Centene Corp (CNC) Q4 2020 Earnings Call Transcript

Centene Corp (NYSE: CNC) Q4 2020 earnings call dated Feb. 09, 2021.

Corporate Participants:

Jennifer Gilligan — Senior Vice President, Finance and Investor Relations

Michael Neidorff — Chairman, President, and Chief Executive Officer

Jeffrey A. Schwaneke — Executive Vice President and Chief Financial Officer

Jonathan Dinesman — Senior Vice President Government Relations

Sarah London — Senior Vice President, Technology Innovation and Modernization

Analysts:

Joshua Raskin — Nephron Research LLC — Analyst

Kevin Fischbeck — Bank of America Merrill Lynch — Analyst

A.J. Rice — Credit Suisse — Analyst

Justin Lake — Wolfe Research — Analyst

Matthew Borsch — BMO Capital Markets — Analyst

Ricky Goldwasser — Morgan Stanley — Analyst

Lance Wilkes — Bernstein — Analyst

Robert Jones — Goldman Sachs — Analyst

Charles Rhyee — Cowen — Analyst

Scott Fidel — Stephens, Inc. — Analyst

Ralph Giacobbe — Citigroup — Analyst

David Windley — Jefferies LLC — Analyst

George Hill — Deutsche Bank — Analyst

Presentation:

Operator

Good day and welcome to the Centene Corporation Fourth Quarter and Full Year 2020 Earnings Conference Call. [Operator Instructions]. After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions].

I would now like to turn the conference over to Jennifer Gilligan, Senior Vice President, Finance & Investor Relations. Please go ahead, ma’am.

Jennifer Gilligan — Senior Vice President, Finance and Investor Relations

Thank you, Rocco, and good morning everyone. Thank you for joining us on our fourth quarter and full year 2020 earnings results conference call. Michael Neidorff, Chairman, President and Chief Executive Officer and Jeff Schwaneke, 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 Centene’s most recent Form 10-Q filed in October, and Form 10-K, and our previously filed Form 10-K and other public SEC filings, including the risks and uncertainties described with respect to the potential impacts of COVID-19 on our business and results of operations.

Centene anticipates that subsequent events and developments may cause its estimates to change. While the Company may elect to update these 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 most directly comparable GAAP measures can be found in our fourth quarter 2020 press release, which is available on the Company’s website at centene.com under the Investors section.

Additionally, please mark your calendars for our upcoming first quarter 2021 earnings results call on April 27th, 2021. With that, I would like to turn the call over to our Chairman, President and CEO, Michael Neidorff. Michael?

Michael Neidorff — Chairman, President, and Chief Executive Officer

Thank you, Jennifer.

Thank you. Good morning and thank you for joining us. Personally, and on behalf of the Corporation, I’m very pleased with the results we delivered in 2020. Early in 2020, we stated that the year would be choppy and it was. We also told you that Centene would manage through the crisis we faced, care for our stakeholders and emerge stronger forward, and we did.

In 2020, we added over 10 million members, representing growth of 67%. We delivered full year revenue of $111 billion representing 49% growth and adjusted diluted earnings per share of $5.00, up 13% over the prior year. Importantly, we continue to invest in the foundational strengths of our enterprise and create long-term pathways for growth.

Turning now to 2021. While we continue to operate in a pandemic environment, we intend to demonstrate the same transparency and agility we did during this past year. Last night, we filed an 8-K announcing that the Board has authorized up to $1 billion of stock repurchase. This includes the unspent portion of the previous authorizations. Our capital deployment priorities include, providing new subsidiaries such as Oklahoma with risk-based capital, reducing debt to further enhance our bond ratings and facilitating value creation through M&A.

The repurchase will be done under a 10b5 with accretion being the key criteria. Our 2020 financial guidance now includes PANTHERx. One month into the first quarter, our view of 2021 remains largely consistent with what we shared at our December Investor Day, and we are reiterating our adjusted EPS guidance of $5.00 to $5.30. We are not changing our EPS guidance at this time, but in the spirit of our continued commitment to transparency, we want to provide the head and tailwinds impacting our operational landscape.

Among the key potential headwinds, additional state rate [Phonetic] actions due to COVID-related reductions in utilization, beyond the $400 million, we’ve already incorporated. We will remind you that CMS has not approved the previously submitted rate actions. However, as we have said, we have built them into our guidance and cash flows. And CMS maintains that rate actions must be actuarially sound.

The potential for higher than anticipated overall COVID related costs, the second headwind considered a Medicare Physician Fee Schedule update. Continued membership growth — talking about the tailwinds, continued membership growth as a result of the extension of the Medicaid re-determination suspension. I will note that CMS has indicated they will likely extend the Public Health Emergency through the end of the year.

Lower utilization trends in the first half of the year beyond our current projections is another tailwind. Further, the potential for a meaningful increase to the FMAP, which is unlikely to be in the COVID bill, but will be part of subsequent reconciliation bills, and, the market place special enrollment period beginning next week. We anticipate the impact of the fee schedule to be approximately $200 million, which is expected to be largely offset by the redetermination tailwind.

The other head and tailwinds that are difficult to quantify were certainly at this point in time. But taken together, we expect they will tend or trend to the positive. And with a new administration in place, the government’s approach to additional pandemic measures may change. We may see a more supportive environment for expansion of care. With one month under our belt, much remains in motion and any attempt to update guidance would lack position. We anticipate being in a better position, and then it will be more appropriate position to update our guidance at our first quarter earnings call.

During 2021, we intend to further leverage the foundation that we have established in recent years, and it sets the stage for our next decade of growth and value creation which will be measured by increasing margins. We will continue to drive growth from our position as a leader in government sponsored healthcare through product and geographic expansion.

We are pleased to have been selected for two state-wide managed care contracts in Oklahoma, including a sole source contract in foster care, both of which the state expects to start in October. In addition, we expect continued growth in our Medicare as we leverage our national scale. We have established in this business over the long term and short to medium term. We expect to deliver above market growth with significant additional opportunities for value creation.

