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

Thank you, Rocco, and good morning, everyone. Thank you for joining us on our fourth quarter 2024 earnings results conference call. Sarah London, Chief Executive Officer; and Drew Asher, Executive Vice President and Chief Financial Officer of Centene will host this morning's call, which also can be accessed through our website at centene.com. Any remarks that Centene may make about future expectations, plans, and prospects constitute forward-looking statements for the purpose of the safe harbor provision under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by those forward-looking statements as a result of various important factors, including those discussed in our fourth quarter 2024 press release, which is available on the company's website under the Investors section. Centene anticipates that subsequent events and developments may cause its estimates to change. While the company may elect to update the forward-looking statements at some point in the future, we specifically disclaim any obligation to do so. The call will also refer to certain non-GAAP measures. A reconciliation of these measures with the most directly comparable GAAP measures can be found in our fourth quarter 2024 press release. With that, I would like to turn the call over to our CEO, Sarah London. Sarah?

Thanks, Jen, and thanks everyone for joining us this morning. As an enterprise, Centene is stepping into 2025 with a clear strategy, compelling embedded earnings power, and positive momentum within each of our lines of business. We have delivered significant operational improvements and see exciting opportunities ahead as we continue to modernize our platform, automate our administrative processes through the deployment of AI, and leverage our unparalleled data to create insights that make our business better, improve the quality of healthcare for our members, and transform how the healthcare system serves millions of Americans. Today, we reported fourth quarter adjusted diluted EPS of $0.80 and full year 2024 adjusted diluted EPS of $7.17, strong results that demonstrate the durability of our earnings power and position the company to execute against our strategic goals in 2025. Driven by better-than-expected results during the Medicare annual enrollment period and a program expansion in Medicaid, we are lifting our full year 2025 revenue guidance by $4 billion. Our outlook for full year 2025 adjusted diluted EPS remains unchanged as greater than $7.25, and we are pleased with the trajectory we are on at this early stage in the year. To that end, let's talk about the opportunities in each of our business lines and how we are positioned for 2025. First, Medicaid. Today, we serve 13 million Americans across our Medicaid portfolio, offering critical access to vital medical services and support for some of this country's most vulnerable and complex populations. Post-COVID era eligibility redeterminations generated significant membership transition within the safety net program, but that chapter is now coming to a close. In 2025, we expect improved membership stability and a gradual return toward equilibrium with respect to rates and the risk profile of our members. We continue to have constructive dialogue with our state partners, providing us with confidence in our ability to command rates that will support a return to target Medicaid margins. This is visible through a strong result for 1/1/25 effective rates, where we were able to achieve a mid-4% composite rate adjustment. We continue to expect a full year 2025 composite rate adjustment of 3% to 4%. While we have been focused on supporting our members and state partners through the redeterminations process, Centene's local Medicaid teams never stopped working to develop innovative care programs and solutions to promote access for our unique member base. For Centene, transforming the health of the communities we serve means bringing care to our members, ensuring it is local, integrated, and sustainable and working to influence positive health outcomes for our members as early as possible in the care journey, in some cases, before they are even born. To this end, in Nevada, we are actively working to address the challenges of rural healthcare access for expectant moms. Our SilverSummit team is distributing tablets to support increased prenatal and postpartum telehealth visits for mothers in rural counties. We have also sponsored telehealth training, with a particular focus on postpartum behavioral health support. Another great example of innovative programming comes from our Meridian team in Illinois, where we are taking a food-is-medicine approach to supporting members with uncontrolled high blood pressure. Members have access to a 12-week comprehensive program that includes nutrition counseling, along with four weeks of medically tailored meals, followed by four weeks of healthy food boxes, followed by four weeks of fresh produce vouchers. The goal is to build and sustain the changes in eating habits that will support long-term hypertension control. As we move through 2025, we are looking forward to turning the page on the redeterminations era, returning to overall Medicaid program stability and working closely with our state partners on innovations that deliver not only healthcare but also better health within our communities. Turning to Medicare. We are pleased to be generating material progress within our Medicare business. The most recently released Stars results, published during fourth quarter 2024 and applicable to benefit plan year 2026, are an excellent window into our notable advancement. Within these results, 55% of our members are associated with 3.5 star plans or better, up from 23% last year. We continued to operate and execute with increased precision throughout 2024, driving year-over-year improvement in many of our core administrative measures. We also continued to make progress closing care gaps for our members with year-over-year performance improvement in our HEDIS rates, as well as medication adherence. In a credit to our team's leadership and effort around continuous improvement, 1/1/25 go-live for Medicare was the smoothest I've ever seen at Centene. We expect these and other advancements in our processes and key metrics to support Stars results as we take on 2025. As you've heard from us before, we pruned our Medicare Advantage footprint coming into 2025 to better align with our Medicaid presence and capabilities, enhancing our ability to leverage Centene's size, scale, and expertise. With this refined footprint and refreshed products, we produced very good results relative to our expectations during the 2025 annual enrollment period. We now expect Medicare enrollment in the low-to-mid 900,000. Product