Good day, and welcome to the Centene Corporation Second Quarter 2020 Earnings Call. All participants will be in listen-only mode. After today’s presentation, there will be an opportunity to ask questions. Please note, this event is being recorded. I would now like to turn the conference over to Jennifer Gilligan, Head of Investor Relations. Please go ahead.

Thank you, Jason, and good morning, everyone. Thank you for joining us on our second quarter 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 purposes 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 today, July 28, and the 10-K dated February 18, 2020, and other public SEC filings, including the risks and uncertainties described with respect to the potential impact of COVID-19 on our business and results of operations. Centene anticipates that subsequent events and developments will 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 second 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 third quarter earnings release, which is expected to take place on October 27, 2020. With that, I would like to turn the call over to our Chairman, President and CEO, Michael Neidorff. Michael?

Thank you, Jennifer. Good morning, and thank you for joining Centene’s second quarter earnings call. We hope all of you and your families are staying safe and well. There's a lot to discuss today, especially as the environment around us continues to rapidly evolve. I'll start by reiterating our confidence in the strength of our business. Centene was built to endure and manage through times of uncertainty. We have a strong balance sheet with ample liquidity; we have experience with crises; we have emerged from prior recessions with strong growth, and we see opportunities for continued growth today. With our scale, our diversity, our assistance, and our impact, we are confident in the strength of our business and our ability to continue to lead through this crisis. You have heard me say, we make decisions based on the facts as they are today, and never has this been more true or appropriate as we manage our business in this pandemic environment. I stated several months ago that we expect the environment and our financial results to be choppy from quarter to quarter, and I want to reemphasize nothing can be truer than that today. It is increasingly clear that we are going to be living with this pandemic for some time, and probably well into next year. We're planning our business with that in mind. I'll remind you about the assumptions we made in June about what to expect in the development of this virus. At that time, we expected the initial spring peak would be followed by smaller spikes during the summer and a potential second wave in the fall. However, the current trajectory shows the infection rates are rising significantly across a number of key states, and case counts continue to go up, which differs from what we expected only a few weeks ago. With this trend in mind, we will continue to provide you with transparent updates and give you our best estimates as to how we see things at a particular point in time. First, utilization. Utilization returned to more normalized levels towards the end of the second quarter. Volume began to return in May, and June was virtually a normal month relative to prior years. With the recent surge in the virus, we are seeing some decline in utilization in July. Note that this data is preliminary and includes COVID-related costs. While we believe hospitals are better prepared to manage COVID cases after learning from the experience of the initial outbreak, there are indications that some hospitals are reverting back to delaying elective procedures if necessary, based on a regional infection rate. Next, COVID-related costs. Centene has the capability and bandwidth to navigate ongoing COVID-related expenses. Based on the facts as we see them today, we are seeing COVID-related expenses increasing, which is offsetting decreased utilization. But again, as I stated, these are not normal times, so we continue to expect the environment to remain dynamic. Case in point is our membership and revenue expectations. You'll recall in April, we raised our 2020 revenue guidance by $6 billion, including $4 billion in COVID-related membership growth, which included the expectation that new membership would peak in August. Based on recent COVID-related membership trends, we now expect new membership to peak in November, resulting in a $500 million reduction in revenue against what we had forecasted only a short time ago. Membership is coming in at lower rates than initially anticipated, and growth was expected based on unemployment trends. This is driven by an assumption that unemployment may be temporary and by enhanced unemployment benefits and federal rates, which are all contributing to lower application rates. The trajectory of our membership growth for the remainder of the year will continue to be influenced by various external factors, which may shift our revenue expectations up or down. However, to put the impact of membership growth in context, we still expect to add a total of $3.5 billion in COVID-driven revenue to 2020 as compared to the original guidance we provided in March. Our earnings guidance for 2020 remains consistent with what we provided at our Investor Day. At our scale, the earnings impact of $500 million in reduced revenue can be offset. We recognize and are prepared to continue with the uncertainty based on what we know today. Our earnings guidance continues to be our most reliable baseline and remains our best estimate based on our revenues as well as utilization and COVID-related costs, among other factors. We remain comfortable with our current range. With that as a backdrop, let me turn to our second quarter results. Our results were in line with our guidance, which underscores the effect of the shelter-in-place policies on our diversified membership platform as well as our team’s solid execution in a challenging operating environment. We reported second quarter revenue of $27.7 billion, an increase of 51% over the second quarter of 2019. Adjusted diluted earnings per share were $2.40 compared to $1.34 last year. This represents growth of 79%. Our membership was approximately 25 million at the quarter end. This represents sequential growth of 3% and year-over-year growth of 64%. Due to the uniqueness of today's environment, we expect 2020 earnings per share to be front-half loaded. Applying the midpoint of our guidance, first-half earnings per share of $3.31 would represent approximately 68% of our full-year EPS. Overall, these results were solid. Looking ahead at the remainder of the year, the intensity and duration of the pandemic remains a primary driver of uncertainty, but we are built through uncertainty and believe we are in a strong position to continue to execute against our strategy and grow our business. We continue to hire talented and diverse individuals who contribute to our focus on improving the member and provider experience through technology. Over the past few years, I've spoken about our ambition to transform Centene into a technology company that does healthcare, recognizing the critical role of technology in providing extraordinary member and provider experiences to 25 million individuals—that's nearly 1 in 15 Americans. We have made significant investments in modernizing our systems, and early last month we announced an investment in our new East Coast headquarters, which will be our hub for technology talent. Today, I'm pleased to announce yet another step forward in achieving our technology aspiration through the hiring of additional talent to that already present in our organization. Adding to current management, we're pleased to welcome Sarah London and Bryan Sivak to our technology team. Sarah most recently served as partner for Optum Ventures, working closely with portfolio companies on product strategy and expansion. Bryan most recently served as Managing Director for Kaiser Permanente Ventures, where he led investments in healthcare-focused organizations in transformative efforts. Both Sarah and Bryan will help accelerate innovation, modernization, and digitalization across the enterprise. And in addition, since March, we have hired over 3,800 individuals, and we will continue to invest in our talent to enhance the value we deliver to our members and communities. At the same time, we continue to operate in a remote work environment, but I am generally pleased with the levels of productivity and engagement across our business. We have made the required investments in our office environments to ensure the safety of our people when it is appropriate for them to return. For example, we have installed plexiglass between cubicles, temperature scanners, and automatic door openings. We also continue to have courageous conversations within our company about racial and social justice. Centene has a diverse workforce at every level of the company, including our board of directors. We continue to recruit and develop diverse talent, knowing that everyone hired at Centene is hired because they are the right person for the job. Let me now comment on discussions we're having with our states. As states moved to reopen, we were working closely with our state and federal partners to develop solutions that address the cost dynamics states are facing. With state budgets and constraints, the role of managed care companies like ours, which maximize member outcomes and cost savings, has never been more important. While we do expect some short-term pressure on rates, these rates have to be actuarially sound. Our 2020 guidance incorporates what we know at this time, and the majority of our conversations with states have been highly constructive. In addition, we are all encouraged by ongoing budget discussions in Congress and the review of expanded FMAPs. Longer-term, we continue to believe that additional states will consider managed care as a solution to their healthcare needs. For example, in Oklahoma, the state has announced its intent to release an RFP in the fall of 2020. We are in active discussions with our state partners to ensure we are taking a holistic view on rates beyond 2020, taking into consideration, a return on normalized utilization and COVID costs, as well as appropriate risk-sharing mechanisms. In summary, Centene has risen to the occasion by delivering on our mission of providing high-quality, low-cost healthcare to the most vulnerable populations during this time. We are confident in the strength of our business. As I said, our balance sheet is strong. We have ample liquidity, and we continue to see significant opportunities for future growth as we apply our all-product all-market strategies. The RFP process slowed during the pandemic, but it's now picking up in our Medicaid business. Our Medicare Advantage business remains a strong untapped opportunity. As we have mentioned before, we have emerged out of recessions with strong growth in membership and new state contracts in the past, and we continue to believe that we are well-positioned to execute on both our short and long-term growth strategy. Finally, I again want to thank and recognize our employees for their commitment and dedication. I could not be more proud of how we work together to serve our members. Before I turn the call over to Jeff, let me apologize for my allergies acting up in my voice. With that, let me turn it over to Jeff, who will provide our financial details.

