CENTENE CORP (CNC)

CIK: 0001071739. SIC: 6324 Hospital & Medical Service Plans. Latest 10-K as of: 2026-02-17.

SIC breadcrumb: Finance, Insurance, And Real Estate > Insurance Carriers > SIC 6324 Hospital & Medical Service Plans

SEC company page: https://www.sec.gov/edgar/browse/?CIK=1071739. Latest filing source: 0001071739-26-000049.

Selected Fundamentals

Financials

Annual standardized facts from SEC companyfacts as of latest extracted filing date 2026-02-17. Source: https://data.sec.gov/api/xbrl/companyfacts/CIK0001071739.json. Derived margins are computed from the extracted annual SEC facts.

Flow metrics use full-year FY periods from 10-K/10-K/A filings; balance-sheet metrics use FY-end instants. Missing metrics are omitted rather than fabricated.

Financial Charts

Macro Cross-References

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• UNRATE - Unemployment Rate
• FEDFUNDS - Federal Funds Effective Rate
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• DGS30 - Market Yield on U.S. Treasury Securities at 30-Year Constant Maturity
• T10Y2Y - 10-Year Treasury Constant Maturity Minus 2-Year Treasury Constant Maturity
• CPILFESL - Consumer Price Index for All Urban Consumers: All Items Less Food and Energy
• CPIUFDSL - Consumer Price Index for All Urban Consumers: Food
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• CIVPART - Labor Force Participation Rate
• EMRATIO - Employment-Population Ratio
• UNEMPLOY - Unemployed
• CE16OV - Employment Level
• ICSA - Initial Claims
• JTSJOL - Job Openings: Total Nonfarm
• JTSQUR - Quits: Total Nonfarm
• GDPC1 - Real Gross Domestic Product
• A191RL1Q225SBEA - Real Gross Domestic Product: Percent Change from Preceding Period
• INDPRO - Industrial Production: Total Index
• TCU - Capacity Utilization: Total Index
• HOUST - New Privately-Owned Housing Units Started: Total Units
• PERMIT - New Privately-Owned Housing Units Authorized in Permit-Issuing Places: Total Units
• RSAFS - Advance Retail Sales: Retail Trade
• PCE - Personal Consumption Expenditures
• DSPIC96 - Real Disposable Personal Income
• PSAVERT - Personal Saving Rate
• M2SL - M2
• BOPGSTB - U.S. International Trade in Goods and Services: Balance

Latest 10-K MD&A

Extracted between Item 7 and the next Item 7A/8 heading after HTML sanitization. Confidence: high. Filing date: 2026-02-17. Report date: 2025-12-31.

ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following discussion of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes included elsewhere in this filing. The discussion contains forward-looking statements that involve known and unknown risks and uncertainties, including those set forth under Part I, Item 1A."Risk Factors" of this Form 10-K. The following discussion and analysis does not include certain items related to the year ended December 31, 2023, including year-to-year comparisons between the year ended December 31, 2024 and the year ended December 31, 2023. For a comparison of our results of operations for the fiscal years ended December 31, 2024 and December 31, 2023, see Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K for the year ended December 31, 2024, filed with the SEC on February 18, 2025.

EXECUTIVE OVERVIEW

General

As the nation's largest managed care company focused on underserved populations, we are committed to helping people live healthier lives. Centene offers affordable and high-quality products to more than 1 in 15 individuals across the nation, including Medicaid and Medicare members (including Medicare Prescription Drug Plans) as well as individuals and families served by the Health Insurance Marketplace.

We provide access to high-quality healthcare, innovative programs and a wide range of health solutions that help families and individuals get well, stay well and be well. We believe the best way to deliver healthcare is with a personal approach, with local brands and local teams who live in, care about and directly influence the communities they serve – a key differentiator in our ability to provide access to quality care for our members. Our state-based plans are built on community expertise and backed by the depth, breadth, and experience of a leading national company. Our model is structured around partnership. By working hand-in-hand with providers, policymakers, and communities, we connect people to what matters most – not just healthcare, but essentials like food, housing, utilities, and transportation – to drive meaningful health outcomes.

With our scale and expertise, we are not only improving lives but also shaping the future of healthcare. From leveraging data to drive better outcomes across the nation to creating innovative programs to address barriers to care, we hope to redefine the healthcare experience. Our data and insights give us a powerful opportunity to anticipate needs, personalize care, and build a more affordable and effective healthcare system for tomorrow.

Based on the most recent publicly available membership data, we are the nation's largest Medicaid and Marketplace insurer, as well as the largest stand-alone PDP provider. Our Medicare Advantage business includes one of the highest concentrations of D-SNP members among our peers, aligned with our focus on low-income, complex populations. As of December 31, 2025, we served 12.5 million Medicaid members in 30 states, 5.5 million Marketplace members across 29 states, 1.0 million Medicare Advantage members across 32 states and 8.1 million Medicare Prescription Drug Plan (PDP) members in 50 states and the District of Columbia.

Our results of operations depend on our ability to manage expenses associated with health benefits (including estimated costs incurred) and selling, general and administrative (SG&A) costs. We measure operating performance based upon two key ratios. The health benefits ratio (HBR) represents medical costs as a percentage of premium revenues, excluding premium tax revenues that are separately billed, and reflects the direct relationship between the premiums received and the medical services provided. The SG&A expense ratio represents SG&A costs as a percentage of premium and service revenues, excluding premium taxes separately billed.

Divestitures

In December 2022, we completed the divestiture of Magellan Rx for $1.3 billion and recognized a gain of $269 million, or $99 million after-tax. During 2023, we recorded a reduction to the previously reported gain of $22 million, or $10 million after-tax. During 2025, we recorded a favorable adjustment to the gain on sale of Magellan Rx of $2 million, or $1 million after-tax.

In January 2023, we sold Magellan Specialty Health for $646 million in cash and stock, including an estimated working capital adjustment, and recognized a gain of $79 million, or $63 million after-tax. During 2024, we recorded an additional gain on sale of $83 million for achievement of contingent consideration related to the sale and finalization of working capital adjustments.

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In January 2024, we completed the divestiture of Circle Health Group (Circle Health) for $931 million. Upon closing the divestiture, we settled the foreign currency swap associated with the divestiture and recorded a corresponding gain of $20 million.

In October 2024, we completed the divestiture of Collaborative Health Systems (CHS) and recognized a pre-tax gain of $17 million, or $13 million after-tax.

In December 2025, we signed a definitive agreement to divest the remaining Magellan Health businesses. As a result, we recorded non-cash impairment charges associated with the pending divestiture totaling $513 million, or $389 million after-tax.

The above-noted divestitures are drivers of certain year-over-year variances discussed throughout this section.

Trends and Uncertainties

Operating

In 2025, we have experienced an accelerated increase in medical cost trend. The drivers of this trend include increasing medical demand, expanded access to care facilitated by program changes at the state level, and the rapid release and availability of new, high-cost pharmaceuticals. Increasingly, state healthcare policies are providing for expanded access through carve-ins for incremental coverage (for example, behavioral healthcare and home and community-based services).

The medical cost drivers are likely intensified by an environment where legislative changes to the United States healthcare model have been widely publicized (and with increasing intensity over the last year). Changes to the model include references to members in certain programs who may lose eligibility and certain provider reimbursement models that may be reduced in the future. Changes in Medicaid and Marketplace, including changes in the availability of Enhanced Advance Premium Tax Credits (APTCs) for Marketplace products coupled with the One Big Beautiful Bill Act (OBBBA), create member uncertainty surrounding the future availability, affordability, funding, and access to health insurance. This backdrop may be prompting members to seek care at an increased rate (given potential eligibility and subsidy funding shifts) and providers may be modifying operations and billing practices, all further exacerbating the medical cost trend.

We continue to work with our state partners to establish Medicaid premium rates that appropriately match the acuity of the population as well as reflect the most recent medical cost trend. We also provide states with data to help them analyze the implications of policy decisions as well as design effective risk adjustment programs. In Marketplace, we completed the process of refiling 2026 policy year rates during the third quarter of 2025 to reflect a higher projected baseline of Marketplace morbidity than previously expected. During the third quarter of 2025, we reacted to an evolving regulatory and market environment and took corrective pricing actions for 2026 in states covering 95% of Marketplace membership.

Additionally, we are committed to ensuring that the affordability of healthcare is maintained for our government partners and members and continue to address the cost trend through the implementation of new clinical initiatives and care management plans, thoughtful network design, and ongoing rigor and innovation to combat fraud, waste and abuse.