design, successful management of our distribution channels, and local market knowledge contributed to the better-than-expected results. It is still early, but based on things we can know today, such as demographics and retention levels, we are pleased with the membership mix we are carrying into 2025, including a dual mix around 40%. Amid program changes related to the Inflation Reduction Act, Medicare Part D presented Centene with a nice growth opportunity in 2024, and the team executed well against that strategic plan. Part D or PDP is positioned to be a larger business for us once again in 2025, both by revenue and membership. During open enrollment, we went to market with a deliberate focus on value for our members, including premium affordability. This plan, complemented by the CMS demonstration program, yielded strong AEP results that are expected to generate 2025 revenue of approximately $16 billion, better than our previous expectations. Here too, we are early relative to observed experience, but as we look at factors such as member demographics and product selection, we remain confident in the financial objectives we set forth at December's Investor Day, including a 1% target margin for the PDP business in 2025. Finally, a brief comment on the Medicare Advantage advance rate notice released last month for the 2026 revenue year. While the information is not final, we are pleased to see the potential for a positive directional shift in funding for this important program, including the incorporation of a higher level of base rate medical cost trend. Final rates are expected in April, and we will continue to assess the various program changes anticipated for 2026 and the funding necessary to maintain compelling plans and create value for seniors as we build out our preliminary 2026 strategy. Within our Medicare segment's 2024 performance as a strong jump-off point, we are excited to build upon the operational progress we made last year while taking important steps on our path towards breakeven in Medicare Advantage in 2027. Finally, marketplace. Across our footprint, our marketplace team has demonstrated consistently strong results through disciplined pricing, strong distribution relationships, as well as unmatched local knowledge of the marketplace population. Ambetter delivered an outstanding performance in 2024 and carried that momentum into their 12th open enrollment period, once again executing well on fundamentals and positioning our portfolio of products for another year of strength in 2025. According to CMS, enrollment across the ACA market grew roughly 13%. But given program integrity changes such as failure to report and the agent of record lock, our focus has been on effectuated membership. For Ambetter, January effectuated enrollment turned out to be a little stronger than what we had incorporated into our outlook for the business at our Investor Day in December, driven by strong member retention. Overall effectuated rates to date are directly in line with historical norms for Ambetter, which positions us for a peak marketplace membership during the first quarter, slightly above 5 million members. Looking down one level deeper, the demographic of our effectuated membership is similar to the member mix in 2024. Our book is expected to be roughly 51% female with an average age of 39.4, continuing a year-over-year trend of slightly younger membership. At the same time, our metal tier shifted slightly towards silver. While we have been near 70% silver over the last few years, in 2025, we expect to have nearly 75% of our membership in silver plans, consistent with earlier years of the program. As a reminder, our outlook continues to provide for an anticipated return to the pre-COVID era membership seasonality, with net attrition down to the mid-4 millions by year-end. Overall, we are pleased with the early indicators around our marketplace business and believe that we positioned ourselves well in 2024 by being the first carrier to introduce an agent of record lock. Our view through January suggests a more muted impact to membership from the program integrity changes than originally anticipated, but we believe some may require a longer tail to play out and that it will be a few months until effectuated enrollment results are fully understood. As you would expect, we will continue to closely monitor effectuation rates, voluntary member terminations, and other trends within our book as we move through the first quarter. As we think about future trends in the individual market, I did want to call out the strong results we saw during open enrollment in our Georgia markets. We were pleased to be able to support Commissioner King and the State of Georgia as they made their transition to being a state-based exchange, and we are excited to see how Georgia Access provides a model for advancing the growth of the individual market, both on and off-exchange, which includes access to ICHRA. As we shared in December, we continue to view ICHRA as the future of health insurance for working Americans and is an important part of Centene's future earnings power. In January, we announced the addition of Alan Silver to our leadership team. Alan is now President of Ambetter Health Solutions, which focuses on ICHRA or Individual Coverage Health Reimbursement Arrangements. Alan previously led retiree medical and ICHRA initiatives at Willis Towers Watson, and we are thrilled that he has joined our team. As we turn the page to a new year, it is important to acknowledge the incredible amount of hard work and tenacity from the Centene team that enabled Centene to deliver on our financial commitments in 2024. Countless obstacles and macro-level challenges faced by our team and our industry at large required focus and execution by colleagues from across our organization. As a result of staying tightly aligned to our strategic goals and our mission, we are now well-positioned to capitalize on the important opportunities that we see ahead of us in 2025 and beyond. In 2025, we expect to collaborate with our state partners to achieve better alignment for Medicaid rates and member acuity. Our Medicare Advantage business, following successful execution during AEP, will focus on key operational initiatives to drive us forward on our journey to breakeven in 2027. And as the category leader, our marketplace team will once again offer access to high-quality and affordable healthcare this year to approximately 5 million Americans. There is significant earnings power embedded in this business. With between $3 and $4 of adjusted EPS opportunity to unlock over time, we are eager to achieve our next set of enterprise milestones, deliver on our commitments to our members, and generate shareholder value in 2025 and beyond. With that, I'll turn it over to Drew.