Thank you, Michael, and good morning, everyone. First, I will provide comments around the quarterly results. Then I will offer more detail around the key variables that Michael just discussed. Finally, I'll walk through our updated full-year guidance. This morning, we reported second quarter revenues at $27.7 billion, an increase of 51% over the second quarter of 2019, and adjusted diluted earnings per share were $2.40 this quarter compared to $1.34 last year. These numbers were in line with the guidance that we provided at Investor Day in mid-June. As expected, our earnings for the second quarter of 2020 were uniquely impacted by the COVID-19 pandemic through muted medical utilization and increased membership. Total revenues grew by approximately $9.4 billion over the second quarter of 2019, primarily as a result of the acquisition of WellCare, membership growth in Medicaid, and the Health Insurance Marketplace business, and expansions in new programs in many of our states. Our health benefits ratio was 82.1% in the second quarter, compared to 86.7% in last year’s second quarter and 88% in the first quarter of 2020. As anticipated and highlighted at our Investor Day, the health benefits ratio was low by historical measures, and the decline was primarily driven by a reduction in medical utilization as a result of the COVID-19 pandemic, partially offset by increased costs associated with COVID-19 claims. Utilization was down across all of our business lines. The majority of the reduction in volume was driven by ER claims and other non-inpatient costs, including fewer elective procedures, PCP visits, and specialist visits. Utilization declines were partially offset by COVID-related medical costs, including inpatient and ICU admissions, testing, and treatment. In terms of monthly trends, utilization deferrals experienced during April and May largely reversed in the month of June. June claims activity was near the historical norm. Cash flow provided by operations was $3.7 billion in the second quarter or 3.1 times earnings. The cash provided by operating activities in the second quarter of 2020 increased due to net earnings growth, $1.4 billion in collections of previously delayed capitation payments, and an increase in other long-term liabilities driven by the recognition of the risk adjustment payable for the Health Insurance Marketplace in 2020. We continue to maintain a strong liquidity position of $1.1 billion in unregulated cash on our balance sheet at quarter end. During the quarter, we utilized $500 million of our unregulated cash to pay down our revolving credit facility. Debt at quarter end was $16.8 billion, which includes $89 million of borrowings on our revolving credit facility. Our debt to capital ratio was 39.7%, excluding our non-recourse debt compared to 41.9% in the first quarter of 2020. Our debt to capital ratio would have been 38.1% when netting our unregulated cash with our debt at quarter end. Our medical claims liability totaled $11.4 billion at quarter end and represents 51 days in claims payable compared to 47 days in the first quarter of 2020. Days in claims payable was impacted by the timing of medical expense during the quarter with lower medical costs, primarily in April contributing to the metrics increase. A quick update on the WellCare integration: in July, we successfully integrated the WellCare business into the Centene financial and HR systems. The integration continues to be on track, and we remain comfortable with our synergy capture efforts. Turning now to our 2020 expectations and our updated assumptions regarding the key dynamics and variables we continue to monitor closely, which are formed by additional data since our Investor Day and month-end. The midpoint of our year-end unemployment expectation continues to be 10.3%, which is consistent with what we provided at our Investor Day. We now expect peak membership growth of 1.4 million members to occur during the fourth quarter. This represents a change from the projection of 1.9 million new members provided at our Investor Day, which was forecasted to occur in August. As Michael mentioned earlier, new membership has enrolled more slowly than previously expected. We believe the temporary nature of some of the unemployment enhanced unemployment benefits and employers furloughing rather than terminating employees has all contributed to lower application rates than what is implied by overall unemployment levels. For example, in California, we have not seen significant membership growth since the onset of the pandemic. In terms of utilization trends in the back half, we continue to expect normalization as the economy recovers and our members go back to visiting doctors' offices and receiving treatments. Our early look into our July claims shows a slight step down in utilization compared to June as a result of the regional infection spikes occurring across the nation. This trend may or may not last depending on the spread of the virus in various states, and again, the numbers we are seeing from our July claims are very preliminary. Through the end of June, we have paid approximately $550 million associated with COVID claims. This compares to $221 million we discussed at our Investor Day. One thing to highlight: the cost we have categorized as COVID costs includes all the claim codes consistent with CDC guidelines. This includes costs that are not associated with confirmed positive cases and may include costs that are not related to COVID at all. Finally, I'll translate these factors into our updated 2020 financial guidance. We now expect revenue to be within the range of $109 billion and $111.4 billion. This is $500 million lower at the midpoint than our previous guidance driven by the previously mentioned membership expectations. Just to add some perspective, our revenue guidance continues to be $5 billion higher than our original March guidance at the beginning of this year. We are maintaining our adjusted diluted earnings per share guidance of $4.76 and $4.96 driven by our overall updated projections and medical costs and revenues. With respect to rates, we continue to work with our state partners on various risk-sharing mechanisms and advocate for actuarial soundness. We have included a reasonable amount of rate actions in our guidance today; however, there continue to be a lot of unknowns, and the majority of our state partners are focused on 2020. It is our understanding that a majority of the proposals received to date have not been approved by CMS. Additionally, there continue to be discussions in Congress of additional support that would provide relief to state budgets and affect any potential changes being contemplated by the states. As we think about earnings progression for the balance of the year, we expect third quarter adjusted diluted earnings per share to be approximately 20% of the full year 2020 EPS. A quick note on quarterly versus full-year modeling: as a result of the WellCare acquisition closing in the first quarter, the full-year weighted average share count is substantially lower than the second through fourth quarters. We anticipate continued choppiness as a result of the unpredictable nature of utilization trends at this time; the scope, duration, and intensity of additional COVID-19 infection spikes could have a material impact on the results for the rest of the year. I'll conclude my remarks by reiterating our confidence in the strength of our business. Our balance sheet remains strong, and 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. That concludes my remarks, and operator, you may now open the line for questions.