To meet our margin expectations and expansion objectives and ensure organizational efficiency, we are also focusing on leveraging our size and scale to unlock the value inherent across our broader whole health platform. To that end, we have today announced an organizational restructuring initiative that will include a reduction in workforce of approximately 3,000 employees and the elimination of 1,500 open positions.

Overall, this represents a workforce reduction of roughly 6%. Please note that the elimination of the 1,500 positions was accounted for at our December Investor Day. The reductions are primarily in areas where we have significant overhead from acquisitions, and where we have opportunities to leverage our size and scale to increase the efficiency. Importantly, we remained focused on our innovation, growth and agility, and we are continuing to invest in people and systems that align with key areas of growth for the Company.

As we look out over the next decade, we will continue to lead the industry by providing the highest level of care at the lowest cost to meet the evolving needs of our members, especially those with complex care requirements. We are transforming our health care model and making material advancements in our technology capabilities. Behavioral health is one of the most underserved areas in the population today and to the planned addition of Magellan, we are investing in our specialty care capabilities while also focusing on improved integration of behavioral and physical health, resulting in better patient outcomes at lower costs.

I’m pleased to note that we are making strong progress on the regulatory process for the Magellan acquisition and filed all the required Form As within days of announcing the deal. We have also filed necessary papers for Hart-Scott Rodino approval with the Department of Justice. Another area of focus is pharmacy, which represents a large and significant market opportunity. Our growing specialty pharmacy platform will provide enhanced insight into the specialty pharma pipeline, clinical requirements and costs management opportunities. Importantly, it will also drive additional opportunities for the patient engagement, better adherence rates and ultimately improved outcomes.

We also cementing the organizational structure of our Healthcare Enterprise platform, which is creating an environment to foster the revolutionary change that is overdue in our healthcare system. For example, Apixio and Interpreta are collaborating on a comprehensive predictive infrastructure that will serve as a foundation for future innovation. All this combined with our performance in 2020, the strength and scale of our diversified healthcare enterprise, and our strong execution provides me and should provide you with great confidence in our outlook and ability to deliver on the opportunities ahead.

I also want to thank our employees who continue to move this Company forward, while always remaining focused on serving our members. And we look forward to welcome them back into our offices. With that, I will let — I’ll turn it over to Jeff.

Jeffrey A. Schwaneke — Executive Vice President and Chief Financial Officer

Thank you, Michael and good morning everyone. This morning we reported fourth quarter and full year 2020 results that were in line with our expectations at Investor Day, reflecting solid execution during an extraordinary year. Fourth quarter revenues were $28.3 billion, an increase of 50% over the fourth quarter of 2019 and adjusted diluted earnings per share was $0.46 compared to $0.73 last year.

I will start my comments this morning by providing a more in-depth review of the fourth quarter results, and then I will offer an update around our financial outlook for 2021. Our updated guidance now includes PANTHERx, which closed at the end of 2020. Now, some fourth quarter details. Total revenues grew by $9.4 billion over the fourth quarter of 2019 due to the acquisition of WellCare and growth in the Medicaid and Health Insurance Marketplace businesses. This growth also includes the impact from the suspension of Medicaid eligibility re-determinations and the reinstatement of the health insurer fee in 2020, partially offset by the divestiture of our Illinois health plan and retroactive state premium rate adjustments and risk sharing mechanisms.

Total membership increased to 25.5 million in the quarter, up 67% compared to a year ago. Since the pandemic began in March, we have added a total of 1.7 million Medicaid members, slightly higher than the 1.6 million members anticipated at our Investor Day in December. Our HBR or Health Benefits Ratio was 88.4% in the fourth quarter, consistent with last year’s fourth quarter. Compared to the fourth quarter of 2019, the HBR benefited from lower medical utilization trends due to the COVID pandemic and the reinstatement of the health insurer fee offset by retroactive state premium rate adjustments and risk sharing mechanisms and higher testing and treatment costs associated with COVID, particularly in the marketplace business.

Within the marketplace business, we experienced an increase in testing and treatment costs related to COVID specifically in regions where infection rates sharply increased during December. As a result of the increased COVID costs, our marketplace business performed slightly below our targeted pre-tax margin range of 5% to 10% for the full year. We expect our marketplace business to return to the targeted margins in 2021, reflecting our continued pricing discipline.

Through year-end 2020, we have paid approximately $3.6 billion associated with COVID claims. This compares to the $2 billion we discussed on our third quarter call. Our full year figure applies consistent methodology and includes all of the COVID related claims codes consistent with CDC guidelines. Our adjusted selling, general and administrative expense ratio was 9.7% in the fourth quarter of this year compared to 9.5% last year and 8.9% in the third quarter of 2020.

The year-over-year increase was due to enhanced growth and profitability initiatives for our Medicare and Health Insurance Marketplace business as we reinvested the risk corridor payment we received in the third quarter. This was partially offset by the leveraging of expenses over higher revenues as a result of the WellCare transaction. Cash flow provided by operations was approximately $3 billion in the fourth quarter, impacted by the timing of certain state payments and an increase in payables related to the risk sharing mechanisms.

We continue to maintain a strong liquidity position of $1 billion of unregulated cash on our balance sheet at quarter end. Unregulated cash included approximately $500 million of items that are expected to reverse in early 2021. Debt at quarter end was $16.8 billion, which includes $97 million of borrowings on our revolving credit facility. Our debt-to-capital ratio was 39% excluding our non-recourse debt compared to 39.1% in the third quarter of 2020.

Our debt to capital ratio was 37.5% when netting our unregulated cash with our debt at quarter end, which represents a 140 basis point decrease since March. As Michael mentioned earlier, our capital allocation priorities remained unchanged with focus on funding of organic growth, value creation through M&A and leverage reduction. We will be opportunistic with share repurchases with accretion being the key criteria.

Our medical claims liability totaled $12.4 billion at quarter end and represents 51 days in claims payable compared to 52 days in the third quarter of 2020. DCP was impacted by the timing of state directed payments. The WellCare integration continues to be on track and we remain comfortable with our synergy capture efforts in 2021. While it is still early, we are making excellent progress toward the closure of Magellan. As Michael noted earlier, we have filed all the applicable regulatory approval documents and we continue to have constructive dialog around integration planning.

