Good day and welcome to the Centene Corporation third quarter earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. To ask, you please limit yourself to one question. Please also note, today's event is being recorded. I would now like to turn the conference over to Jennifer Gilligan, Senior Vice President, Investor Relations. Please go ahead.

Thank you, Rocco, and good morning, everyone. Thank you for joining us on our third quarter 2026 Earnings Results Conference Call. Sarah London, Chief Executive Officer, and Drew Asher, Executive Vice President and Chief Financial Officer of Centene will host this morning's call, which also can be accessed through our website 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. Specifically, our commentary on our full-year 2026 outlook, including the drivers of such outlook, are forward-looking statements. Actual results may differ materially from those indicated by those forward-looking statements as a result of various important factors. including those discussed in our third quarter 2026 press release and other public SEC filings which are available on the company's website under the investor section. Centene anticipates that subsequent events and developments may cause its estimates to change. While the company may elect to update these forward-looking statements at some point in the future, we specifically disclaim any obligation to do so. The call will also refer to certain non-GAAP measures. A reconciliation of these measures with the most directly comparable gap measures can be found in our third quarter 2026 press release. With that, I would like to turn the call over to our CEO, Sara London.

Sara? Thanks, Jen, and thank you all for joining us to review Centene's third quarter results. This morning, we reported third quarter adjusted diluted earnings per share of 58 cents ahead of our previous expectations. These results, driven by outperformance in our Medicare segment and inline performance from our Medicaid and commercial businesses, support an improved full-year financial outlook. We now expect 2026 adjusted diluted earnings per share of greater than $5.20. As we remain focused on disciplined execution to finish the year strong, we are excited to carry the positive momentum we are producing across our businesses into 2027. Let's unpack the results by business line, starting with Medicaid. Our Medicaid business was right on track for the quarter, reflecting the positive rate actions highlighted during our second quarter call and effective execution against key quality and affordability initiatives, including member and provider engagement, network management, and a diverse portfolio of fraud, waste, and abuse interventions. We reported a Medicaid HBR of 93.6, improving sequentially by 30 basis points from Q2, and keeping pace with our trajectory to achieve a full year Medicaid HBR of 93.5. Overall, core trend in the quarter was in line with expectations and the key drivers that we have been watching for the last 18 months, namely behavioral health, home health and high cost drugs, remain among our top areas of focus and intervention. On a positive note, we observed another quarter of year over year stabilization in behavioral health trend with a similar pattern beginning to emerge in home health. Evidence of the impact of our cost management and policy advocacy efforts. In the quarter, as expected, we continued to see evidence of states cleaning up eligibility ahead of OB-3 implementation, including mixed impact from New York's EP program changes. In the back half of the quarter, we also saw some increased utilization from Children's Medical Services members in Florida ahead of the program transition. In all cases, we were able to absorb that pressure with no impact to our overall trajectory. Medicaid membership tracked largely in line with expectations at quarter end. We continue to expect an incremental step down in Q4 in line with our previous view that year-end 2026 membership would reflect attrition of roughly 8% to 9% compared to year-end 2025. As a reminder, 10-1 marked both the roll-off of the Florida CMS membership as well as the beginning of OB-3 eligibility terminations for legal noncitizens, and we have at least one state planning to begin work requirements in Q4. These shifts are reflected in our full-year membership projections and we have accounted for corresponding Q4 acuity impacts in our guidance. Rate updates since July have been consistent with expectations and our view of the full-year 2026 composite rate remains steady at roughly 5%. Just over 40% of our Medicaid revenue re-rates as of 1-1 and while our view there is still early, we do see signs that rates will continue to reflect better alignment with our cost experience particularly as 2025 dates of service come more fully into focus for the look-back period. As we think about rate actions specific to the Medicaid expansion population, you'll recall that we had a few states in the 7 cohort who explicitly accounted for anticipated acuity shifts related to work requirements, mainly states with either early starts or intentional OB-3 prep activity in the period. Based on our discussions, we expect the remaining expansion states to revisit rate discussions mid-cycle once their implementation timelines and plans become clearer. For the 1-1 cohort, we are similarly seeing strong engagement in the rate setting process with explicit dialogue around the best way to address OB-3 acuity impacts as they construct and draft 2027 rates. Looking ahead, we are confident we can work with Medicaid departments across our portfolio to make progress on rate adequacy amid the evolving coverage landscape. In the meantime, our local teams are actively partnering to prepare for the implementation of work requirements. States are broadly opting for a more methodical approach to eligibility verifications, which should smooth both membership and acuity impacts across 2027 and into early 2028. This will create more opportunities to correctly calibrate rate to the ultimate mix shift. Based on state guidance, we are mobilizing to support member education, work and community resource referrals, as well as provider education and readiness support. These efforts are important to ensure that as a system we can maximize the opportunity for coverage continuity. Ultimately, we see significant opportunity for margin restoration and sustainable long-term growth in Medicaid. Our unmatched expertise and uniquely mission-driven model position us to help our state partners achieve their Medicaid program goals while supporting our members throughout their health journeys. As signs of trend stabilization emerge and policy changes advance, we look forward to helping to shape the next chapter of Medicaid managed care. Turning to Medicare, our Medicare segment results were strong in the quarter, with Medicare Advantage and standalone Part D performance both exceeding our expectations. Strength in Medicare Advantage was driven by favorable medical cost experience and continued discipline management of the business. As a result of strong execution against