Thank you, Sarah. Today, we reported fourth quarter 2024 results, including $36.3 billion in premium and service revenue and adjusted diluted earnings per share of $0.80 in the quarter. For the full year, we reported $7.17 of adjusted EPS, well ahead of our previous guidance. In addition to ending the year strong, our results include a $0.29 net benefit for a marketplace cost-sharing reduction or CSR settlement related to prior years. Our Q4 consolidated HBR was 89.6%, while our full year consolidated HBR was 88.3%, consistent with our previous guidance range. Our Q4 Medicaid HBR was 93.4%, up 30 basis points from Q3. We were expecting a couple of late year 2024 retro adjustments that did not come in by year-end. Medicaid trend story is similar to our last discussion. Stable trends overall now that we are essentially through redeterminations, other than behavioral health and some pockets of home health costs, consistent with past commentary. Our full year 2024 Medicaid HBR at 92.5%, temporarily high, driven by redeterminations, presents us meaningful earnings power over the next couple of years as we turn the page on 2024 and better match rates and acuity going forward. Case in point, we are yielding around the mid-4s in net rate increases for the 1/1/25 cohort, which now represents about 40% of our annual Medicaid premium. The Medicaid membership settled out right in that 12.9 million to 13 million zone we had targeted, and our 2025 guidance is predicated on staying in this membership zone throughout 2025. Medicare segment performance was strong in Q4, including a very good overall 2024 performance in PDP, as a few of you were concerned with the Inflation Reduction Act at the beginning of 2024. The Q4 PDR related costs in Medicare Advantage were consistent with what we last told you. Commercial segment results were strong in Q4 due to the CSR settlement; otherwise, they were right on track. Overall, exiting 2024 in a position of strength should bode well as we enter 2025, and continued Medicaid rate action, as well as execution on initiatives designed to improve quality and the affordability of healthcare, should enable us to achieve our 2025 Medicaid goals. Moving to other P&L and balance sheet items, our adjusted SG&A expense ratio was 8.9% in the fourth quarter, compared to 9.7% last year, a continued blend of business mix and discipline. Cash flow provided by operations was only $154 million for the full year, driven by the timing of pharmacy rebate collections, the reduction in risk adjustment payables, and the buildup of state premium payments receivable. As these items normalize in future periods, it sets us up for stronger operating cash flow in 2025. Our unregulated and unrestricted cash on hand at quarter-end was $248 million. During the fourth quarter, we repurchased 14.4 million shares of our common stock for $930 million. For the full year 2024, we repurchased 42 million shares for $3 billion. We have taken out over 100 million shares in the past few years. At the same time, our debt-to-adjusted EBITDA was only 2.9 times at year-end. Our medical claims liability totaled $18.3 billion at year-end and represents 53 days in claims payable, compared to 51 in Q3 of 2024 and 54 in Q4 of 2023. One DCP note looking ahead, given the meaningful growth in PDP in 2025, largely driven by the Inflation Reduction Act, and the fact that pharmacy claims complete very quickly compared to medical claims, this should lower our consolidated DCP by a few days in 2025. While 2024 was certainly a challenging year, we still grew adjusted EPS over 7%, powered through redeterminations, made some great progress in Medicare Stars, and seized meaningful growth opportunities in marketplace and PDP. Let's turn the page and look ahead. As you heard from Sarah, our marketplace open enrollment period reflects very good execution by our team and keeps us on track for our 2025 forecast elements covered at Investor Day. We expect to peak right above 5 million marketplace members during Q1 and then a trip the remainder of the year back to mid-4s, consistent with pre-COVID enrollment patterns, where Q1 was typically the annual peak of membership. And we need to see the pattern of membership throughout Q1 2025 before we touch commercial revenue guidance of $34 billion. In our Medicare business, 2025 volume has started out stronger than expected, driven by the annual enrollment period results, notably driven by stronger retention. Our PDP business was over 7.5 million members as we entered 2025. Accordingly, we expect the Medicare segment to be about $2.5 billion higher in premium revenue in 2025 than what we discussed at Investor Day in December. In addition to that $2.5 billion, there is another expected $1.5 billion in Medicaid revenue from a program change, adding behavioral health coverage in one of our state contracts. So, we are increasing our consolidated 2025 premium and service revenue guidance range by $4 billion to a range of $158 billion to $160 billion of premium and service revenue. This is good news as you think about the long-term earnings power of Centene. At this very early point in the year, we are reiterating our 2025 adjusted diluted EPS guidance floor of greater than $7.25. Quick comment on 2026 Medicare rates. The preliminary percentage rate change for us is in the low-to-mid 3s, including the positive impact of Stars from the work we did in 2023 and 2024. It's great to have 2024 behind us and have earnings power consistent with our Investor Day discussion in front of us. As importantly, we are really excited about the number of initiatives in flight and in our sights designed to make healthcare simpler, more accessible, and more affordable, just like we've been able to help shape in the marketplace, which has been a great solution for over 23 million Americans. We are proud and honored to serve members, states, and the federal government in Medicaid, Medicare, and marketplace programs into 2025 and beyond. Thank you for your interest in Centene. Rocco, let's open up the line for questions.

