Centene Corporation Q1 2026 Earnings Call Transcript

Note: This is a preliminary transcript and may contain inaccuracies. It will be updated with a final, fully-reviewed version soon.

Centene Corporation (NYSE: CNC) Q1 2026 Earnings Call dated Apr. 28, 2026

Presentation

Operator

Good day and welcome to the Centene Corporation 2026 first quarter earnings report. All participants will be in listen only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today’s presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad, and to withdraw your question, please press Star then two. We do ask that you limit yourself to one question. Please also note today’s event is being recorded.

I’d now like to turn the conference over to Jennifer Gilligan, Senior Vice President, Investor Relations. Please go ahead.

Jennifer Gilligan — Senior Vice President, Finance and Investor Relations

Thank you Rocco and good morning everyone. Thank you for joining us on our first quarter 2026 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@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.

Specifically, our commentary on our full year 2026 outlook, including the drivers of such outlook, are forward looking statements. 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 first quarter 2026 press release and other public SEC filings which are available on the Company’s website under the Investor section. 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. While we’ll also refer to certain non GAAP measures, a reconciliation of these measures with the most directly comparable GAAP measures can be found in our first quarter 2026 press release. With that, I would like to turn the call over to our CEO Sarah London. Sarah

Sarah London — Chief Executive Officer

Thanks Jen and thanks to everyone for joining us this morning. We reported first quarter adjusted diluted EPS of $3.37 exceeding our previous expectations for the period. The strength of our first quarter performance enables us to increase our full year 2026 adjusted EPS outlook to greater than $3.40 and up from our previous expectation of greater than $3. We are pleased to be off to a strong start this year as increased visibility and operational improvements are yielding positive momentum and lifting our overall financial performance.

Results in the quarter included excellent progress within our Medicaid business as we continue to drive margin improvement through targeted and increasingly scaled initiatives to modernize and standardize processes to better manage medical cost trends. Our Medicare segment results were ahead of expectations without performance from both Medicare Advantage and PDP offerings. Finally, our commercial segment, the vast majority of which is made up of marketplace, performed in line with expectations on a pre tax margin basis as a slightly higher than expected HBR in the period was offset by favorability in segment SG and A.

As everyone knows, it is early. So while we are off to a great start, we are taking a prudent outlook for the balance of 2026 as we continue to gain visibility into key factors that will influence the remainder of the year. With that, let’s dig into the results. Medicaid results in the quarter were ahead of our previous projection, outperforming our HBR expectation. In the period within that, we experienced a flu season that was lighter than our original forecast and saw a slight utilization benefit from weather events.

That said, we were pleased to also deliver solid fundamental outperformance in the quarter thanks to continued focus and disciplined execution on trend management initiatives across the portfolio. Behavioral health remains the largest driver of trend, with other categories like home health and high cost drugs continuing to be consistent contributors. That said, we are beginning to see pockets of deceleration across this cohort, largely in line with our expectations for how TRND would mature from 2025 into 2026.

At the same time, we continue to strengthen and scale the multipronged trend program we deployed in the back half of 2024 and ramped significantly in the face of elevated trend in 2025. This includes standardizing best practices on utilization management across our markets, the addition and further expansion of successful clinical programs, ongoing data driven network optimization to ensure our members have access to the highest performing providers, advocacy around program reform with our state partners, and increasingly aggressive efforts to stamp out fraud, waste and abuse.

We’ve discussed here at some length the work we’ve done around aba, but with the benefit of more than a year’s worth of data under our belt, we are seeing stabilizing year over year ABA trends that we believe are a direct result of the actions we have taken to ensure appropriate, high quality care for ABA members across the country. We continue to strengthen our identification of outlier providers who exhibit suspect or fraudulent billing patterns. At the same time, we continue to advocate for the ability to more fully address fraud, waste and abuse in a standardized, prevention focused posture across Medicaid programs.

We recently highlighted several potential reforms in response to an RFI from cms, including allowing proactive payment suspensions, creating safe harbors and improving two way data sharing. We look forward to partnering with CMS and the states we serve to better protect taxpayer dollars and strengthen overall program integrity. Looking to the remainder of the year, our guidance assumes net trend defined as medical costs net of these trends management initiatives remains in the mid 4% range and we continue to execute with the goal of outperforming that.

Target rates are of course the other major contributor to our margin restoration agenda and we continue to work closely with our state partners to ensure alignment between program revenue and member acuity. With respect to the full year outlook. We continue to track in line with our expectation for a composite rate yield of roughly 4.5%. Conversations with Medicaid departments remain constructive and we continue to present refreshed data and in many instances, programmatic solutions for challenges our state partners are facing as they look to balance costs and benefits within the Medicaid program.

It is still early we are pleased with the momentum we are seeing across the Medicaid portfolio and we continue to see opportunity for advancement in 2026 and beyond. Our Medicare segment also delivered strong results in the quarter. Both Medicare Advantage and PDP exceeded expectations, producing an HBR of 84.9 better than our previous forecast and contributing nicely to the first quarter adjusted EPSB Medicare Advantage. We continue to strategically align our membership with our Medicaid footprint and make great progress on our path to positive earnings.

While trend continues to be elevated versus historical baselines, it is so far consistent with what we planned for in our bids with slight favorability in Q1. Thanks to strong execution during both AEP and OEP, we are seeing a slightly more favorable membership mix and our decent membership is now at 40% of our overall portfolio. We are also seeing stronger year over year member retention, the continuation of a now multi year theme reinforcing the value of investments made over the last few years to redesign our sales and onboarding experience.