our turnaround plan, we are now on track to achieve break-even financial results in 2026, a year ahead of expectations. With the annual enrollment period underway, we are closely monitoring our portfolio evolution for 2027. As many on this call are aware, we made changes to the way we are going to market for Medicare Advantage in 2027. focusing our efforts on populations and geographies where we can provide differentiated products that create the most value for our members and the communities we serve. We expect Medicare Advantage membership to be down year over year in 2027 as we construct a footprint that will allow us to advance margin expansion in 2027 and beyond while delivering high quality service and benefits to our members. Earlier this month, CMS released Medicare Advantage STARS results which impact the 2028 plan year. These results, representing roughly 42% of members at or above 3.5 stars with 10% of members in 4 stars, were in line with our expectations given known program headwinds. Despite cut point pressure, the team delivered meaningful raw score improvement in key categories, including results that outpaced the industry in several measures related to preventative care and clinical outcomes. We remain focused on improving quality fundamentals and we continue to advocate for STARS reforms that will better support the vulnerable populations we serve. We believe this important work will ultimately lead to better STARS scores and the associated revenue benefit. Our standalone Part D offerings also performed well in the quarter, once again demonstrating the benefits of prudent bid posture, scale, and continued optimization of our cost structure. Reflecting year-to-date results, we now expect PDP to generate pre-tax margins in the mid to high threes, a step up from the greater than 3% outlook we shared in July. While we are still early in AEP, based on the landscape and our product positioning, we expect enrollment to tilt toward growth. We continue to see excellent long-term opportunity in Part D, leveraging a deeply established footprint and expertise that we believe uniquely positions us to provide affordable access to pharmacy benefits for American seniors. Finally, our marketplace team continues to deliver, positioning the product for meaningful year-over-year margin restoration in 2026. The marketplace business fundamentally outperformed in the quarter with trend in our higher acuity silver tier continuing to moderate. During the quarter, we received updated data and refreshed our estimates relative to 2026 independent dispute resolution activity and other standard program integrity processes. The strength of the underlying business allowed us to absorb the impact of these adjustments, and we now expect Marketplace will produce a full-year pre-tax margin at the top of our previous range of 4.5% to 5%. CMS continues their efforts to reduce unauthorized enrollments and crack down further on broker fraud. The reserves we had in place coming into Q3 sufficiently accounted for the revenue and risk adjustment impact of this activity in the quarter, and we believe we have similarly accounted for the trailing effects of these efforts through the end of the year in our full year guidance. Our full year assumptions for Marketplace also include continued membership attrition and the expected sloping of Q4 medical expenses. In September, we received updated risk adjustment data from Wakely, Reflecting claims through July of 2026 and inclusive of data on unauthorized membership. This data was in line with our expectations and we continue to expect to be in a meaningful receivable position at the end of the year. While the Embedder team has been expertly navigating a dynamic landscape, they have also found time to innovate. We will step into 2027 open enrollment with an expanded product suite, including more tailored benefit plans and whole health programs that meet our members where they are. and make it easier for them to get affordable, local and innovative support for their health. We are pleased with where Ammeter's pricing strategy has positioned our products for the 2027 shopping season and remain focused on driving additional margin expansion for Marketplace in 2027. We are proud of how this team has executed in the wake of market disruption and coverage changes, demonstrating agility in 2025 that paved the way for meaningful margin recovery in 2026. We believe we are well-positioned to harness this positive momentum as we enter the 2027 cycle. Overall, we are pleased with the performance of our core businesses in the quarter and the momentum we are building across the portfolio. And while we have made great progress managing cost trends and improving our own cost structure, I am equally excited about the impact the CEN team has had delivering health outcomes for our members. One example of this is the work we have done across the country to turn food from a basic need into a powerful driver of health and affordability. For example, our Nebraska Total Care team has partnered with a leading grocer to offer a healthy food benefit with incremental rewards for evidence-based nutrition counseling, education, and blood sugar screenings to re-engage at-risk members and drive behaviors that improve diabetes management. Improving quality of life, encouraging healthy choices, and supporting chronic disease management are just some of the ways our members can benefit from healthy food programs. Along the same lines, over the last two years, Centene has taken a data-driven approach to designing our Medicare D-SNP supplemental benefits around groceries, housing and transportation based on a hypothesis that by investing in critical needs like food insecurity, we would not only be offering an attractive benefit for enrollees, but one that we know drives better health outcomes. Over the last two quarters, we've completed analyses of these member cohorts and saw that members with higher healthy food benefits had almost $200 per member per month in lower claims spend and better clinical outcomes, including lower blood pressure, HbA1c, and BMI. By using proven models, prioritizing rigorous data-driven evaluation, and embracing innovation, Centene is delivering on the promise of managed care, better outcomes, lower costs, and improve quality for the members we serve. As we turn our focus to next year, we look forward to building on the important progress we are making operationally, financially and relative to the impact we have on our members and the communities we serve. Drew will speak to headwinds and tailwinds in more detail in a moment, but based on what we know today, we expect to grow earnings in 2027 off both our updated baseline and our updated guidance. We'll be able to provide more precision on this view as we gain visibility into AEP and OEP performance, 1-1 Medicaid rates, and the overall exit trajectory of the businesses. We look forward to sharing more details when we issue formal 2027 guidance in early February. With that, I'll turn it over to Drew to provide more detail on the quarter and our early view of 2027. Thank you, Sara.

