Q4 2024 Earnings Call Transcript

Good day, and welcome to the Centene Corporation Fourth Quarter and Full Year 2024 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation there will be an opportunity to ask questions. [Operator Instructions] Please note, today's event is being recorded. I would now like to turn the conference over to Jennifer Gilligan, Head of Investor Relations. Please go ahead.

Thank you, Rocco, and good morning, everyone. Thank you for joining us on our fourth quarter 2024 earnings results conference call. Sarah London, Chief Executive Officer; and Drew Asher, Executive Vice President and Chief Financial Officer of Centene will host this morning's call, which also can be accessed through our website at centene.com. Any remarks that Centene may make about future expectations, plans and prospects constitute forward-looking statements for the purpose of the safe harbor provision under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by those forward-looking statements as a result of various important factors, including those discussed in our fourth quarter 2024 press release, which is available on the company's website under the Investors section.

Centene anticipates that subsequent events and developments may cause its estimates to change. While the company may elect to update the forward-looking statements at some point in the future, we specifically disclaim any obligation to do so. The call will also refer to certain non-GAAP measures. A reconciliation of these measures with the mostly -- most directly comparable GAAP measures can be found in our fourth quarter 2024 press release.

With that, I would like to turn the call over to our CEO, Sarah London. Sarah?

Thanks, Jen, and thanks everyone for joining us this morning. As an enterprise, Centene is stepping into 2025 with a clear strategy, compelling embedded earnings power, and positive momentum within each of our lines of business. We have delivered significant operational improvements and see exciting opportunity ahead as we continue to modernize our platform, automate our administrative processes through the deployment of AI, and leverage our unparalleled data to create insights that make our business better, improve the quality of healthcare for our members, and transform how the healthcare system serves millions of Americans.

Today, we reported fourth quarter adjusted diluted EPS of $0.80 and full year 2024 adjusted diluted EPS of $7.17, strong results that demonstrate the durability of our earnings power and position the company to execute against our strategic goals in 2025. Driven by better-than-expected results during the Medicare annual enrollment period and a program expansion in Medicaid, we are lifting our full year 2025 revenue guidance by $4 billion. Our outlook for full year 2025 adjusted diluted EPS remains unchanged as greater than $7.25, and we are pleased with the trajectory we are on at this early stage in the year.

To that end, let's talk about the opportunities in each of our business lines and how we are positioned for 2025. First, Medicaid. Today, we serve 13 million Americans across our Medicaid portfolio, offering critical access to vital medical services and support for some of this country's most vulnerable and complex populations. Post-COVID era eligibility redeterminations generated significant membership transition within the safety net program, but that chapter is now coming to a close. In 2025, we expect improved membership stability and a gradual return toward equilibrium with respect to rates and the risk profile of our members.

We continue to have constructive dialog with our state partners, providing us with confidence in our ability to command rates that will support a return to target Medicaid margins. This is visible through a strong result for 1/1/25 effective rates, where we were able to achieve a mid-4% composite rate adjustment. We continue to expect a full year 2025 composite rate adjustment of 3% to 4%. While we have been focused on supporting our members and state partners through the redeterminations process, Centene's local Medicaid teams never stopped working to develop innovative care programs and solutions to promote access for our unique member base.

For Centene, transforming the health of the communities we serve means bringing care to our members, ensuring it is local, integrated, and sustainable and working to influence positive health outcomes for our members as early as possible in the care journey, in some cases, before they are even born. To this end, in Nevada, we are actively working to address the challenges of rural healthcare access for expectant moms. Our SilverSummit team is distributing tablets to support increased prenatal and postpartum telehealth visits for mothers in rural counties. We have also sponsored telehealth training, with a particular focus on postpartum behavioral health support.

Another great example of innovative programming comes from our Meridian team in Illinois, where we are taking a food is medicine approach to supporting members with uncontrolled high blood pressure. Members have access to a 12-week comprehensive program that includes nutrition counseling, along with four weeks of medically tailored meals, followed by four weeks of healthy food boxes, followed by four weeks of fresh produce vouchers. The goal is to build and sustain the changes in eating habits that will support long-term hypertension control. As we move through 2025, we are looking forward to turning the page on the redeterminations era, returning to overall Medicaid program stability and working closely with our state partners on innovations that deliver not only healthcare, but also better health within our communities.

Turning to Medicare. We are pleased to be generating material progress within our Medicare business. The most recently released Stars results, published during fourth quarter 2024 and applicable to benefit plan year 2026, are an excellent window into our notable advancement. Within these results, 55% of our members are associated with 3.5 star plans or better, up from 23% last year.

