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Last updated on April 20, 2014 at 17:20 EDT

Centene Corporation Reports 2013 Second Quarter Earnings Of $0.70 Per Diluted Share Including $0.07 Of AcariaHealth Transaction Costs

July 23, 2013

ST. LOUIS, July 23, 2013 /PRNewswire/ — Centene Corporation (NYSE: CNC) today announced its financial results for the quarter ended June 30, 2013.

    Premium and Service Revenues (in
     millions)                                      $2,634.3

    Consolidated Health Benefits Ratio        88.8%

    General & Administrative expense
     ratio                                     8.7%

    Diluted earnings per share (EPS)                   $0.70

    Cash flow from operations (in
     millions)                                         $37.9
    -----------------------------                      -----

Michael F. Neidorff, Centene’s Chairman and Chief Executive Officer, stated, “The solid quarterly results reflect the positive momentum of our focus on operations and programs that we see continuing for the balance of this year and into 2014.”

Second Quarter Highlights

  • Quarter-end at-risk managed care membership of 2,696,900, an increase of 299,400 members, or 12% year over year.
  • Premium and service revenues of $2.6 billion, representing 28% growth year over year.
  • Health Benefits Ratio of 88.8%, compared to 92.9% in 2012.
  • General and Administrative expense ratio of 8.7%, compared to 8.2% in 2012.
  • Operating cash flow of $37.9 million for the second quarter of 2013.
  • Diluted EPS of $0.70 including AcariaHealth transaction costs of $0.07 per diluted share, compared to $(0.68) in 2012.

Other Events

  • In July 2013, our subsidiary, Kentucky Spirit Health Plan, discontinued serving Medicaid members in Kentucky.
  • In July 2013, our Ohio subsidiary, Buckeye Community Health Plan (Buckeye), began operating under a new and expanded contract with the Ohio Department of Job and Family Services (ODJFS) to serve Medicaid members in Ohio. Under the new state contract, Buckeye operates statewide through Ohio’s three newly aligned regions (West, Central/Southeast, and Northeast). Buckeye also began serving members under the ABD Children program in July 2013.
  • In July 2013, our joint venture subsidiary, Centurion, began operating under a new contract with the Department of Corrections in Massachusetts to provide comprehensive healthcare services to individuals incarcerated in Massachusetts state correctional facilities. Centurion was notified by the Department of Corrections in Tennessee in June 2013 that it had been awarded a contract to provide comprehensive healthcare services to individuals incarcerated in Tennessee state correctional facilities. Operations in Tennessee are expected to begin in the third quarter of 2013. Centurion is a joint venture between Centene and MHM Services Inc.
  • In May 2013, we entered into a new unsecured $500 million revolving credit facility and terminated our previous $350 million revolving credit facility. The new $500 million unsecured revolving credit facility increases the borrowing capacity from $350 million to $500 million; increases the expansion provision from $50 million to $100 million; decreases the interest rate for each pricing tier by 100 basis points; and extends the term from January 2016 to June 1, 2018.
  • In May 2013, our California subsidiary, California Health and Wellness Plan, was notified by the California Department of Health Care Services and the Imperial County Board of Supervisors of their intent to award a contract, contingent upon successful completion of contract negotiations, to serve Medi-Cal beneficiaries in Imperial County. Upon execution of a contract and regulatory approval, enrollment is expected to begin in the fourth quarter of 2013.
  • In May 2013, at the Case In Point Platinum Awards, Centene won awards in four categories: Emergency Department, Medicaid Case Management, Pediatric Case Management and Women/Children Case Management.
  • In April 2013, we completed the acquisition of AcariaHealth, a specialty pharmacy company, for $146.6 million. The transaction consideration was financed through a combination of Centene common stock and cash on hand.

The following table sets forth the Company’s membership by state for its managed care organizations:

                             June 30,
                             --------

                        2013          2012
                        ----          ----

    Arizona           23,200                  24,000

    Florida          216,200                 204,100

    Georgia          316,600                 313,300

    Illinois          18,000                  17,800

    Indiana          200,000                 205,000

    Kansas           137,500                       -

    Kentucky         133,500                 143,500

    Louisiana        153,700                 168,700

    Massachusetts     15,200                  41,400

    Mississippi       77,300                  30,100

    Missouri          58,800                       -

    Ohio             156,700                 166,800

    South Carolina    88,800                  87,800

    Texas            960,400                 919,200

    Washington        67,600                       -

    Wisconsin         73,400                  75,800
                      ------                  ------

    Total          2,696,900               2,397,500
                   =========               =========