We are pleased to report another very good quarter on our path to margin restoration including $45.1 billion in premium and service revenue and adjusted diluted earnings per share of 58 cents. This was better than our expectations such that we are raising our full year adjusted EPS guidance to greater than $5.20 per diluted share. Similarly, The consolidated HBR at 92.7% was better than our expectations, fueling a full year improvement in our 2026 HBR guidance. Let's go through the drivers so that you can think about 2026 progress in the context of 2027 and beyond. In Medicaid, at 93.6% in Q3, we were right on track with our full year forecast of approximately 93.5%. We ended Q3 with 11.9 million members, down 5% year-to-date, and we expect some states to continue to trim Medicaid roles leading up to OB-3 implementation in 2027, so we are holding our full year view of membership down 8-9%, along with the 2026 forecasted 93.5% HBR. Our full year view on rates and trend has not changed since our Q2 call, and we still see good collaboration and recognition by states for the need to match rates with acuity and trend. We are pleased with the stability of Medicaid and look forward to continued HBR improvement ahead. Medicare segment results, including an HBR at 93.8%, were stronger than expected, driven by both Medicare Advantage and PDP, with PDP representing the majority of the outperformance. Medicare trend was lower than what we had planned for as we continue to execute on trend management initiatives. As Sarah mentioned, we are pleased to be forecasting to reach Medicare Advantage breakeven in 2026, a year earlier than our multi-year plan. And PDP continues to perform strongly with the 2026 forecasted pre-tax margin in the mid to high threes zone. The commercial segment led by Marketplace continues to demonstrate a marvelous turnaround from 2025. In the quarter, we were on track and we were able to cover both rounds of CMS unauthorized enrollment as previously anticipated. In addition, in Q3, we reflected other program integrity measures as well as continued headwinds from certain providers gaming the system with the independent dispute resolution process prompted by the No Surprises Act. We are working with the administration and Congress on plugging the holes that are prompting this healthcare system waste and abuse. The strength of our underlying performance in Marketplace enabled us to account for these matters without missing a beat. In fact, the underlying strength enabled us to move to the top of our previous 4.5% to 5% pre-tax range for 2026. Marketplace membership was slightly down from Q2 with a year-end forecast around 3.2 million members. The improved outlook on Medicare and commercial segments for 2026 improves our full-year consolidated HBR by 15 basis points at the midpoint. Our adjusted SG&A expense ratio was 6.5% in the third quarter compared to 7.0% last year, a little better than our expectations reflecting continued discipline and execution. With anticipated Q4 seasonality and spending, we are holding at a full year midpoint of 7.2% for 2026. We are also holding the guidance of approximately 1.5 billion of investment and other income for 2026. We ended the quarter with 175 million of cash available for general corporate use. Since our Q2 call, we repurchased an additional $1.1 billion of senior notes, including the full redemption of our senior notes due 2027 during October. So our total debt as we sit here today is $15.0 billion, down from $18.5 billion at the end of 2024. This not only helps address near-term maturities, It reduces interest expense, including avoiding higher current interest rates, and maybe most importantly, creates capacity for growth opportunities down the road. We ended the quarter with a debt-to-cap ratio of 41.1%. Our medical claims liability totaled $21.5 billion and represents 48 days in claims payable, an increase of one day as compared to the second quarter of 2026. During the third quarter, cash flow used by operations was $3.7 billion. As expected and previewed during the Q2 call, we paid out over $3 billion of Medicaid pass-through payments that were sitting on our balance sheet at the end of Q2. Cash flow provided by operations was $4.3 billion year-to-date, driven by net earnings and the timing of claims and other payments. Overall, given the strength of the quarter, we now expect greater than $5.20 of adjusted diluted EPS in 2026. This increase from prior guidance of greater than $4.80 is driven by, one, continued strength in our Medicare segment led by PDP, two, moving our marketplace pre-tax margin expectation up to the top of the prior 4.5% to 5% range, and three, Lower interest expense to a midpoint of $610 million. We are pleased to be forecasting significant EPS improvement from 2025 and we look forward to showing continued progress of earnings restoration ahead. Now let's review 2026 in the context of 2027 and beyond, starting with our current 2026 adjusted EPS guidance of greater than $5.20. Recalling our discussion on the Q2 call, 2026 earnings includes 50 cents that we wouldn't expect to recur in 2027. As we detailed at the end of July, the 50 cents represented $180 million in marketplace and $160 million in our Medicare segment, largely PDP. Overall, we believe the appropriate jump-off point upon which to apply 2027 tailwinds and headwinds is approximately $4.70 of adjusted EPS. As we sit here today with still a quarter of 2026 to deliver and other open items such as open enrollment in three of our lines of business and partial visibility on 2027 Medicaid rates, We expect to grow adjusted EPS relative to not only the $4.70 jump off, but also relative to our revised $5.20 2026 adjusted EPS guidance. Underneath that, here are some of the 2027 drivers, most of which we have covered heretofore. For selected tailwinds relative to the $4.70 2026 jump off point, We are currently forecasting continued progress matching Medicaid rates with acuity, though partially offset by OB-3 headwinds, such that we still expect slight improvement in the Medicaid HBR. Improved marketplace pre-tax margin. Medicare Advantage moving from break-even in 2026 to better than break-even in 2027. PDP membership growth and an increase in premium yield given the increase in the direct subsidy and an improved SG&A rate on a consolidated basis. For a couple of selected headwinds, we are currently forecasting membership attrition in Medicaid from OB-3 and the removal of the unsatisfactory immigration status population from managed care in California. and PDP 2026 pre-tax margin outperformance resetting, at least initially in 2027, to a lower margin. Hopefully that gives you some early insight into where we sit here in October of 2026. We have a lot of work to do to finish 2026 strong and construct and finalize a plan for 2027 that will be the basis of initial guidance we intend to provide on our Q4 call. Chris Nezepor, our next CFO, has been side-by-side with me and the finance team for the last couple of months, and we both look forward to sharing results with you on the Q4 call in February. Thank you for your interest in Centene, and Rocco, please open it up for questions.

