicare Advantage membership declined 10% year-over-year.

Commercial

• On July 1, 2025, we announced a reduction to our expectation for the 2025 benefit year net risk adjustment revenue transfer as a result of significantly higher estimated aggregate market morbidity, with a corresponding decrease in our earnings expectations for 2025. Our updated risk adjustment transfer estimate has been incorporated in our June 30, 2025 financial results. The six months ended June 30, 2024, benefited from outperformance in Marketplace risk adjustment for the 2023 benefit year.

• In 2025, our Health Insurance Marketplace product, Ambetter Health, expanded its geographic footprint, adding 60 new counties across 10 states, which includes expansion into Iowa. Additionally, Marketplace membership increased 33% year-over-year due to the expanded footprint, strong open enrollment results, as well as overall market growth.

Other

• In December 2024, Health Net Federal Services concluded serving members upon the expiration of its TRICARE Managed Care Support Contract.

• In October 2024, we completed the sale of Collaborative Health Systems, a management services organization.

• In July 2024, our subsidiary, Magellan Health, commenced the Idaho Behavioral Health Plan contract.

The benefits of successful execution of our value creation initiatives have impacted our current results of operations and will continue to impact future results of operations, including the implementation of our new third-party pharmacy benefits management (PBM) contract, which commenced in January 2024.

We expect the following items to impact our future results of operations, subject to the resolution of various third-party protests within the Medicaid segment:

Medicaid

• In July 2025, our subsidiary, Iowa Total Care, commenced the contract to continue providing Medicaid managed care services under the Iowa Health Link program. The contract has a four-year term, with an optional two-year extension, for a total of six possible contract years.

• In July 2025, our subsidiary, Magnolia Health Plan (Magnolia), commenced the Mississippi Division of Medicaid contract to continue serving the state's Coordinated Care Organization Program consisting of the Mississippi Coordinated Access Network and the Mississippi CHIP. The contract has a four-year term, with two optional one-year extensions, for a total of six possible contract years.

• In April 2025, our subsidiary, SilverSummit Healthplan, Inc., was selected by the Nevada Department of Health and Human Services to continue to provide services for its Medicaid managed care program. For the first time the program will include expansion of Medicaid Managed Care into rural and frontier service areas, communities that were previously fee-for-service. The contract is expected to begin in January 2026 and has a five-year term, with the option of a two-year extension, for a total of seven possible contract years.

• In September 2024, our subsidiary, Health Net Community Solutions, was selected by the California Department of Health Care Services to provide managed dental health care services to beneficiaries of Medi-Cal, the State's Medicaid program, in Los Angeles and Sacramento counties. The new 54-month contract is expected to begin in January 2026.

• In August 2024, our subsidiary, PA Health and Wellness, was selected by the Pennsylvania Department of Human Services to continue to administer Pennsylvania's Community HealthChoices program, the Medicaid managed care program that covers adults who are dually eligible for Medicare and Medicaid or who qualify to receive Medicaid long-term services and supports due to a need for the level of care provided in a nursing facility. The contract is expected to begin in January 2026 and has a five-year term, with three optional one-year extensions, for a total of eight possible contract years.

• In December 2023, our subsidiary, Arizona Complete Health, was selected by the Arizona Health Care Cost Containment System – Arizona's single state Medicaid agency – to provide managed care for the Arizona Long Term Care System (ALTCS). The program supports Arizonans who are elderly and/or have a physical disability (E/PD) with physical and behavioral healthcare, as well as provides pharmacy benefits and home and community-based services. A prolonged bid protest continues to be litigated and, at this time, it is unclear when the contract could be implemented.

In addition, we are in the process of protesting the results of Medicaid procurement awards in Georgia and Texas. If these protests are not successful, our future results of operations would be impacted.

Medicare / Dual-Eligible

• In March 2025, our subsidiary, Meridian Health Plan of Illinois, Inc., was selected by the Illinois Department of Healthcare and Family Services to continue providing Medicare and Medicaid services for dually eligible Illinoisans through a Fully Integrated Dual Eligible Special Needs Plan (FIDE SNP). The contract is expected to begin in January 2026 and has a four-year term, with optional extensions of six months to five and a half years.

• In November 2024, our subsidiary, Buckeye Health Plan, was selected by the Ohio Department of Medicaid to continue providing Medicare and Medicaid services for dually eligible individuals through a FIDE SNP. The three-year contract is expected to begin in January 2026.