We continued to operate and execute with increased precision throughout 2024, driving year-over-year improvement in many of our core administrative measures. We also continued to make progress closing care gaps for our members with year-over-year performance improvement in our HEDIS rates, as well as medication adherence. And in a credit to our team's leadership and effort around continuous improvement, 1/1/25 go-live for Medicare was the smoothest I've ever seen at Centene. We expect these and other advancements in our processes and key metrics to support Stars results as we take on 2025. As you've heard from us before, we pruned our Medicare Advantage footprint coming into 2025 to better align with our Medicaid presence and capabilities, enhancing our ability to leverage Centene's size, scale, and expertise.

With this refined footprint and refreshed products, we produced very good results relative to our expectations during the 2025 annual enrollment period. We now expect Medicare enrollment in the low-to-mid 900,000. Product design, successful management of our distribution channels, and local market knowledge contributed to the better-than-expected results. It is still early, but based on things we can know today, such as demographics and retention levels, we are pleased with the membership mix we are carrying into 2025, including a duals mix around 40%. Amid program changes related to the Inflation Reduction Act, Medicare Part D presented Centene with a nice growth opportunity in 2024 and the team executed well against that strategic plan.

Part D or PDP is positioned to be a larger business for us once again in 2025, both by revenue and membership. During open enrollment, we went to market with a deliberate focus on value for our members, including premium affordability. This plan, complemented by the CMS demonstration program, yielded strong AEP results that are expected to generate 2025 revenue of approximately $16 billion, better than our previous expectations. Here too, we are early relative to observed experience, but as we look at factors such as member demographics and product selection, we remain confident in the financial objectives we set forth at December's Investor Day, including a 1% target margin for the PDP business in 2025. Finally, a brief comment on the Medicare Advantage advance rate notice released last month for the 2026 revenue year.

While the information is not final, we are pleased to see the potential for a positive directional shift in funding for this important program, including the incorporation of a higher level of base rate medical cost trend. Final rates are expected in April, and we will continue to assess the various program changes anticipated for 2026 and the funding necessary to maintain compelling plans and create value for seniors as we build out our preliminary 2026 strategy. Within our Medicare segment's 2024 performance as a strong jump-off point, we are excited to build upon the operational progress we made last year, while taking important steps on our path towards breakeven in Medicare Advantage in 2027. Finally, marketplace.

Across our footprint, our marketplace team has demonstrated consistently strong results through disciplined pricing, strong distribution relationships, as well as unmatched local knowledge of the marketplace population. Ambetter delivered an outstanding performance in 2024 and carried that momentum into their 12th open enrollment period, once again executing well on fundamentals and positioning our portfolio of products for another year of strength in 2025. According to CMS, enrollment across the ACA market grew roughly 13%. But given program integrity changes such as FTR or failure to report and the agent of record lock, our focus has been on effectuated membership.

For Ambetter, January effectuated enrollment turned out to be a little stronger than what we had incorporated into our outlook for the business at our Investor Day in December, driven by strong member retention. Overall effection rates to date are directly in line with historical norms for Ambetter, which positions us for a peak marketplace membership during the first quarter, slightly above 5 million members. Looking down one level deeper, the demographic of our effectuated membership is similar to the member mix in 2024. Our book is expected to be roughly 51% female with an average age of 39.4, continuing a year-over-year trend of slightly younger membership.

At the same time, our metal tier shifted slightly towards silver. While we have been near 70% silver over the last few years, in 2025, we expect to have nearly 75% of our membership in silver plans, consistent with earlier years of the program. As a reminder, our outlook continues to provide for an anticipated return to the pre-COVID era membership seasonality, with net attrition down to the mid-4 millions by year-end. Overall, we are pleased with the early indicators around our marketplace business and believe that we positioned ourselves well in 2024 by being the first carrier to introduce an agent of record lock.

Our view through January suggests a more muted impact to membership from the program integrity changes than originally anticipated, but we believe some may require a longer tail to play out and that it will be a few months until effectuated enrollment results are fully understood. As you would expect, we will continue to closely monitor effectuation rates, voluntary member terminations and other trends within our book as we move through the first quarter. As we think about future trends in the individual market, I did want to call out the strong results we saw during open enrollment in our Georgia markets.

We were pleased to be able to support Commissioner King and the State of Georgia as they made their transition to being a state based exchange, and we are excited to see how Georgia Access provides a model for advancing the growth of the individual market, both on and off-exchange, which includes access to ICHRA. As we shared in December, we continue to view ICHRA as the future of health insurance for working Americans and is an important part of Centene's future earnings power. In January, we announced the addition of Alan Silver to our leadership team. Alan is now President of Ambetter Health Solutions, which focuses on ICHRA or Individual Coverage Health Reimbursement Arrangements.