Absolutely. If you would like to ask a question, please press star then 1 on your telephone keypad. If you're using a speakerphone, we ask that you please pick up your handset before pressing the keys. If at any time your question has been addressed, you'd like to withdraw your question, please press stars and two. And once again, we do ask that you please limit yourself to one question. And today's first question comes from Dave Windley at Jefferies. Please go ahead.

Oh, great. Thanks for taking my question. So you answered a number of the questions or a number of the topics around Medicaid. I guess I'd be interested in a little more color around the dialogue you're having with states and the prospective rate adjustments that they seem to be at least some of them seem to be willing to provide. Can you give us any color on that and kind of the mechanism by which they are doing that given their desire to look back at rates and then you know more specifically what you're expecting for 1-1? Thanks.

Yeah, thanks, Dave, for the question. Obviously, very relevant because we're in flight in those conversations as we look at the 1-1 cohort. It is still early, but I would say that we are seeing positive signal in terms of, first of all, a very high engagement rate, really good conversation and data exchange. We have a number of states that have already put explicit provisions in their draft rates. and then we have others that are still evaluating but it is really consistent with where they are in the drafting process. I think what we are seeing is two things. One is the sort of increased benefit of having 2025 come into the baseline period. That's obviously more relative to kind of core trend that we've been battling for the last 18 months but we're also seeing states acknowledge the need to prospectively account for the acuity shifts of work requirements. And I think the hypothesis that we had coming into this process that because the Medicaid expansion population is a very discrete population, they're rated in a very specific cell, and actually because a lot of the work the states have done to prepare for the process has required them to go get data, right, to figure out what their fail-to definition would be, to get those codes together. to define the community exemption kind of data framework. It means actuaries have more data than we did going into the redeterminations process to actually scenario model the impact on the population. So we saw in that 7 cohort, we had a few states that were explicitly stepping into work requirements activity, put those in the rates prospectively. I feel like we're seeing that same trend stepping into the 1 cohort. We've got really good verbal dialogue with the states that, you know, 7-1 cohort that would come back mid-cycle. And I think we're continuing to see strong support from CMS in terms of the requirement for explicit explanation of provision around work requirement impact in the rates and encouragement around mid-cycle adjustments and the ability to leverage current period as they set those rates rather than requiring the look back as they have on more sort of traditional trends. So early but positive signals in terms of what we're seeing.

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

Thanks. Good morning. Just a couple quick numbers questions. First on the exchanges going into 2027, I'm curious on how you expect the market as well as your own growth to kind of shape up. Do you think the exchange market overall kind of grows in 2027? And then just quickly, Drew, on your PDP comments, you talked about a reset to margins. Should we expect a reset back to target at 3% or back to where you initially guided 2026 at 2%? Thank you.

Thanks, Justin. I'll hit the exchanges and then turn it over to Drew for PDP. I think coming into 2027, our view, and if you think about sort of the significant changes of 2026 relative to expiration of the EAPTCs, our view was that there would be the most significant shift in 2026, but some degree of tail into 2027, just in terms of the program integrity measures really sort of readjusting the baseline of membership. So, Our expectations for market overall are still some degrees like contraction. And then our membership is TBD. It's a little too early. We need to see the results of open enrollment period. But I would say we feel very good about how the team positioned the products across our geographies with a focus on driving continued margin expansion in 2027.

Yeah, Justin, on PDP, we feel good about our positioning. Obviously, we've entered the open enrollment period and like our positioning, not just in the low-income population, but also in the enhanced product as well. So excited to be able to forecast some growth there. And then to your point, yes, we typically bring back, at least for initial guidance, to a more of a target margin. I'd say in 25 and 26 coming out of the chute, that was artificially suppressed because of the Inflation Reduction Act. You'll recall we came out at 1% in 2025 and 2% as our initial targets in 2026. We're sort of past that wear off of the Inflation Reduction Act. We still need to get data from open enrollment, but probably somewhere in that 2% to 3% range would be the opening expectation for PDP for the year, and then we would work our tails off to outperform that during the year.