• In October 2024, our subsidiary, Meridian Health Plan of Michigan, Inc., was selected by the MDHHS to provide highly integrated Medicare and Medicaid services for dually eligible Michiganders through a Highly Integrated Dual Eligible Special Needs Plan (HIDE SNP). The plan is expected to begin in January 2026 and has a seven-year term, with three optional one-year extensions, for a total of 10 possible contract years.

• In October 2024, CMS issued 2025 Medicare Advantage Star Ratings on the Medicare Plan Finder. Based on the data as well as our successful appeal of the initial scoring of our TTY (Text-to-Voice teletypewriter services for the hearing impaired), we had approximately 55% of our Medicare Advantage membership enrolled in plans rated 3.5 stars or higher – compared to approximately 23% in the prior year. This represents meaningful progress despite higher than industry-anticipated cut point changes.

Commercial

*•*In July 2025, we commenced the process of refiling 2026 policy year rates to reflect a higher projected baseline of Marketplace morbidity than previously expected. We currently expect to be able to take corrective pricing actions for 2026 in states representing a substantial majority of our Marketplace membership.

MEMBERSHIP

From June 30, 2024 to June 30, 2025, our managed care membership decreased by 473 thousand, or (2)%. The following table sets forth our membership by line of business:

						June 30, 2025						December 31, 2024						June 30, 2024
Traditional Medicaid (1)						11,227,400						11,408,100						11,640,900
High Acuity Medicaid (2)						1,592,300						1,595,400						1,499,000
Total Medicaid						12,819,700						13,003,500						13,139,900
Marketplace						5,862,800						4,382,100						4,401,300
Individual and Commercial Group (3)						449,700						431,400						426,400
Total Commercial						6,312,500						4,813,500						4,827,700
Medicare (4)						1,026,900						1,110,900						1,138,400
Medicare PDP						7,845,800						6,925,700						6,603,600
Total at-risk membership						28,004,900						25,853,600						25,709,600
TRICARE eligibles						—						2,747,000						2,768,000
Total						28,004,900						28,600,600						28,477,600
(1)			Membership includes Temporary Assistance for Needy Families (TANF), Medicaid Expansion, Children's Health Insurance Program (CHIP), Foster Care, and Behavioral Health.
(2)			Membership includes Aged, Blind, or Disabled (ABD), Intellectual and Developmental Disabilities (IDD), Long-Term Services and Supports (LTSS) and Medicare-Medicaid Plans (MMP) Duals.
(3)			Membership includes Commercial Group, Individual Coverage Health Reimbursement Arrangement (ICHRA) and Other Off-Exchange Individual.
(4)			Membership includes Medicare Advantage and Medicare Supplement.

RESULTS OF OPERATIONS

The following discussion and analysis is based on our Consolidated Statements of Operations, which reflect our results of operations for the three and six months ended June 30, 2025 and 2024, prepared in accordance with generally accepted accounting principles in the United States (GAAP).

Summarized comparative financial data for the three and six months ended June 30, 2025 and 2024 is as follows ($ in millions, except per share data in dollars):

			Three Months Ended June 30,																		Six Months Ended June 30,
			2025						2024						% Change						2025						2024						% Change
Premium			$	41,740					$	35,140					19		%				$	83,452					$	70,669					18		%
Service			727						833						(13)		%				1,504						1,641						(8)		%
Premium and service revenues			42,467						35,973						18		%				84,956						72,310						17		%
Premium tax			6,275						3,863						62		%				10,406						7,933						31		%
Total revenues			48,742						39,836						22		%				95,362						80,243						19		%
Medical costs			38,808						30,765						26		%				75,311						61,697						22		%
Cost of services			641						680						(6)		%				1,339						1,349						(1)		%
Selling, general and administrative expenses			3,036						2,894						5		%				6,389						6,112						5		%
Depreciation expense			141						133						6		%				283						268						6		%
Amortization of acquired intangible assets			173						173						—		%				346						346						—		%
Premium tax expense			6,346						3,962						60		%				10,563						8,123						30		%
Impairment			55						—						n.m.						55						13						323		%
Earnings (loss) from operations			(458)						1,229						(137)		%				1,076						2,335						(54)		%
Investment and other income			371						463						(20)		%				753						1,008						(25)		%
Interest expense			(170)						(176)						3		%				(340)						(354)						4		%
Earnings (loss) before income tax			(257)						1,516						(117)		%				1,489						2,989						(50)		%
Income tax expense			2						370						(99)		%				434						685						(37)		%
Net earnings (loss)			(259)						1,146						(123)		%				1,055						2,304						(54)		%
Loss attributable to noncontrolling interests			6						—						n.m.						3						5						(40)		%
Net earnings (loss) attributable to Centene Corporation			$	(253)					$	1,146					(122)		%				$	1,058					$	2,309					(54)		%
Diluted earnings (loss) per common share attributable to Centene Corporation			$	(0.51)					$	2.16					(124)		%				$	2.13					$	4.32					(51)		%
n.m.: not meaningful