Alan previously led retiree medical and ICHRA initiatives at Willis Towers Watson, and we are thrilled that he has joined our team. As we turn the page to a new year, it is important to acknowledge the incredible amount of hard work and tenacity from the [Cen Team] (ph) that enabled Centene to deliver on our financial commitments in 2024. Countless obstacles and macro-level challenges faced by our team and our industry at large required focus and execution by colleagues from across our organization. As a result of staying tightly aligned to our strategic goals and our mission, we are now well-positioned to capitalize on the important opportunities that we see ahead of us in 2025 and beyond.

In 2025, we expect to collaborate with our state partners to achieve better alignment for Medicaid rates and member acuity. Our Medicare Advantage business, following successful execution during AEP, will focus on key operational initiatives to drive us forward on our journey to breakeven in 2027. And as the category leader, our marketplace team will once again offer access to high quality and affordable healthcare this year to approximately 5 million Americans. There is significant earnings power embedded in this business. With between $3 and $4 of adjusted EPS opportunity to unlock over time, we are eager to achieve our next set of enterprise milestones, deliver on our commitments to our members, and generate shareholder value in 2025 and beyond.

With that, I'll turn it over to Drew.

Thank you, Sarah. Today, we reported fourth quarter 2024 results, including $36.3 billion in premium and service revenue and adjusted diluted earnings per share of $0.80 in the quarter. For the full year, we reported $7.17 of adjusted EPS, well ahead of our previous guidance. In addition to ending the year strong, our results include a $0.29 net benefit for a marketplace cost sharing reduction or CSR settlement related to prior years.

Our Q4 consolidated HBR was 89.6%, while our full year consolidated HBR was 88.3%, consistent with our previous guidance range. Our Q4 Medicaid HBR was 93.4%, up 30 basis points from Q3. We were expecting a couple of late year 2024 retro adjustments that did not come in by year-end. Medicaid trend story is similar to our last discussion. Stable trends overall now that we are essentially through redeterminations other than behavioral health and some pockets of home health costs, consistent with past commentary.

Our full year 2024 Medicaid HBR at 92.5%, temporarily high, driven by redeterminations, presents us meaningful earnings power over the next couple of years as we turn the page on 2024 and better match rates and acuity going forward. Case in point, we are yielding around the mid-4s in net rate increases for the 1/1/25 cohort, which now represents about 40% of our annual Medicaid premium. The Medicaid membership settled out right in that 12.9 million to 13 million zone we had targeted and our 2025 guidance is predicated on staying in this membership zone throughout 2025. Medicare segment performance was strong in Q4, including a very good overall 2024 performance in PDP, as a few of you were concerned with the Inflation Reduction Act at the beginning of 2024. The Q4 PDR related costs in Medicare Advantage were consistent with what we last told you.

Commercial segment results were strong in Q4 due to the CSR settlement, otherwise, they were right on track. Overall, exiting 2024 in a position of strength should bode well as we enter 2025, and continued Medicaid rate action, as well as execution on initiatives designed to improve quality and the affordability of healthcare, should enable us to achieve our 2025 Medicaid goals. Moving to other P&L and balance sheet items, our adjusted SG&A expense ratio was 8.9% in the fourth quarter, compared to 9.7% last year, a continued blend of business mix and discipline. Cash flow provided by operations was only $154 million for the full year, driven by the timing of pharmacy rebate collections, the reduction in risk adjustment payables, and the buildup of state premium payments receivable.

As these items normalize in future periods, it sets us up for stronger operating cash flow in 2025. Our unregulated and unrestricted cash on hand at quarter-end was $248 million. During the fourth quarter, we repurchased 14.4 million shares of our common stock for $930 million. For the full year 2024, we repurchased 42 million shares for $3 billion. We have taken out over 100 million shares in the past few years.

At the same time, our debt-to-adjusted EBITDA was only 2.9 times at year-end. Our medical claims liability totaled $18.3 billion at year-end and represents 53 days in claims payable, compared to 51 in Q3 of 2024 and 54 in Q4 of 2023. One DCP note looking ahead, given the meaningful growth in PDP in 2025, largely driven by the Inflation Reduction Act and the fact that pharmacy claims complete very quickly compared to medical claims, this should lower our consolidated DCP by a few days in 2025. While 2024 was certainly a challenging year, we still grew adjusted EPS over 7%, powered through redeterminations, made some great progress in Medicare Stars, and seized meaningful growth opportunities in marketplace and PDP.