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

Yeah, hi, thanks. Appreciate the color in the exchanges. I was wondering if you might be willing to call out, I guess, how much of an issue in the quarter this IDR catch-up was, just so we can think about bridging to a reasonable Q4. And then if we look at where you're trending for the full year MLR, I guess it looks like it's probably going to exceed the initial guidance that you staked out in February, but you're still talking about achieving the high end of this revised margin that you've laid out. Could you help us just kind of bridge some of these moving pieces and why you're still expecting that level of outperformance? Thank you.

Yeah, Steven, thanks for the questions. You know, if you step back, well, first of all, it's good to understand that marketplace is not the only item within the commercial segment. I know it's almost all of the segment, but there's about 4 billion of commercial group business in there, which does weigh on the results for the commercial segment. And as you've probably picked up in the press, we've, you know, we have decided to exit the health net commercial group business largely in California. and that will we'll be able to exit on a very orderly fashion over the next all at 18 to 24 months so that's part of it but when I step back and look at the marketplace P&L we're going from a minus one percent pre-tax margin last year as we talked about in 25 to a now five percent forecasted pre-tax margin so that's 600 basis points of pre-tax margin improvement and the HBR largely tracks with that. So we're sort of hitting, you know, we're doing better than expected in marketplace. The underlying fundamentals are good. And to your point, the underlying fundamentals for the quarter essentially help pay for bolstering the IDR reserves based upon data we got and took a look back of the run out of 2025 Some of the run out of IDR assertions and claims and look at other program integrity measures like coordination of benefits to make sure that we don't get stung in the future by any past items. So we don't expect that bolus to recur in Q4, hence the continued execution and underlying strong trend performance in marketplace gets us to the top end of that range so we can produce a 5% pre-tax margin which is I think in my history in managed care is an incredible turnaround from what we saw in the summer of 2025.

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

Hi, everybody. I might just ask you about G&A. That's obviously been part of the outperformance in the recent quarters. Where are you at with respect to rightsizing? I know that's been part of the driver of improved G&A performance, but also any other initiatives and where those stand. And if I could just tack on one little specific one. Drew mentioned that you've got seasonality reflected in 4Q for the public exchanges. Is that normal seasonality or is there any reason given The loss of the tax credits, etc. I think that there might be more step up in utilization in the fourth quarter this year.

Yeah, thanks, AJ. I'll hit the last one quickly, which is that is normal seasonality, particularly for those businesses that are commission-based, that are going through enrollment periods in Q4. So nothing out of normal there. Relative to overall GNA, obviously, it was slightly favorable in the quarter. And as you've heard us talk about, we continue to be focused on optimizing the enterprise, really thinking about how to simplify the organization, simplify our processes, all in service of delivering industry-leading health outcomes with an industry-leading cost structure. And so that has been an ongoing effort. I think there are a number of initiatives around that, everything from streamlining our processes, driving further automation. We've made tremendous progress over the last couple of quarters from a data and context layer standpoint to start to implement ROI-driven AI in order to make our team members smarter and faster at the work they're doing to service members. And so feel good about what we've delivered in 26, and as you heard from Drew, We see SG&A as a driver of improvement and a tailwind in 2027, so continue to believe that we'll build momentum around those efforts and see those materialize in 2027.

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

Great. Thanks. Good morning, and thank you for the question. I just want to ask about commercial for 2027. How should we think about pricing in 2027 versus 2026? And how should we think about metal mix in 2027 versus 2026? And any major learnings from kind of this mix shift from silver versus gold versus bronze this year going into next? Thanks.

Yeah, thanks, Anne. So the team took, you know, as usual, While we operate in a significant number of states, we actually break that down county by county. So the granularity of the portfolio that we use to construct pricing is pretty significant. And the team did an excellent job thinking about where there would be opportunities for growth, where there are opportunities to harvest additional margin, again, with sort of the net goal of the portfolio to balance both Improved margin yet again year over year, 26 to 27, but also trying to make sure that we are offering affordable products to folks who need insurance coverage in the individual marketplace. So as we thought about year over year pricing, obviously the portfolio saw and the market saw pricing increases not as significant as last year, but trying to incorporate both what we're seeing in terms of trend as well as the expectation for additional acuity shifts as we believe that there will be some of that you know additional sort of lingering market contraction. Obviously 2026 broadly saw a huge shift out of silver and into the bronze metal tier and better moved in that direction as well but made a less significant move than our peers and a lot of that was based on historical experience with the bronze product and just being really thoughtful about the desire to recover margin in 2026. So I don't think you would expect some huge shift in our overall metals here, but we do continue to see bronze as a really important part of the portfolio and took that into account as we constructed the 2027 strategy.

Thank you. Our next question today comes from Andrew Mock at Barclays. Please go ahead.