Three Months Ended June 30, 2025 Compared to Three Months Ended June 30, 2024

Total Revenues

Total revenues increased 22% in the three months ended June 30, 2025, over the corresponding period in 2024, primarily driven by premium and membership growth in the PDP business along with overall market growth in the Marketplace business, rate increases in the Medicaid business and increased premium tax revenue, partially offset by lower Medicaid membership as a result of redeterminations and lower Marketplace net risk adjustment revenue. The three months ended June 30, 2024, benefited from outperformance in Marketplace risk adjustment for the 2023 benefit year.

Operating Expenses

Medical Costs/HBR

The HBR for the three months ended June 30, 2025, was 93.0%, compared to 87.6% in the same period in 2024. The increase was primarily driven by a reduction in our net 2025 Marketplace risk adjustment revenue transfer estimate, increased Marketplace medical costs, higher medical costs in Medicaid driven primarily by behavioral health, home health and high-cost drugs, and an increase to the 2025 Medicare Advantage premium deficiency reserve based on the progression of earnings during the year (with higher earnings at the beginning of the year and lower at the end of the year, given cost sharing progression).

Cost of Services

Cost of services decreased by $39 million in the three months ended June 30, 2025, compared to the corresponding period in 2024. The cost of service ratio for the three months ended June 30, 2025, was 88.2%, compared to 81.6% in the same period in 2024.

Selling, General & Administrative Expenses

The SG&A expense ratio was 7.1% for the second quarter of 2025, compared to 8.0% in the second quarter of 2024. The adjusted SG&A expense ratio was 7.1% for the second quarter of 2025, compared to 8.0% in the second quarter of 2024. The decreases were primarily driven by continued leveraging of expenses over higher revenues and growth in the PDP business. The decreases were partially offset by growth in the Marketplace business, which operates at a meaningfully higher SG&A expense ratio as compared to the overall company.

Impairment

During the three months ended June 30, 2025, we recorded total impairment charges of $55 million, driven by an intangible asset impairment related to the wind-down of certain contracts in the Other segment.

Other Income (Expense)

The following table summarizes the components of other income (expense) for the three months ended June 30, ($ in millions):

			2025						2024
Investment and other income			$	371					$	463
Interest expense			(170)						(176)
Other income (expense), net			$	201					$	287

Investment and other income. Investment and other income decreased by $92 million in the three months ended June 30, 2025, compared to the corresponding period in 2024 driven primarily by lower interest rates and lower average investment balances during the quarter.

Interest expense. Interest expense decreased by $6 million in the three months ended June 30, 2025, compared to the corresponding period in 2024.

Income Tax Expense

The income tax expense recorded in the second quarter of 2025 reflects the year-to-date impact of a lower estimated full year 2025 effective tax rate.

For the three months ended June 30, 2024, we recorded income tax expense of $370 million on pre-tax earnings of $1.5 billion, or an effective tax rate of 24.4%. The effective tax rate for the second quarter of 2024 reflects the tax effects of settlements with taxing authorities. For the second quarter of 2024, our effective tax rate on adjusted earnings was 24.4%.

Segment Results

The following table summarizes our consolidated operating results by segment for the three months ended June 30, ($ in millions):

						2025						2024						% Change
Total Revenues
Medicaid						$	27,998					$	24,113					16		%
Medicare						9,450						5,978						58		%
Commercial						10,070						8,535						18		%
Other						1,224						1,210						1		%
Consolidated total						$	48,742					$	39,836					22		%
Gross Margin (1)
Medicaid						$	1,117					$	1,461					(24)		%
Medicare						863						645						34		%
Commercial						946						2,267						(58)		%
Other						92						155						(41)		%
Consolidated total						$	3,018					$	4,528					(33)		%
(1)			Gross margin represents premium and service revenues less medical costs and cost of services.