Turning now to our 2021 expectations. As I mentioned at the beginning of my prepared remarks, we are updating guidance to include the acquisition of PANTHERx, which closed at the end of December 2020. This adjusted two of our guidance metrics for 2021 as follows. First, our total revenues increased at the midpoint by $2 billion, which is consistent with what we communicated at our Investor Day. And second, our SG&A ratio decreases by 20 basis points at the midpoint, reflecting PANTHERx’s low administrative cost ratio.

Additionally, while not part of our formal guidance metrics, the cost of service ratio is expected to increase by approximately 200 basis points, driven by PANTHERx being included in service revenue and cost of services. At this point we have not included the impact of winning the two Oklahoma contracts into our guidance.

The two contracts are estimated to begin on October 1st, which would potentially add $250 million to our 2021 total revenue. For the full year, we now expect our revenue to be within a range of $116.1 billion and $118.1 billion. We continue to expect mid-teens percentage Medicare Advantage enrollment in 2021. This strong growth underscores the rationale for the WellCare transaction as well as the effective integration efforts that have taken place over the last 12 months in the pandemic conditions.

Marketplace enrollment results were slightly better than our previous projection as both retention and effectuation rates were higher than anticipated. We continue to view Marketplace as a long-term growth opportunity for Centene, which will drive our product development and positioning with the experience we have gained as the industry leader.

Additionally, we continue to expect typical utilization to remain below the historical baseline during the first half of 2021. We’re turning to normalized levels in the second half of the year. COVID utilization is expected to be elevated during the early part of the year particularly offsetting the impact of lower traditional utilization.

The duration and intensity of higher COVID costs will be impacted by the trajectory of the pandemic and vaccination rates. Finally, we have lowered our GAAP EPS guidance range by $0.14 at the midpoint. This is due to the inclusion of the estimated intangible amortization of PANTHERx and an additional charge related to the workforce reduction Michael previously mentioned. We intend to invest these savings into important growth and strategic initiatives, including investment for the upcoming special enrollment period as well as automation and technology development and incremental start-up costs associated with the Oklahoma contract.

Taking all these factors into account, our adjusted diluted earnings per share guidance remains unchanged at $5.00 to $5.30. As Michael highlighted, there are various potential headwinds and tailwinds for 2021 that we have not included in our guidance today as many of the items remained uncertain and difficult to quantify. Utilization and COVID expenses in particular, are highly dependent on the trajectory of the pandemic, and we’ll continue to provide investors with timely updates.

I’ll close by reiterating our confidence in the strength of our business. We’re pleased with the significant growth we achieved in 2020. Our balance sheet remains strong and we believe we have ample liquidity to meet our operational and strategic needs. We remain focused on executing against our strategic plans and are committed to delivering shareholder value.

With that, I will now turn it back to Michael.

Michael Neidorff — Chairman, President, and Chief Executive Officer

We’re going to deviate a little bit today from the standard call, but — we have Jon Dinesman available. At last night, the Ways and Means Committee provided information on things they’re thinking about relative to strengthening the uninsured and bringing them into the markets. So I’m going to ask Jon to take a minute and just highlight the key factors [Indecipherable] out. Jon heads up our Washington office and is a very respected government relations individual in Washington. Jon, if you would?

Jonathan Dinesman — Senior Vice President Government Relations

Thank you, Michael. As you mentioned, yesterday the House Ways and Means Committee released their COVID relief package. We are pleased to see that they included substantial increases in ACA premiums for those in need. For 2021 and 2022, it provides for an enhanced advanced premium tax credits for those making between 133% to 400% of the federal poverty level.

Another key provision relates to those that are unemployed. They will be eligible to receive advanced premium tax credit and will be treated like they are at the 133% federal poverty level for the remainder of 2021. It will be important to get greater detail as the COVID package moves forward, but we are pleased to see them wanting to leverage the ACA for those most impacted by the pandemic.

And Michael, with that, I will kick it back to you.

Michael Neidorff — Chairman, President, and Chief Executive Officer

Thank you, Jon. Operator, we can now open it up for questions.

Questions and Answers:

Operator

Thank you. We will now begin the question-and-answer session. [Operator Instructions]. Today’s first question comes from Josh Raskin with Nephron Research. Please go ahead.

Joshua Raskin — Nephron Research LLC — Analyst

Hi, thanks and good morning.

Michael Neidorff — Chairman, President, and Chief Executive Officer

Good morning.

Joshua Raskin — Nephron Research LLC — Analyst

So — good morning, Michael. So, if I look at the numbers, you finished 2020 with an adjusted net margin of a little bit under 3% and I think you actually mentioned in your prepared comments about margin expansion in the future. So I was wondering if you could give us sort of longer-term goals and sort of as you think about your mix of business with the addition of PANTHERx and some of the other acquisitions and the Healthcare services side that tends to run a little bit higher.

I’m just curious where do you think that net margin ultimately can go to and not thinking about 2021, but more sort of two, three years out.

Michael Neidorff — Chairman, President, and Chief Executive Officer

Yeah, we’ve talked about — we said pre-tax, we’d like to be in the 3% to 5% range. We also said we want to see our increases be very sustainable. So I’m not looking for big swings where we jump up to 5.5% and then back down and prior period adjustments and all the things that occur in that environment. And so, we’re looking at 3% to 5% on a very sustainable basis.

Equally important is our continued diversification of our business, which really unlike a lot like individuals that invest in our Company, have diversified portfolios. We are in the government services area, but as we diversify and move more and more into these pharmaceutical and others, some areas maybe less, some greater, but on balance, Josh, 3% to 5% to go on a very sustainable basis and I think we’ll see margins increasing again this year.

Joshua Raskin — Nephron Research LLC — Analyst

Perfect, thanks.

Operator

And our next question today comes from Kevin Fischbeck with BoA. Please go ahead.

Kevin Fischbeck — Bank of America Merrill Lynch — Analyst

Great. Thanks. Just wanted to go back to the headwinds and tailwinds. It wasn’t 100% clear to me whether these were things that you guys explicitly included in your guidance or [Technical Issues]

Michael Neidorff — Chairman, President, and Chief Executive Officer

[Speech Overlap] You’re breaking up a little bit, Kevin.