Hi, good morning. Wanted to follow up on the G&A comments. Last quarter you called out $480 million of workforce and enterprise optimization costs that would be excluded from results this year, and we saw the severance adjustment increase to $276 million in the quarter. Can you give us a sense of the expected annualized savings from these initiatives? Should we think about the benefit being one-to-one with the cost adjustments or something closer to half that? And how should we think about the cadence of those savings across 2026 and 2027? Thanks.

Yeah, you're right on the $480 million, Andrew. And we took most of that in Q3. There's still some more in Q4, and that will probably trail and some of that gets amortized into service periods. maybe into early 27. That's all outside of adjusted. So the 480 still stands with respect to sort of the broad workforce and enterprise optimization execution that we're undertaking. And then to your point, that is one of the drivers of the view that a tailwind for next year is that the SG&A rate will come down As you know, on a consolidated basis, the percentage will come down. Now, some of that might be mixed, but a fair amount of that should be like durable improvements in the company. And so we're not prepared yet to map that out quarter to quarter, but, you know, that will occur throughout the year.

Thank you. Our next question today comes from Sarah James at Cancer for the World. Please go ahead.

Thank you. On Medicaid, you said that the 4Q acuity impacts are in guidance with the trend unchanged. So how much of the 50 bps cushion on cost trend have you absorbed so far versus what's the acuity lift expected in 4Q? And on HICS, are you able to break out how much of the back half slope is coming from just Bronze VIX versus Anything else going on in your benefit design or the market? Thanks.

Sure. Thanks, Sarah. So just a reminder about the 50 BIP. So we saw stronger rates in the 7-1 cohort and adjusted our full year view. Sorry, just the back half view to account for the drop off in membership that we expected sort of going down year over year eight to 9% and the acuity shift that would come with that and so match that up to the 50 basis points. What we saw, as I mentioned in my prepared remarks, we saw some of that acuity shift and some of the utilization in Q3 matched up against so that chewed up some of the 50 basis points. But if you look at just the membership shift, we were down roughly 200,000 members in the quarter which was in line with expectation but since we still expect to be down eight to nine percent year over year that means we are anticipating a bigger step down in Q4 and would therefore expect the bigger impact of the acuity shift and would have held more of that coverage in Q4. So all in all I think we feel well positioned as we look at Q4 and then Again, it is still early, but it is certainly promising to see some of those signals of continued stabilization of core trend in the business in those persistent pockets of behavioral health and home health that we have been working against for the last, call it six quarters. You know, feeling good about stepping into Q4 and 2027 and sort of our overall goal of continuing to drive HBR improvement despite the fact that we're going to need to work through work requirements. And then relative to HICS and the back half sloping, we are not seeing anything unexpected relative to bronze membership. Obviously, you know, traditional seasonality expects some higher utilization Q3 and Q4 for the bronze membership but they're really tracking directly in line with our expectation what we saw in Q3 which is really a continuation of what we saw in Q2 relative to moderating trend that drove the underlying performance of the business in the quarter and then we expect to continue into Q4 was moderating trend in that high acuity silver membership so again that feels sort of durable and like it will continue which then drives us up to the top end of the previously guided PTI range for Marketplace.

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

Great, thanks. Maybe just to kind of tie a couple of the previous questions back. The acuity shift that you guys are expecting in Q4, How should we think about that as it pertains to the acuity shift in 2027? Are we expecting that this is going to wipe out a lot of that big shift? Or would we expect a 2027 lost enrollment to have a similar headwind to MLR as this 8-9% has had? And I'm just really trying to narrow in on that. Yeah, thanks, Kevin. I do think, as we've looked at it, that the acuity shifting largely that we've seen in 2016

So far and expect to continue into Q4 is really a pull forward of acuity shift that would have otherwise happened as a function of work requirements. So as we've said before, a lot of this, not all, but a lot of this is the tightening of eligibility of sort of the baseline cohort for the Medicaid expansion And that's again consistent with the acuity shifts that we've been seeing. And so the degree to which we can frankly chew through that in 2026 is better than it otherwise would have been for trying to chew through that in 2027. So we actually see that as a net positive. And then as we think about the sort of margin trajectory of the business in 2027, I think the biggest thing that is a concern is a dislocation between rate and acuity because of the fact that we are going to see disenrollments from the implementation of work requirements. And so with that in mind, I think what we've been paying a lot of attention to are the signals that are coming through the process as we work with states to implement in terms of what might de-risk That gap between rate and acuity. So think about, you know, and as I take a step back, I think about the fact that, you know, although it is early, the fact that we are seeing early signals of trends starting to stabilize and persist in those persistent drivers, you know, is a positive thing. We are seeing strength in base rates. So I think we started four and a half percent. We're now at composite five. And as we think about the one one cohort, We are seeing the 25 base data more squarely come into the look-back period, and that would be supportive of rate construction. We are seeing good momentum from states explicitly putting work requirements adjustments prospectively into the rates, and that is different, materially different from what we saw during the redeterminations period. So states' understanding is they need to account for that ahead of time. and we've got really good data to support that modeling. We also have, I think, signals that other than the California UIS population, there's not going to be some big bang, one-one. States are taking a more methodical approach. Think about a 60-day notice period that starts one-ones. You don't see membership start to roll off until the end of the first quarter. that stretches that membership shift across multiple rate cycles so the ability to catch up and again de-risk the idea that there would be a dislocation between rate and acuity and then we continue to have a really robust pipeline of quality and affordability initiatives that we have been executing on and we're seeing the results of and we have more to go so net net I think everybody is Right to be focused on the potential for a dislocation between rate and acuity. But I would say where we stand today, there are more positive signals than negative, probably for the first time in a long while. And so that's really what we are leaning into relative to, you know, continuing to drive HBR improvement in 2027 and frankly, de-risk. Exactly what you pointed out would be the concern of what would create a headwind for otherwise normal margin recovery in Medicaid.