Regulatory: Medicaid

The COVID-19 pandemic impacted our business as it relates to Medicaid eligibility changes. From the onset of the public health emergency (PHE) through March 2023, our Medicaid membership increased by 3.6 million members (excluding new states North Carolina and Delaware and various state product expansions or managed care organization changes). Since March 31, 2023, redeterminations are the primary driver of our Medicaid membership decline. We anticipate that future reductions could occur resulting from ongoing state redetermination processes. We continue to work with our state partners to match rates to acuity post-redeterminations.

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The OBBBA, passed in July 2025, includes requirements that may reduce the number of members eligible for state Medicaid Expansion programs by requiring work or community engagement by members and for state Medicaid agencies to redetermine member eligibility at more frequent intervals, along with adding a "Cost Sharing" or "Co-Pay" for certain medical services. These changes could have the effect of increasing the overall morbidity of the Medicaid Expansion population largely beginning in 2027, subject to state implementation plans. Several other provisions of the OBBBA, such as adjustments to provider taxes and state directed payments beginning in 2028, may have the effect of reducing the amount of federal funding for Medicaid, which could result in changes in the design of Medicaid programs, including coverage of benefits, eligibility, and/or provider payment rates. In particular, New York intends to terminate its Essentials Plan-5, which provided state-subsidized healthcare for individuals from 200% to 250% of the Federal Poverty Level (FPL). The OBBBA also includes a restriction against paying certain providers designated as "prohibited entities" as of October 1, 2025, which has the potential to create access to care issues and network gaps. The timing of regulatory guidance and other rulemaking changes will be critical to ensuring state and MCO implementation readiness.

Regulatory: Commercial

The American Rescue Plan Act (ARPA), enacted in March 2021, initially enhanced eligibility for APTCs for enrollees in the Health Insurance Marketplace. The enhanced eligibility extended by the Inflation Reduction Act (IRA), enacted in August 2022, expired at the end of 2025. While enhanced eligibility has expired, APTCs are still in force and provide meaningful subsidies to eligible members.

The Marketplace Integrity and Affordability Final Rule (Final Rule) was published in the Federal Register on June 25, 2025. The Final Rule makes changes to policies to strengthen program integrity measures in the Marketplace. For example, the Special Enrollment Period for those under 150% of the FPL has been repealed beginning August 25, 2025. Several of the provisions of the Final Rule have been stayed due to ongoing litigation. These include a requirement for certain consumers who automatically re-enroll into a fully subsidized Marketplace plan to be re-enrolled into the same plan with a $5 premium until the consumer updates their exchange application to confirm APTC eligibility. Additionally, exchanges may no longer accept a consumer's self-attestation of projected annual household income when the Internal Revenue Service (IRS) cannot verify it due to lack of tax return data; rather, exchanges must verify household income using other trusted data sources.

In addition, the OBBBA placed additional restrictions on APTC requirements. For example, beginning January 1, 2026, should individuals mis-estimate their projected income, the OBBBA requires them to reimburse the IRS for the full amount of excess tax credit received. In addition, as of January 1, 2026, the OBBBA prohibits individuals from receiving APTCs if they enroll in health coverage through a Special Enrollment Period associated with their income. We anticipate that the combined effect of the expiration of the Enhanced APTCs, the Final Rule, and the OBBBA will reduce 2026 Marketplace membership and continue to increase the overall morbidity of the Marketplace population. During the third quarter of 2025, we reacted to an evolving regulatory and market environment and took corrective pricing actions for 2026 in states covering 95% of Marketplace membership. We continue to advocate for legislation and regulations aimed at leveraging Medicaid and the Health Insurance Marketplace to maintain health insurance coverage and affordability for consumers.

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Regulatory: Medicare

The IRA significantly changed Medicare Part D, impacting stand-alone Medicare PDPs as well as the Part D benefit in many of our Medicare Advantage plans beginning in 2025, most notably by eliminating the coverage gap and capping members' annual out-of-pocket costs at $2,000 in order to provide more predictable and affordable prescription drug coverage for Medicare beneficiaries. The members' Part D annual out-of-pocket cap for 2026 is $2,100. The IRA changes effective for 2025 resulted in a meaningful shift in cost-sharing responsibilities between members, drug companies, Centers for Medicare and Medicaid Services (CMS), and PDPs and have resulted in a significant increase in our premiums in consideration for our PDPs' responsibility for a larger portion of total Part D benefit costs. Starting in 2026, CMS created a Drug Subsidy to compensate plans for the loss of the Manufacturer Discount Program (MDP) for maximum fair price drugs. To help mitigate significant premium impacts and address these changes, CMS introduced the Medicare Part D Premium Stabilization Demonstration program. This program began in calendar year 2025 and was intended by CMS to exist for three years. The parameters of the program are expected to be different each year. For example, in 2025, participating PDPs operated under narrowed risk corridor thresholds as part of the supports CMS introduced to limit market volatility. For 2026, CMS eliminated these narrowed risk corridors entirely, shifting PDPs back toward standard program financial risk‑sharing. We continue to advocate for policies that promote cost-effective, high-quality care for our PDP enrolled members. We have receivables due to us from CMS for Part D risk-sharing programs attributable to the 2025 plan year that we expect to be paid by CMS within a year after the plan year closes. If the payments from CMS are delayed, our cash flows may be materially adversely affected.

Regulatory: Dual-Eligible

In addition, the CMS calendar year 2025 Medicare and Part D policy rule and finalized regulations will require beneficiaries dually enrolled in Medicare and in a Medicaid managed care plan to receive integrated care through the Medicaid company's Medicare Advantage Dual Eligible Special Needs Plans (D-SNPs) beginning in 2030, with certain restrictions beginning in 2027. Integrated D-SNPs are designed to enhance the coordination of care and streamline services while delivering improved outcomes. We believe we are positioned well given our overlapping Medicaid and Medicare Advantage footprints and we will continue to place enterprise-level focus on the D-SNP opportunity to drive long-term growth.

Summary

We remain focused on our promise of delivering high-quality healthcare services on behalf of states and the federal government to under-insured families and commercial organizations. Our decades of experience and deep industry knowledge have allowed us to deliver cost-effective services to our government partners and our members. With a focus on the personalization of healthcare technology, we continue the use of data and analytics to improve the provider and member experience. We continue to believe we have both the capacity and capability to successfully navigate industry changes to the benefit of our members, customers, providers and shareholders through program and bid design, product placement and other strategic factors.

For additional information regarding regulatory trends and uncertainties, see Part I, Item 1 "Business - Regulation" and Item 1A, "Risk Factors."

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2025 Highlights

Our financial performance for 2025 is summarized as follows:

•Year-end membership of 27.6 million, a decrease of 967 thousand members, or 3% over 2024.

•Total revenues of $194.8 billion, representing 19% growth year-over-year.

•Premium and service revenues of $174.6 billion, representing 20% growth year-over-year.

•HBR of 91.9% for 2025, compared to 88.3% for 2024.

•SG&A expense ratio of 7.4% for 2025, compared to 8.5% for 2024.

•Adjusted SG&A expense ratio of 7.4% for 2025, compared to 8.5% for 2024.

•Operating cash flows of $5.1 billion for 2025, compared to $154 million for 2024.

•In October 2025, we completed our quantitative goodwill impairment analysis and recorded a non-cash goodwill impairment of $6.7 billion in the third quarter of 2025.

•GAAP diluted loss per share of $(13.53) for 2025, driven by the goodwill impairment.

•Adjusted diluted earnings per share (EPS) of $2.08 for 2025.

A reconciliation from GAAP diluted earnings (loss) per share to adjusted diluted EPS is highlighted below, and additional detail is provided under the heading "Non-GAAP Financial Presentation":

We reference the adjusted SG&A expense ratio defined as adjusted SG&A expenses, which excludes acquisition and divestiture related expenses and other items, divided by premium and service revenues. We also reference effective tax rate on adjusted earnings, defined as GAAP income tax expense (benefit) excluding the income tax effects of adjustments to net earnings divided by adjusted earnings (loss) before income tax expense.

Year Ended December 31,

2025

2024

GAAP diluted earnings (loss) per share attributable to Centene

$

(13.53)

$

6.31 

Amortization of acquired intangible assets

1.39 

1.32 

Acquisition and divestiture related expenses

0.01 

0.16 

Other adjustments (1)

14.86 

(0.22)

Income tax effects of adjustments (2)

(0.64)

(0.40)

Effect of basic to diluted shares (3)

(0.01)

— 

Adjusted diluted EPS

$

2.08 

$

7.17 

(1) Other adjustments include the following pre-tax items:

2025:

(a) goodwill impairment of $6,723 million, or $13.63 per share ($13.62 after-tax), Magellan Health impairment of $513 million, or $1.04 per share ($0.79 after-tax), intangible asset impairment related to the wind-down of certain contracts in the Other segment of $55 million, or $0.11 per share ($0.08 after-tax), exit costs related to the wind-down of certain contracts in the Other segment of $22 million, or $0.04 per share ($0.03 after-tax), a net loss on real estate transactions of $18 million, or $0.04 per share ($0.03 after-tax), a favorable adjustment to the gain on sale of Magellan Rx of $2 million, or $0.00 per share ($0.00 after-tax), and net gain on debt extinguishment of $1 million, or $0.00 per share ($0.00 after-tax).