Kevin Fischbeck — Bank of America Merrill Lynch — Analyst

Okay, sorry.

Michael Neidorff — Chairman, President, and Chief Executive Officer

You broke up a little bit. I think I heard you say you want to understand what the headwinds and tailwinds were, and were they included in our guidance.

Kevin Fischbeck — Bank of America Merrill Lynch — Analyst

Yeah.

Michael Neidorff — Chairman, President, and Chief Executive Officer

And what we said is that — what I’ve said is those — we commented a couple where, but on balance, no, we have not adjusted our guidance for. It’s just too early, we have one month of experience. And as you just heard, the environment is changing and to the positive, that’s why I said that we see that when you take the headwinds and the tailwinds, the tendency or the trend is to the positive.

But until we have more definition and it’s difficult to process from one point, you can’t. So, we’ve said that we are one month under our belt, this is where it stands, here are the headwinds, but there is a lot of tailwinds to offset it. And there’s strong tailwinds. So we are encouraged by that, we’re encouraged by what ways and means has put out. Now, that may not be the final form, but it shows the direction that we’re leading.

So while it’s on in the guidance, I want to be clear on that. We found it important for transparency transparency, if you understand these are the things we should be evaluating.

Kevin Fischbeck — Bank of America Merrill Lynch — Analyst

Okay, great. And maybe just one clarification on the FMAP relief, if you guys — you stated that you got more FMAP, would that potentially improve your rates or is that just give you better visibility into rates being actuarially sound?

Michael Neidorff — Chairman, President, and Chief Executive Officer

Well, I think both. In other words, was the FMAP the — what the states can do, looking at expansion as you just heard and other things of that nature, is to give the state some relief. And I think it will minimize the need to try and pull back rates. But — so on balance, it’s a good thing for us. But I want to emphasize that when we hear the states are adjusting this quarter, they’re trying to pull money back, it’s because they see the utilization is down. And so they see that as a reason to do it and to offset it. So there is a balance. FMAP will just give them more comfort and then and help them cover the additional employees. Is there anything you’d add to that?

Jeffrey A. Schwaneke — Executive Vice President and Chief Financial Officer

No, Mike.

Michael Neidorff — Chairman, President, and Chief Executive Officer

No? Okay, thank you.

Operator

And our next question today comes from A.J. Rice with Credit Suisse. Please go ahead.

A.J. Rice — Credit Suisse — Analyst

Hi, everybody. Thanks for the question. Just to maybe go to — talk a little bit about the marketplace and some of the developments there. First of all to make sure I understand, I think, Jeff, saying that you ended up a little below your target margin range above 10% in 2020 and attributed most of that to the COVID situation, did you see materially different utilization patterns COVID, non-COVID in the marketplace versus your traditional Medicaid population and the Medicare population?

And then maybe just to ask you to comment a little bit about the open enrollment dynamic which the Biden Administration is putting in place. Do we see that as garnering significant incremental enrollment? Is there any risk of adverse selection because they’re reopening it? Just your thoughts on how that’s going to play out. It sounds like you’re generally positive about it.

Michael Neidorff — Chairman, President, and Chief Executive Officer

I’ll take the second part of the question and let Jeff pickup up on the differences in the utilization. We see it as a positive. I mean there’s 9 million people, the estimated uninsured, and we want to remind you that it’s not all Marketplace. A lot of these individuals will qualify for Medicaid. And as we saw last year, that was a positive. The FMAP gives the states the funding they need to cover those employees, which is additional part of that, as well as adding additional SSI and other coverages that we’ve seen states doing. So, we see that as essentially a potential significant positive for us.

As it relates to the marketplace, we’ll see some — we see increases in people coming in there. I’m not going to — I don’t have any basis to say we’ll see adverse selection on it. I think we’ve — we have programs in place to attract a balance, but we’re not trying to just acquire — to attract just the well and the young which — we’re in the business to attract a good mix of combination which states and the federal government recognizes us for.

So, I think on balance it’s going to be a very good deal for us, but Jeff, do you want to talk about the difference in those?

Jeffrey A. Schwaneke — Executive Vice President and Chief Financial Officer

Yeah, sure. Thanks A.J. On the first part of the question, yes, it was more acute in the marketplace business, specifically in the in-patient side with the COVID authorizations. And it was — it was a little bit different. I think some of that’s driven by the demographics. You have to remember in the marketplace business over 90% of that population are adults, whereas in the Medicaid side, there is a lot of kids in there. So it was more acute in the marketplace and it pulled us down right below our 5% to 10% range at the end of the year.

A.J. Rice — Credit Suisse — Analyst

Okay. Maybe to just kind of ask on the comment that was made about the package, they’re passing COVID relief, is that going to cover people in the coverage gap in the non-expansion states? Is that part of what they’re going after? I know that’s a couple of million people or is it too early to tell whether they will address that in this relief package?

Michael Neidorff — Chairman, President, and Chief Executive Officer

I think, they — we know that the administration wants to bring uninsured in, okay? And they’re very committed to it. But, I asked Jon to speak, this is just fresh off the press, and we haven’t had a chance to study it to the depths we like to. But so, I guess A.J. we’re going to wait and give you more definition as it unfolds, but the essence of it is positive.

A.J. Rice — Credit Suisse — Analyst

All right. Okay, all right, great, thanks a lot.

Operator

And our next question today comes from Justin Lake with Wolfe Research. Please go ahead.

Justin Lake — Wolfe Research — Analyst

Thanks, good morning. I wanted to ask about fourth quarter utilization. And I know it’s early into January, but anything you could share with us on utilization and how those retro rates and rebates kind of looked in the fourth quarter versus what you expected? It looked like your MLR was a little higher. And then, specifically, was there something in New York — one of your peers mentioned the New York retro cut that happened very late in the fourth quarter. Anything you could tell us on that one that might have affected Q4 would be helpful as well. Thanks.

