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Dive summary:
- Centene posted a net loss of $6.6 billion in the third quarter after posting a massive charge that reflects the company’s waning value amid challenging market conditions, including Republican cuts to the healthcare system.
- Centene recorded a noncash goodwill impairment charge of $6.7 billion, pushing the payer into the red. Without the charge, which has no effect on Centene’s underlying cash or operations, the company would have posted a small profit.
- Overall, executives said they were satisfied with Centene’s performance in the quarterincluding keeping rising medical costs in Medicaid and the Affordable Care Act exchanges in check. Centene raised its full-year profit outlook following the results.
Diving information:
In the midst of what is turning out to be a very mixed quarter, Rye The results, which beat Wall Street expectations, are “quite positive,” TD Cowen analyst Ryan Langston wrote in a note Wednesday morning.
Although they declined year over year, the St. Louis-based insurer’s earnings improved compared to the second quarter on an adjusted basis, which the companies say is a better measure of actual performance.
On an unadjusted basis, Centene’s earnings were weighed down by the impairment charge the company filed to realign its value on its balance sheet with its market value, which has plummeted this year.
In July, Centene shares hit their lowest point in a decade after the insurer posted dismal second-quarter results, wiping out billions of dollars in value.
The GOP’s so-called “One Big Beautiful Bill,” signed into law that same month, which includes sweeping cuts to Medicaid and revamps the ACA in a way that will reduce enrollment, also hurt the company’s goodwill and boosted the impairment charge, executives said.
But operationally, Centene is making good progress in its turnaround, executives said. The company’s medical loss ratio, a gauge of patient care spending, was 92.7% in the third quarter, down from 89.2% in the same period last year, but declined sequentially and was lower than analysts expected.
Utilization remains high in Medicaid, Centene’s core business. The safety net insurance program represents 45% of Centene’s nearly 28 million physician members and 52% of its $44.9 billion in premium and service revenue.
According to executives, medical spending on Medicaid has skyrocketed particularly on behavioral health, home and community-based services and high-cost medications. Insurers say they have found it difficult to absorb high Medicaid utilization, as states’ payment rates are inadequate to cover the trend.
However, Centene’s Medicaid MLR improved in the quarter, a bright spot that Centene attributed to better clinical management, the removal of abusive providers from its networks and a retroactive increase in revenue in Florida.
Advocating for higher rates with their state partners also helped. Previously, Centene expected its Medicaid compound rate to be 5% this year. It now expects it to be slightly higher, at 5.5%, CEO Sarah London told investors during a phone call Wednesday morning.
“We are pleased to be making real progress on our Medicaid margin improvement agenda, but we are certainly not claiming victory,” London said.
Given the challenges, Centene expects its Medicaid margins to remain stable in 2026.
Utilization also remains high in Centene’s ACA business, which covers 5.8 million people, although the trend is not higher than Centene expected. The company is preparing for a possible rebound in spending in the fourth quarter as ACA enrollees use more health care before the possible expiration of enhanced subsidies for ACA plans at the end of 2025.
Centene has also increased rates for its 2026 ACA plans to reflect increased utilization and the expected expiration of enhanced premium tax credits.
Insurers on the ACA exchanges are raising premiums virtually across the board, bracing for an exodus of healthy, lower-cost members from the ACA exchanges after subsidies, which made the plans significantly more affordable for enrollees, expire.
On average, Centene achieved percentage rate increases in the “mid-30s,” London said.
The insurer was able to modify the price of its plans in states that cover 95% of its current membership. When it couldn’t get a high enough increase, Centene “took additional steps to minimize the impact on the margin,” London said.
The future of subsidies is driving the current government shutdown. Democrats generally aim to expand financial assistance as soon as possible, while Republicans argue the issue can wait until the government reopens.
Congress apparently still has time to act (the subsidies expire Dec. 31), but the longer lawmakers wait, the harder it will be for insurers and state regulators to reflect any changes in enrollment portals and in contact with members who may have been spooked by notices of initial price increases.
Centene expects its ACA business to post slight losses this year. But “while the political outlook remains uncertain, based on what we know today, we believe we have positioned the portfolio well for significant margin improvement in 2026,” London said.
Overall, Centene reported revenue of $49.7 billion in the third quarter, an 18% year-over-year increase due to premium growth due to more members in ACA plans and rate increases in Medicaid. The company’s loss of $6.6 billion compares with revenue of $713 million in the same period last year.
Centene now expects to generate at least $2 in adjusted earnings per share this year, up from its previous target of $1.75.