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2024:

(b) net gain on the previously reported divestiture of Magellan Specialty Health due to the achievement of contingent consideration and finalization of working capital adjustments of $83 million, or $0.16 per share ($0.12 after-tax), net gain on the sale of property of $24 million, or $0.04 per share ($0.03 after-tax), gain on the previously reported divestiture of Circle Health of $20 million, or $0.04 per share ($0.12 after-tax), gain on the sale of CHS of $17 million, or $0.03 per share ($0.02 after-tax), Health Net Federal Services asset impairment due to the 2024 final ruling on the TRICARE Managed Care Support Contract of $14 million, or $0.03 per share ($0.02 after-tax), severance costs due to a restructuring of $13 million, or $0.02 per share ($0.01 after-tax), an additional loss on the divestiture of our Spanish and Central European businesses of $7 million, or $0.01 per share ($0.01 after-tax) and gain on the previously reported divestiture of HealthSmart due to the finalization of working capital adjustments of $7 million, or $0.01 per share ($0.01 after-tax).

(2) The income tax effects of adjustments are based on the effective income tax rates applicable to each adjustment. In addition, the year ended December 31, 2025, includes a tax benefit of $4 million, or $0.01 per share, related to tax adjustments on previously reported divestitures and impacts of the OBBBA. The year ended December 31, 2024, includes a tax benefit of $1 million, or $0.00 per share, related to tax adjustments on previously reported divestitures.

(3) Reflects the $0.01 impact of using 494,502 thousand shares in the calculation of adjusted diluted EPS for the year ended December 31, 2025. The additional 1,386 thousand shares for the year ended December 31, 2025 were excluded from the calculation of the GAAP net loss per share and related adjustments due to their anti-dilutive effect.

Current and Future Operating Drivers

The following items contributed to our 2025 results of operations as compared to the previous year:

Medicaid

•In July 2025, our subsidiary, Iowa Total Care, commenced the contract to continue providing Medicaid managed care services under the Iowa Health Link program. The contract has a four-year term, with an optional two-year extension, for a total of six possible contract years.

•In July 2025, our subsidiary, Magnolia Health Plan, commenced the Mississippi Division of Medicaid contract to continue serving the state's Coordinated Care Organization Program consisting of the Mississippi Coordinated Access Network and the Mississippi Children's Health Insurance Program (CHIP). The contract has a four-year term, with two optional one-year extensions, for a total of six possible contract years.

•In February 2025, our subsidiary, Sunshine Health, commenced the expanded Statewide Medicaid Managed Care (SMMC) program, including integrated Managed Medical Assistance, Long-Term Care services, Serious Mental Illness, Child Welfare and HIV specialty products. The expanded SMMC program now includes coverage for Behavior Analysis services. The contract has a six-year term. Additionally, coverage for Behavior Analysis services was also added to the existing Children's Medical Services contract beginning February 2025.

•In January 2025, our subsidiary, Sunflower Health Plan, commenced the contract to continue providing managed health care services through KanCare, the State of Kansas' Medicaid and CHIP. The contract has a three-year term, with two optional one-year extensions, for a total of five possible contract years.

•In October 2024, our subsidiary, Meridian Health Plan of Michigan, commenced the contract awarded by the Michigan Department of Health and Human Services (MDHHS) to continue serving as a Medicaid health plan for the Comprehensive Health Care Program. The contract has a five-year term, with three optional one-year extensions, for a total of eight possible contract years.

•In September 2024, our subsidiary, Superior HealthPlan (Superior), commenced the contract awarded by the Texas Health and Human Services Commission to continue to provide healthcare coverage to the aged, blind or disabled (ABD) population in the state's STAR+PLUS program. The contract has a six-year term with a maximum of three additional two-year extensions.

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•In September 2024, our subsidiary, NH Healthy Families, commenced the contract awarded by the New Hampshire Department of Health and Human Services to continue providing physical health, behavioral health and pharmacy services for New Hampshire's Medicaid managed care program, known as Medicaid Care Management. The contract has a five-year term.

•In July 2024, our subsidiaries, Carolina Complete Health and WellCare of North Carolina, began coordinating physical and other health services with Local Management Entities/Managed Care Organizations under the state's new Tailored Plan program. The Tailored Plans are integrated health plans designed for individuals with significant behavioral health needs or intellectual/developmental disabilities.

•In June 2024, our subsidiary, Western Sky Community Care, concluded serving members upon the expiration of its New Mexico Medicaid managed care contract.

•In April 2024, our subsidiary, Oklahoma Complete Health, commenced the statewide contracts to provide managed care for the SoonerSelect and SoonerSelect Children's Specialty Plan programs. The new contracts have a one-year term with five, one-year renewal options.

Medicare / Dual-Eligible

•Given our strong bid positioning, PDP membership increased 17% year-over-year. Additionally, the IRA changes effective for 2025 result in a meaningful shift in cost-sharing responsibilities between members, drug companies, CMS, and PDPs and have led to a significant increase in our premiums in consideration for our PDPs responsibility for a larger portion of total Part D benefit costs. These changes also result in a change to the quarterly progression of the Medicare segment HBR.

•In December 2024, we recorded a premium deficiency reserve of $92 million related to the 2025 Medicare Advantage contract year. The premium deficiency reserve was increased to $270 million in the first quarter of 2025, to $389 million in the second quarter of 2025 and decreased by $107 million to $282 million in the third quarter of 2025 based on the progression of earnings during the year (with higher earnings at the beginning of the year and lower at the end of the year, given cost sharing progression). The premium deficiency reserve related to the 2025 Medicare Advantage contract year was released in the fourth quarter of 2025 and no premium deficiency reserve related to the 2026 Medicare Advantage contract year was recorded.

•In 2025, Wellcare offered Medicare Advantage plans in 32 states, including its newest state, Iowa. Wellcare discontinued offering Medicare Advantage products in Alabama, Massachusetts, New Hampshire, New Mexico, Rhode Island and Vermont in 2025. Consistent with our strategic positioning and bid strategy, Medicare Advantage membership declined 10% year-over-year.

Commercial

•In July 2025, we announced a reduction to our expectation for the 2025 benefit year net risk adjustment revenue transfer as a result of significantly higher estimated aggregate market morbidity, with a corresponding decrease in our earnings expectations for 2025. The twelve months ended December 31, 2024, benefited from outperformance in Marketplace risk adjustment for the 2023 benefit year as well as a Marketplace cost sharing reduction (CSR) settlement related to prior years.

•In 2025, our Health Insurance Marketplace product, Ambetter Health, expanded its geographic footprint, adding 60 new counties across 10 states, which included expansion into Iowa. During 2025, Ambetter Health served members in 29 states. Marketplace membership increased 26% year-over-year due to the expanded footprint, strong open enrollment results, as well as overall market growth. Ambetter Health Solutions, our off-exchange marketplace business offerings, operated plans designed to attract Individual Coverage Health Reimbursement Arrangement (ICHRA) membership in off-exchange plans in 6 states in 2025.

Other

•In December 2025, we signed a definitive agreement to divest the remaining Magellan Health businesses. As a result, we recorded non-cash impairment charges associated with the pending divestiture totaling $513 million, or $389 million after-tax.

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•In December 2024, Health Net Federal Services concluded serving members upon the expiration of its TRICARE Managed Care Support Contract.

•In October 2024, we completed the sale of CHS, a management services organization.

•In July 2024, our subsidiary, Magellan Health, commenced the Idaho Behavioral Health Plan contract.

The implementation of our third-party pharmacy benefits management (PBM) contract, which commenced in January 2024, along with SG&A initiatives have impacted our current results of operations and will continue to impact future results of operations.

In addition to the strategic and regulatory factors discussed in Trends and Uncertainties above, the following items are also expected to impact our future results of operations, cash flows and membership, subject to the resolution of various third-party protests within the Medicaid segment:

Medicaid

•In January 2026, our subsidiary, Health Net Community Solutions, commenced the contract with the California Department of Health Care Services to provide managed dental health care services to beneficiaries of Medi-Cal, the State's Medicaid program, in Los Angeles and Sacramento counties. The new contract has a 54-month term.