This durable member base gives us the opportunity to deploy differentiated care models and drive both quality and health outcomes for members over the long term. Business also continues to make solid progress on our value based care strategy. The team has built a disciplined performance driven model that is tightly integrated with network strategy, clinical execution and cost management. We have simplified our contract structure and focused the portfolio to a partner ecosystem that we believe can truly move the needle on quality and cost outcomes.

We’re also deploying innovative total cost of care models against high cost specialties such as oncology, chronic kidney disease and behavioral health. These are part of a broader portfolio of initiatives designed to build critical momentum as we look to return the business to profitability. Our PDP business ended the quarter with just over 8.7 million members thanks to the team’s once again thoughtful and data driven approach to bid design and positioning. While it is still early, fundamental outperformance in the quarter was driven by slightly lower than assumed specialty drug trend which gives us increased confidence in the trajectory of the business for the year.

We are pleased that our Medicare members will have the opportunity to participate in the CMS Bridge Program and we support the goal of expanded GLP1 access for more seniors. As the largest standalone Part D provider in the country, we’ve also been actively engaged in dialogue around the BALANCE model and remain committed to partnering with the administration to leverage data, best practices and lessons learned from the Bridge program to position Balance for success in the future. Looking ahead, we are encouraged that the finalized 2027 Medicare Advantage rates showed improvement compared to the advance rate notice while the final rate remains below observed medical cost trend.

We continue to see a path to delivering break even financial results next year. Medicare Advantage and PDP programs play a vital role providing access to care for millions of Americans, including some of the most vulnerable of our nation, and we look forward to working with the administration to identify new and important ways to fortify this program and strengthen the safety net overall. Finally, Marketplace we ended the quarter with just under 3.6 million members. Consistent with our previous commentary about post grace period membership, metal tier distribution and age stayed consistent with patterns we reported on in early March with just under half of our members in silver, roughly 35% of members in bronze and the remainder in gold.

Other member demographics like age and gender remained consistent with expectations and with recent year’s results. Marketplace results were in line for the quarter with a slightly higher HBR offset by outperformance in SGA. In these results, the Q1 HBR was driven by higher than originally expected utilization isolated in our silvertier membership, a dynamic we foreshadowed in early March. With the benefit of additional visibility including the new March Wakely report and more complete claims experience.

We now view this utilization as consistent with the acuity of the SILVER members we enrolled and we expect this membership to receive a meaningful risk adjustment offset as we look to the balance of the year. Let me talk about the additional insight we have gained since March. After last year’s unexpected volatility, Centene committed to finding ways to create additional and earlier visibility into this market to support long term stability. Last fall we reached out to many of our peers, all of whom are receptive to submitting earlier data on membership demographics.

Wakely, the independent actuarial firm that calculates interim risk transfer estimates for the market throughout the year, agreed to aggregate and publish that data at the end of March. As a result of that collaboration, the industry has more visibility than it has ever had at this time of the year. About overall market dynamics Having received this demographic data from almost all of our 29 markets, we are pleased to see that the market overall behaved in line to slightly favorable to our expectations despite 2026 being a year of unprecedented change.

First, the overall market contracted as expected in a post EAPTC environment. That said, market by market membership loss was in almost every market less than we expected, which suggests that more healthy members stayed in the market in aggregate and that our pricing was appropriate relative to the overall market morbidity. Second, the Wakely data confirmed a meaningful market wide shift from silver members into bronze and to a lesser degree gold consistent with our expectations and with a directional shift in our own metal distribution.

Finally, and perhaps most importantly, this data, when combined with our final Q1 paid membership and a full quarter’s worth of claims experience, strongly supports the view that Ambetter retains silver membership with higher acuity relative to the market and that this membership will ultimately receive a meaningful risk adjustment offset. Within our silver tier. 75% of our members were renewals, giving us a high degree of visibility into year over year risk score capture through Q1 risk scores tracked closely in line with what we would expect given our claims experience in the period.

Wakeley data further allowed us to see a strong consistent correlation between markets where we lost share due to price action and an increase in the overall acuity of our silver population. Both of these data points strongly support the mix shift hypothesis. Looking to the rest of the year, we have taken what we believe to be a prudent posture relative to our forecast for the business, not reflecting the full suggested risk adjustment offset for this population within our new greater than $3.40 guidance.

The June Wakely data, which consists of claims and risk score data across the market, will be key to allowing us to further refine this assumption. We continue to believe in our ability to deliver meaningful margin recovery in the marketplace business and look forward to updating our full year view with the benefit of the June data. Stepping back, we are pleased that the disciplined execution this quarter yielded solid financial results. As we strengthen the fundamental operations of each of our businesses, we are increasingly well positioned to deliver tangible progress against our margin recovery goals.

To support this work, we announced an evolution of our leadership structure earlier this month. We are pleased that Dan Finke joined the organization to serve as our Group President overseeing the Medicaid and commercial businesses, and we were pleased to elevate Michael Carson to Group President overseeing our Medicare, PDP and specialty businesses. Their collective experience will be instrumental as we continue to strengthen performance across the portfolio and deliver sustainable, profitable growth.

I’d like to close by calling out two additional bright spots from Q1. First is progress that Centene and the entire industry have made against our prior authorization commitments, including additional commitments announced last week that will make the prior authorization process faster, easier and less expensive. In our view, this work is not about self regulating, it’s about self disrupting. Industry leadership has worked closely together over the last year and a half, not because it is easy, but because it is the right thing to do for our members and for the healthcare system overall.