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

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

Yes, certainly. Thanks, Josh, for your question. CMS reported a 13% enrollment growth from January to January. As we've mentioned previously, we believe that tracking effectuated membership is crucial, especially due to the payment and program integrity changes being implemented. During our December Investor Day, we noted slower processing times related to over-enrollment due to the agent of record lock. This situation improved as open enrollment progressed, but we still recognize that there might be some backlog to address. We also expected more impact from the failure to report process during open enrollment, which seems to be less significant than anticipated, but we believe there may be longer-term effects to consider. To illustrate, the process involves notifying members about the necessity to file taxes and informing them about how this could affect their enhanced APTCs. Consumers can attest to having filed their taxes, and there are several checkpoints as we move through February and March, leading into the April timeline. This is part of the reason we expect to see additional impacts on Q2. We maintain our perspective on the effects on effectuated enrollment but will need to observe how things develop. January showed stronger effectuation, giving us a solid starting point, but we want to wait a couple more months to determine where everything will stabilize.

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

There is typically a difference between enrollment and effectuation. What we are observing from an effectuation perspective aligns with historical trends. The growth we experienced was somewhat stronger than the 13%, and that retention from our member base has brought our membership slightly above 5 million. However, we need to assess how the program integrity impacts unfold in Q2 to understand what the net market growth after effectuations will resemble.

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

Thanks. Good morning. Just a couple of quick numbers questions. First, looks like the prior-year development in the quarter was north of 400 million, up about 300 million year-over-year. Can you tell us what drove that? And Drew, I know it doesn't all hit the bottom line. So, maybe you could tell us the net benefit there. And then just quickly on the Medicaid retros that didn't hit in the fourth quarter, anything you could share on the size there? And is it just a timing issue where they'll hit in Q1 or did they just not happen at all? Thanks.

Yes, why don't I hit the retros, and then if you want to talk about prior-year development? So, as you heard from Drew, we had rate action expected late in the quarter that didn't come through. We're not counting on that in 2025. So to the extent that any of that does materialize, it would be a benefit to 2025. We did see positive movement in the 1/1 rates. And in some cases, those are sort of linked. And so, that's where you saw the mid-4 composite rate for 1/1. So very consistent with the theme that we've seen throughout this process, which is, I think we've made great progress in terms of being able to influence states with data and get to the right level of rates. We just aren't always perfect in predicting the timing.