Michael Neidorff — Chairman, President, and Chief Executive Officer

I’ll start out and just — and then I’ll let Jeff pick up on the others. But, I think what’s really important — and thanks for giving me a chance to say this. You know, when you look at the kind of year it’s been with the COVID and the peaks and how strong the peaks are and the geographic diversity of it were very strong, I think it’s very difficult to evaluate, very minute changes in MLR, product by product, business by business.

And so, I just — I want to encourage everyone including yourself to look at the most broad things that you know, they came in within a more than an acceptable range for the environment in which we’re in. I consider it really well done. But, I’ll let Jeff speak to your specifics.

Jeffrey A. Schwaneke — Executive Vice President and Chief Financial Officer

Yeah. Real quick on that, Justin. So, it’s really been the same phenomenon for the year that we’ve seen. So, in the fourth quarter, I would say total utilization is below the historical trend line. So obviously, higher COVID costs, but lower traditional utilization. And in the fourth quarter, you remember at our Investor Day, we estimated the full year state risk sharing mechanisms would be $790 million. We ended the year roughly at $1 billion. And effectively, that was offset by lower utilization during the quarter.

Now, I’ll just give you some details on that $1 billion, a piece of that was New York. We had an estimate in for New York, but we didn’t have any details on it. We got those details in January. And then, there were some other smaller states, but half of the difference — you went from $790 million to $1 billion, half of that difference is really related to, I would say, true-up of estimates and normal performance of existing corridor programs that were already in place.

Justin Lake — Wolfe Research — Analyst

Okay. Did that educate us at all into [Technical Issues] versus the $400 million?

Jeffrey A. Schwaneke — Executive Vice President and Chief Financial Officer

Say that again.

Justin Lake — Wolfe Research — Analyst

Does that educate us at all into that $400 million, given that it was another $200 million higher than you thought for the end of the year?

Jeffrey A. Schwaneke — Executive Vice President and Chief Financial Officer

Again, I think, the — what Michael has said earlier, the risk corridor, the $400 million is going to change anyway just based on utilization. I guess, that’s what I would point to. And we haven’t even finished closing the books for January. So, at this point, what we’ve done is effectively take December’s guidance, the December 18th guide and adjust it for PANTHERx. And we’ll provide more information at the end of our first quarter call on a lot of the headwinds and tailwinds that Michael mentioned.

Justin Lake — Wolfe Research — Analyst

Got it.

Operator

Thank you. Our next question today comes from Matt Borsch with BMO Capital Markets. Please go ahead.

Matthew Borsch — BMO Capital Markets — Analyst

Yeah, sorry. Thank you. Maybe if you could talk about the — your guidance relative to redeterminations and Oklahoma. I guess, what I’m getting at is, am I correct that your guidance was based on the earlier sort of late spring date for redeterminations to resume? Now, it’s pushed out to the end of the year. [Speech Overlap]. I wanted to understand if that was something that was — is potentially upside for your guidance or not, and then Oklahoma, the same story?

Michael Neidorff — Chairman, President, and Chief Executive Officer

Hey, Matt. The state has set October 1 for both plans. And, I’ve never put my hand on starting dates that states give you. And if it did so, Jeff in his remarks said about $250 million in revenue, [Indecipherable] margin and start-up costs and other things in there. We’ll give more definition on our Q1 call on that. So, I think that’s part of it.

And in terms of redetermination, we — right now, they’ve issued a letter saying that they expect to continue it until the end of the year, extend the emergency. But, I want to confirm before I start building into the guidance and giving you numbers. And that’s why I said one month does not a year make. And so, kind of bear with us, recognize that that’s a strong upside for us, if it happens, and we’ve seen it historically. But, until they confirm it, that’s why we’ve said, it makes sense to give you all this information as best we can on our Q1 call.

But I did want to be transparent and say, these are the tailwinds, these are the headwinds. And you can see that on balance, there are very strong tailwinds.

Matthew Borsch — BMO Capital Markets — Analyst

Yes, great. Michael, thank you.

Michael Neidorff — Chairman, President, and Chief Executive Officer

Thank you.

Operator

And our next question today comes from Ricky Goldwasser with Morgan Stanley. Please go ahead.

Michael Neidorff — Chairman, President, and Chief Executive Officer

Good morning.

Ricky Goldwasser — Morgan Stanley — Analyst

Yeah. Hi, good morning, Michael. Michael, you talked in the prepared remarks about growing the unregulated business as part of — one of the drivers for margin expansion. Can you just talk a little bit about sort of how you’re thinking of building the pharmacy offering, whether it’s through additional M&A or organic growth? And then, you’re still outsourcing part of your pharmacy or PBM business. Can you maybe update us on kind of like the timing there and the opportunities associated with that?

Michael Neidorff — Chairman, President, and Chief Executive Officer

I’d be glad to. I think, PANTHERx, while we’ve said will be breakeven this year and adds a $1 billion of revenue, it’s important that it adds to the specialty pharma, which we have a leadership position in growing. It adds the orphan drugs, which are a critical part, and we get help in. We’re committed to the pricing, keeping it affordable for everybody to the extent we can. But, we don’t control that. That’s — we get — we’re a distributor of it. But, it gives us great insights into it. So, what — that’s the specialty side and that’s why we did that to add to it.

As it relates to the total platform, we’re going to be adding significant assets through the Magellan acquisition. We have various platforms out there. And I’ve asked Drew Asher, who I think we all recognize as a very competent executive and working on the pharmacy side, to put together his full recommendations for us on how best to approach it, which is the final platform we should use. But it would be premature to give a whole lot of guidance until we have approval on the Magellan acquisition.

But, it’s — we see it as very positive. We have — I know we’re purchasing prior to this over $30 billion a year in pharmaceuticals, working with various platforms and pulling it all together. So, it’s a long-winded answer, but it’s — to give you as much transparency, and it’s a great opportunity. And Drew is working through and will determine how best to capitalize on it. And based on his prior experience, I think, people can have confidence it will be well done.

Ricky Goldwasser — Morgan Stanley — Analyst

And then, one follow-up. I mean, yesterday, you announced an increase in your share repurchase program to an incremental [Speech Overlap] $1 [Phonetic] billion. What is your assumption for share repo in 2021 guidance? And as we think about sort of what the cadence should we factor into our models?