Membership by line of business:

                                          June 30,
                                          --------

                                     2013              2012
                                     ----              ----

    Medicaid                    2,051,700                     1,848,500

    CHIP & Foster Care            275,900                       222,600

    ABD & Medicare                322,500                       269,900

    Hybrid Programs                22,400                        48,100

    Long-term Care                 24,400                         8,400
                                   ------                         -----

    Total                       2,696,900                     2,397,500
                                =========                     =========

Dual eligible membership (included in tables above):


                                     June 30,
                                     --------

                                    2013              2012
                                    ----              ----

    ABD                           81,800                      62,000

    Long-term Care                16,600                       7,600

    Medicare                       5,700                       3,600
                                   -----                       -----

    Total                        104,100                      73,200
                                 =======                      ======

Statement of Operations: Three Months Ended June 30, 2013

  • For the second quarter of 2013, Premium and Service Revenues increased 28% to $2.6 billion from $2.1 billion in the second quarter of 2012. The increase was primarily driven as a result of the Mississippi expansion, pharmacy carve-in in Louisiana, the additions of the Kansas, Missouri and Washington contracts, rate increases in several of our markets, increased Texas membership and the acquisition of AcariaHealth.
  • Consolidated HBR of 88.8% for the second quarter of 2013 represents an decrease from 92.9% in the comparable period in 2012 and a decrease from 90.4% in the first quarter of 2013. The HBR decreased compared to last year primarily as a result of improvements in the performance of the Texas and individual health business from 2012, as well as the effect of the premium deficiency reserve recorded for Kentucky in 2012. The HBR decrease compared to the first quarter of 2013 reflects a higher level of flu costs during the first quarter of 2013.
  • The following table compares the results for new business and existing business for the quarter ended June 30:
                                      2013                 2012
                                      ----                 ----

    Premium and Service Revenue

    New business                        17%                           31%

    Existing business                   83%                           69%

    HBR

    New business                      90.7%                        102.3%

    Existing business                 88.4%                         88.7%
                                      ----                          ----

    Total                             88.8%                         92.9%


  • Consolidated G&A expense ratio for the second quarter of 2013 was 8.7%, compared to 8.2% in the prior year. The year over year increase reflects an increase in performance based compensation expense in 2013 of approximately 70 basis points and the AcariaHealth transaction costs, partially offset by the leveraging of expenses over higher revenue in 2013.
  • Earnings from operations were $67.0 million in the second quarter of 2013 compared to a loss from operations of $(46.7) million in the second quarter 2012. Net earnings attributable to Centene Corporation were $39.5 million in the second quarter 2013, compared to a net loss of $(35.0) million in the second quarter of 2012.
  • Diluted EPS was $0.70 in the second quarter of 2013 including AcariaHealth transaction costs of $0.07 per diluted share.

Balance Sheet and Cash Flow

At June 30, 2013, the Company had cash, investments and restricted deposits of $1,629.2 million, including $33.8 million held by its unregulated entities. Medical claims liabilities totaled $1,078.4 million, representing 43.7 days in claims payable. Total debt was $551.5 million which includes $30.0 million in borrowings on the $500 million revolving credit facility at quarter end. Debt to capitalization was 29.8% at June 30, 2013, excluding the $74.1 million non-recourse mortgage note. Cash flow from operations for the six months ended June 30, 2013, was $80.9 million.

A reconciliation of the Company’s change in days in claims payable from the immediately preceding quarter-end is presented below:


    Days in claims payable, March
     31, 2013                          42.4

    Timing of claim payments            1.3

    Days in claims payable, June
     30, 2013                          43.7
                                       ====

Outlook

The table below depicts the Company’s annual guidance for 2013.

                                        Full Year 2013
                                        --------------

                                 Low                  High
                                 ---                  ----

    Premium and Service Revenues
     (in millions)                        $10,300                  $10,600

    Diluted EPS                             $2.65                    $2.90

    Consolidated Health Benefits
     Ratio                         88.0%                     89.0%

    General & Administrative
     expense ratio                  8.8%                      9.3%

    Diluted Shares Outstanding
     (in thousands)              56,000                    56,500

Conference Call

As previously announced, the Company will host a conference call Tuesday, July 23, 2013, at 8:30 A.M. (Eastern Time) to review the financial results for the second quarter ended June 30, 2013, and to discuss its business outlook. Michael F. Neidorff and William N. Scheffel will host the conference call. Investors and other interested parties are invited to listen to the conference call by dialing 1-877-270-2148 in the U.S. and Canada; +1-412-902-6510 from abroad; or via a live, audio webcast on the Company’s website at www.centene.com, under the Investors section. A webcast replay will be available for on-demand listening shortly after the completion of the call for the next twelve months or until 11:59 p.m. (Eastern Time) on Tuesday, July 22, 2014, at the aforementioned URL. In addition, a digital audio playback will be available until 9:00 a.m. (Eastern Time) on Tuesday, July 30, 2013, by dialing 1-877-344-7529 in the U.S. and Canada, or +1-412-317-0088 from abroad, and entering access code 10030660.