Let's turn the page and look ahead. As you heard from Sarah, our marketplace open enrollment period reflects very good execution by our team and keeps us on track for our 2025 forecast elements covered at Investor Day. We expect to peak right above 5 million marketplace members during Q1 and then a trip the remainder of the year back to mid-4s, consistent with pre-COVID enrollment patterns, where Q1 was typically the annual peak of membership. And we need to see the pattern of membership throughout Q1 2025 before we touch commercial revenue guidance of $34 billion.

In our Medicare business, 2025 volume has started out stronger than expected, driven by the annual enrollment period results, notably driven by stronger retention. And our PDP business was over 7.5 million members as we entered 2025. Accordingly, we expect the Medicare segment to be about $2.5 billion higher in premium revenue in 2025 than what we discussed at Investor Day in December. In addition to that $2.5 billion, there is another expected $1.5 billion in Medicaid revenue from a program change, adding behavioral health coverage in one of our state contracts. So, we are increasing our consolidated 2025 premium and service revenue guidance range by $4 billion to a range of $158 billion to $160 billion of premium and service revenue.

This is good news as you think about the long-term earnings power of Centene. At this very early point in the year, we are reiterating our 2025 adjusted diluted EPS guidance floor of greater than $7 in -- $7.25. Quick comment on 2026 Medicare rates. The preliminary percentage rate change for us is in the low-to-mid 3s, including the positive impact of Stars from the work we did in 2023 and 2024. It's great to have 2024 behind us and have earnings power consistent with our Investor Day discussion in front of us. As importantly, we are really excited about the number of initiatives in flight and in our sights designed to make healthcare simpler, more accessible, and more affordable, just like we've been able to help shape in marketplace, which has been a great solution for over 23 million Americans.

We are proud and honored to serve members, states, and the federal government in Medicaid, Medicare, and marketplace programs into 2025 and beyond. Thank you for your interest in Centene. Rocco, let's open up the line for questions.

Absolutely. [Operator Instructions] Today's first question comes from Josh Raskin with Nephron Research. Please go ahead.

Hi, thanks. Good morning. I heard the 13% on the exchanges, but maybe you could speak to your expectations around total exchange market growth when all is said and done in 2025 and maybe a little bit more color on what you're seeing around that subsidy verification process? And then maybe even just walk us through the mechanics of how that works at the member level and when you think you'll know your fully effectuated membership totals.

Yes, absolutely. Thanks, Josh, for the question. So CMS put out 13 million -- sorry, 13% as the sort of January-to-January enrollment growth. As we've talked about before, our view was that effectuated membership was going to be sort of the important number to track, partly because of the payment -- the program integrity changes that were being put in place.

And we referenced what we were seeing at December Investor Day in terms of slower throughput relative to over-enrollment because of the agent of record lock. That we saw improve as we moved through OE, but we still think there's probably a little bit of backlog that is being worked through there. And then again, the FTR -- failure to report process, I think we had anticipated a little bit more impact in the OE period. That appears to be more muted, but that's where we also think there is potentially a longer tail for that to play out.

And so, to your point, sort of the step through that -- stepping through that as an illustrative process, what happens there is a notification to the member of the need to file taxes and sort of a notification sent to the members relative to the impact that would have on enhanced APTCs. Consumers have the opportunities to attest to having filed taxes and then there's a process of multiple checkpoints as we move through February and March and ultimately into the April window. And so, that's part of why we think there may be additional impact that we see in Q2. And so, we're continuing to hold our view relative to impact on effectuated enrollment, but we're going to need to see how that plays out.

So, a little bit stronger in terms of our effectuation in January, which means we're starting from a good place, which is great, but we want to see a couple more months play out until we know where that's going to settle.

And I think you said the effectuation levels are similar to what you've seen in the past. So, what is that delta? If there's 13% total growth, what do you think that translates into effectuated or should we say, well, if effectuation is the same percentage, then 13% market growth is 13% effectuated growth?

There's usually a delta between enrollment and effectuation. And again, our -- what we're seeing from an effectuation standpoint is, as you said, directly in line with historical norms. So our -- the growth that we saw was a little bit stronger than the 13% and the effectuation, then that retention from our book is putting our membership at slightly above 5 million. But again, I think we need to see how the program integrity impacts play out in Q2 to know what the net market growth post effectuations will look like.

Thank you. And our next question today comes from Justin Lake at Wolfe Research. Please go ahead.

Thanks. Good morning. Just a couple of quick numbers questions. First, looks like the PYD in the quarter was north of 400 million, up about 300 million year-over-year.