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

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

Hi, thanks. Just wanted to ask about the Medicaid rate assumptions. I mean, based on the rates that you're getting for 1/1, it seems like the rest of the year placeholder is something probably in the zone of 2%, 2.5%. And logically, it seems like every rate update you get going forward should be better informed, both from a cost and acuity perspective. Is there anything structurally different about the dislocation in the rest of the book that suggests that a lower rate update would really be kind of the sensible base case at this point, or how should we think about the conservatism potentially of the assumptions you're making in Medicaid rates for the second half of the year? Thank you.

Yes. I mean, again, we continue to expect the full year 2025 composite rate between 3% and 4%, obviously, a little bit stronger in that 1/1 cohort. I think you're right that we are coming into all of these conversations with more robust data just as time has rolled forward and being able to really see the run-out and move forward sort of the prior period from an actuarial standpoint. So I think that is part of why we saw some of the strength in the 1/1/25 rate. Again, really constructive conversations with the state partners and really databased in how we're looking at everything. So I don't think there's anything structurally different. I will point out that as we've gone through the back half of 2024, the degree to which states are open to things like retros, midyear adjustments, and just understanding that we need to get to a place where the programs are funded sufficiently in order to make sure that we are supporting members the way that they want to, I think is probably different than we've seen in the past. And so, again, I think that makes us feel good about how we're positioned moving into 2025. But as you heard, it is a question of getting the timing to line up and that's why we think that we'll make progress in 2025 toward that equilibrium in terms of long-term margin. But it may play out through the course of the year.

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

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

Yes. On Medicaid, I think as you heard from Drew, no new trends to report, and we continue to look at that cohort of continuous members to evaluate how sort of apples-to-apples trend is evolving. Nothing alarming there. So it's really the same story that we've been sharing over the last couple of quarters. Also felt good about the run rate medical expense that evolved in Q4 and exiting the quarter better than we started. So, nothing has really shifted there. And then from a Medicare standpoint, do you want to talk about Q4 and full year?

Yes, Medicare had a strong finish. The impressive performance this quarter was mainly driven by the PDP, which we concluded on a high note. This is encouraging as we navigate the first major year of the IRA changes in 2024, focusing on bids, execution, and cost structure. This gives us confidence as we approach 2025 with additional IRA modifications, as indicated in the guidance we shared at Investor Day.

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

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

Yes, that's a good question. When we consider our three segments, in the Commercial segment, we expect the HBR to start low and gradually increase throughout the year as members meet their deductibles. However, the Medicare segment will differ significantly. It is expected to start lower and trend upwards over the year, largely due to approximately half of our Medicare segment revenue coming from PDP and the IRA changes. This upward trend in Medicare HBR is something to monitor as the year progresses. As for Medicaid, as discussed at Investor Day, we anticipate that the second half will perform better than the first half regarding HBR. The HBR for the first half of 2025 is expected to exceed that of the second half of 2024. Taking all this into account, we indicated at Investor Day that the earnings per share will likely be about 60-40 in favor of the first half compared to the second half, with the expectation that it could be greater than 60% in the first half of the year.

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

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

Yes. So I would say, we haven't yet closed January. So it's a little bit early, and I think we've pointed to some solid early results, but wanting to see how those play out in terms of membership and experience. And then in terms of PDP margin, we said we're still targeting that 1% for the PDP book. And relative to marketplace, we've said and continue to hold that we would be well into the 5% to 7.5% range for marketplace, and that includes what we've seen so far.

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

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

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

Thank you for your questions. I believe you recognize that in the HMO industry, there's a distinction between cash flow operations seen in the cash flow statement, which reflect receivables and payables within our statutory entities. Over the past three to five years, we've averaged an adjusted net income of about 1.3 to 1.4 times. Analyzing the longer-term trends provides a solid indication. What's crucial, as you've rightly noted, is the actual cash that can be distributed to the parent company from the subsidiaries. Our perspective remains unchanged since Investor Day, where we anticipate approximately $2 billion in share repurchase included in our guidance for 2025. Therefore, even with weaker cash flow from operations in 2024 due to shifts in receivables and payables, it does not affect our plan to repurchase $3 billion in shares that year. This is something we will monitor, and we will keep you informed as we progress through 2025 regarding the management of our payables and receivables and their effect on our operating cash flow.