•In January 2026, our subsidiary, SilverSummit Healthplan, Inc., commenced the contract with the Nevada Department of Health and Human Services to continue providing services for its Medicaid managed care program. For the first time the program includes expansion of Medicaid Managed Care into rural and frontier service areas, communities that were previously fee-for-service. The contract has a five-year term, with the option of a two-year extension, for a total of seven possible contract years.

•In August 2024, our subsidiary, PA Health and Wellness, was selected by the Pennsylvania Department of Human Services to continue to administer Pennsylvania's Community HealthChoices program, the Medicaid managed care program that covers adults who are dually eligible for Medicare and Medicaid or who qualify to receive Medicaid long-term services and supports due to a need for the level of care provided in a nursing facility. A bid protest continues to be litigated and, at this time, it is unclear when the contract could be implemented.

•In December 2023, our subsidiary, Arizona Complete Health, was selected by the Arizona Health Care Cost Containment System – Arizona's single state Medicaid agency – to provide managed care for the Arizona Long Term Care System (ALTCS). The program supports Arizonans who are elderly and/or have a physical disability (E/PD) with physical and behavioral healthcare, as well as provides pharmacy benefits and home and community-based services. A prolonged bid protest has led the agency to cancel the original awards and issue a rebid. The rebid is expected to be open for submissions in late summer 2026 with a new contract effective date of October 2027.

•New York intends to terminate its Essentials Plan-5, which provides state-subsidized healthcare for individuals from 200% to 250% of the federal poverty line by July 1, 2026.

In addition, we were not selected to continue providing services under the Florida Children's Medical Services (Florida CMS) program. Our current Florida CMS contract is scheduled to conclude at the end of September 2026. Further, we are in the process of protesting the results of Medicaid procurement awards in Georgia and Texas. If these protests are not successful, our future results of operations would be impacted.

Medicare / Dual-Eligible

•In October 2024, CMS issued 2025 Medicare Advantage Star Ratings on the Medicare Plan Finder. Based on the data, we had approximately 55% of our Medicare Advantage membership enrolled in plans rated 3.5 stars or higher – compared to approximately 23% in the prior year. These ratings impact our 2026 plan year revenues.

•In January 2026, our subsidiary, Meridian Health Plan of Illinois, Inc., commenced the contract with the Illinois Department of Healthcare and Family Services to continue providing Medicare and Medicaid services for dually eligible Illinoisans through a Fully Integrated Dual Eligible Special Needs Plan (FIDE SNP). The contract has a four-year term, with optional extensions of six months to five and a half years.

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•In January 2026, our subsidiary, Buckeye Health Plan, commenced the contract with the Ohio Department of Medicaid to continue providing Medicare and Medicaid services for dually eligible individuals through a FIDE SNP. The contract has a three-year term.

•In January 2026, our subsidiary, Meridian Health Plan of Michigan, Inc., commenced the contract with the MDHHS to provide highly integrated Medicare and Medicaid services for dually eligible Michiganders through a Highly Integrated Dual Eligible Special Needs Plan (HIDE SNP). The contract has a seven-year term, with three optional one-year extensions, for a total of 10 possible contract years.

•In 2026, Wellcare is offering Medicare Advantage plans in 32 states and PDP products across all 50 states. We expect that our strategic positioning and bid strategy will have continued impacts on Medicare Advantage and PDP results of operations.

•CMS regulations will require beneficiaries dually enrolled in Medicare and in a Medicaid managed care plan to receive integrated care through the Medicaid company's Medicare Advantage D-SNPs beginning in 2030, with certain restrictions beginning in 2027. Integrated D-SNPs are designed to enhance the coordination of care and streamline services while delivering improved outcomes. We believe we are positioned well given our overlapping Medicaid and Medicare Advantage footprints and we will continue to place enterprise-level focus on the D-SNP opportunity to drive long-term growth.

•In October 2025, CMS issued 2026 Medicare Advantage Star Ratings on the Medicare Plan Finder. Based on the data, we had approximately 60% of our Medicare Advantage membership enrolled in plans rated 3.5 stars or higher, including approximately 20% in 4-star rated plans. This compares to approximately 55% rated in 3.5 stars (and 1% in 4-star) in the prior year. These ratings impact our 2027 plan year revenues.

Commercial

•In 2026, Ambetter Health, is offered in 29 states. Ambetter Health Solutions is operating plans designed to attract ICHRA membership in off-exchange plans in 13 states in 2026.

•In the third quarter of 2025, we completed the process of refiling 2026 policy year rates to reflect a higher projected baseline of Marketplace morbidity than previously expected. During the third quarter of 2025, we reacted to an evolving regulatory and market environment and took corrective pricing actions for 2026 in states covering 95% of Marketplace membership.

Other

•In December 2025, we signed a definitive agreement to divest the remaining Magellan Health businesses.

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MEMBERSHIP

From December 31, 2024 to December 31, 2025, our managed care membership decreased by 967 thousand, or 3%. The following table sets forth our membership by line of business:

December 31,

2025

2024

Traditional Medicaid (1)

10,932,600 

11,408,100 

High Acuity Medicaid (2)

1,585,800 

1,595,400 

Total Medicaid

12,518,400 

13,003,500 

Marketplace

5,541,400 

4,382,100 

Individual and Commercial Group (3)

452,500 

431,400 

Total Commercial

5,993,900 

4,813,500 

Medicare (4)

1,002,600 

1,110,900 

Medicare PDP

8,118,600 

6,925,700 

Total at-risk membership

27,633,500 

25,853,600 

TRICARE eligibles

— 

2,747,000 

Total

27,633,500 

28,600,600 

(1)

Membership includes Temporary Assistance for Needy Families (TANF), Medicaid Expansion, Children's Health Insurance Program (CHIP), Foster Care and Behavioral Health.

(2)

Membership includes Aged, Blind or Disabled (ABD), Intellectual and Developmental Disabilities (IDD), Long-Term Services and Supports (LTSS) and Medicare-Medicaid Plans (MMP) Duals.

(3)

Membership includes Commercial Group, Individual Coverage Health Reimbursement Arrangement (ICHRA) and Other Off-Exchange Individual.

(4)

Membership includes Medicare Advantage and Medicare Supplement.

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RESULTS OF OPERATIONS

The following discussion and analysis is based on our Consolidated Statements of Operations, which reflect our results of operations for years ended December 31, 2025 and 2024, respectively, prepared in accordance with generally accepted accounting principles in the United States (GAAP) ($ in millions, except per share data in dollars):

2025

2024

% Change 2024-2025

Premium

$

171,556 

$

142,303 

21 

%

Service

3,025 

3,202 

(6)

%

Premium and service revenues

174,581 

145,505 

20 

%

Premium tax

20,196 

17,566 

15 

%

Total revenues

194,777 

163,071 

19 

%

Medical costs

157,702 

125,707 

25 

%

Cost of services

2,670 

2,729 

(2)

%

Selling, general and administrative expenses

12,904 

12,400 

4 

%

Depreciation expense

590 

549 

7 

%

Amortization of acquired intangible assets

685 

692 

(1)

%

Premium tax expense

20,538 

17,806 

15 

%

Impairment

7,311 

13 

n.m.

Earnings (loss) from operations

(7,623)

3,175 

(340)

%

Investment and other income

1,572 

1,784 

(12)

%

Debt extinguishment

1 

— 

n.m.

Interest expense

(678)

(702)

(3)

%

Earnings (loss) before income tax expense

(6,728)

4,257 

(258)

%

Income tax (benefit) expense

(51)

963 

(105)

%

Net earnings (loss)

(6,677)

3,294 

(303)

%

Loss attributable to noncontrolling interests

3 

11 

(73)

%

Net earnings (loss) attributable to Centene Corporation

$

(6,674)

$

3,305 

(302)

%

Diluted earnings (loss) per common share attributable to Centene Corporation

$

(13.53)

$

6.31 

(314)

%

n.m.: not meaningful

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Year Ended December 31, 2025 Compared to Year Ended December 31, 2024

Total Revenues

Total revenues increased 19% in the year ended December 31, 2025, over the corresponding period in 2024 primarily driven by premium yield and membership growth in the PDP business, overall market growth in the Marketplace business, rate increases in the Medicaid business and increased premium tax revenue, partially offset by lower Medicaid membership and lower Marketplace estimated risk adjustment revenue. The full year 2024 benefited from outperformance in Marketplace risk adjustment for the 2023 benefit year.

Operating Expenses

Medical Costs/HBR

The HBR for the year ended December 31, 2025 was 91.9%, compared to 88.3% in 2024. The increase was primarily driven by lower Marketplace estimated risk adjustment revenue, increased Marketplace medical costs, program changes in the PDP business as a result of the IRA and higher medical costs in Medicaid driven primarily by behavioral health, home health and high-cost drugs, partially offset by Medicaid rate increases.