Can you tell us what drove that? And Drew, I know it doesn't all hit the bottom line. So, maybe you could tell us the net benefit there. And then just quickly on the Medicaid retros that didn't hit in the fourth quarter, anything you could share on the size there?

And is it just a timing issue where they'll hit in Q1 or did they just not happen at all? Thanks.

Yes, why don't I hit the retros and then if you want to talk about PYD? So, as you heard from Drew, we had rate action expected late in the quarter that didn't come through. We're not counting on that in 2025. To the -- so to the extent that any of that does materialize, it would be a benefit to 2025. We did see positive movement in the 1/1 rates. And in some cases, those are sort of linked.

And so, that's where you saw the mid-4 composite rate for 1/1. So, very consistent with the theme that we've seen throughout this process, which is, I think we've made great progress in terms of being able to influence states with data and get to the right level of rates. We just aren't always perfect in predicting the timing.

Justin, you're right. With the prior-year development, if you look on the last page of the press release, we had about a little over $2.4 billion for the full year, including strength in Q4. That includes the CSR. That's a medical expense item of over a couple of hundred millions. So that leaned into probably that differential you're referring to in Q4.

Thank you. And our next question today comes from Stephen Baxter, Wells Fargo. Please go ahead.

Hi, thanks. Just wanted to ask about the Medicaid rate assumptions. I mean, based on the rates that you're getting for 1/1, it seems like the rest of the year placeholder is something probably in the zone of 2%, 2.5%. And logically, it seems like every rate update you get going forward should be better informed, both from a cost and acuity perspective.

Is there anything structurally different about the dislocation in the rest of the book that suggests that a lower rate update would really be kind of the sensible base case at this point, or how should we think about the conservatism potentially of the assumptions you're making in Medicaid rates for the second half of the year? Thank you.

Yes. I mean, again, we continue to expect the full year 2025 composite rate between 3% and 4%, obviously, a little bit stronger in that 1/1 cohort. I think you're right that we are coming into all of these conversations with more robust data just as time has rolled forward and being able to really see the run-out and move forward sort of the prior period from an actuarial standpoint. So I think that is part of why we saw some of the strength in the 1/1/25 rate.

Again, really constructive conversations with the state partners and really databased in how we're looking at everything. So I don't think there's anything structurally different. I will point out that as we've gone through the back half of 2024, the degree to which states are open to things like retros, midyear adjustments, and just understanding that we need to get to a place where the programs are funded sufficiently in order to make sure that we are supporting members the way that they want to, I think, is probably different than we've seen in the past. And so, again, I think that makes us feel good about how we're positioned moving into 2025. But as you heard, it is a question of getting the timing to line up and that's why we think that we'll make progress in 2025 toward that equilibrium in terms of long-term margin.

But it may play out through the course of the year.

Thank you. And our next question today comes from AJ Rice at UBS. Please go ahead.

Hi, everybody. Maybe just ask about two things. One, on the Medicaid side, when you look at the underlying utilization trend trying to normalize, which I know is probably hard for redetermination impact, are you seeing it return to sort of your normal low-single digit cost trend or is it still somewhat elevated on just an apples-to-apples year-over-year basis? And then on the Medicare, medical loss ratio ended up being better than expected.

And I know there's reference to an adjustment to the premium deficiency reserve. I'm just trying to understand, what are you seeing there on the cost trend versus the adjustment that you made relative to the premium deficiency reserve?

Yes. On Medicaid, I think as you heard from Drew, no new trends to report and we continue to look at that cohort of continuous members to evaluate how sort of apples-to-apples trend is evolving. Nothing alarming there. So it's really same story that we've been sharing over the last couple of quarters.

Also felt good about the run rate medical expense that evolved in Q4 and exiting the quarter better than we started. So, nothing has really shifted there. And then from a Medicare standpoint, do you want to talk about Q4 and full year?

Yes, Medicare finished strong. The performance -- the outperformance in the quarter was largely driven by PDP. So we finished PDP very strong, which is good to see in sort of the first major year of the IRA changes in 2024, sort of getting the bids and the execution and the cost structure right. So that gives us some confidence as we enter 2025 with further changes in the IRA, as reflected in the guidance we laid out at Investor Day.

Thank you. And our next question today comes from Adam Ron with Bank of America. Please go ahead.

Hey, thanks for the question. You guys didn't really touch on seasonality for 2025, at least not on this call. So I'm curious, in terms of Medicaid MLR, if you still expect sequential Medicaid MLR declines in every quarter throughout the year? And if there's any indication you can give us of like where you think Q1 will end and what the slope of that curve looks like, it'd be very helpful.

Thanks.