I’d like to thank my peers for their awesome partnership and acknowledge the many team members at those organizations who, along with ascendeam, are committed to transforming our systems and the system overall through an unprecedented level of collaboration and transparency. Finally, I’d like to close by congratulating the entire SEN team for being named to the Forbes Best Employers for Company Culture list for the second year in a row, jumping more than 150 spots from our inaugural ranking last year into the top 50 employers in the country this year.

While I’m pleased we delivered strong results in Q1, I’m even more pleased by how we delivered those Results, collaborating as $0.01 team, living our values and behaviors and staying focused on our mission of transforming the health of the communities we serve one person at a time. With that, I’ll turn it over to Drew to provide more details on the quarter.

Drew Asher — Executive Vice President and Chief Financial Officer

Thank you Sarah. Today we reported a strong first quarter including $44.7 billion in premium and service revenue and adjusted diluted earnings per share of $3.37. This was just under $0.50 better than our expectations, largely driven by outperformance in Medicaid and Medicare segment HBRs. Our consolidated HBR was 87.3% for Q1 starting with Medicaid. We ended Q1 with 12.4 million members, slightly down from year end. More importantly, we demonstrated continued progress in the HBR with Q1 at 93.1%, an improvement of 50 basis points from the first quarter of 2025.

Sarah indicated our slate of initiatives on both revenue and medical expense are bearing fruit as we continue to navigate an elevated behavioral health and high cost drug environment. While we have a ways to go to get back to a reasonable Medicaid margin. This is the third consecutive quarter of progress toward that goal. We expect continued momentum as states reflect base trend and acuity data in rates and work with us to shape successful and sustainable programs. Medicare segment results were better than expected, including an HBR at 84.9%, demonstrating outperformance in both MA and PDP for Q1 Medicare Advantage.

This gives us more confidence about the path to breakeven for 2027 and in PDP. It’s always instructive to see how pharmacy trends start the year relative to expectations. To be clear, medical and pharmacy trends are still historically high in those businesses, though were not as high as what we had built into our forecast. As we actively manage costs and set bids accordingly, PDP high Trends and high 2025 baseline cost, especially in specialty pharmacy, will be factored into the 2027 bids. This, coupled with the mere mechanic of a risk model that’s calibrated based upon pre IRA claims data and therefore still insufficient to address non low income trend, should push the direct subsidy up quite a bit again in 2027.

In the meantime, we are pleased with the strong start to 2026 in both MA and PDP marketplace. Pretax earnings were on track in Q1 with a slightly higher than expected HBR in the quarter offset by strong SGA management in the product. Consistent with what we told you at the March conference, our silver metal tier members had higher than originally forecast gross medical cost in Q1 before any incremental 2026 risk adjustment benefit. We are very pleased with the early insights gained from the March Wakely data and reports.

Sarah took you deeper into those observations, but suffice to say that the market size and share shifts when coupled with the metal tier distribution and our observed risk score trends are consistent with meaningful risk adjustment offsets for the higher silver tier gross claims trends in our current guidance. We have calibrated these factors in our membership distribution such that our forecasted year end risk transfer assumption is for a slight receivable versus a prior payable forecast. Let me simplify all this in terms of guidance.

We thought it would be prudent to embed in our current guidance a pre tax margin for marketplace around 3% for now compared to our original forecast of approximately 4%. As you heard from Sarah, this does not reflect the full potential risk adjustment offset suggested by the data we currently have as we await the June Wakely data. I’d also like to thank my industry peers for being receptive to this new Q1 process and recognizing an opportunity to gain visibility earlier in the year and most importantly for timely submission of useful data to Wakely.

This not only helps with 2026 forecasting, it will also give others earlier visibility of their potential risk transfer position when formulating 2027 pricing one more thing on Marketplace we ended the quarter with 3.58 million members right around where we told you we expected to be. After navigating signups, payments and effectuation consistent with our original guidance, we expect a little attrition throughout the remainder of the year ending 2026, a little over 3 million members. Consolidated adjusted SGA expense ratio was 7.6% in the first quarter compared to 7.9% last year, reflecting continued discipline and product mix.

We ended the quarter with $437 million of cash available for general corporate use. During the first quarter of 2026, the company sold $1 billion of our standalone 2025 Part D risk share receivables and proceeds were used to repurchase a billion of senior notes that when coupled with strong Q1 earnings resulted in a debt to cap ratio of 43.2% down from 46.5% at year end. Medical claims liability totaled 20.6 billion and represents 48 days in claims payable, an increase of 2 days as compared to the fourth quarter of 2025.

As we look ahead due to seasonal PDP sloping and the 2026 proportion of PDP to the total company, we would expect this faster completing business to drive down DCP a day or two as the year progresses. Cash flow provided by operations was 4.4 billion for Q1 primarily driven by strong net earnings, partial 2025 CMS PDP receivable sale and timing of other net payments and receipts. As we look to the rest of 2026, we are pleased to increase full year adjusted EPS guid greater than $3.40. Press release table.

You can see we added a billion of premium revenue to our prior range, largely driven by Texas Medicaid. We expect overall Medicaid membership to be down about 6% from year end to year end. We continue to be on track and expect the Medicaid composite rate yield around 4.5%. We also adjusted our consolidated SGA guidance range down by 10 basis points and added 50 million to expected investment income and no change to our HBR full year range of 90.9% to 91.7%. One final topic within finance we are deploying advanced analytics and selective AI enabled tools across forecasting, medical economics and payment integrity.

Today these Capabilities are used as an independent validation layer alongside our traditional forecasting process, bringing more timely data into how we evaluate emerging medical trend. We’re also helping us identify fraud, waste and abnormal claims behavior earlier, supporting better prioritization of resources and more disciplined cost management. On behalf of state and federal taxpayers, we are pleased with a great start to 2026 and look forward to continuing to drive the margin recovery opportunity.