Cost of Services

Cost of services decreased by $59 million in the year ended December 31, 2025, compared to the corresponding period in 2024. The cost of service ratio for the year ended December 31, 2025 was 88.3%, compared to 85.2% in 2024.

Selling, General and Administrative Expenses

The SG&A expense ratio was 7.4% for the year ended December 31, 2025, compared to 8.5% for the year ended December 31, 2024. The adjusted SG&A expense ratio was 7.4% for the year ended December 31, 2025, compared to 8.5% for the year ended December 31, 2024. The decreases were primarily driven by continued discipline, leveraging of expenses over higher revenues, and growth in the PDP business, which operates at a meaningfully lower SG&A expense ratio as compared to the overall company. The decreases were partially offset by growth in the Marketplace business, which operates at a meaningfully higher SG&A expense ratio.

Impairment

During the year ended December 31, 2025, we recorded total impairment charges of $7.3 billion driven by a $6.7 billion goodwill impairment, $513 million Magellan Health impairment, $55 million intangible asset impairment related to the wind-down of certain contracts in the Other segment, and $20 million owned real estate impairment.

During the year ended December 31, 2024, we recorded total impairment charges of $13 million driven by Health Net Federal Services property, software and equipment related to the TRICARE Managed Care Support Contract that was no longer recoverable following the 2024 final ruling.

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Other Income (Expense)

The following table summarizes the components of other income (expense) for the year ended December 31, ($ in millions): 

2025

2024

Investment and other income

$

1,572 

$

1,784 

Debt extinguishment

1 

— 

Interest expense

(678)

(702)

Other income (expense), net

$

895 

$

1,082 

Investment and other income. Investment and other income decreased by $212 million for the year ended December 31, 2025 compared to 2024. The decrease was driven by lower interest rates and lower average investment balances during 2025, partially offset by increased equity earnings and net gains on private equity investments. The year ended December 31, 2024 included net gains on divestitures described above, partially offset by a private equity investment reduction.

Interest expense. Interest expense for the year ended December 31, 2025 was $678 million compared to $702 million for the corresponding period in 2024.

Income Tax Expense

For the year ended December 31, 2025, we recorded an income tax benefit of $51 million on a pre-tax loss of $6.7 billion, or an effective tax rate of 0.8%. The effective tax rate for the year ended December 31, 2025 reflects the non-deductible nature of the goodwill impairment and the release of state uncertain tax position liabilities resulting from statute of limitations expirations. For the year ended December 31, 2025, our effective tax rate on adjusted earnings was 20.4%.

For the year ended December 31, 2024, we recorded income tax expense of $963 million on pre-tax earnings of $4.3 billion, or an effective tax rate of 22.6%. The effective tax rate for the year ended December 31, 2024 reflects tax effects of the Circle Health divestiture, settlements with tax authorities and valuation allowance releases. For the year ended December 31, 2024, our effective tax rate on adjusted earnings was 23.8%.

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Segment Results

The following table summarizes our consolidated operating results by segment for the year ended December 31, ($ in millions):

2025

2024

% Change 2024-2025

Total Revenues

Medicaid

$

110,434 

$

101,417 

9 

%

Medicare

37,210 

23,032 

62 

%

Commercial

42,003 

33,702 

25 

%

Other

5,130 

4,920 

4 

%

Consolidated Total

$

194,777 

$

163,071 

19 

%

Gross Margin (1)

Medicaid

$

5,690 

$

6,246 

(9)

%

Medicare

2,983 

2,595 

15 

%

Commercial

5,101 

7,663 

(33)

%

Other

435 

565 

(23)

%

Consolidated Total

$

14,209 

$

17,069 

(17)

%

(1)

Gross margin represents premium and service revenues less medical costs and cost of services.

Medicaid

Total revenues increased 9% in the year ended December 31, 2025, compared to the corresponding period in 2024. The increase in total revenues was primarily driven by increased premium tax revenue and rate increases, partially offset by lower membership, primarily due to redeterminations. Gross margin decreased $556 million in the year ended December 31, 2025, compared to the corresponding period in 2024. Gross margin decreased due to higher medical costs driven primarily by behavioral health, home health and high-cost drugs, partially offset by rate and revenue increases.

Medicare

Total revenues increased 62% in the year ended December 31, 2025, compared to the corresponding period in 2024, primarily driven by increased PDP premium yield and membership, partially offset by lower Medicare Advantage membership. Gross margin increased $388 million in the year ended December 31, 2025, compared to the corresponding period in 2024 primarily driven by program changes in the PDP business as a result of the IRA along with premium yield and membership growth, partially offset by timing impacts of the Medicare Advantage premium deficiency reserves.

Commercial

Total revenues increased 25% in the year ended December 31, 2025, compared to the corresponding period in 2024 primarily driven by 26% membership growth in the Marketplace business, partially offset by lower estimated risk adjustment revenue. Gross margin decreased $2.6 billion in the year ended December 31, 2025, compared to the corresponding period in 2024 due to lower estimated risk adjustment revenue and increased Marketplace medical costs. The year ended December 31, 2024, benefited from a Marketplace CSR settlement related to prior years.

Other

Total revenues increased 4% in the year ended December 31, 2025, compared to the corresponding period in 2024. Gross margin decreased $130 million in the year ended December 31, 2025, compared to the corresponding period in 2024 driven by the Circle Health divestiture in the first quarter of 2024 along with the expiration of the TRICARE Managed Care Support Contract in December 2024.

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LIQUIDITY AND CAPITAL RESOURCES

The following table is a condensed schedule of cash flows used in the discussion of liquidity and capital resources ($ in millions):

Year Ended December 31,

2025

2024

Net cash provided by operating activities

$

5,088 

$

154 

Net cash provided by (used in) investing activities

472 

(1,052)

Net cash (used in) financing activities

(1,621)

(2,406)

Effect of exchange rate changes on cash, cash equivalents and restricted cash

— 

8 

Net increase (decrease) in cash, cash equivalents, and restricted cash and cash equivalents

$

3,939 

$

(3,296)

Cash Flows Provided by Operating Activities

Normal operations are funded primarily through operating cash flows and borrowings under our Revolving Credit Facility. In 2025, operating activities provided cash of $5.1 billion compared to providing cash of $154 million in 2024. Cash flows provided by operations in 2025 were primarily driven by net earnings, improved pharmacy rebate timing and higher medical claims liabilities primarily driven by higher membership.

Cash flows provided by operations in 2024 were primarily driven by net earnings, almost entirely offset by an increase in pharmacy receivables driven by pharmacy rebate remittance timing associated with our transition to a new third-party PBM in January 2024, a decrease in net risk adjustment payables and higher state premium receivables for recent rate increases.

Cash Flows Provided by (Used in) Investing Activities

Investing activities provided cash of $472 million for the year ended December 31, 2025 compared to using cash of $1.1 billion in 2024. Cash flows provided by investing activities in 2025 consisted of net reductions to the investment portfolio of our regulated subsidiaries (including transfers from cash and cash equivalents to long-term investments) partially offset by capital expenditures. Cash flows used in investing activities in 2024 primarily consisted of net additions to the investment portfolio of our regulated subsidiaries (including transfers from cash and cash equivalents to long-term investments) and capital expenditures, partially offset by divestiture proceeds.

We spent $767 million and $644 million in the years ended December 31, 2025 and 2024, respectively, on capital expenditures primarily for system enhancements and computer hardware.

As of December 31, 2025, our investment portfolio consisted primarily of fixed-income securities with a weighted average duration of 3.3 years.

At December 31, 2025, we had unregulated cash and investments of $1.5 billion, including $553 million of cash and cash equivalents and $925 million of investments. Of the $553 million unregulated cash and cash equivalents, $400 million was available for general corporate use at December 31, 2025. Unregulated cash and investments at December 31, 2024, was $1.1 billion, including $248 million of cash and cash equivalents and $823 million of investments. Of the $248 million unregulated cash and cash equivalents, $154 million was available for general corporate use at December 31, 2024. Unregulated cash and investments include private equity investments and company owned life insurance contracts.

Cash Flows (Used in) Financing Activities

Financing activities used cash of $1.6 billion in the year ended December 31, 2025, compared to using cash of $2.4 billion in the comparable period in 2024. Financing activities in 2025 were driven by stock repurchases of $475 million, which included $400 million under the stock repurchase program and $48 million of repurchases related to income tax withholding upon the vesting of previously awarded stock grants, and net reduction of long-term debt.

In 2024, financing activities were driven by stock repurchases of $3.1 billion, which included $3.0 billion under the stock repurchase program and $114 million of repurchases related to income tax withholding upon the vesting of previously awarded stock grants, partially offset by net proceeds from long-term debt.