Medicaid

Total revenues increased 16% in the three months ended June 30, 2025, compared to the corresponding period in 2024. The increase in total revenues was primarily driven by rate increases, partially offset by lower membership, primarily due to redeterminations. Gross margin decreased $344 million in the three months ended June 30, 2025, compared to the corresponding period in 2024. Gross margin decreased due to higher medical costs driven primarily by behavioral health, home health and high-cost drugs.

Medicare

Total revenues increased 58% in the three months ended June 30, 2025, compared to the corresponding period in 2024 primarily driven by increased PDP premium and membership, partially offset by lower Medicare Advantage membership. Gross margin increased $218 million in the three months ended June 30, 2025, compared to the corresponding period in 2024, primarily driven by premium and membership growth in the PDP business, including changes from the IRA impacting the quarterly progression of medical costs, partially offset by an increase to the 2025 premium deficiency reserve based on the progression of earnings during the year (with higher earnings at the beginning of the year and lower at the end of the year, given cost sharing progression).

Commercial

Total revenues increased 18% in the three months ended June 30, 2025, compared to the corresponding period in 2024 primarily driven by 33% membership growth in the Marketplace business, partially offset by lower Marketplace net risk adjustment revenue. Gross margin decreased $1.3 billion in the three months ended June 30, 2025, compared to the corresponding period in 2024 due to a reduction in our net 2025 Marketplace risk adjustment transfer estimate and increased Marketplace medical costs. The three months ended June 30, 2024, benefited from outperformance in Marketplace risk adjustment for the 2023 benefit year.

Other

Total revenues increased 1% in the three months ended June 30, 2025, compared to the corresponding period in 2024. Gross margin decreased $63 million in the three months ended June 30, 2025, compared to the corresponding period in 2024 driven by the expiration of the TRICARE Managed Care Support Contract in December 2024.

Six Months Ended June 30, 2025 Compared to Six Months Ended June 30, 2024

Total Revenues

Total revenues increased 19% in the six months ended June 30, 2025, over the corresponding period in 2024, primarily driven by premium and membership growth in the PDP business along with overall market growth in the Marketplace business, rate increases in the Medicaid business and increased premium tax revenue, partially offset by lower Medicaid membership as a result of redeterminations and lower Marketplace net risk adjustment revenue. The six months ended June 30, 2024, benefited from outperformance in Marketplace risk adjustment for the 2023 benefit year.

Operating Expenses

Medical Costs/HBR

The HBR for the six months ended June 30, 2025, was 90.2%, compared to 87.3% in the same period in 2024. The increase was primarily driven by a reduction in our net 2025 Marketplace risk adjustment revenue transfer estimate, increased Marketplace medical costs late in the second quarter of 2025, higher medical costs in Medicaid driven primarily by behavioral health, home health and high-cost drugs, and an increase to the 2025 Medicare Advantage premium deficiency reserve based on the progression of earnings during the year (with higher earnings at the beginning of the year and lower at the end of the year, given cost sharing progression). The increase in HBR was partially offset by a decrease in Medicare due to program changes in the Part D business as a result of the IRA compared to the second quarter of 2024 and the resulting change in the quarterly progression of the Medicare segment HBR.

Cost of Services

Cost of services decreased by $10 million in the six months ended June 30, 2025, compared to the corresponding period in 2024. The cost of service ratio for the six months ended June 30, 2025, was 89.0%, compared to 82.2% in the same period in 2024.

Selling, General & Administrative Expenses

The SG&A expense ratio for the six months ended June 30, 2025, was 7.5%, compared to 8.5% for the corresponding period in 2024. The adjusted SG&A expense ratio for the six months ended June 30, 2025, was 7.5%, compared to 8.3% for the six months ended June 30, 2024. The decreases were primarily driven by continued leveraging of expenses over higher revenues and growth in the PDP business. The decreases were partially offset by growth in the Marketplace business, which operates at a meaningfully higher SG&A expense ratio as compared to the overall company.

Impairment

During the six months ended June 30, 2025, we recorded total impairment charges of $55 million, driven by an intangible asset impairment related to the wind-down of certain contracts in the Other segment.

During the six months ended June 30, 2024, we recorded total impairment charges of $13 million, driven by Health Net Federal Services property, software and equipment related to the TRICARE Managed Care Support Contract that was no longer recoverable following the 2024 final ruling.