We will now begin the question-and-answer session. The first question comes from Josh Raskin from Nephron. Please go ahead.

Hi, thanks. Good morning.

Good morning, Josh.

First question -- good morning, Michael. First question just around the rate proposal conversation that Jeff was mentioning. I think you said that some of the rate proposals at the state level have not yet been approved by CMS, and you continue to talk about advocating for actuarial soundness. I just want to understand, are these proposals, what you're seeing in the states, is that what's incorporated into guidance as you sort of mentioned that you're including a lot of this in guidance, or is there a risk that those state proposals are actually approved and that is not consistent with actuarial soundness or something like that that would change your guidance? And then I'm sorry, but the second question would just be on the vaccine potential. Are you assuming that states will cover the cost of a vaccine, whether that's later this year hopefully or if not into next year and maybe how would you like to see the vaccine reimbursement work?

Okay, let me start off first, and then Jeff can add to that but…

Thank you for your patience. We are getting reconnected with the speaker as we speak right now.

Josh, can you hear me now?

Pardon me. You have the speaker in the conference now.

Okay. Josh, are you able to hear me now?

Yes, absolutely. You want me to repeat the question or did you get it?

I don't know what happened. I will start right over. I don't know where I stopped. On the rates – the state can adjust under the super ratings by 1.5% subject to programmatic changes approved by CMS. CMS has been very consistent with the need for actuarial soundness. There have been some states earlier in the year that tried to get them to waive it and they said no. So we'll continue to work with them. The guidance does include those things we know that makes sense to do, have agreed to with the states and maintain actuarial soundness. So we'll continue to keep you informed, but there is no major issues taking place that we see at this point in time. We also -- the FMAP, Congress is now talking about extending the existing 6% one, and there is some talk about expanding it. You may recall at our investor conference, where the prior Medicaid director from Arizona talked about the need to set a date, where we've been talking to congressional representatives about the need to put a date certain in, so states have a better basis to plan – have a better basis to plan for it. So we continue to work through it and it's something we've done ever since we've been in this business. Jeff, anything you want to add on that?