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Liquidity Metrics

We have a stock repurchase program authorizing us to repurchase common stock from time to time on the open market or through privately negotiated transactions. In 2023, our Board of Directors authorized up to a cumulative total of $10.0 billion of repurchases under the program.

In 2025, we repurchased a total of 6.7 million shares of common stock for $400 million under the stock repurchase program, primarily funded through divestiture proceeds and free cash flow generated from operations. We have $1.8 billion remaining under the program as of December 31, 2025. No duration has been placed on the repurchase program. We reserve the right to discontinue the repurchase program at any time. Refer to Note 12. Stockholders' Equity for further information on stock repurchases.

As of December 31, 2025, we had an aggregate principal amount of $15.5 billion of senior notes issued and outstanding. The indentures governing our various maturities of senior notes contain limited restrictive covenants. As of December 31, 2025, we were in compliance with all covenants.

As part of our capital allocation strategy, we may decide to repurchase debt or raise capital through the issuance of debt in the form of senior notes. In 2022, our Board of Directors authorized a $1.0 billion senior note debt repurchase program. During 2025, we repurchased $189 million of our par value senior notes for $187 million. As of December 31, 2025, there was $513 million available under the senior note debt repurchase program. Refer to Note 10. Debt for further information regarding the issuance and redemption of senior notes. In January 2026, we repurchased an additional $29 million of our par value Senior Notes due 2027 through the debt repurchase program.

In February 2026, our Board of Directors authorized an increase under the program of $1.0 billion. With this increase, as of February 2026, there was $1.5 billion available under the senior note debt repurchase program.

The credit agreement underlying our Revolving Credit Facility, in the principal amount of $4.0 billion, and Term Loan Facility, in the principal amount of $2.0 billion, contains customary covenants as well as financial covenants including a debt-to-capital ratio. Our maximum debt-to-capital ratio under the credit agreement may not exceed 0.6 to 1.0. As of December 31, 2025, we had no borrowings outstanding under our Revolving Credit Facility, $2.0 billion of borrowings under our Term Loan Facility, and we were in compliance with all covenants. As of December 31, 2025, there were no limitations on the availability of our Revolving Credit Facility as a result of the debt-to-capital ratio.

We had outstanding letters of credit of $120 million as of December 31, 2025, which were not part of our Revolving Credit Facility. The letters of credit bore weighted interest of 0.8% as of December 31, 2025. In addition, we had outstanding surety bonds of $784 million as of December 31, 2025.

At December 31, 2025, our debt-to-capital ratio, defined as total debt divided by the sum of total debt and total equity, was 46.5%, compared to 41.2% at December 31, 2024. The debt-to-capital ratio increase was driven by the goodwill impairment recorded in the third quarter of 2025, which reduced total stockholders' equity. We utilize the debt-to-capital ratio as a measure, among others, of our leverage and financial flexibility.

At December 31, 2025, we had working capital, defined as current assets less current liabilities, of $3.7 billion, compared to $3.7 billion at December 31, 2024. We manage our short-term and long-term investments aiming to ensure a sufficient portion of the portfolio is highly liquid and can be sold to fund short-term requirements as needed.

During the year ended December 31, 2025, we received dividends of $3.2 billion from and made $2.0 billion of capital contributions to our regulated subsidiaries. During the year ended December 31, 2024, we received dividends of $3.2 billion from and made $752 million of capital contributions to our regulated subsidiaries.

Future Expectations

During 2026, we expect to receive net dividends of approximately $1.2 billion from our regulated subsidiaries and expect to spend approximately $800 million in capital expenditures primarily associated with system enhancements and computer hardware and software.

We have material short-term medical claims, debt and lease obligations. Refer to Note 8. Medical Claims Liability, Note 10. Debt and Note 11. Leases, respectively, for further information.

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Based on our operating plan, we expect that our available cash, cash equivalents and investments, cash from our operations and cash available under our Revolving Credit Facility will be sufficient to finance our general operations and capital expenditures for at least 12 months from the date of this filing. While we are currently in a strong liquidity position and believe we have adequate access to capital, we may elect to increase borrowings on our Revolving Credit Facility, which matures in March 2030. Additionally, our senior notes mature between December 2027 and August 2031. From time to time, we may elect to raise additional funds for working capital and other purposes, either through issuance of debt or equity, the sale of investment securities, or otherwise, as appropriate. In addition, we may strategically pursue refinancing or redemption opportunities to extend maturities and/or improve terms of our indebtedness if we believe such opportunities are favorable to us.

We have receivables due from CMS for Part D risk-sharing programs attributable to the 2025 plan year that are expected to be paid by CMS within a year after the plan year closes. As of December 31, 2025, the stand-alone Part D risk-sharing programs receivable balance for the 2025 plan year was $4.0 billion.

On February 13, 2026, we entered into a master receivable purchase agreement (the February 2026 Receivable Purchase Agreement). The February 2026 Receivable Purchase Agreement allows us to from time to time offer up to the full amount of our 2025 plan year stand-alone Part D risk-sharing programs receivable to the purchaser, which the purchaser may elect to purchase. The purchase price for each purchased receivable portion equals the net estimated invoice amount of such portion minus the discount, which is determined by reference to Secured Overnight Financing Rate (SOFR) plus a spread. We will account for the transfer of all or any portion of this receivable as a sale of accounts receivable. The difference between the balance of the receivable (or portion thereof) sold and cash proceeds received will be recorded as a loss on sale of receivables and included in selling, general and administrative expenses in the Consolidated Statements of Operations. We will act as a servicer for the transferred receivable. As of the date of this report, no receivable (or any portions thereof) was transferred pursuant to the February 2026 Receivable Purchase Agreement.

REGULATORY CAPITAL AND DIVIDEND RESTRICTIONS

Our operations are conducted through our subsidiaries. As managed care organizations (MCOs), most of our subsidiaries are subject to state regulations and other requirements that, among other things, require the maintenance of minimum levels of statutory capital, as defined by each state, and restrict the timing, payment and amount of dividends and other distributions that may be paid to us. Generally, the amount of dividend distributions that may be paid by a regulated subsidiary without prior approval by state regulatory authorities is limited based on the entity's level of statutory net income and statutory capital and surplus.

As of December 31, 2025, our subsidiaries had aggregate statutory capital and surplus of $19.7 billion, compared with the required minimum aggregate statutory capital and surplus requirements of $11.3 billion. During the year ended December 31, 2025, we received dividends of $3.2 billion from and made $2.0 billion of capital contributions to our regulated subsidiaries. For our subsidiaries that file with the National Association of Insurance Commissioners (NAIC), we estimate our Risk Based Capital (RBC) percentage to be in excess of 350% of the Authorized Control Level.

Under the California Knox-Keene Health Care Service Plan Act of 1975, as amended (Knox-Keene), certain of our California subsidiaries must comply with tangible net equity (TNE) requirements. Under these Knox-Keene TNE requirements, actual net worth less unsecured receivables and intangible assets must be more than the greater of (i) a fixed minimum amount, (ii) a minimum amount based on premiums or (iii) a minimum amount based on healthcare expenditures, excluding capitated amounts.

Under the New York State Department of Health Codes, Rules and Regulations Title 10, Part 98, our New York subsidiary must comply with contingent reserve requirements. Under these requirements, net worth based upon admitted assets must equal or exceed a minimum amount based on annual net premium income.

The NAIC has adopted rules which set minimum risk-based capital requirements for insurance companies, MCOs and other entities bearing risk for healthcare coverage. As of December 31, 2025, each of our health plans was in compliance with the risk-based capital requirements enacted in those states.

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As a result of the above requirements and other regulatory requirements, certain of our subsidiaries are subject to restrictions on their ability to make dividend payments, loans or other transfers of cash to their parent companies. Such restrictions, unless amended or waived or unless regulatory approval is granted, limit the use of any cash generated by these subsidiaries to pay our obligations. The maximum amount of dividends that can be paid by our insurance company subsidiaries without prior approval of the applicable state insurance departments is subject to restrictions relating to statutory surplus, statutory income and unassigned surplus. As of December 31, 2025, the amount of capital and surplus or net worth that was unavailable for the payment of dividends or return of capital to us was $11.3 billion in the aggregate.

RECENT ACCOUNTING PRONOUNCEMENTS

For this information, refer to Note 2. Summary of Significant Accounting Policies, in the Notes to the Consolidated Financial Statements, included herein.