Other Information

The discussion in the third bullet under the heading “Statement of Operations: Three Months Ended June 30, 2013″ contains financial information for new and existing businesses. Existing businesses are primarily state markets, significant geographic expansion in an existing state or product that we have managed for four complete quarters. New businesses are primarily new state markets, significant geographic expansion in an existing state or product that conversely, we have not managed for four complete quarters.

About Centene Corporation

Centene Corporation, a Fortune 500 company, is a leading multi-line healthcare enterprise that provides programs and related services to the rising number of under-insured and uninsured individuals. Many receive benefits provided under Medicaid, including the State Children’s Health Insurance Program (CHIP), as well as Aged, Blind or Disabled (ABD), Foster Care and Long-term Care (LTC), in addition to other state-sponsored/hybrid programs, and Medicare (Special Needs Plans). The Company operates local health plans and offers a range of health insurance solutions. It also contracts with other healthcare and commercial organizations to provide specialty services including behavioral health, care management software, correctional systems healthcare, life and health management, managed vision, pharmacy benefits management, specialty pharmacy and telehealth services.

The information provided in this press release contains forward-looking statements that relate to future events and future financial performance of Centene. Subsequent events and developments may cause the Company’s estimates to change. The Company disclaims any obligation to update this forward-looking financial information in the future. Readers are cautioned that matters subject to forward-looking statements involve known and unknown risks and uncertainties, including economic, regulatory, competitive and other factors that may cause Centene’s or its industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Actual results may differ from projections or estimates due to a variety of important factors, including Centene’s ability to accurately predict and effectively manage health benefits and other operating expenses and reserves, competition, membership and revenue projections, timing of regulatory contract approval, changes in healthcare practices, changes in federal or state laws or regulations, changes in expected contract start dates, inflation, provider and state contract changes, new technologies, reduction in provider payments by governmental payors, major epidemics, disasters and numerous other factors affecting the delivery and cost of healthcare, as well as those factors disclosed in the Company’s publicly filed documents. The expiration, cancellation or suspension of Centene’s Medicaid Managed Care contracts, or the loss of any appeal of or protest to any such expiration, cancellation or suspension, by state governments would also negatively affect Centene.

[Tables Follow]


                                              CENTENE CORPORATION AND SUBSIDIARIES

                                                  CONSOLIDATED BALANCE SHEETS

                                               (In thousands, except share data)

                                                          (Unaudited)

                                                    June 30,                     December 31,
                                                         2013                               2012
                                                         ----                               ----

    ASSETS

    Current assets:

    Cash and cash equivalents                                     $688,712                          $843,952

    Premium and related
     receivables                                      357,908                            263,452

    Short-term investments                            131,330                            139,118

    Other current assets                              164,410                            127,080
                                                      -------                            -------

         Total current assets                       1,342,360                          1,373,602

    Long-term investments                             769,905                            614,723

    Restricted deposits                                39,291                             34,793

    Property, software and
     equipment, net                                   388,965                            377,726

    Goodwill                                          344,822                            256,288

    Intangible assets, net                             52,219                             20,268

    Other long-term assets                            107,673                             64,282
                                                      -------                             ------

         Total assets                                           $3,045,235                        $2,741,682
                                                                ==========                        ==========

    LIABILITIES AND STOCKHOLDERS' EQUITY

    Current liabilities:

    Medical claims liability                                    $1,078,386                          $926,302

    Premium deficiency reserve                          1,016                             41,475

    Accounts payable and accrued
     expenses                                         216,330                            191,343

    Unearned revenue                                   21,811                             34,597

    Current portion of long-term
     debt                                               3,029                              3,373
                                                        -----                              -----

         Total current liabilities                  1,320,572                          1,197,090

    Long-term debt                                    548,473                            535,481

    Other long-term liabilities                        53,916                             55,344
                                                       ------                             ------

         Total liabilities                          1,922,961                          1,787,915

    Commitments and contingencies

    Stockholders' equity:

    Common stock, $.001 par value;
     authorized 100,000,000
     shares; 57,661,262 issued and
     54,627,735 outstanding at
     June 30, 2013, and 55,339,160
     issued and 52,329,248
     outstanding at December 31,
     2012                                                  58                                 55

    Additional paid-in capital                        563,873                            450,856

    Accumulated other comprehensive income:

              Unrealized (loss) gain on
               investments, net of tax                 (4,061)                             5,189

    Retained earnings                                 629,306                            566,820

    Treasury stock, at cost
     (3,033,527 and 3,009,912
     shares, respectively)                            (70,969)                           (69,864)
                                                      -------                            -------

              Total Centene stockholders'
               equity                               1,118,207                            953,056

    Noncontrolling interest                             4,067                                711
                                                        -----                                ---

                   Total stockholders' equity       1,122,274                            953,767
                                                    ---------                            -------

                   Total liabilities and
                    stockholders' equity                        $3,045,235                        $2,741,682
                                                                ==========                        ==========


                                                                                               CENTENE CORPORATION AND SUBSIDIARIES

                                                                                              CONSOLIDATED STATEMENTS OF OPERATIONS

                                                                                                (In thousands, except share data)

                                                                                                           (Unaudited)

                                                                 Three Months Ended June 30,                                   Six Months Ended June 30,
                                                               ---------------------------                               -------------------------

                                                             2013                                2012                     2013                   2012
                                                             ----                                ----                     ----                   ----

    Revenues:

    Premium                                                         $2,528,718                                      $2,034,558                           $5,037,767  $3,669,408

    Service                                               105,599                              27,041                              138,793                   55,659
                                                          -------                              ------                              -------                   ------

         Premium and service revenues                   2,634,317                           2,061,599                            5,176,560                3,725,067

    Premium tax                                            91,628                              49,147                              195,277                   97,827
                                                           ------                              ------                              -------                   ------

         Total revenues                                 2,725,945                           2,110,746                            5,371,837                3,822,894
                                                        ---------                           ---------                            ---------                ---------

    Expenses:

    Medical costs                                       2,244,611                           1,890,405                            4,512,011                3,333,081

    Cost of services                                       93,300                              21,816                              118,365                   45,153

    General and administrative
     expenses                                             230,248                             168,062                              440,596                  331,249

    Premium tax expense                                    90,760                              49,176                              193,735                   97,926

    Impairment loss                                             -                              28,033                                    -                   28,033
                                                              ---                              ------                                  ---                   ------

         Total operating expenses                       2,658,919                           2,157,492                            5,264,707                3,835,442
                                                        ---------                           ---------                            ---------                ---------

         Earnings (loss) from operations                   67,026                             (46,746)                             107,130                  (12,548)

    Other income (expense):

    Investment and other income                             4,286                               4,045                                8,757                    9,336

    Interest expense                                       (7,033)                             (4,739)                             (13,658)                  (9,538)
                                                           ------                              ------                              -------                   ------

         Earnings (loss) before income tax
          expense (benefit)                                64,279                             (47,440)                             102,229                  (12,750)

    Income tax expense (benefit)                           25,268                              (8,608)                              40,307                    3,479
                                                           ------                              ------                               ------                    -----

         Net earnings (loss)                               39,011                             (38,832)                              61,922                  (16,229)

    Noncontrolling interest                                  (473)                             (3,833)                                (564)                  (5,208)
                                                             ----                              ------                                 ----                   ------

         Net earnings (loss) attributable
          to Centene Corporation                                       $39,484                                        $(34,999)                             $62,486    $(11,021)
                                                                       =======                                        ========                              =======    ========

    Net earnings (loss) per common share attributable to Centene Corporation:

         Basic earnings (loss) per common
          share                                                          $0.72                                          $(0.68)                               $1.17      $(0.21)

         Diluted earnings (loss) per common
          share                                                          $0.70                                          $(0.68)                               $1.13      $(0.21)

    Weighted average number of common shares outstanding:

         Basic                                         54,529,036                          51,515,895                           53,449,077               51,320,784

         Diluted                                       56,601,660                          51,515,895                           55,448,396               51,320,784


                                           CENTENE CORPORATION AND SUBSIDIARIES

                                           CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                      (In thousands)

                                                        (Unaudited)

                                                            Six Months Ended June 30,
                                                          -------------------------

                                                        2013                  2012
                                                        ----                  ----

    Cash flows from operating activities:

    Net earnings (loss)                                         $61,922                                 $(16,229)