No. I think as Michael mentioned, they did extend the FMAP enhancement to 90 days. The biggest point here is that we keep advocating with states that there's just a lot of variables to go on between now and the end of the year, right? You have the COVID costs, you have utilization, and you have potential federal stimulus. I would just say if you package all that up, it's very fluid at this moment.

And the second question of…

Vaccine – the cost of the vaccine.

Yes, the vaccine. We haven't had a lot of discussions. We don't know what the cost is going to be or how we’re going to do it, and we still have to see the vaccine. So as this unfolds, if I approach states on that now, they're going to say they have more current issues, Josh, really. But historically, that would be a requirement once again to keep things sound. So when things like Hep C came out, we had no trouble, which was very expensive. So I've even heard some talk where the government, for public policy reasons or political reasons, is talking about making vaccines available for free. We will let that one play out a little bit.

Understood. Understood. Thanks.

Thank you.

Your next question comes from Ralph Giacobbe from Citi. Please go ahead.

Thanks. Good morning.

Good morning.

Just on the rates again. Good morning. Just on the rates again, you did note some near-term or short-term pressure and it sounded like you embedded some of that in guidance. So I guess I'm just hoping to get a little sense of magnitude, the short-term nature like what is that duration? And then if the revenue reduction at all relates to any of these pressures?

Yes. Thanks, Ralph. This is Jeff. Again, as Michael mentioned, we're currently in active discussions with our states, and the starting point is rarely the ending result. It just really isn't constructive for us to publicly discuss our individual state expectations or an aggregate number. That being said, we continue to believe that we're on a path in many states towards finding actuarially sound solutions to the budgetary strain. I would like to also point out that at this point again, just a reminder of the federal potential for stimulus. So I guess what I'd say is we've included a reasonable assumption of rate adjustments from now to the end of this year. That is the out-of-bounds, I would say; that's what we're pushing to make sure doesn't happen, is that we find rates that are actuarially sound, and I think that's what Michael just talked about.

Let me help with one other regard. The states this year, when they saw reduced utilization, they were, oh, you're saving all this money. Well, they now understand that utilization will come back in the second half had it followed that path. They also see, as we usually report it in July, while utilization may be down, elective procedures... that's being offset by COVID costs. So they're now understanding that there is no windfall over the course of the full year. So we've told them that they really have to look at these things on a rolling four-quarter basis or a six-quarter basis because we're experiencing things nobody has seen before. And they're starting to understand that.

Okay. That's helpful. And if I could just follow up on that point, returning utilization. I think in the release you talked about it being sort of regionally driven. Can you help in terms of the patterns maybe you saw in areas that were early hotspots like New York and where utilization is there now versus some of the more recent hotspots in the south and where that utilization is? Thanks.

I can tell you what we saw last night, when we eventually went to sleep after getting our scripts done. Florida had higher utilization for COVID than the more ER – more ICU did in New York. But we have to be so careful how we say this, because as somebody opens up, we see a jump in – Missouri, they just announced they're going to roll back some of the things opened. Restaurants are now back to 25%, bars are closing at 10 o'clock. I mean they're talking virtual schools. So honestly, it's shifty. I mean, Arizona was very low before its hike. Texas was incredibly high; it's starting to back off a little bit. So it's a variable from day to day. So it's very hard to give you any kind of really specific well-grounded statement. Hope you understand that, and that's what we're talking about the dynamic of this thing and making decisions based on how things are right now at this moment.

Okay. Fair enough. Thank you.

Our next question comes from Charles Rhyee from Cowen. Please go ahead.

Yes. Thanks for taking the question. Sorry, just one more follow-up on the rate. Is there any deadline in terms of when this – when CMS has to make a decision on approving the state's proposals? And could these kind of stretch into next year and just be retroactive?

Well, I'm not aware of any deadline. I think it's just more process-oriented than anything. It just takes time to get the information to the government, and obviously there could be some back and forth if they have questions. So I don't think there's any hard and fast deadline. But sometimes that process just takes a while. I guess what I would say is it's not like every state has come and said, oh, we need to make rate adjustments. There are a lot of states that we operate in that are just taking a wait-and-see approach.

We gave some rate increases.

Yes. So I guess what I would say is I think it's just going to depend on how this plays out the rest of this year on utilization and COVID costs. And so it's just a handful of states that are thinking about some risk-sharing mechanisms. A lot of our states already had risk-sharing mechanisms in place. And they're good with those. So I think there's just more to come.

I think also there was some cases they're taking what the providers are paid down and pass that. I think New Mexico was…

…where it was a fee schedule change effectively, which is primarily neutral for us. But another way -- another option that obviously states have.

Great. If I could just follow up, I mean, you've kind of touched on in terms of where we're starting to see things pick up in like Florida and Texas. How are you thinking about whether – are you treating this as a second peak in infections or part of the first peak? And if that's the case, are you still assuming maybe then a third one as we get into the fall winter again?