Thank you for your interest in Centene and Rocco. We can open it up for questions.

Question & Answers

Operator

Yes, sir. Thank you. We’ll now begin the question and answer session. To ask a question, you may press Star then one on your telephone keypad. If you’re using the speakerphone, we ask you please pick up your handset before pressing the keys. If at any time your question has been addressed and you’d like to withdraw your question, please press Star then two. Once again, we do ask that you please limit yourself to one question. And today’s first question comes from Andrew Mock at Barclays. Please go ahead.

Andrew Mok

Hi, good morning. Wanted to follow up on the higher acuity in the ACA silver tier. Can you help us understand why you believe you attracted that higher acuity cohort for this year? And it sounds like you’re currently accruing for a partial risk adjustment offset and 3% pre tax margins. If you did ultimately get the full risk adjustment offset, what sort of margin would that imply for the full ACA year? Thanks.

Sarah London — Chief Executive Officer

Yeah, thanks, Andrew. So let me sort of take a step back and sort of anchor on the biggest thing that changed in 2026 for everybody, which is really the expiration of the enhanced APTCs. Thanks to the new Wakely report with earlier data, we can confirm that that, as expected, drove a significant number of consumers out of the market. It also, as we’ve seen, as our peers have said and as the data confirms, drove a shift across the market from silver membership into bronze products as consumers look for more affordable plants.

And so as a result, the silver tier remaining membership really follows the golden rule of risk pools that when it shrinks, it becomes more morbid. And so given our market size, our silver footprint, and frankly our intentional decision not to go as hard at a bronze strategy, which we still very much stand by, we were positioned to retain and attract more silver members who are now more acute in that overall post EAPTC environment. Now important to note that in, you know, in other insurance markets, the concept of adverse selection, you know, can be scary.

But that’s not actually the case in marketplace because as you know, the risk adjustment mechanism is specifically designed to counteract adverse selection and often it can actually be a profitable strategy to care for sicker members in this market. And that’s really based on our view with more than a decade of experience in the market. So as we think about the additional visibility that we have since March by virtue of the weekly data, which has really confirmed that unlike last year, the market is behaving the way we would expect in a number of cases actually favorable to our expectations.

And then the additional quarter of claims experience for our paid membership where we’re seeing those risk scores year over year track directly in line with the claims experience that we observed, that gives us confidence in the view that we have a higher acuity silver membership that will attract and get a risk adjustment receivable. As you heard from both my remarks and Drew’s, we have not accounted for the full range of what that receivable could be in the updated guidance. But that range does wrap around our original 4% target margin for 2026 in marketplace and frankly higher than that at the top end.

And so bottom line, we believe that what we’ve incorporated into guidance is a prudent posture for now in advance of getting the June weekly data. And we still feel very good about delivering meaningful margin improvement for the business in 2026.

Operator

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

A.J. Rice

Thanks. Hi everybody. So I think coming into the year, you basically and Medicaid were forecasting a cost Trend of about 4 and a half mid fours and the rate updates being at 4.5%. It sounds like the rate updates are coming in consistent. Maybe the MLR and Medicaid’s trending a little better. Is that primarily due to the flu and weather that you’re calling out or are you seeing underlying performance improve there? And does that put you on a glide path if the trend is a little better versus the rate updates to get back to sort of a target margin for Medicaid next year.

Sarah London — Chief Executive Officer

Yeah, thanks A.J. So you’re right, we came into the year with an assumption of a flat HBR year over year. And really the idea that rate in that mid 4.5% would be matched by net trend, which is obviously overall trend netted against our medical cost initiatives of 4.5%. We obviously saw better performance in Q1. A bigger piece of that was flu, a little bit of weather. But there was still fundamental solid outperformance on Medicaid HBR driven by the business. And that really is a result of that consistent sort of multi tenant program.

That we’ve deployed over the last year and a half and pulling levers around network optimization, further scaling clinical programs. Obviously all the work we’re doing around payment integrity and fraud, waste and abuse. We’re also seeing increasing momentum from states around program changes and starting to see states even more receptive. We’ve called out a number of examples of those in the past. Whether it be around formulary management or clarifying some of the benefits, we’re now seeing states start to directly intervene on providers themselves around fraud, waste and abuse.

And so those conversations are continuing to roll forward. So very pleased with the idea that part of the outperformance in Medicaid in the quarter was driven by delivering on the planned initiatives and also the fact that some of that pipeline of 2026 additional initiatives developed a little bit earlier than expected. Obviously in the forecast for the rest of the year, we’re not betting or counting on that outperformance to continue, but given sort of the fundamental drivers of that, it obviously leans positive.

And that would mean that we would come in at an HBR, you know, call it 15 or 20 basis points ahead of that 93.7. As you heard me say before, I would be disappointed if we didn’t beat 93.7. Given where we stand today, I will reiterate that I will be disappointed if that’s all we can do. As we look ahead to 2027, our goal is to continue to drive margin improvement forward. And we obviously have work requirements, a number of policy changes that we’re looking ahead to. But as we strengthening the core operations of the business, we are doing that with a mind to and a goal to continue to drive progressive margin improvement through 2027.

Operator

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

Justin Lake

Thanks. Good morning. Just a couple follow ups. One, you talk to the exchanges and you talk to sounded like you’re talking to booking a receivable on risk adjustment, not just to the magnitude that you think it might actually come in. Is that true for the. Am I right there? And is that true for the whole book or just for the silver business? And then you gave us margins on Medicaid and exchanges, which we appreciate. Can you give us the same on Part D and Medicare Advantage in terms of margins where you see them now versus coming into the year?