Michael Neidorff — Chairman, President, and Chief Executive Officer

Yeah, I have not given a guidance on that. We gave you the order of priority. I mean, obviously, with Oklahoma and other plans as they grow, the RBC has to be increased, and that’s the first one. We do want to retire debt. Our bonds — our credit ratings continue to improve, and we want to continue that pressure. We’re approaching investment grade. We have one rating there now.

And so, that’s the second one. We do have some smaller acquisitions we are looking at, and so, we would use some capital for that. But we want investors to understand that as — based on what the stock price is and the accretion, and I have a pocket piece that says an ex price, here’s the anticipated accretion we will be back in the market by — on a 10b5.

And let me just take 30 seconds on that, that because we are a Company that does a lot of acquisitions, and we have inside knowledge, we have to file — no different than we have to proceed when there’s an open window, file a 10b5, that says here’s the criteria for buying the stock, if it’s a disaccretion by x, [Indecipherable] and there’ll be a bank that has those instructions. It has the authority to do it on that basis.

So, it’s a combination of those kinds of things. And it’s — if the stock continues to move up, there will be less repurchase, but it’s there. And obviously, people want us to repurchase when it makes accretive sense.

Ricky Goldwasser — Morgan Stanley — Analyst

Thank you.

Operator

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

Lance Wilkes — Bernstein — Analyst

Yeah, good morning.

Michael Neidorff — Chairman, President, and Chief Executive Officer

Good morning.

Lance Wilkes — Bernstein — Analyst

Could you just amplify a little bit on the restructuring program with the 3,000 employees? And in particular, could you put that in the context of your long-term targets? So, I was just interested to kind of get a refresh on what you think long-term revenue guidance would be? And then, with margins long-term, how much of that is going to be driven by improvements in operating expenses as opposed to anything else? Thanks a lot. Bye.

Michael Neidorff — Chairman, President, and Chief Executive Officer

Okay. Sure. The revenue, we tend to give you that one year at a time. And we say, we’re going to be — we are a growth Company, and I don’t want to get too far ahead of myself on that. But, when you look at the year we came off of, this one is 59%, it’s a significant number. I don’t think I’ll have — we’ll see that next year, but who knows? And I say that tongue in cheek.

But, the restructuring, it’s been a hobby horse of ours for some time. And we’ve done these acquisitions. And they’re very effective and they’re very accretive. But I don’t believe we’ve really leveraged our scale and size. And it’s something we’ve been talking with our senior staff about. We’ve been making material investments in systems that really help improve the efficiency.

So, this — and right now, very candidly, there is a demand for healthcare employees and workers. So, considering the — taking this action, we’re doing it at a time when we believe individuals will be able to find and they’re getting lots of support. There’s $69 million of severance we built in there for everybody. So, we’re going to be very supportive of that. But, this is just the case if any time now — every time we brought some, people would come and say oh, we just added this, I need 5, 10, 15 more employees, and we’ve cut back.

As we looked at it in legal and other areas, we have found that as we’ve gotten into our scale and size, and we’ve hired more confident people, we’ve been able to reduce the numbers. So, this is something we wanted to do for some time. And it reflects in combination with canceled positions, about 6% of our workforce, which we think is material. And a lot of it is going to be improved technology that’s going to give us — I gave an example, and I know I’m getting long-winded, but I want to give you an example.

We talked about how we just tested in Florida that when something is pre-authorized and then the claim comes in, the nurses have to look at it and make sure it was justified. Well, we now have artificial intelligence. What used to take them 18 minutes to look at the claims, can now be done in 3.5 seconds. Now, if it says, no, it’s not qualified, then we still want an individual to review it. You don’t say no, just similarly as we get experience with the AI.

But, that’s the kind of thing that improves the efficiency and service, and that the claim gets paid faster, etc. That’s where we’re headed, and that’s why the reduction in force. Long-winded answer, I hope it answers it for you.

Lance Wilkes — Bernstein — Analyst

Yeah, that’s helpful. Thanks. And does that have any impact on 2021 guidance? Is there a positive impact from the restructuring in ’21, or is that beyond that?

Michael Neidorff — Chairman, President, and Chief Executive Officer

It’s all built into what you’ve seen.

Jeffrey A. Schwaneke — Executive Vice President and Chief Financial Officer

Yeah. No, it’s — what we talked about was what Michael just mentioned is that we’re investing the savings effectively, right, into the technology and the special enrollment period, etc, etc.

Michael Neidorff — Chairman, President, and Chief Executive Officer

Got you. Thanks.

Operator

And our next question today comes from Robert Jones with Goldman Sachs. Please go ahead.

Robert Jones — Goldman Sachs — Analyst

Great, thanks for the questions. I guess, Michael, not to go back to this, but just I wanted to really understand what is contemplated in the unchanged range? And it obviously sounds like we’re going to get a more detailed update with 1Q — when you give the 1Q results. But if I think about those headwinds and tailwinds that you highlighted, I guess, what if any, as we think about the state rate actions or the redeterminations, like, what is today contemplated in the range? And then, I know, at the Analyst Day, you talked about thinking about this year earnings weighting being kind of 65% in the first half. Any updated thoughts on cadence? I know not a lot of time has passed, but just curious as we think about how the year could play out from an EPS weighting standpoint? I wanted to get your latest thoughts there.

Michael Neidorff — Chairman, President, and Chief Executive Officer

Yeah, I think right now, as I said, with one month experience, we’re not changing it. And it’s difficult to trend from one point. You can’t trend from one point. And so, we’ve said, look, rather than put something out there that we then have to change on Q1, let’s give you the factors, so as you understand why we see it as a positive trend, I mean, the redetermination, depending — right now, they’re talking about spending it quarter-by-quarter, but if they go to the year-end, that becomes a significant improvement, okay?

Some of the rate adjustments I highlighted haven’t been approved yet by CMS, and their actuaries are looking at actuarial soundness on it. So, there’s so many variables in it that, I just don’t want to put something out there that we don’t have confidence reflects the fact it has some sense of precision to it at this point in time.