Thank you. Our next question today comes from John Stancil at J.P. Morgan. Please go ahead.

Great. Thanks for taking the question. I wanted to follow up on some of those commentary and talk about Nebraska. It seems like some of the renewals have run in the low 90s there. Some of that might be attributed to the higher than expected medical frailty contribution, but are there any learnings from the implementation, obviously not material driver, but what you've taken away from those early months as you look into 27?

Yeah, it's a great question. It's obviously one state, and with Medicaid, you know, one is one, but I do think that between what we're seeing in Nebraska, which is largely in line with our expectations in terms of sort of net membership roll off. We are seeing what you called out, which is the vast majority of members who bring forward data relative to eligibility are being re-enrolled. I think there is some important signal in there in terms of, again, a broad view that states are approaching this with the idea that members who demonstrate eligibility should continue to have access to Medicaid coverage. all so different from what we saw in redeterminations. There are levers available to states that they are very strongly considering and in some cases implementing to provide, again, a safety net and sort of a gap measure relative to what otherwise would be sort of administrative issue and error that would kick people off their rolls. So think about the ability to leverage self-attestations for the first year relative to frailty Not concerned that that's going to create some secondary drop-off of membership, but rather that it gives folks who are medically frail and have a harder time navigating complex process a little bit more time to effectively do that. So I would say on track relative to membership and acuity expectations, I think the bigger, which is great, I think the bigger takeaway is sort of a broader leaning towards coverage continuity relative to the process, a smarter process, a more prospective process, and a more data-driven process. So early but all sort of leans positive.

Thank you. Our next question today comes from Lance Wilkes at Bernstein. Please go ahead.

Great, thanks. Just a couple follow-up questions on Part D. If you could talk a little bit about retention levels that you've experienced traditionally in that and any sort of margin differences between new members and retained members and then maybe the overall G&A level you guys experience in Part D and then maybe as one tack on as we're about to hit the midterms. If you wanted to give us any perspective on policy levers that you think a Democratic House and or Senate could try to extract that might have any sort of impacts on One Big Beautiful Bill, or any of the Medicaid changes. Thanks.

Yeah, Lance, why don't I hit policy quickly, and then I'll let Drew hit the four-parter on Part D. From a policy standpoint, I would say, you know, the conversations we've had with Democratic leaders, very focused on healthcare access and affordability. And so I think, you know, there's an opportunity to Thank you for joining us today. Absolutely bipartisan support for government programs as a critical safety net and don't think that is going to go away. I think we have the ability to further strengthen those. And then the last thing that I would say that I think is interesting is, you know, as we think about the individual marketplace and affordable coverage for working Americans, really thinking about And so those are some of the things, again, in a bipartisan way that we are focused on as we turn, you know, out of the midterms.

Lance, you bring up a couple of good questions on PDP. In fact, one of them, think about the direct subsidy going from $143 to $200 and now $254. You don't need a whole lot of extra GNA to administer the same members, even though you're taking on more of the risk, you know, with the changes of the IRA. So therefore, that SG&A rate has been driven down because of that math to, let's say, a low to mid single digit percentage. What that does is that pushes up the HBR because you set a target margin and then you sort of plow The difference in the benefits and so optically that HBR goes up but you're still we're still able to achieve at least in this year a mid to high threes margin so hopefully help that helps you understand sort of the progression from year to year of that dynamic SG&A going down HBR going up but able to sort of drive a really good margin in that business and we've been pretty good with a cross-section whether it's the auto assigns where we're As we said, I think at the Deutsche Conference, we are under the benchmark or within de minimis for all 34 regions. So we're going to have a pickup of some AutoAssign memberships. They're decent performers. And then the enhanced product as well, we would expect some growth going into 2027, just like we grew from about 8.1 million members in 25 to 8.9 or 9 this year. and the year before that you know we grew a little over a million members and the year before that we grew a couple million members so we're pretty good at balancing the and administering the risk balance across sort of a broad distributed portfolio so we like growth in both the enhanced and the basic products.

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

Good morning and thanks for the question, guys. Speaking of Deutsche, I guess two quick questions. Number one, given the comments from your peers, any change you would comment on the order of magnitude of margin increase expectation in the core MA business for next year? And then just given that you've talked about a little bit of margin expansion in Medicaid, Just from where we are, could you give us a high-level view of expectations of rate and trend, like what are the assumptions for 27? Thanks.