Thanks.

Sarah London — Chief Executive Officer

So first you are correct that we moved our position to expecting a slight receivable in marketplace that is across the whole book because it is, as you know, just important to remember that risk adjustment is agnostic of metal tier. And so it takes into account the relative acuity of the population that you enroll, regardless of where they sit, between silver, bronze and gold. So that receivable accounts for the entire population. And again, we did not book the full amount that the data suggests with that range, both wrapping around our original target margin and outpacing that, frankly.

And then in Medicare, again, we’re not reflecting continued outperformance in quarters 2, 3, and 4 in either PDP or Medicare Advantage. But as Drew and I both talked to the fundamental drivers of those, you know, make us feel very good about the trajectory of those businesses. And so that would suggest that both of those, the segment margin for the full year would come in slightly better.

Operator

Thank you. Our next question today comes from Ann Hines at Mizuho Securities. Please go ahead.

Ann Hynes

Great. Thank you. I want to focus on the balance sheet. It looks like that you paid off about a billion dollars senior notes that were due in 2027 by selling some receivables. And based on our calculation, you have another 1.2 billion due in 2027 and another $2.3 billion in 2028. So just for modeling purposes, should we assume that you’ll have to refinance that at higher rates or do you hope to pay some of that debt down? Thanks.

Drew Asher — Executive Vice President and Chief Financial Officer

Yeah, good question. And thanks for paying attention to the balance sheet like we do. So, yeah, we’re acutely aware that we’ve got some maturities coming up in December 2027 and in the summer of 28. And so we would look to refinance those or maybe to your point, part of those, you know, at least a year out or so as we prepare for, you know, sort of rolling those into, you know, additional, you know, senior notes. So we’re taking a look at our cash position. It has improved quite a bit in the last six to 12 months, not just because of the PDP receivable sale.

And we still have, as you can read in the K and the Q, you know, sort of the ability to sell more of that 25 receivable. But ultimately we’ll collect that, we think, no later than October from cms. And then as we establish, let’s say, a new receivable for the 2026 year, if that’s where we end up in that position, then we’ll think about that as well. So really pleased with the cash generation of the business. You saw that in the cash flow from operations this quarter. And we’ll evaluate sort of continued modification of debt balances as we Think about the volatility of this business over the last couple of years and think about what’s the right debt load for the company to open up other avenues for deployment of capital.

Operator

Thank you. And our next question today comes from John Stancil at JPMorgan. Please go ahead.

John Stansel

Great. Thanks for taking my question. I want to talk about rate development in Medicaid. I know the CMS Rate development guide kind of alludes to the idea of like the work requirements. And as we kind of enter the back half of this year you’re going to have states giving rate updates that will have to contemplate or could contemplate working work requirements impacting the acuity of the population, I guess. How are you thinking about those discussions when you go talk to states and I know we’ve got Nebraska kicking off work requirements I guess what on Friday, you know, how have your state discussions gone as we start, you know, fulsome implementation of work requirement requirements.

Thanks.

Sarah London — Chief Executive Officer

Yeah, thanks for the question. So you are right that we’ve got Nebraska that’s going to kick off earlier than others, although they’re a seven, one state and really they’re the only state that has been pulled forward into 2026 so far. But given that we operate in that state, I think that will be instructive as we step into rate conversations this year. We are, as you noted, very conscious of the fact that some of those member months will carry into 2027 and depending at the rate and pace with which states roll out or implement the work requirements.

And obviously CMS has given them some flexibility around that, the need to incorporate any anticipated acuity shifts in those rates. And so we’re absolutely bringing that forward into the conversation. As I said earlier, those conversations continue to be constructive just as we think about the kind of backwards looking experience we are seeing more of 2025 data and frankly the back half 2024 data which had that, you know, the major acuity shift from redeterminations in it and then the trend that we saw in 2025 really make their way into the base period.

And so that’s supportive of having rates that match overall acuity and trend and then very appreciative as you mined out in the fine print, a really important set of guidance that CMS provided to states relative to when they come to seek certification on rates, being very explicit about how they have incorporated the impact of the OB3 and work requirements and what that might mean in terms of an acuity shift. So we think that is very helpful in terms of Creating a level of consciousness and guardrail around that and sort of expectation management as those rates come up to cms.

There is also, I think, a really helpful set of guidance around the fact that in these kinds of instances, meteor rates and retros are also warranted. And so broadly what I think we are seeing is the system flex the muscles that we built during the redeterminations process. And so again, increasingly actuaries not being hard tied to retro periods, but thinking about material program changes that may come and how they need to account for that. And then broadly, I would say that the flexibility that has been given to the states, the fact that this is, you know, on balance a smaller, more focused population, we’re seeing states actually get really precise a lot earlier in the process.

I was talking to one state in particular that has already run their frailty definition on their population, has a very clear view of what the at risk pool is. It’s actually probably smaller than you would expect and already thinking hard about, okay, what does that mean in terms of making sure that members who are eligible because they are correctly engaged or they are in that ex parte population get coverage and then how do we support the others to find opportunities? So all of that I think gives us confidence.

Now it’s certainly a policy change and there’s implementation and therefore there is likely to be some degree of risk pool impact. But I think the way it’s being rolled out is much more thoughtful, much more informed by data, much more aligned relative to our work, the state’s work, CMS’s work. And so I think that makes us look at 2027 and 2020 as something that we feel confident that we can manage through.

Operator

Thank you. And our next question today comes from Erin Wright at Morgan Stanley. Please go ahead.