Other Income (Expense)

The following table summarizes the components of other income (expense) for the six months ended June 30, ($ in millions):

			2025						2024
Investment and other income			$	753					$	1,008
Interest expense			(340)						(354)
Other income (expense), net			$	413					$	654

Investment and other income. Investment and other income decreased by $255 million in the six months ended June 30, 2025, compared to the corresponding period in 2024. The six months ended June 30, 2024, included net gains on divestitures. The decrease was also driven by lower interest rates and lower average investment balances during 2025.

Interest expense. Interest expense decreased by $14 million in the six months ended June 30, 2025, compared to the corresponding period in 2024.

Income Tax Expense

For the six months ended June 30, 2025, we recorded income tax expense of $434 million on pre-tax earnings of $1.5 billion, or an effective tax rate of 29.1%. For the six months ended June 30, 2025, our effective tax rate on adjusted earnings was 28.1%.

For the six months ended June 30, 2024, we recorded income tax expense of $685 million on pre-tax earnings of $3.0 billion, or an effective tax rate of 22.9%. The effective tax rate for 2024 reflects the tax effects of the Circle Health divestiture. For the six months ended June 30, 2024, our effective tax rate on adjusted earnings was 24.5%.

Segment Results

The following table summarizes our consolidated operating results by segment for the six months ended June 30, ($ in millions):

						2025						2024						% Change
Total Revenues
Medicaid						$	54,428					$	49,643					10		%
Medicare						18,209						11,913						53		%
Commercial						20,219						16,286						24		%
Other						2,506						2,401						4		%
Consolidated total						$	95,362					$	80,243					19		%
Gross Margin (1)
Medicaid						$	2,549					$	3,405					(25)		%
Medicare						2,067						1,191						74		%
Commercial						3,488						4,338						(20)		%
Other						202						330						(39)		%
Consolidated total						$	8,306					$	9,264					(10)		%
(1)			Gross margin represents premium and service revenues less medical costs and cost of services.

Medicaid

Total revenues increased 10% in the six months ended June 30, 2025, compared to the corresponding period in 2024. The increase in total revenues was primarily driven by rate increases, partially offset by lower membership, primarily due to redeterminations. Gross margin decreased $856 million in the six months ended June 30, 2025, compared to the corresponding period in 2024. Gross margin decreased due to higher medical costs driven primarily by behavioral health, home health and high-cost drugs.

Medicare

Total revenues increased 53% in the six months ended June 30, 2025, compared to the corresponding period in 2024, primarily driven by increased PDP membership of 19%, partially offset by lower Medicare Advantage membership. Gross margin increased $876 million in the six months ended June 30, 2025, compared to the corresponding period in 2024 driven primarily by premium and membership growth in the PDP business, including changes from the IRA impacting the quarterly progression of medical costs, partially offset by an increase to the 2025 premium deficiency reserve based on the progression of earnings during the year (with higher earnings at the beginning of the year and lower at the end of the year, given cost sharing progression).

Commercial

Total revenues increased 24% in the six months ended June 30, 2025, compared to the corresponding period in 2024 primarily driven by 33% membership growth in the Marketplace business, partially offset by lower Marketplace net risk adjustment revenue. Gross margin decreased $850 million in the six months ended June 30, 2025, compared to the corresponding period in 2024 due to a reduction in our net 2025 Marketplace risk adjustment transfer estimate and increased Marketplace medical costs late in the second quarter of 2025. The six months ended June 30, 2024, benefited from outperformance in Marketplace risk adjustment for the 2023 benefit year.

Other

Total revenues increased 4% in the six months ended June 30, 2025, compared to the corresponding period in 2024. Gross margin decreased $128 million in the six months ended June 30, 2025, compared to the corresponding period in 2024 driven by the Circle Health divestiture in the first quarter of 2024 along with the expiration of the TRICARE Managed Care Support Contract in December 2024.

LIQUIDITY AND CAPITAL RESOURCES

Shown below is a condensed schedule of cash flows used in the discussion of liquidity and capital resources ($ in millions).

			Six Months Ended June 30,
			2025						2024
Net cash provided by operating activities			$	3,295					$	1,719
Net cash (used in) investing activities			(1,428)						(315)
Net cash (used in) financing activities			(1,424)						(1,148)
Effect of exchange rate changes on cash and cash equivalents			—						7
Net increase in cash, cash equivalents and restricted cash and cash equivalents			$	443					$	263

Cash Flows Provided by Operating Activities

Normal operations are funded primarily through operating cash flows and borrowings under our Revolving Credit Facility. Operating activities provided cash of $3.3 billion in the six months ended June 30, 2025, compared to providing cash of $1.7 billion in the comparable period in 2024.