CRITICAL ACCOUNTING ESTIMATES

Our discussion and analysis of our results of operations and liquidity and capital resources are based on our consolidated financial statements which have been prepared in accordance with GAAP. Our significant accounting policies are more fully described in Note 2. Summary of Significant Accounting Policies, to our consolidated financial statements included elsewhere herein. Our accounting policies regarding intangible assets, medical claims liability and revenue recognition are particularly important to the portrayal of our financial condition and results of operations and require the application of significant judgment by our management. As a result, they are subject to an inherent degree of uncertainty. We have reviewed these critical accounting policies and related disclosures with the Audit and Compliance Committee of our Board of Directors.

Goodwill and Intangible Assets

We have made several acquisitions that have resulted in the recording of intangible assets. These intangible assets primarily consist of purchased contract rights and customer relationships, provider contracts, trade names, developed technologies and goodwill. Key assumptions used in the valuation of these intangible assets include, but are not limited to, member attrition rates, contract renewal probabilities, revenue growth rates, expectations of profitability, and discount and royalty rates. We allocate the fair value of purchase consideration to the assets acquired and liabilities assumed based on their fair values at the acquisition date. The excess of the fair value of consideration transferred over the fair value of the net assets acquired is recorded as goodwill. Goodwill is generally attributable to the value of the synergies between the combined companies and the value of the acquired assembled workforce, neither of which qualifies for recognition as an intangible asset. At December 31, 2025, we had $10.8 billion of goodwill and $4.5 billion of other intangible assets.

Intangible assets are amortized using the straight-line method over the following periods:

Intangible Asset

Amortization Period

Purchased contract rights and customer relationships

5 - 15 years

Provider contracts

4 - 15 years

Trade names

7 - 20 years

Developed technologies

2 - 5 years

Goodwill is reviewed at least annually during the fourth quarter for impairment or more frequently if we identify impairment indicators. In addition, an impairment analysis of intangible assets would be performed when events or changes in circumstances suggest the carrying amount of the intangible assets may not be recoverable. These factors include significant changes in membership, financial performance, state funding, government contracts and provider networks and contracts.

For our annual goodwill impairment analysis, we may first perform a qualitative assessment for each reporting unit to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, which is an indication that goodwill may be impaired. These qualitative impairment tests include assessing events and factors that could affect the fair value of the indefinite-lived intangible assets. Our procedures include assessing our financial performance, macroeconomic conditions, industry and market considerations, various asset-specific factors and entity-specific events. If we determine that a reporting unit's goodwill may be impaired after utilizing these qualitative impairment analysis procedures, we are required to perform a quantitative impairment test.

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Our quantitative impairment test for goodwill utilizes the discounted cash flow model and guideline public company market approach. Use of the discounted cash flow model and guideline public company market approach for our goodwill impairment test reflects our view that both valuation methodologies provide a reasonable estimate of fair value. The discounted cash flow model is developed using assumptions from our internal planning process to determine the present value of future cash flows generated by the reporting unit. Our assumed discount rate is based on our industry's weighted-average cost of capital. Market valuations are estimated from observed multiples of certain measures including earnings before interest, taxes, depreciation and amortization and include market comparisons to publicly traded companies in our industry.

In addition to our annual goodwill impairment analysis, on an as-needed basis our management evaluates whether events or circumstances have occurred that may affect the estimated useful life or the recoverability of the remaining balance of goodwill and other identifiable intangible assets. If the events or circumstances indicate that the remaining balance of the intangible asset or goodwill may be impaired, the potential impairment will be measured based upon the difference between the carrying amount of the intangible asset or goodwill and the fair value of such asset. Our management must make assumptions and estimates in determining the estimated fair values, such as estimates of forecasted future cash flows, the discount rate applied to each reporting unit, long-term growth rates, statutory capital reinvestment requirements, capital expenditures, and other internal and external factors. While we believe these assumptions and estimates are appropriate, other assumptions and estimates could be applied and might produce significantly different results.

We operate in four segments: (1) a Medicaid segment, (2) a Medicare segment, (3) a Commercial segment and (4) an Other segment. We define our reporting units as our operating segments or one level below the operating segment. If a reporting unit's carrying amount exceeds its fair value, we will record an impairment charge based on that difference. The impairment charge will be limited to the amount of goodwill allocated to that reporting unit. We first assess qualitative factors to determine if a quantitative impairment test is necessary. We generally do not calculate the fair value of a reporting unit unless we determine, based on a qualitative assessment, that it is more likely than not that its fair value is less than its carrying amount. However, in certain circumstances we may elect to perform a quantitative assessment without first assessing qualitative factors.

The passage of the OBBBA in July 2025 had various implications for us, including potential membership impacts to our Medicaid reporting unit as well as the non-renewal of Marketplace Enhanced APTCs. As a result of these market conditions along with the decline in our stock price, we performed a quantitative impairment analysis during the third quarter of 2025 to determine whether goodwill, intangibles or other assets were impaired.

Our quantitative assessment for goodwill indicated that the fair value of certain reporting units had declined, resulting in an impairment of $6.7 billion as outlined within Note 7. Goodwill and Intangible Assets, in the Notes to the Consolidated Financial Statements, included herein. In preparing the quantitative assessment, we estimated the fair value of our reporting units using a weighted discounted cash flow model and guideline public company market approach. This analysis involved significant judgment, including estimates of forecasted future cash flows, the discount rate applied to each reporting unit, long-term growth rates, statutory capital reinvestment requirements, capital expenditures, and other internal and external factors. When analyzing the fair value indicated under the guideline public company market approach, we also considered estimates of market-based multiples of earnings from peer public companies. While we believe the assumptions and estimates used in our valuation procedures were appropriate, other assumptions and estimates could be applied and might produce significantly different results.

Following the goodwill impairment in the third quarter of 2025 and upon completion of our annual goodwill impairment analysis, we do not believe any of our reporting units are currently at risk for further impairment.

Medical Claims Liability

Our medical claims liability includes claims reported but not yet paid, or claims inventory, estimates for claims incurred but not reported (IBNR) and estimates for the costs necessary to process unpaid claims at the end of each period. We estimate our medical claims liability using actuarial methods that are commonly used by health insurance actuaries and meet Actuarial Standards of Practice. These actuarial methods consider factors such as historical data for payment patterns, cost trends, product mix, seasonality, utilization of healthcare services and other relevant factors.

Actuarial Standards of Practice generally require that the medical claims liability estimates be adequate to cover obligations under moderately adverse conditions. Moderately adverse conditions are situations in which the actual claims are expected to be higher than the otherwise estimated value of such claims at the time of estimate. The claims amounts ultimately settled will most likely be different than the estimate that satisfies the Actuarial Standards of Practice. We include in our IBNR an estimate for medical claims liability under moderately adverse conditions which represents the risk of adverse deviation of the estimates in our actuarial method of reserving.

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We use our judgment to determine the assumptions to be used in the calculation of the required estimates. The assumptions we consider when estimating IBNR include, without limitation, claims receipt and payment experience (and variations in that experience), changes in membership, provider billing practices, healthcare service utilization trends, cost trends, product mix, seasonality, prior authorization of medical services, benefit changes, known outbreaks of disease or increased incidence of illness such as influenza, provider contract changes, changes to fee schedules and the incidence of high-dollar or catastrophic claims.

We apply various estimation methods depending on the claim type and the period for which claims are being estimated. For more recent periods, incurred non-inpatient claims are estimated based on historical per member per month claims experience adjusted for known factors. Incurred hospital inpatient claims are estimated based on known inpatient utilization data and prior claims experience adjusted for known factors. We utilize estimated completion factors based on our historical experience to develop IBNR estimates. The completion factor is an actuarial estimate of the percentage of claims that have been received or adjudicated as of the end of a reporting period relative to the estimate of the total ultimate incurred costs for that same period. When we commence operations in a new state or region or for new product offerings, we have limited information with which to estimate our medical claims liability. See "Risk Factors - Failure to timely and effectively identify and mitigate medical cost trends and receive adequate rate adjustments to account for increased acuity could have a material adverse effect on our results of operations, financial condition and cash flows." These approaches are consistently applied to each period presented.

Our development of the medical claims liability estimate is a continuous process which we monitor and refine on a monthly basis as additional claims receipts and payment information becomes available. As more complete claims information becomes available, we adjust the amount of the estimates and include the changes in estimates in medical costs in the period in which the changes are identified. In every reporting period, our operating results include the effects of more completely developed medical claims liability estimates associated with previously reported periods. We consistently apply our reserving methodology from period to period. As additional information becomes known to us, we adjust our actuarial models accordingly to establish medical claims liability estimates.