Yes, that's a good question. As we think about -- so think about our three segments. Commercial, consistent with the past, you expect the HBR to start low and tick up throughout the year as members satisfy deductibles and so on. But in Medicare, pretty big difference.

Instead of sloping down through the year, it should start out lower in the Medicare segment and slope up through the year. And that's really driven by what's now about half of our Medicare segment revenue coming from PDP and the IRA changes. So that's something to watch out for as we go through the year, once again, a sloping upward Medicare HBR. And then Medicaid, as we said at Investor Day, back half should be better than the front half in terms of HBR.

The front half HBR of 2025, certainly expect that to be better than the back half of 2024 HBR. So you put all those things together and what we said at Investor Day was about 60-40 in terms of earnings per share first half versus second half. Probably should be better than 60% or greater than 60% in the first half of the year relative to the back half.

Thank you. And our next question today comes from Sarah James at Cantor Fitzgerald. Please go ahead.

Thank you. I'm hoping you can help us bridge the old to the new guidance a little bit. So you've got $4 billion more in revenue, EPS stayed the same. Is there any other moving pieces or is it just conservatism? And then, specifically to how you're thinking about now for exchanges and Part D, would those margins be flat, up, or down year-over-year? Thanks.

Yes. So I would say, we're -- we haven't yet closed January. So it's a little bit early and I think we've pointed to some solid early results, but wanting to see how those play out in terms of membership and experience. And then in terms of PDP margin, we said we're still targeting that 1% for the PDP book.

And relative to marketplace, we've said and continue -- hold that we would be well into the 5% to 7.5% range for marketplace, and that includes what we've seen so far.

You're right to point out the $4 billion. That's earnings power for the future. It's just real early to sort of pinpoint exactly how much of that will show up in 2025. But we're really excited as we create additional revenue sources that bodes well for long-term earnings power for the company.

Thank you. And our next question today comes from Scott Fidel with Stephens. Please go ahead.

Hi, thanks. Good morning. I was hoping just given some of the moving pieces that we saw in 2024 on operating cash flow, whether you'd be comfortable maybe just giving us a bit more of a sort of fine-tuning on your expectations for operating cash flow in 2025? And then just related to that, maybe sort of your updated thinking around what's embedded at this point for buybacks in terms of full year buybacks and then any sort of pacing around that?

Just curious on whether you know sort of 2024 operating cash flows influenced the trajectory of that. But at the same time, you ended the year at a pretty solid spot in terms of unregulated cash at the parent. Thanks.

Good questions. And I'm sure you understand this and those that understand the HMO industry understand that there's a difference between the cash flow operations on the cash flow statement, which is really the activity of receivables and payables down embedded in the statutory entities. But when that rolls up, if you look at the last actually three to five years, we've averaged 1.3 times to 1.4 times adjusted net income. So that's -- if you sift through any given year of satisfying risk adjustment payables or building up pharmacy rebate receivables and look at an extended time period, that's a pretty good indicator of a multi-year view.

Underneath that, what really matters, as you point out appropriately, is the cash you're able to dividend up to the parent from the subs. And we've got no change in view compared to what we rolled out at Investor Day, where we expect about $2 billion of share repurchase that's embedded in our guidance for 2025. So the fact that we had, let's say, weak cash flow from operations on the cash flow statement in 2024 because of those shifts in receivables and payables, that had no bearing on our ability to go buy back $3 billion of shares -- or $3 billion worth of shares in 2024. But it's something to track and we'll keep you updated as we move through 2025 on sort of having some of those payables and receivables turn in the underlying cash flow from operations.

Thank you. And our next question today comes from Andrew Mok at Barclays. Please go ahead.

Hi, good morning. Quick clarification, then a question. I think you mentioned that ACA effectuated enrollment turned out to be a little stronger than you expected, but I didn't hear how much better it came in. So, can you clarify that point first?

And then secondly, I wanted to revisit your assumption that ACA membership could be down 20% to 30% if enhanced APTCs expire. Are buydowns contemplated within that assumption? And can you walk us through the impact that buydowns would have and how your products are positioned relative to the market if there is a shopping event next year? Thanks.

Sure. So, let me sort of take a step back, because there -- this was a sort of a unique open enrollment period because of the program integrity checkpoints that were added to the process. And so, when we think about what was expected versus what we saw, you also have to think about the degree to which our assumptions in terms of the impact of those programs came into play during the various time periods. So, when we talked in December about our expectations, it was overall market enrollment growth then muted by the agent of record lock and failure to report, periodic data matching, things like that.