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

Hi, good morning. Quick clarification, then a question. I think you mentioned that ACA effectuated enrollment turned out to be a little stronger than you expected, but I didn't hear how much better it came in. So, can you clarify that point first? And then secondly, I wanted to revisit your assumption that ACA membership could be down 20% to 30% if enhanced APTCs expire. Are buydowns contemplated within that assumption? And can you walk us through the impact that buydowns would have and how your products are positioned relative to the market if there is a shopping event next year? Thanks.

Certainly. Let me take a step back to discuss the unique open enrollment period we recently experienced due to the added program integrity checkpoints. When we evaluate our expectations against what we observed, it's important to consider how much our assumptions about the effects of those programs influenced the results during this time. In December, we projected overall market enrollment growth, but that was tempered by factors like the agent of record lock and issues with data reporting and matching. In January, we're noticing a less pronounced effect from the program integrity checkpoints, leading to effectuation rates that align with our historical trends and are slightly higher than anticipated. This is contributing to the peak we expect to exceed 5 million. Looking ahead into Q1 and Q2, particularly concerning the FTR process tied to the tax filing date and subsequent reconciliations, we still believe there may be membership impacts that unfold in these quarters. We're currently ahead of our projections, which could positively affect our full-year outlook, or it might simply reflect a delay in the impact of these programs. We intend to monitor how developments unfold over the coming months and will keep you updated on any changes. Regarding the potential impact of enhanced APTCs, we mentioned in December that if these were to expire or not be fully renewed, membership could decline by 20% to 30%. However, various scenarios exist that involve less than a complete elimination of enhanced APTCs. Whether it involves caps at different income levels or other strategies to enhance membership engagement, we've explored numerous options. Our team has dedicated considerable time over the past year analyzing these scenarios and is eager to gain further clarity in the coming months to prepare for the next open enrollment period, which may include filing two sets of bids. There are many variables at play, and we will keep you informed as we better understand the trajectory moving forward.

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

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

Yes, absolutely. As you all know, the past couple of years have been very busy regarding the RFP pipeline and addressing the backlog that developed after COVID. In 2025, we expect to return to a more typical pre-COVID rhythm. We have several states and programs undergoing standard reprocurements, and our team is continuously assessing new opportunities and preparing for growth. Concerning our protests, the Texas situation will be ongoing in the legislature and the courts throughout 2025. Initially, the potential impact on 2025 was minimal, but we anticipate gaining more clarity as the year progresses. We are also still navigating the Georgia protests, and given the complexity of this process, we expect it will take several months before we receive any feedback. On the investment side, as we've mentioned over the last year or so, we've gained some operating bandwidth moving through the core of our value creation plan, allowing us to focus on surveillance regarding inorganic growth and M&A, which we are actively monitoring. We are also looking at where we can invest to enhance our business lines. ICHRA is a particular area of interest where we are considering how the market might evolve regarding infrastructure needs and how we could support that through partnerships and investments. These are the main areas of focus, and we are always evaluating our capital usage to understand the value it can generate, including the value of Centene at current prices.

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

Hi, thank you. Just another one on your exchange growth for this year. It's great to hear that the effectuation rate was consistent with your historical norms. I know you mentioned it'll still take a few months until the full changes are well understood. But based on all the visibility you have sitting here today in February, I'm curious how much of a potential difference you think there could be now versus the next few months as you hit those checkpoints? What is the likelihood basically of a materially negative surprise in April that could compromise your exchange margin targets for the year?

The timing of the impact is an important question, which is why we want to observe how the remainder of Q1 and part of Q2 unfold, especially in relation to the FTR process and the April filing dates. The key point we want to communicate is that we've incorporated assumptions about the impact of those programs, and we'll carry those assumptions into the next few months to minimize any significant negative surprises regarding that impact. We believe we are being cautious about how this may affect Q1 and Q2, but those considerations are based on our initial assumptions about the expected impact. So far, what we've experienced has been less significant than anticipated.

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

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

Yes, good morning, guys, and thanks for taking the question. And Sarah, this is just kind of a point of clarification. On the effectuation rate, I thought that you had said there could be some upside in Q1 if the FTR hits later in the year and get back towards the normal guidance range. Is that correct? Or I guess, what I'm trying to worry about is, will this create any downside to the exchange membership outlook or guidance?

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

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

Hello, Mr. Windley. Is your line muted, perhaps?

That concludes today's question-and-answer session. I'd like to turn the conference back over to Sarah London for closing remarks.

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

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