I think – and I'll say that the epidemiologist that I'm speaking with, I'll be very honest and very candid. I told them that – we told employees we'll give 30 days' notice before we reopen. And I said to them, I think maybe I don't see us reopening fully. Everyone will open sooner or later, but until after January 1. And he said to me, one of them said, 'I don't think you'll regret that'. So what we're saying is it's so fluid and so dynamic that it's just moving along – well, I mean, let's talk about what I'm concerned about, none of this affects the performance of this company, just recognizing these things are there, so you deal with it ahead of time and treat the right expectations. If we have a bad flu season, that, combined with COVID, could be a very serious combination. And so we are working very hard. Now, I want to get this commercial; we're doing a PSA now, people understand it. Everybody is telling us until we have a vaccine, the next best thing to do is wear your mask and encourage others. I’m going to take some broad advice, I'll tell you what one of my epidemiologists told us, a couple. Tokyo, in Japan, there are 127 million people. A lot of you know the Asian culture is masked for years; they have gone back in the 80s. Somebody thought they had a cold, you were masked not to offend somebody. During the time that we had 100,000 deaths, they had 832. In Hong Kong, very congested, during that same period of time, with 7 million people, they had four people die because they wore masks. So if we can – it depends. If people start to realize what they can do to help themselves and choose some good judgment, that can impact it. So we're doing all we can, as I am right now, trying to help people to understand it. So, I am hopeful that we will start to mitigate the intensity of COVID until we have a vaccine. I'm also hopeful that we have a treatment, which will be very important. I was watching one of the spaces today; some talk about that they hope to have some of that. So it's something we've never experienced, but I'm comfortable that we have the expertise, the capabilities to deal with it.

The next question comes from Kevin Fischbeck from Bank of America. Please go ahead.

Great, thanks. Just wanted to ask about the revenue decline. You mentioned low enrollment. Is there anything in particular you've spilled out as to – was it more Medicaid enrollment or exchange enrollment that was coming in lower?

Yes. Yes, Kevin. Thanks. It's on the Medicaid side. I think what's interesting is it's just – it's sporadic. It's different by state. We saw good growth in Florida but hardly any growth in California. I think what you're seeing is just the dynamics of the unemployment market. But in general, effectively, the membership is coming in slower than we would have anticipated and really looking at historical crises, financial crises, and trying to align membership growth with unemployment is not spot on at this time. So we effectively lowered the membership expectations, and that's what the $0.5 billion is for.

And it's still strong growth; I can't emphasize that enough. It's just timing.

And I guess the other question I have would be on the exchanges. You guys mentioned that the margins on the exchanges are kind of coming back to normal. I just want to understand how you're thinking about that comment with COVID putting downward pressure on volumes, I would think that margins would be higher. But then you're also, I guess, giving some waivers on premiums. How are you basing that comment and what are all the puts and takes in there?

Yes. Yes, Kevin. Thanks for the question. I think what I would say is we've kind of included COVID into one line item, right? So you're backing it out of all the product performance, and then you're looking at, okay, absent COVID, what does it look like? I think that's what we would have expected for this year. Again in the exchange business, we've talked about margins normalizing. That sounds in line with what we were thinking. But I would say, as far as the COVID impact, the way we looked at it was we tried to do our best to put COVID into one line item and then look at performance.

The next question comes from Scott Fidel from Stephens. Please go ahead.

Hi, thanks. Good morning. Actually, just wanted to fall back upon the exchange topic as well. I'm just interested in terms of what – I know it's still pretty early here, but what the enrollment mix is trending like post-pandemic in terms of what you're seeing in terms of acuity and folks coming in from – possibly from previously being employed? And then sort of rolling that forward, I know it's a challenge, but how you're approaching pricing for the exchange business for 2020?

Yes. Yes. I think it's still a little early, but I don't think we've seen anything that would indicate the acuity is different than the larger book. The majority of the customers had previously had health insurance. The other thing is we've actually got our proportionate percentage, our market share percentage, of the growth. The other thing that's also happened is we've held on to members longer because of the premium assistance effectively. You're talking about holding on to members we've already had and then you have the new enrollments. So the mix is I would say more weighted toward retaining the enrollment that we had at the beginning of the year.

Okay. And then just a follow-up question just on one of the stats for Medicare Advantage, it looked like the PMPMs were down sequentially by around 4.5%. Just wanted an update on sort of what drove that? Was it just a change in your accruals on things like risk adjustment, just given the lower utilization that you've been seeing or anything else going on there that you can clarify for us?

Yes. I can't think of anything unusual that would have impacted the PMPM. It could be mix, but I don't have the specifics sitting here with me right now.

The next question comes from Ricky Goldwasser from Morgan Stanley. Please go ahead.

Hi, good morning.

Good morning.

First question is on the comment that you made, Michael, I think you talked about taking a holistic view on rates beyond 2020, maybe you can elaborate a little bit about what does the holistic encompass?

I'm sorry, you talked – COVID rates, you said? I missed part of that, Ricky.

When you talked about state rates and Medicaid rates, you said you're taking more holistic views on rates beyond 2020 as you think about next year.