Cash flows provided by operations in 2025 were primarily driven by net earnings and improved pharmacy rebate remittance timing. Cash flows provided in operations in 2024 were driven by net earnings, partially offset by pharmacy remittance timing as we transitioned to the new third-party PBM, which commenced in January 2024.

Cash Flows (Used in) Investing Activities

Investing activities used cash of $1.4 billion in the six months ended June 30, 2025, compared to using cash of $315 million in the comparable period in 2024. Cash flows used in investing activities in the second quarter of 2025 were driven primarily by net additions to the investment portfolio of our regulated subsidiaries (including transfers from cash and cash equivalents to long-term investments) and capital expenditures. Cash flows used in investing activities in the second quarter of 2024 were primarily driven by net additions to the investment portfolio of our regulated subsidiaries (including transfers from cash and cash equivalents to long-term investments) and capital expenditures, partially offset by divestiture proceeds.

We spent $343 million and $337 million in the six months ended June 30, 2025 and 2024, respectively, on capital expenditures, the majority of which was driven by system enhancements and computer hardware.

As of June 30, 2025, our investment portfolio consisted primarily of fixed-income securities with an average duration of 3.4 years. At June 30, 2025, we had unregulated cash and investments of $1.1 billion, including $234 million of cash and cash equivalents and $852 million of investments. Unregulated cash and investments at December 31, 2024, was $1.1 billion, including $248 million of cash and cash equivalents and $823 million of investments.

Cash Flows (Used in) Financing Activities

Financing activities used cash of $1.4 billion in the six months ended June 30, 2025, compared to using cash of $1.1 billion in the comparable period in 2024. Financing activities in 2025 were driven by net decreases in debt of $969 million and stock repurchases of $473 million, which included $400 million under the stock repurchase program and $41 million of repurchases related to income tax withholding upon the vesting of previously awarded stock grants.

Financing activities in 2024 were driven by stock repurchases of $954 million, partially offset by net increases in debt of $215 million.

Liquidity Metrics

We have a stock repurchase program authorizing us to repurchase common stock from time to time on the open market or through privately negotiated transactions. In 2023, the Company's Board of Directors authorized up to a cumulative total of $10.0 billion of repurchases under the program.

During the second quarter of 2025, we repurchased 6.7 million shares of common stock for $400 million under the stock repurchase program. We have $1.8 billion available under the program for repurchases as of June 30, 2025. No duration has been placed on the repurchase program. We reserve the right to discontinue the repurchase program at any time. Refer to Note 7. Stockholders' Equity for further information on stock repurchases.

As of June 30, 2025, we had an aggregate principal amount of $15.7 billion of senior notes issued and outstanding. The indentures governing our various maturities of senior notes contain restrictive covenants. As of June 30, 2025, we were in compliance with all covenants.

As part of our capital allocation strategy, we may decide to repurchase debt or raise capital through the issuance of debt. In 2022, the Company's Board of Directors also authorized a $1.0 billion senior note debt repurchase program. No repurchases were made during the quarter ended June 30, 2025. As of June 30, 2025, there was $700 million available under the senior note debt repurchase program.

The credit agreement underlying our Revolving Credit Facility, in the principal amount of $4.0 billion, and Term Loan Facility, in the principal amount of $2.0 billion, contains customary covenants as well as financial covenants including a debt-to-capital ratio. Our maximum debt-to-capital ratio under the credit agreement may not exceed 0.60 to 1.00. As of June 30, 2025, we had no borrowing outstanding under our Revolving Credit Facility, $2.0 billion of borrowings under our Term Loan Facility, and we were in compliance with all covenants. As of June 30, 2025, there were no limitations on the availability of our Revolving Credit Facility as a result of the debt-to-capital ratio.

We had outstanding letters of credit of $141 million as of June 30, 2025, which were not part of our Revolving Credit Facility. The letters of credit bore weighted interest of 0.7% as of June 30, 2025. In addition, we had outstanding surety bonds of $783 million as of June 30, 2025.