Erin Wilson Wright

Great, thanks. Kind of more of a modeling question, but just the quarterly progression in terms of MLR and earnings from here. I know there’s some moving pieces and unknowns and some assumptions you’re making in marketplace as well, but you know, what is your guidance right now? Assume or can you give us anything in terms of that quarterly cadence around MLR and earnings that we should be embedding in the model? Just given some of the maybe mismatch in terms of relative to your expectations this quarter and where the street was.

Would like to get that right. Thanks.

Sarah London — Chief Executive Officer

Yeah, thanks Erin. So overall EPS progression follows the same arc that we described coming into the year. But I’ll let Drew go into a little bit more detail and then click down into the specific lines of business.

Drew Asher — Executive Vice President and Chief Financial Officer

Yeah, the EPS sloping, just like we said last quarter, we expect a step down in earnings from Q1 to Q2, still profitable, Q3 around break even and then Q4 in a loss position given the seasonality of the business. And then maybe Aaron, more importantly underneath that, you know what’s driving that underlying sloping in Medicaid. Obviously we had a good first quarter. We would expect Q2 Q3 HBRs to be higher than average and then Q1 and Q4 to be lower this year, lower than average. And then think about the traditional sloping of commercial businesses including Marketplace.

That’s like a steady uptick of HBR throughout the year given the benefit plan designs and seasonality of deductibles. Medicare similarly largely driven by pdp. So you can see a steady march of HBR increase throughout the year. The slope line should be tilted a little bit higher this year just because of the mathematical impact of PDP being a larger proportion portion of the Medicare segment. So think about that as you’re modeling the Medicare segment HBR throughout the rest of the year and then SG&A, you go back multi year is always the heaviest in Q4 given open enrollment and preparing for you know, the 1:1 season.

So that you know, helps drive that, you know, us into a loss position for Q4.

Operator

Thank you. Our next question today comes from George Hill at Deutsche Bank. Please go ahead.

George Hill

Hey, good morning guys. And I have kind of an esoteric question Sarah, which is as we think about your guys initiatives in fraud, waste and abuse in particular in aba, as we’ve had conversations with like state representatives, when those issues get addressed, they tend to come out of the rate from a state perspective. So actually fixing fraud, waste and abuse winds up being a headwind to rate from a state perspective. I want to know is that something that you guys see and is that a headwind that you guys navigate?

And we’d just love to understand how those conversations go on with your state counterparts.

Sarah London — Chief Executive Officer

Yeah, absolutely. So I think there are probably two components to that. So one is where we see excess use or fraudulent behavior. And unfortunately we have seen a lot of that both in terms of and I think we went into quite a bit of detail on this on the last call. But as an example, providers who were just prescribing the maximum number of hours every single week for every single patient and so within that and then and frankly sort of all the way down the continuum to more fraudulent behavior, that is a real opportunity to save taxpayer dollars and make sure that the fidelity of the rates that are in place for ABA are actually going to the right care.

And then I think, I think similarly making sure that whether with, you know, units per utilizer or the number of utilizers are getting correctly prescribed the right therapy pass and getting the right amount. So a lot of what we’ve been focusing on is what I would call sort of excess trend. And then, you know, to your point, ultimately, if there is a tightening of the benefit design, that would then allow for some degree of savings in rates. But I think we’ve got a ways to go before we get to that point.

And it’s really making sure that, you know, the state is paying for the right therapy for the right members at the right level. And that’s all good. Right? That is exactly what we want to have happen. But our focus has been in what we can consider that kind of excess trend domain. And frankly, we’re also seeing states, as I mentioned earlier, take more direct action and intervention on some of these suspect or fraudulent ABA providers, not even relying on the MCOs, but actually doing that directly because of an acknowledgement of, I think, the drag that that is creating on the system overall.

Operator

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

Stephen Baxter

Yeah, hey, thanks. Actually, another balance sheet question. It looks like the net payable for risk adjustment is up by I think over $300 million sequentially versus year end. And I think you’re obviously now speaking to a receiver position. So is that just more about how you booked Q1 versus how you’re now thinking about the rest of the year in terms of guidance? And then if we think about basically the range around the potential upside and downside on the risk adjustment change that you’re discussing and the potential benefit if it fully comes to a point estimate, is it right to think that like the downside scenario if you go back to the original assumption is similar in terms of order of magnitude?

Thank you.

Drew Asher — Executive Vice President and Chief Financial Officer

Yes, Stephen. No, an astute observation in the queue that we filed this morning. Yeah, different, different thought process for what we actually book in the first quarter and, you know, waiting to see, say, corroboration from the June Wakely data in terms of the accounting around that, which then think about our forecast. We forecast by year end to be in that slight receivable position. So that’s sort of the difference when you’re evaluating that table in the queue. And then as Sarah said, in the range of upside and downside.

Yeah, you’re always thinking about, you know, and believe me, as we raise guidance in Q1, we’re thinking about, you know, what, you know, what could swing either way in all of our businesses and feel pretty good about, you know, what we think is a cautious, prudent stance at a Marketplace margin around 3% pre tax embedded in current guidance. And as Sarah said, with the opportunity, you know, to the extent we get the corroboration that the data that we’re seeing currently supports, then that would present some degree of upside to that current guidance.

Sarah London — Chief Executive Officer

Yeah. And I would just add maybe specifically to sort of the downside scenario that again emphasizing everything Drew said, that we feel like we’ve anchored in a conservative point and that the downside would not be going back to where we started in terms of the meaningful payable assumption that went into the initial guidance for the year. Because I think that was maybe embedded in the question.