Yes. I think we'll continue to work with them. I have no reason to be concerned. I'm just saying that some states we'll have to continue to work with whom and I'm trying to tell them that they can look at the rates just in one quarter, the results, the utilization. But they need to be thinking about how it rolls forward. What we anticipate is going to be happening on a going-forward basis. My comment was, in essence, a positive comment that we're engaging the state now so they understand that. As we said, while we haven't announced any states giving us rate increases now, we're working through that with them, and when it's finalized, we'll announce that as well. So the only comment was expect these discussions to continue going forward in a very positive sense that they want to talk about.

And then shifting away from COVID, obviously you brought in a couple of interesting hires to highlight kind of like the tech aspect of the business. What areas on the digital side do you see represent the most immediate opportunities to implement and impact costs?

Well, I think they'll be on board in the next three, four weeks. We're talking about what they can do to help with the provider experience, the member experience, and so there'll be various things there that – for competitive reasons, I'm not going to get too specific, but there are some things there that we think we can do that can move us into a real leadership position in that area. They have the talent and the capability added to what we have. We have a lot of great people here doing a lot of that here right now. It just recognizes where it's moving to, and they have the talent to recognize when there are systems and capability that need to be brought in and bolted on. I know we're working aggressively in that area. Hope that helps.

The next question comes from Lance Wilkes from Bernstein. Please go ahead.

Yes. Good morning.

Good morning.

I just wanted to get maybe a historical context. Obviously, this isn't the first recession that states have encountered. If you could just give us some perspective on maybe contrasting the factors in this situation versus maybe the 2008 recession. Our assessments have been that we did see some rate decreases in the 2008 recession. But in general, those are more like in aggregate 1% to 3% kind of declines in premium PMPMs, and some declines in medical cost PMPMs. So MLRs weren't as compressed. Now, obviously that's looking at an aggregate basis. So maybe if you could just kind of put some context, so we could understand maybe the scope and scale we should be considering here.

Okay. Let me – I'll Jeff pick up on some of this, but let me just start off. The difficulty or the issue here and we're dealing with the world I believe is that in economic downturns, there is some historic precedent for what would happen. What we're dealing with this pandemic is something – I guess the last pandemic they say was in 1918, Spanish flu. The issue here is we projected minor spikes in some areas; it's not what happened. We're helping the states understand that the COVID expenses offsetting the reduction in utilization. That's the counter-balance to what these cost savings... So Jeff?

Yes. I mean, I think, Lance, again, I think back then, we were probably – I was here, we're probably having the same conversations around actuarial soundness. If you go back in time and look at our financial performance, I think you'd see it was very consistent during that time period. The other thing to highlight is if you go back to the crisis back in 2008-2009, that's when a lot of organic growth accelerated for us and it's really driven by states moving to managed care in order to help solve their budget problems. We believe when states have budget challenges, we're part of the solution because we can help manage costs and have higher quality outcomes. Obviously, that’s some of the activity we're seeing here.

Are you assuming…

It's complicated by a lot of politics in the middle of this whole thing too. Everybody recognizes that. I'm just saying what people are recognizing.

Yes, certainly. Are you seeing any differences? I noted that in the expansion population seemed to have a little higher growth quarter-over-quarter for you? Are you seeing differences in behavior as far as kind of state level, where you're seeing the growth, expansion, TANF, and public exchange?

No, I think the difference that I would call out and I think I mentioned this before was really some states are growing and some states aren't. That dynamic is really, really interesting. I think that just has to deal with the underlying unemployment situation in each individual state. We've had certain states that have grown 5%, 6%, 7% since March, and we have others in the 1% to 2% range. I find that dynamic interesting, and obviously, different than what we have experienced historically if you go back to the ‘08, ‘09 recession.

Thanks.

The next question comes from Justin Lake from Wolfe Research. Please go ahead.

Thanks. Good morning. Can you talk about how WellCare Group is performing relative to expectations both overall and then give us an update there and then also maybe talk to some of the specific businesses in terms of Medicare Advantage and Part D?

Yes, Jeff.

Yes, I would say WellCare is performing in line with expectations. Obviously, we have the pandemic here, and so, a little bit harder to sort through that, but from our perspective performing in line with expectations and achieving our synergy targets that we've laid out. I think I mentioned in my prepared remarks that we're still comfortable with our synergy plan and being able to hit those targets that we set out there. As far as Medicare Advantage, their Medicare Advantage continues to grow. I think if you look at this year and you look at our overall combined Medicare Advantage growth, I would say it's been very strong on the WellCare side. You have to remember back in December on the Centene-only side, we had a provider termination and an insourced contract that we lost. If you adjust for those, we've actually seen pretty strong growth this year in Medicare Advantage, and obviously looking forward to having the WellCare team run the Centene side of the business and looking for good growth next year.

Great. And then just a follow-up on membership growth. Can you tell us how much of your – you've got this new COVID membership; I think of 1.4 million. How much of that is coming from lack of churn due to federal macros roles and not allowing this enrollment anymore versus kind of new membership signups being greater? Does the guide still assume the federal emergency ends at the end of September and states can then start this enrolling members again?

Yes. So a good question. When I look at the March – quarter end March membership compared to June 30th, we're up about 812,000 members, predominantly in at-risk members. I would say the majority of that from our perspective is due to the suspension of the redetermination. I think we mentioned that at our June Investor Day. So that's why we've kind of delayed our peak membership from August into November because it appears that there has just been a slower take-up rate for the unemployment side versus the eligibility redeterminations. Right now we have assumed that the eligibility redetermination, the suspension of that goes through the end of this year because they pushed out the enhanced FMAP for another 90 days. Hope that helps. Again, our new expectations is up 1.4 million in November versus our previous was 1.9 million in August.