What we're seeing in January is a more muted impact of those program integrity checkpoints. And so, the effectuation rates, which are in line with historic norms for us, are slightly higher than what we had been expecting. That's leading to the 5 million -- slightly above 5 million peak that we're expecting. But as we look through the rest of Q1 and into Q2, and particular -- particularly on the FTR process, which is going to hinge on that tax filing date and then post-tax filing reconciliation, we still think that there is potential membership impact that will play out in Q1 and Q2. So we're tracking ahead of what we expected.

That may end up being a benefit full year, that may end up just being a delay in terms of the impact of those programs. And that's why we want to wait and see kind of how the next couple of months play out. And obviously, we'll make sure to keep you all posted on what we see as those shifts -- as those programs kind of shake out and settle as we get to midyear. And then relative to overall impact of enhanced APTCs, we talked about in December the idea that without sort of major mitigation efforts, if enhanced APTCs were to go away or not be renewed in their entirety, that could be somewhere between a 20% and 30% membership hit to our book.

The reality is that the iterations, anything less than of a full drop-off of the enhanced APTCs are numerous. And so, whether there's a cap at 400% FPL or 350% or -- we think about different mechanisms to create more kind of investment of membership and participation in the program. There are lots of different alternatives that have been discussed and explored, and we run scenarios across all of those and think about what the buydown implication might be, what product design will matter, what the different price sensitivities are of our members along the FPL continuum. So, you can be sure that our team has been spending many hours running those over, frankly, the last year and looking forward to getting more clarity as we move over the next couple of months about how to prepare for the next OE cycle, including potentially filing two sets of bids.

So, lots more to play out there. And again, that's one we'll continue to keep you posted as we start to understand kind of what the trajectory will be there.

Thank you. And our next question today comes from Lance Wilkes with Bernstein. Please go ahead.

Great. Thanks. Can you talk a little bit about pipeline and appeals process in the Medicaid space, and in addition to that, talking a little bit about what your strategic priorities are for investments, capability enhancements, and M&A as it relates to either Medicaid or other areas like M&A, vertical integration, et cetera? Thanks.

Yes, absolutely. So, as you all well know, it's been a very busy last couple of years in terms of the RFP pipeline and really working through a backlog that came through post COVID. 2025 will be return to a more normal pre-COVID cadence. So, we have a handful of states and programs that are going through normal course reprocurements and then our team is, obviously, always evaluating net new opportunities and sort of positioning for growth. Relative to our protests, we have -- the Texas issue will continue to make its way through the legislature and the courts through the remainder of 2025. I think, as you know, the potential impact to 2025 of that was minor to begin with, but we think that will kind of play out here and we'll get more clarity through the rest of the year.

And then we are still in process on the Georgia protests, and I think given the complexity of that process, we expect it will be a number of months before we hear any feedback. So, more to come on that front. And then relative to investments, I think we're -- as we've said over the last year to year and a half, as we've gotten more oxygen relative to operating bandwidth as we move through sort of the core of the value creation plan, we started to turn our attention to surveillance relative to inorganic growth and M&A, and that continues to be something that we're watching. Also, evaluating where there are interesting opportunities for investment in capabilities for our business lines.

I would say, ICHRA is a place that we are very interested in and thinking about what the market may need relative to overall infrastructure to mature and how we could support that through various partnerships and investments. So I think those are sort of the major areas of focus. And of course, always looking at the relative use of capital and thinking about sort of the value it can create, including the value of Centene at these prices.

Thank you. And the next question today comes from Michael Ha with Baird. Please go ahead.

Hi, thank you. Just another one on your exchange growth for this year. It's great to hear that effectuation rate was consistent with your historical norms. I know you mentioned it'll still take a few months until the full changes are well understood.

But based on all the visibility you have sitting here today in February, I'm curious how much of a potential difference you think there could be now versus the next few months as you hit those checkpoints? What is the likelihood basically of a materially negative surprise in April that could compromise your exchange margin targets for the year?

So I think the question of timing of impact is a good one, and that's part of why we said we want to see how the rest of Q1 and part of Q2 play out, again, particularly relative to the FTR process and the fact that is anchored in the April filing dates. So I -- the message that we're trying to kind of make sure you all hear is that we built in assumptions around the impact of those programs and we are carrying those assumptions into the next couple of months to let that play out so that, ideally, there are no major negative surprises relative to what that impact might be. So I think we're being prudent in terms of how that tail may extend into Q1 and Q2, but baked into that are all the original assumptions of what the impact would be.

And what we've seen thus far is more muted than that.

One thing to add to that, the FTR implications, so let's say someone doesn't file a tax return and they lose their enhanced APTC in May, that's a prospective adjustment as opposed to what we got after in February of 2024, which was the broker -- the record lock for broker of record. So, yes, it's something to think through as we get through the next quarter or so with the FTR, but certainly pleased on how we started the year strong, and it's good to enter February and then March in a position of strength.