Yeah, thanks, George. It's still, I think, too early to comment on 2027, but you heard from Drew, headwinds and tailwinds. Obviously, very pleased to be reaching break-even in MA a year early, and that creates a new jump-off point, so we would expect expanded margin in 2027. on a path ultimately over the next couple of years to long-term target margins. So more to come early in open enrollment, but feel good that we have constructed a strategy to get to that footprint that will sort of allow us to not just be profitable in 27, but in 28 as well and beyond. And then relative to rate and trend for Medicaid, again, there's a lot that we want to see in terms of how Some of the early signals that we're seeing play out in Q4. We are early in the 1-1 cycle, so we have some of those draft rates, not all. Nobody's sitting in a final state. So a lot of that will be part of the update that we provide in February. Again, what we're seeing there in terms of really constructive conversations, the benefit of 25 coming in to inform sort of the base rate data, the willingness to consider the right explicit provision for the acuity shift of work requirements, and then probably the biggest thing in terms of what's in our control is just a very robust pipeline of cost management initiatives that we've I think executed really well on over the last 18 months or so and we've still got quite a bit of room to run there. So more to come in February but feel good about where we're sitting against 27 for both of those products. Obviously with Medicaid we're going to have membership reductions so we're going to need to work our way through that but continue to be committed to driving some HBR improvement.

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

Thank you. As we think about next week's midterm elections and work requirements going live on 1.1, how are you thinking about or factoring in the potential risks that could arise from new state leadership changes? Governors, newly appointed Medicaid directors, how could that potential leadership handoff across a number of your states impact or Disrupt Implementation and Execution into Early 27. And then also wanted to ask you for just a bit more detail on how do you actually assess state readiness into one-one go-live? Like for example, how many of your states can actually handle things like ex-part-tire renewals at scale? Thank you.

Yeah, it's a good question, Michael, because the reality is across the 30-state portfolio, states are always going to sit along a continuum in terms of Capabilities, but also kind of their approach. And so our strategy has been to make sure that we are at maximum readiness in every state and that we are leaning in as much as possible to sort of gap or support states in areas where they're still working through things. So there are states that are still working on their definition of medically frail, but we've done a lot of work to make sure, again, we're in active dialogue with them every week, getting updates, sharing what we've seen as definitions in other states. We've done a lot of data work on our side to be prepared for as soon as we get those definitions, being able to load them, run them, provide data to the states, but also use it on our end to model the impact. So I think, you know, big thing is kind of what's the implementation process going to be. Do they have the frailty definition? How may or may not they leverage self-attestations? The degree to which MCOs can, you know, support member and provider outreach. And so, again, every state's a little bit different. They're in the, you know, active process right now of kind of formalizing that guidance, but we've been talking to them about that for months. And then as we think about work requirements and what, you know, 39 gubernatorial elections, obviously it matters in the expansion states, but we have a long history of working through, you know, election transitions and we've got strong relationships with the Medicaid agencies that are going to be sort of the consistent pillar as, you know, as administrations change. and so just making sure that we know what's coming, we know what might change, being able to be very agile, but I don't know that I see significant disruption just given that it is a federal framework that folks must execute against and the reality is that even if what we're seeing is more methodical, as I said, in terms of the approach, I think even if you had states that somehow wanted to get more aggressive, there is sort of a practical reality to just the administrative burden of this. And I think that becomes sort of a control framework for how this ultimately gets rolled out.

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

Oh, hi. Thank you. Good morning. Just sort of the two pieces to this question on Medicaid. The first, just if you could expand out a little bit more just on that higher utilization comment that you said on Florida CMS in terms of just, I guess, the scope of that sort of increase in the utilization. Obviously, we know that you're going to be exiting that contract, but just curious about that. And then the second thing would be one element of sort of recent policy change that CMS made in terms of shifting the 1115 waivers to budget neutral for in terms of federal spending and the actuarial sort of test that they'll do around that. How are you thinking about that in terms of sort of the headwinds for the overall Medicaid market and just given how much expansion of rates and benefits have been included in the 1115 waivers, you know, over the last decade, and the fact that it now accounts for around one-third of federal spending overall in Medicaid. Thanks.

Yeah, sure. So, in Florida, we saw a slight uptick at the end of the quarter, so I think September, largely, we assume, driven by folks who were sort of anxious relative to the program transition, so not, you know, significant and not persisting, because we did execute the transition on 10-1. And then relative to the 11-15 waivers, I don't know that we expect a significant impact there. I think states obviously will need to be thoughtful or maybe some degree of curbing of innovation in terms of how folks use that vehicle. But I think the desire was always to have those to a large degree be budget neutral. This is just sort of more You know, seriously kind of enforcing that, but I don't think we expect a major impact from that.

Thank you. That concludes our question and answer session. I'd like to turn the conference back over to Sarah London for closing remarks.

Thanks, Rocco. Thanks, everyone, for joining. We are obviously pleased with the results that we delivered this morning and with the outlook of the business as we head towards 2027. I'd like to close with a shout-out to the CEN team. You have worked tirelessly over the last year to prove how strong and resilient this company is. And in doing so, you made sure we never lost sight of our mission. And I want to thank all of you for your leadership. I hope everyone has a great day.

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