Operator

Thank you. And our next question today comes from Dave Windley at Jefferies. Please go ahead.

David Windley

Hi. Thanks for taking my question. I wanted to come back to the fraud, waste and abuse topic and a follow up to George’s question. We’ve heard some, some consultants suggest that like fraud targets in state rate development can actually create a, you know, air quotes, a go get for the plans in terms of savings that you need within, you know, again, within the rate development. I wonder if you see any of that, Sarah. And then same topic, but in the marketplace, I’m wondering what, if any additional call them generally program integrity measures you’re expecting to be applicable in 27 that are not applicable in 26.

Thanks.

Sarah London — Chief Executive Officer

Yeah, thanks. So if I take a big step back on fraud, waste and abuse, we haven’t, I don’t think we’ve explicitly seen the dynamic you’re describing where states are kind of holding back on rate and saying, you know, instead you can make up the difference in fraud, waste and abuse. But frankly, I don’t think we would be against that. Right. The idea that states can’t would let us operate more fulsomely against our mandate, which is literally to preserve program integrity. There are a lot of places where I think we are handcuffed on a relative basis and where we could, I think again, preserving all of the right benefits and the quality and the member experience, preserve taxpayer dollars.

And so that’s a dialogue that I think we would be open to. And you know, I think as states start to think about ways to make program changes that don’t necessarily require more rate changes, that’s a perfect example of one. And we feel like, I mean, we’ve hit this a couple of times, but we feel like this is a place where we have really, really focused, where we are applying the fact that we’ve got 30 states worth of data. We aggregate that data not just to look at best practices, but frankly to find fraudulent providers who, you know, hang out a shingle and then get kicked out of a program and show up in another state.

And so we uniquely have an ability to get ahead of that. Drew talked about that in his remarks as well in terms of where we’re deploying AI and some of those daily algorithms that we run. So again, I do think there is opportunity for program reform that doesn’t necessarily create a rate headwind, but creates overall continued margin improvement opportunity and stronger program integrity for our state partners. And then relative to marketplace, we are seeing a cleaner membership base as a result of the program integrity measures that went into place last year and those that rolled forward into this year.

Obviously some of those were stayed and those are part of a court case that we estimate may see some resolution as we get through the summer, may not. And so it’s possible that some of those roll forward then into 2027. And we’re taking that into account as we think about 2027 pricing and what slight additional impact that may or may not have on the membership base and the risk pool as we roll forward.

Drew Asher — Executive Vice President and Chief Financial Officer

As I’m sure you’re aware that we have a shortened open enrollment period for 2027. So we’re preparing for that according to those rules.

Operator

Thank you. Our next question today comes from Kevin Fischback at Bank of America. Please go ahead.

Kevin Fischbeck

Great, thanks. Wanted to digging a little bit more to some of the comments about Medicaid. I guess you said that you were seeing pockets of deceleration in some areas of trend. So could you just talk a little bit about that a little bit more. But then also what are you seeing around acuity? I guess there’s been a lot of risk pool shifts on the Medicaid side and some of your competitors are talking about stabilization there. I would love to hear how you’re thinking about how the risk pool has been trending the last few quarters.

Thanks.

Sarah London — Chief Executive Officer

Absolutely. So we’ve talked about behavioral health, home health, high cost drugs as three of sort of the top tier trend drivers for over a year now. And behavioral health has been and continues to be sort of the primary driver of that. But you know, we go deep and look at how we think trend is evolving in each of those areas, whether that be a PMPM impact, whether that be as I mentioned earlier, sort of overall utilizers, units per utilizer, depending on the domain that you’re looking at. So as we look across that cohort, we are seeing some pockets of deceleration, particularly around sort of units per utilizer in the behavioral health space.

I think that is probably partly an indicator of our state partners getting more sophisticated about defining the benefit and the provider community getting stronger in terms of articulating evidence based guidelines. And obviously that is in strong partnership with the work we’re doing. ABA is a subset of that. And you heard me talk about the fact that we are seeing sort of more stabilization in that trend. Those trends are still elevated from past years, but we are seeing a year over year relative stabilization again in our view, a direct result of all of the work that we’ve done over the past year.

So it’s not necessarily some huge abatement. It’s really sort of as trend lapse. We’re not seeing the continued year over year steps that we’ve seen over the last couple of years. And we believe that a lot of the actions that we’ve taken are actually having an impact. And then from an acuity standpoint, you know, we talked last year about overall trend, roughly 6.5%. Embedded in that was an assumption of continued attrition in the member base based on tightening redeterminations at the state level and that the corresponding acuity shift, I think it was the point, a point and a half of membership, a quarter was embedded in that 6.5%.

And so as we looked at 2026, similarly embedded in the net 4.5% trend assumption is an ongoing view of quarterly attrition for that redetermination work and any risk pool shift that goes along with that.

Operator

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

Lance Wilkes

Great. Couple questions on Medicaid as well. Can you talk a little bit about kind of the net trend impacts? And so really looking at kind of your utilization management, network management efforts and what is the impact of those, it kind of brings you from gross to net. And maybe within that is there a component of state benefit design changes and maybe if you could quantify that and then kind of rolling that forward as you’re looking and interacting with the states, what are they looking at from an RFP perspective and a pipeline perspective in terms of types of areas of focus, new business they might put out and or how they’re responding to, you know, the federal pressures they’re seeing.

Thanks.