I’m not trying to be evasive on it, that’s why we gave you the headwinds and tailwinds, saying, this is all out there. And you can see how in the environment in which we’re operating, it’s difficult. I mean, I was listening to the late news last night, and they were talking about the new virus and the intensity of it and the wave. I mean, there are variables out there that are changing things. We’re living in area where things are choppy. So bear with us in saying, hey, they’re being transparent, they’re telling us the things that could be bad [Phonetic], that could change it to give us reason to understand why we’re believing what we do.

But to try and quantify it, I mean, it’s like before — it’s a — I always use the analogy, before they were able to tell you ahead of time whether you’re having a boy or girl, the obstetrician once said, well, if I say it’s a girl and it turns out to be a girl, you’re going to think I’m brilliant. If it turns out to be a boy, you’re going to say, God, you don’t know anything.

So, there’s a lot here of unknowns with the inability to predict it. And so, let’s evaluate it. Sorry about that. I wish I could be more precise, but it doesn’t lend itself to that with one month experience.

Robert Jones — Goldman Sachs — Analyst

Understood. Thank you.

Operator

And our next question today comes from Charles Rhyee with Cowen. Please go ahead.

Charles Rhyee — Cowen — Analyst

Yeah, thanks for taking the question. Michael, I think, obviously, you talked about the potential for the redeterminations extending out further. I think your guidance assumes sequester relief through March 31st. Any thoughts on if this is also likely to be extended? And how would you think about the impact maybe to your guidance, if that were the case?Thanks.,

Michael Neidorff — Chairman, President, and Chief Executive Officer

It’s — we see redetermination extended, and we see it as a positive guidance. But, I’m not going to do it month-by-month, quarter-by-quarter. When we know we — when we believe we’ll have more clarity by the time we go into the fourth quarter — or the first quarter — by the fourth quarter — the first quarter call.

Charles Rhyee — Cowen — Analyst

And what about — and sequesters as well?

Jeffrey A. Schwaneke — Executive Vice President and Chief Financial Officer

Yes. Sequestration is certainly possible. Yeah, so, certainly possible, and I think that would be, while not as large as obviously the redeterminations, that would be a positive as well.

Charles Rhyee — Cowen — Analyst

And I’m just curious if you — if that is something you’ve heard increasingly discussed at all, or any kind of sense there from Washington on that?

Michael Neidorff — Chairman, President, and Chief Executive Officer

We haven’t discussed it.

Jeffrey A. Schwaneke — Executive Vice President and Chief Financial Officer

No.

Charles Rhyee — Cowen — Analyst

Okay, all right. Thank you.

Operator

And our next question today comes from Scott Fidel with Stephens, Inc. Please go ahead.

Scott Fidel — Stephens, Inc. — Analyst

Hi, thanks. Good morning.

Michael Neidorff — Chairman, President, and Chief Executive Officer

Good morning.

Scott Fidel — Stephens, Inc. — Analyst

First question just had — wanted to follow back up on the marketplace, and just two specific questions. One, just, Jeff, I think you had previously discussed how you expected enrollment to be down around 350,000 from peak to peak membership from ’20 to ’21. It sounded like you guys are doing a bit better in terms of sort of net enrollment so far. So interested if you could update us on that number? And then, also maybe how that influences the prior view you had given for the $800 million reduction in the risk adjuster payable for 2021?

Michael Neidorff — Chairman, President, and Chief Executive Officer

Yeah, I mean, I think, it’s just positive, and we gave you that number, but Jeff can talk a bit more.

Jeffrey A. Schwaneke — Executive Vice President and Chief Financial Officer

Yeah, thanks, Scott. I appreciate it. Yeah, you’re right, 350,000. We’re coming in more like 280,000. There was a shift to Bronze, though, more shift to Bronze, which we kind of highlighted. But, a higher shift into the Bronze, so really no change on the revenue side. And the $800 million, we closed the year with about $800 million, you’ll see it when we file the 10-K with about a little over $800 million of a risk adjusted payable. And our expectation is still that, that kind of based on the acuity shift goes down relatively close to zero.

Michael Neidorff — Chairman, President, and Chief Executive Officer

Yeah. And I think as you look forward, going forward, as you heard Jon Dinesman talk about it, there is government support envisioned for those programs, which will make it a little less price-sensitive, so that — that we see that as a real positive that people just can’t try to buy the business.

Scott Fidel — Stephens, Inc. — Analyst

Got it. And then, just one follow-up, just on headwinds and tailwinds that you had provided. And I think, you guys captured most of — most of the things that we’re all sort of tracking here that have been playing out so far this year. One thing you didn’t mention was just the headwind from lower Medicare racks, and that’s certainly something that some of your peers have been emphasizing recently. Is that just because you had already anticipated that and sort of talked about that and assumed that as guidance? Or you’re just not really seeing that as much of an incremental headwind here for 2021? Thanks.

Michael Neidorff — Chairman, President, and Chief Executive Officer

Jeff?

Jeffrey A. Schwaneke — Executive Vice President and Chief Financial Officer

Yeah. No, we talked about this in our December 18th guidance. We mentioned specifically the headwinds on the risk adjustment side due to the inability of members or they didn’t get to their doctor before the end of the year. So, that was already included in our December 18th number.

Scott Fidel — Stephens, Inc. — Analyst

Okay, thanks.

Michael Neidorff — Chairman, President, and Chief Executive Officer

We tend to get careful in trying to give you transparency on those things.

Operator

And our next question today comes from Ralph Giacobbe with Citi. Please go ahead.

Ralph Giacobbe — Citigroup — Analyst

Thanks, good morning. Just one clarification. It sounded like the fee schedule, I think, you mentioned, was a $200 million headwind. And I think you said it was offset — or you expect it to be offset by redetermination tailwinds. And then, I heard Michael say, the redetermination would be sort of upside. So, I just want to make sure I was clear on the fee schedule and the offset.

Michael Neidorff — Chairman, President, and Chief Executive Officer

Yes. You got that right.

Ralph Giacobbe — Citigroup — Analyst

Okay. So, is it an offset, or would redeterminations be an incremental tailwind?