Thank you. And our next question today comes from George Hill, Deutsche Bank. Please go ahead.

Yes, good morning, guys, and thanks for taking the question. And Sarah, this is just kind of a point of clarification. On the effectuation rate, I thought that you had said there could be some upside in Q1 if the FTR hits later in the year and get back towards the normal guidance range. Is that correct?

Or I guess, what I'm trying to worry about is, will this create any downside to the exchange membership outlook or guidance?

Yes, what we said in my script when I said, it's just too early to touch the $34 billion of commercial revenue. That's basically saying -- indicating that we're enthusiastic about our start, but we really want to look at the sloping of the next few months of membership before we consider any potential raise in that revenue. So we're sticking with the $34 billion for now. It's early and we'll see how really the next three or four months of membership play out.

But once again, starting from a position of strength is a good position to be in.

Thank you. And our next question today comes from David Windley at Jefferies. Please go ahead. Hello, Mr. Windley. Is your line muted, perhaps?

It happens to be. Yes, it is. Thank you. Thanks for taking my questions. I wondered on the exchange market, if you have, Drew, done a zero utilizers analysis in your plans, maybe particularly in some of the red states or FF -- federally facilitated marketplace states, to see where potential pockets of, I'll call, abuse of enrollment -- over-enrollment program integrity issues might be.

We did pricing for 2025. We thought about -- first of all, we got a lot of the broker, let's say, disruption out of the way, beginning in February of 2024. And then, as you know, CMS ultimately adopted our idea, which is great and puts everyone on the same playing field coming into the open enrollment period for 2025. So, actually, incurred some of that membership attrition pressure into 2024. So that's behind us. As we thought about pricing for 2025, we did think about the mix of business around failure to report and put a -- quite frankly, put a pricing load in for that program integrity measures.

So, we'll see how that plays out. But once again, feel good about what we're seeing so far, even though it's very early. And as Sarah said, we haven't closed January yet. It's only day two of the month of February.

So I like the way we're starting, but there's more of the year to play out.

Thank you. And our next question today comes from John Stansel with J.P. Morgan. Please go ahead.

Great. Thank you for taking my question. Just one quick one on PDP. Just can you give a bit more color on what played out during AEP kind of driving the above-expectations enrollment growth? And then just thinking longer term, how you see kind of the demo component within standalone PDP kind of contributing over the next couple of years? Thank you.

Yes. No, good question. We ended the year at 6.9 million members, and as we said earlier, we're over 7.5. So I think it's once again the positioning of our product. I mean, this is a business we focus on, not everybody does.

I mean, it's good to have both the Medicare Advantage and MAPD business, as well as a PDP business. There's some complementary and overlap nature to those. So I think the attractiveness of our products, which is driven by our underlying cost structure, which I think is excellent and that's reflected in the value that we can pass on to members and consumers. With respect to the demo, you had to elect into a multi-year demo.

But obviously, CMS can modify the premium support each year. But once again, when you have a product that's driven by what we believe is an outstanding cost structure, then we should be able to sort of sustain that business regardless of what level of premium support makes its way into the demo over the next couple of years.

Thank you. And our final question today comes from Ryan Langston with TD Cowen. Please go ahead.

Hi, good morning. This is Christian Borgmeyer on for Ryan Langston. Could you quantify where PDP margins ultimately landed in 2024? It would be helpful as we think about the year-to-year progression into PDP margin guidance for 2025 and bridging for the IRA dynamics. Thanks.

Well, certainly higher than the 1% or so that we had indicated coming into Q4, and that's the strength in the full year performance captured in the reported period of Q4. So, like how that bodes well for 2025, but you have to think about also, each year from a bid standpoint stands on its own and there's almost a reset in terms of the assumptions that you use and then pricing for the changes in the IRA. So, certainly, I like the way we ended. You can't just map that exactly into 2025, but that should bode well as we think about execution and performance in 2025 and what's now a $16 billion business for us.

Thank you. And this concludes our question-and-answer session. I'd like to turn the conference back over to Sarah London for closing remarks.

Thanks, Rocco, and thanks, everyone, for time and interest this morning. While it is early, we feel good about the progress that we've made in Medicaid matching rates and acuity and how we're positioned coming into 2025. We feel good about our marketplace execution once again in open enrollment and feel good about our Medicare segment overall. And so, really looking forward to executing in 2025 and continuing to keep this group updated on our progress as we move through the first quarter.

Thank you. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines, and have a wonderful day.