Sarah London — Chief Executive Officer

Thanks. Let me sort of take those in reverse order. So it is after really the bolus of RFP catch up That I feel like we saw in the, in the post Covid years. This 2026 is a little bit of a lighter year. We’ve got only a small number of larger states that are either in or planning an RFP process. In general, I would say that we’re starting to see states better align the RFP process for different programs. And so Indiana for example, is going to reprocure the entirety of their program all at once where they were historically on sort of an off cycle schedule relative to the core program versus ltss.

And so that I think is a good thing in terms of opportunity for us because of the, the strength in the core program, the ability to actually expand membership through those processes. I think similarly we’re seeing states consider whether this is an opportunity to move additional higher acuity membership cohorts into managed care because they are looking at budget pressures as a result of OB3 and just overall economic pressure and so having kind of that stable view of cost. This is an opportunity to think about what other populations they might roll into the RFP process.

So we’re tracking that very closely and feel like we’re very well positioned for that. Relative to net trend, we haven’t really quantified gross trend, but I do think that the levers that we’ve talked about pretty consistently around network clinical programs, payment integrity, fraud, waste and abuse, all of that really drives us down to that net 4.5%. And again as you saw in Q1 outperformance from that. We have a really strong pipeline of those initiatives as we think about the rest of the year, which gives us confidence in, you know, our ambition to outperform even sort of the current run rate.

And as I mentioned, there are a number of places where states are leaning into program changes. Again, not necessarily specific to rate impact, but thinking about where they can get clearer about benefit design and where they can allow the MCOs to apply, you know, our data driven approach to finding the highest quality, lowest cost care and procuring that on behalf of the state in order to improve margin profile and ultimately give them a little bit relief of relief on the need to continue to drive rates up as the solution to the problem.

Operator

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

Sarah James

Thank you. If I put together the moving pieces on HBR, total company withheld, Medicaid, Medicare the rest of the year, Marketplace up 100bps, it kind of implies that Medicare 1Q beat your expectations by about 370bps. Is that the right way to think about it or did your consolidated HBR move within the range? And then I get that there’s a program change between 25 and 26, but the implied slope on Part D and blended Medicare is significant to me. Looks like it’s 1100 bips. So can you give us a little bit more detail on how you confidence that the slope will be so steep on Part D?

Hbr? Thanks.

Drew Asher — Executive Vice President and Chief Financial Officer

Yeah, no good questions. Let me take those in reverse order. Yes, you’re right. The sloping of our Medicare segment, HBR should be steeper this year, but that’s really a function of PDP being a higher proportion, you know, what, 25 billion of revenue or so of that segment. And you know, we’ve got data going back to the inception of part D in 2006 in terms of the impact of, you know, benefit changes and you know, how to slope that. So I feel really good about our start to the year in pdp. And that parlays into your question about Medicare segment HBR as a whole.

There was a beat, certainly we beat in Q1, not to the extent that you calculated, but we’re pleased with both Medicare Advantage and PDP contributing to the outperformance in Q1. And then as Sarah said, we sort of assumed that we revert back to our previous assumptions for Q3, Q2, Q3 and Q4, although obviously we’re going to continue to drive that both of those businesses to outperform even the current guidance. So hopefully that helps with the context of the quarter.

Operator

Thank you. And our final question today comes from Scott Fadal at Goldman Sachs. Please go ahead.

Scott Fidel

Hi, thanks. Good morning. Wanted to just ask maybe on part D and if you can drill a little bit more on the las versus the non lis, and maybe first just what the membership mix was at the end of the first quarter. And one thing we’ve been tracking has just been the sort of the variation in the specialty pharmacy sort of spending trends and utilization trends between utilization in LAs versus non LAs since IRA and then how sort of the risk score, you know, may get updated for that from cms. And just curious, as we sort of, you know, roll forward now into the first quarter, how much of that dynamic have you been seeing?

Are you seeing some convergence between the two around those spending trends or is there, are they still pretty far, you know, divergent, and then how the risk scores are sort of playing underneath that? Thanks.

Drew Asher — Executive Vice President and Chief Financial Officer

Yeah, good questions relative to our PDP business. So we’re about a third in our basic product, which is essentially the low income subsidy lis about a third and the enhanced product about two thirds which is largely non low income. And you’re right, the motivations of the IRA and the applicability of maximum out of pockets, we saw different behaviors in the non low income population versus the low income subsidy population that had always been essentially fully cost share protected. So those trends continue to be very high in non low income.

I mean essentially members taking advantage of and quite frankly pharma taking advantage also of that $2,000 maximum out of pocket. Now the good news is we saw that in 2025 we managed through that, still produced a margin in pretax margin in the threes, but then had that data to set bids and quite frankly set forecasts for 2026 assuming a continuation of a very high non low income trend, especially in specialty pharmacy. And so that’s reflected in our forecast. It was reflected in our bids. It’s still a very high trend.

We’ve been able to curtail it to some degree, but it’s still a very high absence absolute number, just not as high as what we assumed in our forecast. So you’re right. On the model change, we proposed that the model accelerate the recognition of the impact of the ira, especially on the non low income population. That suggestion was not taken. That data will naturally work its way into the risk model, but it won’t for 2027. And that’s why we think that direct subsidy is going to go up quite a bit again as we think about 2027.

So good, you know, good 2026 performance so far and we’re optimistic about continuing to deliver on PDP and believe that we’re well prepared for 2027.

Operator

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

Sarah London — Chief Executive Officer

Thanks Rocco. And thank you all for joining us this morning and for your interest in Centene. We are out of the gate in 2026 with solid momentum and we look forward to updating you on how the business progresses over the coming months. My Centene colleagues, thank you for setting the tone. I’m excited to see what we can deliver for our members, our customers and our shareholders this year and going forward. Thank you all.

Operator

Thank you. That 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.