At June 30, 2025, our debt-to-capital ratio, defined as total debt divided by the sum of total debt and total equity, was 39.0%, compared to 41.2% at December 31, 2024. The debt-to-capital ratio decrease was driven by a decrease on the Revolving Credit Facility as well as net earnings for 2025, which increased total stockholders' equity. We utilize the debt-to-capital ratio as a measure, among others, of our leverage and financial flexibility.

At June 30, 2025, we had working capital, defined as current assets less current liabilities, of $3.6 billion, compared to $3.7 billion at December 31, 2024. We manage our short-term and long-term investments aiming to ensure a sufficient portion of the portfolio is highly liquid and can be sold to fund short-term requirements as needed.

2025 Expectations

During the remainder of 2025, we expect a net contribution of approximately $300 million to our insurance subsidiaries and to spend approximately $350 million in additional capital expenditures.

Based on our operating plan, we expect that our available cash, cash equivalents and investments, cash from our operations and cash available under our Revolving Credit Facility will be sufficient to finance our general operations and capital expenditures for at least 12 months from the date of this filing. While we are currently in a strong liquidity position and believe we have adequate access to capital, we may elect to increase borrowings on our Revolving Credit Facility, which matures in March 2030. Additionally, our senior notes mature between December 2027 and August 2031. From time to time, we may elect to raise additional funds for working capital and other purposes, either through issuance of debt or equity, the sale of investment securities or otherwise, as appropriate. In addition, we may strategically pursue refinancing or redemption opportunities to extend maturities and/or improve terms of our indebtedness if we believe such opportunities are favorable to us.

REGULATORY CAPITAL AND DIVIDEND RESTRICTIONS

Our operations are conducted through our subsidiaries. As managed care organizations, most of our subsidiaries are subject to state regulations and other requirements that, among other things, require the maintenance of minimum levels of statutory capital, as defined by each state, and restrict the timing, payment and amount of dividends and other distributions that may be paid to us. Generally, the amount of dividend distributions that may be paid by a regulated subsidiary without prior approval by state regulatory authorities is limited based on the entity's level of statutory net income and statutory capital and surplus.

Our regulated subsidiaries are required to maintain minimum capital requirements prescribed by various regulatory authorities in each of the states in which we operate. During the six months ended June 30, 2025, we received dividends of $1.7 billion from and made $908 million of capital contributions to our regulated subsidiaries. For our subsidiaries that file with the National Association of Insurance Commissioners (NAIC), the aggregate risk-based capital (RBC) level as of December 31, 2024, which was the most recent date for which reporting was required, was in excess of 350% of the Authorized Control Level. We expect to continue to maintain an aggregate RBC level in excess of 350% of the Authorized Control Level during 2025.

Under the California Knox-Keene Health Care Service Plan Act of 1975, as amended (Knox-Keene), certain of our California subsidiaries must comply with tangible net equity (TNE) requirements. Under these Knox-Keene TNE requirements, actual net worth less certain unsecured receivables and intangible assets must be more than the greater of (i) a fixed minimum amount, (ii) a minimum amount based on premiums or (iii) a minimum amount based on healthcare expenditures, excluding capitated amounts.

Under the New York State Department of Health Codes, Rules and Regulations Title 10, Part 98, our New York subsidiary must comply with contingent reserve requirements. Under these requirements, net worth based upon admitted assets must equal or exceed a minimum amount based on annual net premium income.

The NAIC has adopted rules which set minimum RBC requirements for insurance companies, managed care organizations and other entities bearing risk for healthcare coverage. As of June 30, 2025, each of our health plans was in compliance with the RBC requirements enacted in those states.

As a result of the above requirements and other regulatory requirements, certain of our subsidiaries are subject to restrictions on their ability to make dividend payments, loans or other transfers of cash to their parent companies. Such restrictions, unless amended or waived or unless regulatory approval is granted, limit the use of any cash generated by these subsidiaries to pay our obligations. The maximum amount of dividends that can be paid by our insurance company subsidiaries without prior approval of the applicable state insurance departments is subject to restrictions relating to statutory surplus, statutory income and unassigned surplus.

CRITICAL ACCOUNTING ESTIMATES

Please see "Critical Accounting Estimates in Item 7 - Management's Discussion and Analysis of Financial Condition and Results of Operations" included in our 2024 Annual Report on Form 10-K for a description of our Critical Accounting Estimates in addition to the discussion outlined within Note 11. Subsequent Events, in the Notes to the Consolidated Financial Statements, included herein.