The next call is from A.J. Rice from Credit Suisse. Please go ahead.

Hi, everybody. Just two quick questions – two quick queries of questions. First on the public exchanges, it looks like in the 10-K – 10-Q that you've had a $94 million adjustment for the risk adjuster payable. I just want to ensure that’s in line with what you had originally factored into your guidance earlier in the year? Is there any comment about the footprint and whether you'll expand it for the public exchanges next year? I'll go on and ask my other question, which was about the PBM. There were some things you were doing this year. I know WellCare extended the CVS contract. You had some other things you were doing at legacy Centene. Have those played out as expected? Is there anything about the COVID crisis that's materially impacted what you're seeing in script trends or utilization of specialty drugs in the higher acuity population?

Well, there's a lot in there A.J., so I may ask to – you may have to refresh my memory on the first ones; but on the PBM side, I think things are playing out as expected and as we anticipated in both the synergy and the transaction. We’re using the combination of all the PBM assets to get the most value there. I think your other question, refresh my memory on your first question that you had.

Just the $94 million risk adjuster…

Yes, yes, yes... that's usually one of the first topics out of the gate here, but given the unusual circumstances, it sits here at the end. I would say, if you recall, roughly 10%, we would have expected $95 million, and that would be a net P&L benefit after RADV adjustment, etc., etc. I think if you look at the Q, it came in roughly at 63 million, something like that. Again, if you go back to our Q1 earnings call, we talked about the fact that because the crisis hit in March, we weren't able to really do a lot of the coding efforts that we do. We expected that risk adjustment to be a little bit short, and in fact, it was.

Okay.

And as far as marketplace, I think you talked about expansion; obviously, we're looking to continue to grow into next year.

I think that was on the pharmacy, the one thing I will add on the pharmacy, if you recall early in the pandemic, we authorized people to get a more robust supply of things of that nature to accommodate their fears and concerns. Those things that once again make it a little lumpy and choppy, but it all works out over the period of time.

The next question comes from Steven Valiquette from Barclays. Please go ahead.

Great. Thanks. Good morning everybody.

Good morning.

If you guys commented that the slightly lower utilization in July versus June was primarily related to the spike of cases in certain key states. You also mentioned some hospitals were maybe voluntarily cutting back on some of the elective procedures. So now, it's hard to get too granular on this, but I guess I'm also curious that there's a dynamic that maybe June's stronger utilization as deferred care was rescheduled and performed, maybe July had less of that. Just on deferred care specifically, I guess I'm curious how we should think about any remaining deferred care being performed in the back half of the year as we think about these overall trends. I know it's a lot in there, but just curious to get extra thoughts on that.

Yes. If somebody is deferred, you can't be certain who's deferred one. It was obvious when you saw the reduced trends in April that the things were being delayed. We saw in talking to various hospitals, larger institutions, they said they're starting to bring it back in. There's two elements of that: the hospital being prepared to do it, and the person being prepared to go to the hospital, because there is that variable. As it relates to July hospitals, we know, were starting to defer deferred care now. We have to assume that some of those patients were ours because we have a big membership, but what percent in that, it's early. We don't have the details. So as we sit here at this point, it's still July, and we haven't closed. So we just – as we said to you, we're going to try and be transparent and tell you what we see as we see it. There were some indication of that; there were some hospitals doing it, and it's going to vary, and that moves from day to day. That's a big problem. The hospitals in Georgia or in Florida, they may have just decided yesterday afternoon, it's time to defer, and we hear about it. How long that stays? That's the difficulty of this pandemic. It's just so dynamic and changing. I wish I could be more granular for you but the moment I do that, I'm going to mislead you.

Okay. Alright, I appreciate the extra color. Thanks.

The next question comes from Gary Taylor from J.P. Morgan. Please go ahead.

Hi, good morning.

Good morning.

Two questions. The first is I believe Michael in your prepared commentary, I think, I wrote it down correctly that you said RFP activity was picking up if I got that correctly. We're just hoping for a little more detail, if you have any, is that primarily complex populations, would that most likely be 2022 potential revenue impact? And then my second question is just looking for some guidance, Michael, from you and sort of thinking about the Heroes Bill that bump up to a 14% FMAP, $0.5 trillion of state funding? How stingy the details appear to be leaking out of where the Senate is right now and sort of where ultimately you think we may land with respect to state relief?

Let me start up on the RFP front. We told you Oklahoma has said they're going to do it. There were several states that have talked to us about whom they might consult with, what outside consultants, because they're looking at expanding their marketplace. They may, if they don't have SSI or long-term care, but I'm not going to disclose who they are because it's not certain and they just – and as they probably asked other companies besides us, who they think their consultants are, but it's a clear indication that they are looking to start to save the money by expanding into those areas and they really understand that. I have to leave it there. I wish I could be more granular, but I really don't want to mislead somebody. The second part of the question was…