Michael Neidorff — Chairman, President, and Chief Executive Officer

Well, there’s an offset, and they go to the end of the year, it could be incremental, they grew it quarter-by-quarter. But we believe it’ll be sufficient to offset that. And if I knew it was really going to be a whole lot better, then we’d give it to you. But we’ll know more come the Q1 call. But there is enough, we believe there’ll be enough there to offset that $200 million.

Ralph Giacobbe — Citigroup — Analyst

Okay. All right. Fair enough. And then just one other quick clarification. On the margins on the HICS, did you say it was below the 5% range or below the midpoint of that range? And then, your expectation for 2021 sounds like it’s going to be firmly in the range. Is that correct?

Jeffrey A. Schwaneke — Executive Vice President and Chief Financial Officer

Yeah, that’s correct, below — slightly below the 5%.

Ralph Giacobbe — Citigroup — Analyst

Okay, that’s all I have. Thank you.

Operator

And our next question today comes from Dave Windley with Jefferies. Please go ahead.

David Windley — Jefferies LLC — Analyst

Hi, good morning. Thanks for taking my question. Michael, I had two on Magellan. I think, you’ve highlighted that Magellan helps to expand your behavioral network. And I was hoping you could comment on kind of the buy versus build evaluation on that. Is speed important to get to that expanded network? And then, secondly, second question around defending Magellan’s existing business, they’re a kind of a carve-out player in behavioral, whereas I think you focus more on the advantages of integrated and carved in.

And then, they’ve also kind of held themselves out as the independent partner and as part of Centene will not be that. So, if you could comment on buy versus build, and then defending Magellan’s business, please?

Michael Neidorff — Chairman, President, and Chief Executive Officer

Yeah. Well, I think — I want to thank you for that question, because we like — I’m going to start off, and then I’m going to ask Sarah London who overseas Health Care Enterprises to amplify it a little bit more and give you some more background on it.

But, as it relates to buy versus own, with the importance behavioral health is placed and the fact it’s so underserved right now and recognized, having these assets as part of our total portfolio, we see as a strong positive and something that over time — it’s no different than — we first got involved in that specialty pharma, maybe five, six years ago, I think, the first year, we had a carry into $200 million.

And now, we talk in the billions. And I think — because we recognize how specialty pharmas go, I think — I’m not saying it’s going to be billions and billions, but the point is, I think we’re going to see behavioral health grow. Now, we’re also very sensitive to the fact that we want to keep it in other users’ mind, the independence of it. And we see that as a value because the stronger it is in serving other customers, the more it will eventually be in us. And Sarah, you might talk about Health Care Enterprises and how you’re structuring it.

Sarah London — Senior Vice President, Technology Innovation and Modernization

Yeah, absolutely. Thank you, Michael. So, as we’ve said, Magellan — Magellan will sit within — upon close, will sit within Health Care Enterprise, which is a separate operating division within Centene. And it is home to a number of wholly-owned subsidiary companies that are positioned to continue to operate independently.

And we take very seriously the ability of these companies to continue to serve third-party customers to not have any cross contamination, to not have any competitive disadvantage in our operations, but also to be positioned to be a good partner to Centene. And so, that’s exactly what we are going to do for Magellan. We’ve also established an independent Board of Directors for Health Care Enterprises that can oversee the decisions that are being made and ensure that we are collectively making decisions that are good for the third-party customer base. And that’s a big part of Magellan’s growth potential going forward.

Michael Neidorff — Chairman, President, and Chief Executive Officer

Thank you, Sarah.

David Windley — Jefferies LLC — Analyst

Great. And Michael, if I could follow-up quickly, you mentioned in your headwinds, additional rate cuts, Justin in his question referenced New York. Is that the primary one you’re thinking about, or are there others? Thanks. And that’s it from me.

Michael Neidorff — Chairman, President, and Chief Executive Officer

So, there could be others, it will vary state by state. But, as I said, if it’s actuarially sound, that’s one thing, that’s fine. And if utilization is down, it will be offset. So, and that’s what CMS is looking at. And so, there could be others, but it’s — while it’s a headwind, I think there’s some offsetting factors that it’s not as problematic it can be.

Operator

And our next question today comes from George Hill with Deutsche Bank. Please go ahead.

George Hill — Deutsche Bank — Analyst

Hey, good morning guys. And thanks for taking the question. Michael, I had one more follow-up on diversification and pharmacy. And I guess, could you talk about if the Company has any aspirations for the PBM business or the pharmacy business kind of outside of the government payer book? And maybe would you guys look to expand into commercial businesses and talk about initiatives there? And then, I guess, does the CVS partnership help or hinder that? Thank you.

Michael Neidorff — Chairman, President, and Chief Executive Officer

Well, I think, the CVS partnership does not help or hinder it. So, I’ll get that out of the way first. Two, we will treat it as fairly independent over time. Right now, the government services is so big. That’s what we’re focused on. And as we move internationally, there’s some other things, there’s opportunities have to be evaluated first.

But, if something came up that was appropriate and would not impact our basic strategy, sure, we’d look at it. We’re not going to — I’m not — if it’s core — because one has to think about strategically and the — anything you do that increases the amount of pharma you’re buying, gives you an ongoing benefit to all the people that are using it. So, we’re going to be very focused on the strategic impact of everything we do.

And I think, I hope today we demonstrated some of that. So, yes, we might consider some large opportunity there. But, until it presents itself and we can look at it, we have government services help that Company.

Operator

Thank you. Ladies and gentlemen, this concludes our question-and-answer session. I’d like to turn the conference back over to Mr. Neidorff for any final remarks.

Michael Neidorff — Chairman, President, and Chief Executive Officer

So, I just want to thank everybody. And, I’m actually looking forward to the Q1 call where we’ll be able to test our clairvoyance. I would tell you just very quickly, and this is just for the fun of it, as we get off the phone. We had a court case where it was a class action many, many years ago. It was in the eighth district. And the federal judge in her comments, in her opinion said that Michael Neidorff cannot be considered to be clairvoyant. So, at times like this, I think about the fact that I’m not clairvoyant and that it’s been certified by the eighth federal district courts. So, with that, I wish you all stay safe, and we look forward to talking to you soon. Thank you.

Operator

[Operator Closing Remarks].