Centene Corporation — FY2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023; filed February 20, 2024. This is an annual report, not a standalone fourth-quarter earnings report. Centene is a major U.S. managed-care provider, primarily serving Medicaid, Medicare and Health Insurance Marketplace members.
Business context and reporting period
Centene reported four segments: Medicaid, Medicare, Commercial and Other. At year-end it served 27.5 million members, up 2% from 2022. Medicaid accounted for 66% of external revenue, Medicare 14%, Commercial 16% and Other 4%. Centene reported approximately 14.5 million Medicaid members, 4.3 million Commercial members, 1.3 million Medicare Advantage members and 4.6 million Medicare PDP members.
Financial performance and liquidity
| Metric | FY2023 | FY2022 | Change |
|---|---|---|---|
| Total revenue | $154.0 billion | $144.5 billion | +7% |
| Premium and service revenue | $140.1 billion | $135.5 billion | +3% |
| Net earnings attributable to Centene (GAAP) | $2.70 billion | $1.20 billion | +125% |
| Diluted EPS (GAAP) | $4.95 | $2.07 | +139% |
| Adjusted net earnings | $3.65 billion | $3.36 billion | +8% |
| Adjusted diluted EPS | $6.68 | $5.78 | +16% |
| Health benefits ratio (HBR) | 87.7% | 87.7% | Unchanged |
| SG&A expense ratio | 9.0% | 8.6% | Up 0.4 percentage points |
| Operating cash flow | $8.1 billion | $6.3 billion | Up |
Adjusted figures are non-GAAP measures; adjusted EPS excludes acquired-intangible amortization, acquisition and divestiture costs, and other specified items. Operating earnings were $2.93 billion versus $1.32 billion. Interest expense rose to $725 million from $665 million, primarily reflecting higher rates on variable-rate debt.
Year-end cash and cash equivalents were $17.2 billion; working capital was $4.0 billion, compared with $1.7 billion in 2022. Total debt was $17.8 billion, including $15.7 billion of senior notes. The debt-to-capital ratio improved to 40.7% from 42.7%. Regulated subsidiaries held $18.1 billion of statutory capital and surplus against $8.3 billion in required minimums; $8.3 billion was unavailable for dividends or return of capital without regulatory approval.
Material changes versus the prior comparable period
- Commercial revenue rose 43% and segment gross margin increased $1.7 billion, primarily due to 88% Marketplace membership growth. Marketplace membership reached 3.9 million.
- Medicaid revenue rose 8%, but segment gross margin fell $144 million. Membership redeterminations and pharmacy carve-outs affected enrollment and results; redeterminations began in April 2023.
- Medicare revenue declined 1% and segment gross margin fell $245 million, including the effect of a $250 million reserve for 2024 Medicare Advantage business. Medicare membership declined year over year.
- Other segment revenue fell 47% and gross margin fell $633 million, primarily reflecting divestitures.
- Impairment charges decreased to $529 million from $2.3 billion. 2023 charges included Circle Health, Operose Health and real estate impairments; 2022 included substantial real estate and divestiture-related impairments.
- Operating cash flow increased to $8.1 billion. The filing attributes this partly to earnings, higher Marketplace risk-adjustment payable and timing of pass-through payments.
Outlook, management commentary, risks and unusual items
- Management expects Medicaid redeterminations to conclude for most states in the second quarter of 2024, while noting some may continue longer. The company does not expect Marketplace enrollment to fully offset Medicaid membership losses.
- For 2024, Centene expects approximately $3.0 billion in net dividends from regulated subsidiaries and approximately $640 million of capital expenditures. It stated that available cash, investments, operating cash flow and revolving-credit availability should fund operations and capital expenditures for at least 12 months. The filing does not provide a clear full-year 2024 revenue or earnings guidance figure.
- Centene recorded a $250 million premium deficiency reserve for 2024 Medicare Advantage. Management cited lower Star ratings and CMS payment changes; CMS estimated 2024 risk-model revisions and normalization would reduce payments by 2.16%. Two Medicare Advantage contracts received termination notices for plan year 2025; other contracts may face termination risk if ratings do not improve.
- The Inflation Reduction Act’s Medicare Part D changes take effect in 2025. Centene warns that higher plan exposure and bid uncertainty could pressure PDP revenue and profitability.
- Several Medicaid contracts were scheduled for reprocurement in 2024, including in Florida, Georgia, parts of Texas and Michigan. California contract changes also reduced membership in Los Angeles beginning January 2024.
- Centene completed several divestitures in 2023 and completed the Circle Health sale in January 2024 for $931 million. 2023 included $529 million in impairment charges, a $93 million Apixio sale gain, a $79 million Magellan Specialty Health sale gain and $79 million of restructuring severance costs. GAAP results also included a $69 million one-time tax benefit related to stock awards.
- Legal and regulatory exposure includes historical PBM-related state claims and settlements. The company said it had settled with the vast majority of affected states, but additional claims, reviews or investigations may arise and could exceed recorded reserves.
- Other principal risks include medical-cost and claims-reserve estimation, ACA Marketplace risk-adjustment settlements, government funding and contract renewals, provider and vendor performance, cyber and privacy incidents, and interest-rate or investment losses. A 1% increase in estimated medical claims liability would have reduced 2023 net earnings by an estimated $135 million, excluding specified program effects.
- The independent auditor issued an unqualified opinion on the financial statements and internal control over financial reporting. Medical claims liability and ACA risk-adjustment accruals were identified as critical audit matters.
Important facts for investors to verify
- Whether Medicaid redeterminations, state reprocurements and membership shifts develop as expected, and whether resulting rates adequately cover member acuity and medical costs.
- Whether Medicare Star ratings improve and the $250 million 2024 Medicare Advantage reserve proves adequate; monitor contract terminations and CMS payment changes.
- Whether ACA risk-adjustment balances settle as estimated: the filing reports a $893 million receivable and a $2.553 billion payable at year-end.
- Whether PBM-related claims and investigations remain within recorded reserves and whether any additional legal or regulatory contingencies emerge.
- How divestitures, share repurchases and debt affect ongoing earnings, cash generation and capital flexibility; confirm 2024 dividends, capital spending and liquidity against actual results.