About yes, heroes and…

Yes, sure, absolutely. Yes. Okay. We know that the House put out two months ago a $3 trillion bill, the Senate was really delaying it and they have about $1 trillion and it's not going to be either; it's going to be somewhere in the middle. Now, the only thing I know with any certainty is I don't think that they will get the $600 and that's just my guess. If I'm right, you could say how smart I am; if I'm wrong, you can kid me about it for the rest of my life. But I don't think they're going to get to 600 because they realized some people were making more being unemployed than being employed. On both sides, there are people a little bit leaning the wrong way. So we'll see that change, the FMAP and state support that's in the middle of negotiations now. I think the FMAP has a chance because they recognize that. Our counsel is to put a date certain on, as I said earlier. Relative to specific state support, that's going to be hard. It's an election year, which really complicates this whole thing, and there is a little politics being played out there. I'm probably saying I expect it's going to be somewhere between 1.5 trillion to 2 trillion. I think we'll see some FMAP; I am hoping for some improvement there. We're going to see the unemployment; you're going to see another check go after people; some of those things. You're going to see if somebody hasn't paid their rent being displaced, you're going to see that probably extended, that type of thing. I think they're going to be playing on the edges around the fringes, Gary.

The next question comes from Sarah James from Piper Sandler. Please go ahead.

Thanks. I have a clarification about 2Q MLR and then I wanted to talk about technology. So I want to understand the basis of 2Q MLR. At Investor Day, you talked about getting claims two days slower, and we were estimating that that assumption is MLR 45 basis points. So when you close the second quarter, was the assumption that claims are still coming in two days slower? Is that how you're looking at July as well?

Yes, a good question. I think a couple of things, if you see the DCP, the days in claims payable, on our press release we've given an explanation down there what is driving some of that days in claims payable. The other piece obviously would be any slowdown in claims from data service to the date we receive the claim. I'd say there's two components, but the majority is just the actual mathematical calculation, which is what we tried to highlight in the press release.

May I end up just because of timing; we're going to take probably two or three more questions. So I learned a long time ago when the board is waiting for the meeting, and if you're not there instead of talking to you, they talk about you…

Okay. I'll try to be quick with this one then. So you've made some pretty impressive technology hires. Does that indicate a strategy to enhance external sales of your technology products?

Yes, I think that's to be determined. We're not trying to be like some of our peers that have products that they sell outside. We're going to focus on what serves our growing population, our growing business first and well, we've had some products historically we’ve sold, but that decision I'm going to be leaving up to the senior management as they come on board and we see how it affects our competitive position.

The next question comes from Dave Styblo from Jefferies. Please go ahead.

Hi, good morning. It’s Dave Styblo. How does your membership – revised membership view both of the peak and timing and the peak and number affect your view of your 2021 revenue?

Let me be consistent with what we said in other years at this point, and please take it the right way, but we will talk about 2021 at our December Investor Day. To try and frontline our own meeting this far ahead is something we have always historically avoided. So I'm going to defer that question and be non-responsive so to speak.

Okay. Alright. I'll ask a different one.

Thank you.

As you saw claims getting back, it sounds like got back to normal toward the end of June. Clearly, we're having some spikes here that that kind of deflect the normal course of that line, but I guess I'm wondering what you did see or what you anticipate seeing in the healthcare system in terms of its ability to operate at or even above 100% if we – if we're able to get to a relatively normal environment or maybe you can speak to that from a regional standpoint where regions are in a normal environment now?

What's normal today, I mean, yes, sure there are some regions in the Northwest and maybe more normal now, they've settled down. But we see the South picking up. We thought Missouri and the Midwest was settling down and now we see Missouri, Ohio, and other states starting to pick up again. So it seems to come and wait, and that's the big issue. It's – what I see you have to make your decisions as it is today because it's so dynamic, and we've never seen anything like it. The risk that offset puts and takes, you have – I expect Arizona should start to calm down; they are taking all the tough things they need to do. Florida I think the governor realizes what he has to do, shut some things down, and they're trying to do that. So there's no one place that I can say has a fully under control today. It's how it pops up and where. Once it gets a little bit under control, they start to say, oh, we can lighten up on the restriction, and then it pops up again. The only place I seem to – I can talk with any confidence is some of the European countries where they had a complete shutdown for a couple of months, and they seem to really have brought it down.

The next question comes from Matthew Borsch from BMO Capital Markets. Please go ahead.

Well, thanks for squeezing me in, I'll just ask one very short, narrow, possibly dumb question, which is on the risk adjusters that you talked about coming in at a lower level for the exchanges, but because of the disruption that delayed your coding, isn't that's something that would be industry-wide and therefore given the sort of zero-sum gain that you have with the funding there that you would possibly do as well as you would have without those issues?

Yes, Matt, this is Jeff. Good question. In theory, you would be correct. However, based on the data that we have, we are an outperformer in that area. Part of that, if you recall, a couple of Investor Days ago, maybe a year or two ago, it was one of our Centene forward programs that we put together. Due to the fact that we're an outperformer to the good of coding efficiency between January and April before you have to send the data to the edge server, we are disproportionately impacted.

Okay.

The next question comes from Steven Valiquette from Barclays. Please go ahead.

Great, thanks. Good morning, everybody.

Good morning.

This concludes our question-and-answer session. I'd like to turn the conference back over to Michael Neidorff for any closing remarks.

I want to thank everybody. We look forward to the next to the third quarter conference call. Hopefully, we'll have some more clarity on vaccines and other things that will give us a little more certainty as to where things are, but rest assured we're going to continue to deal with this as we're confronted with it. Stay well, stay healthy, and wear your mask. Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.