We review actual and anticipated experience compared to the assumptions used to record medical costs. We establish premium deficiency reserves if actual and anticipated experience indicates that existing policy liabilities together with the present value of future gross premiums will not be sufficient to cover the present value of future benefits, settlement and maintenance costs. For purposes of determining premium deficiencies, contracts are grouped in a manner consistent with the method of acquiring, servicing and measuring the profitability of such contracts and expected investment income is excluded. We recorded a premium deficiency reserve of $250 million in December 2023 related to the 2024 Medicare Advantage contract year. In December 2024, we recorded a premium deficiency reserve of $92 million related to the 2025 Medicare Advantage contract year. As of December 2025, we have not recorded a premium deficiency reserve related to the 2026 Medicare Advantage contract year.

The paid and received completion factors, claims per member per month and cost trend factors are the most significant factors affecting the IBNR estimate. The following table illustrates the sensitivity of these factors and the estimated potential impact on our operating results caused by changes in these factors based on December 31, 2025 data:

Completion Factors: (1)

Cost Trend Factors: (2)

(Decrease) Increase in Factors

Increase (Decrease) in Medical Claims Liabilities

(Decrease) Increase in Factors

Increase (Decrease) in Medical Claims Liabilities

(In millions)

(In millions)

(1.00)

%

$

1,364 

(1.00)

%

$

(276)

(0.75)

1,019 

(0.75)

(207)

(0.50)

677 

(0.50)

(138)

(0.25)

337 

(0.25)

(69)

0.25 

(334)

0.25 

69 

0.50 

(666)

0.50 

138 

0.75 

(996)

0.75 

207 

1.00 

(1,323)

1.00 

276 

(1)

Reflects estimated potential changes in medical claims liability caused by changes in completion factors.

(2)

Reflects estimated potential changes in medical claims liability caused by changes in cost trend factors for the most recent periods.

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While we believe our estimates are appropriate, it is possible future events could require us to make significant adjustments for revisions to these estimates. For example, a 1% increase or decrease in our estimated medical claims liability would have affected net earnings by $204 million for the year ended December 31, 2025, excluding the effect of any return of premium, risk corridor or minimum medical loss ratio (MLR) programs. The estimates are based on our historical experience, terms of existing contracts, our observation of trends in the industry, information provided by our providers and information available from other outside sources.

The change in medical claims liability is summarized as follows (in millions):

Year Ended December 31,

2025

2024

2023

Balance, January 1,

$

18,308 

$

18,000 

$

16,745 

Less: Reinsurance recoverables

65 

49 

26 

Balance, January 1, net

18,243 

17,951 

16,719 

Incurred related to:

Current year

160,109 

128,312 

120,680 

Prior years

(2,315)

(2,447)

(2,036)

Total incurred

157,794 

125,865 

118,644 

Paid related to:

Current year

140,691 

111,456 

104,725 

Prior years

14,677 

13,959 

12,937 

Total paid

155,368 

125,415 

117,662 

Plus: Premium deficiency reserve

(92)

(158)

250 

Plus: Divestitures

(109)

— 

— 

Balance, December 31, net

20,468 

18,243 

17,951 

Plus: Reinsurance recoverables

76 

65 

49 

Balance, December 31,

$

20,544 

$

18,308 

$

18,000 

Days in claims payable (1)

46 

53 

54 

(1)

Days in claims payable is a calculation of medical claims liability at the end of the period divided by average expense per calendar day for the fourth quarter of each year.

Medical claims are usually paid within a few months of the member receiving service from the healthcare provider. As a result, the liability generally is described as having a "short-tail," which typically causes less than 10% of our medical claims liability as of the end of any given year to be outstanding the following year. We believe that the vast majority of the development of the estimate of medical claims liability as of December 31, 2025 will be known by the end of 2026.

Changes in estimates of incurred claims for prior years are primarily attributable to reserving under moderately adverse conditions. Additionally, as a result of minimum MLR and other return of premium programs, approximately $93 million, $243 million and $382 million of the "Incurred related to: Prior years" was recorded as a reduction to premium revenues in 2025, 2024 and 2023, respectively. Further, claims processing and coordination of benefits initiatives yielded claim payment recoveries related to dates of service from prior years. Changes in medical utilization, claims submission patterns, and cost trends and the effect of population health management initiatives may also contribute to changes in medical claim liability estimates. While we have evidence that population health management initiatives are effective on a case by case basis, these initiatives primarily focus on events and behaviors prior to the incurrence of the medical event and generation of a claim. Accordingly, any change in behavior, leveling of care or coordination of treatment occurs prior to claim generation and as a result, the costs prior to the population health management initiative are not known by us. Additionally, certain population health management initiatives are focused on member and provider education with the intent of influencing behavior to appropriately align the medical services provided with the member's acuity. In these cases, determining whether the population health management initiative changed the behavior cannot be determined. Because of the complexity of our business, the number of states in which we operate and the volume of claims that we process, we are unable to practically quantify the impact of these initiatives on our changes in estimates of IBNR.

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Revenue Recognition

Our health plans generate revenues primarily from premiums received from the states in which we operate health plans, premiums received from our members and CMS for our Medicare products and premiums from members of our commercial health plans. In addition to member premium payments, our Marketplace contracts also generate revenues from subsidies received from CMS. We generally receive a fixed premium per member per month pursuant to our contracts and recognize premium revenues during the period in which we are obligated to provide services to our members at the amount reasonably estimable. In some instances, our base premiums are subject to an adjustment, in the form of a risk score or risk adjustment, based on the acuity of our membership. Generally, the risk score or risk adjustment is determined by the state or CMS analyzing submissions of processed claims and medical record data to determine the acuity of our membership, often relative to the respective program's membership. We estimate the amount of risk score and risk adjustment based upon the processed claims and medical record data submitted and expected to be submitted to the state or CMS and record revenues on a risk adjusted basis. Some contracts allow for additional premiums related to certain supplemental services provided such as maternity deliveries.

Our contracts with states and CMS may require us to maintain a minimum MLR or may require us to share cost-savings in excess of certain levels. In certain circumstances our plans may be required to return premium to the state or policyholders in the event costs are below established levels. We estimate the effect of these programs and recognize reductions in revenue in the current period. Other states may require us to meet certain performance and quality metrics in order to receive additional or full contractual revenue. For performance-based contracts, we do not recognize revenue subject to refund until data is sufficient to measure performance.

Revenues are recorded based on membership and eligibility data provided by the states or CMS, which is adjusted on a monthly basis by the states or CMS for retroactive additions or deletions to membership data. These eligibility adjustments are estimated monthly and subsequent adjustments are made in the period known. We review and update those estimates as new information becomes available. It is possible that new information could require us to make additional adjustments, which could be significant, to these estimates.

Our Medicare Advantage contracts are with CMS. CMS deploys a risk adjustment model which apportions premiums paid to all health plans according to health severity and certain demographic factors. The CMS risk adjustment model pays more for members whose medical history would indicate that they are expected to have higher medical costs. Under this risk adjustment methodology, CMS calculates the risk adjusted premium payment using diagnosis data from hospital inpatient, hospital outpatient, physician treatment settings as well as prescription drug events. We and the healthcare providers collect, compile and submit the necessary and available diagnosis data to CMS within prescribed deadlines. We estimate risk adjustment revenues based upon the diagnosis data submitted and expected to be submitted to CMS and record revenues on a risk adjusted basis.

In addition to premium revenue and risk sharing described above, our Part D business receives prospective payments for reinsurance, manufacturer drug subsidies, and low-income subsidies. Reinsurance and manufacturer drug subsidies payments are received from CMS as a fixed monthly per member amount, based on the estimated costs of providing prescription drug benefits over the plan year, as reflected in our bids. For qualifying low-income prescription drug benefit members, CMS pays for some, or all, of the member's monthly premium. We receive certain Part D prospective subsidy payments from CMS for these members as a fixed monthly per-member amount, based on the estimated costs of providing prescription drug benefits over the plan year, as reflected in our bids. No prospective payments are received for risk sharing. Approximately one year subsequent to the end of the plan year, or later in the case of the drug manufacturer discount subsidy, a settlement payment is made between CMS and our plans based on the difference between the earned premium, risk corridor, reinsurance and subsidies compared to monthly prospective payments.

Our specialty companies generate revenues under contracts with state and federal programs, healthcare organizations and other commercial organizations and from our own subsidiaries. Revenues are recognized when the related services are provided or as ratably earned over the covered period of services. For performance-based measures in our contracts, revenue is recognized as data sufficient to measure performance is available.

Some states enact premium taxes, similar assessments and provider pass-through payments, collectively premium taxes, and these taxes are recorded as a separate component of both revenues and operating expenses. For certain products, premium taxes and state assessments are not pass-through payments and are recorded as premium revenue and premium tax expense in the Consolidated Statements of Operations.

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Some states require state directed payments that have minimal risk, but are administered as a premium adjustment. These payments are recorded as premium revenue and medical costs at close to a 100% HBR. In many instances, we have little visibility to the timing of these payments until they are paid by the state.