    Adjustments to reconcile net earnings (loss) to net cash provided by (used in) operating activities

              Depreciation and amortization           32,928                           33,266

              Stock compensation expense              16,955                           11,993

              Impairment loss                              -                           28,033

              Deferred income taxes                   10,715                            9,364

    Changes in assets and liabilities

              Premium and related
               receivables                           (71,230)                       (232,745)

              Other current assets                   (35,879)                         (34,105)

              Other assets                           (38,191)                           1,520

              Medical claims liabilities             111,625                          251,050

              Unearned revenue                       (12,068)                          19,885

              Accounts payable and accrued
               expenses                               (1,488)                         (77,010)

              Other operating activities               5,650                           (4,922)
                                                       -----                           ------

                   Net cash provided by (used
                    in) operating activities          80,939                           (9,900)
                                                      ------                           ------

    Cash flows from investing activities:

    Capital expenditures                             (30,057)                         (57,442)

    Purchases of investments                        (537,590)                       (406,901)

    Sales and maturities of
     investments                                     358,971                          253,719

    Investments in acquisitions,
     net of cash acquired                            (66,832)                               -
                                                     -------                              ---

                   Net cash used in investing
                    activities                      (275,508)                       (210,624)
                                                    --------                         --------

    Cash flows from financing activities:

    Proceeds from exercise of
     stock options                                     3,867                           10,320

    Proceeds from borrowings                          30,000                           75,000

    Payment of long-term debt                        (10,118)                         (21,601)

    Proceeds from stock offering                      15,239                                -

    Excess tax benefits from
     stock compensation                                1,113                            5,810

    Common stock repurchases                          (1,105)                          (1,791)

    Contribution from
     noncontrolling interest                           3,920                              982

    Debt issue costs                                  (3,587)                               -
                                                      ------                              ---

                   Net cash provided by
                    financing activities              39,329                           68,720
                                                      ------                           ------

                   Net decrease in cash and cash
                    equivalents                     (155,240)                       (151,804)
                                                    --------                         --------

    Cash and cash equivalents,
     beginning of period                             843,952                          573,698
                                                     -------                          -------

    Cash and cash equivalents,
     end of period                                             $688,712                                 $421,894
                                                               ========                                 ========

    Supplemental disclosures of cash flow
     information:

         Interest paid                                          $15,170                                  $10,312

         Income taxes paid                            21,694                           32,394

         Equity issued in connection
          with acquisition                            75,438                                -

                                                                                                       CENTENE CORPORATION

                                                                                                   SUPPLEMENTAL FINANCIAL DATA

                                                    Q2                 Q1                   Q4                  Q3             Q2

                                                      2013             2013                   2012               2012            2012
                                                      ----             ----                   ----               ----            ----

    AT-RISK MEMBERSHIP

    Managed Care:

    Arizona                                         23,200                      23,300                         23,500                    23,800    24,000

    Florida                                        216,200                     214,600                        214,000                   209,600   204,100

    Georgia                                        316,600                     314,000                        313,700                   312,400   313,300

    Illinois                                        18,000                      18,000                         18,000                    17,900    17,800

    Indiana                                        200,000                     202,400                        204,000                   205,400   205,000

    Kansas                                         137,500                     133,700                              -                         -         -

    Kentucky                                       133,500                     132,700                        135,800                   145,400   143,500

    Louisiana                                      153,700                     162,900                        165,600                   167,200   168,700

    Massachusetts                                   15,200                      17,300                         21,500                    28,000    41,400

    Mississippi                                     77,300                      77,000                         77,200                    30,600    30,100

    Missouri                                        58,800                      57,900                         59,600                    53,900         -

    Ohio                                           156,700                     157,700                        157,800                   173,800   166,800

    South Carolina                                  88,800                      90,100                         90,100                    89,400    87,800

    Texas                                          960,400                     948,400                        949,900                   930,700   919,200

    Washington                                      67,600                      63,500                         57,200                    42,000         -

    Wisconsin                                       73,400                      72,600                         72,400                    72,900    75,800
                                                    ------                      ------                         ------                    ------    ------

              TOTAL                              2,696,900                   2,686,100                      2,560,300                 2,503,000 2,397,500
                                                 =========                   =========                      =========                 ========= =========

    Medicaid                                     2,051,700                   2,049,200                      1,977,200                 1,939,400 1,848,500

    CHIP & Foster Care                             275,900                     267,900                        237,700                   229,600   222,600

    ABD & Medicare                                 322,500                     320,700                        307,800                   289,800   269,900

    Hybrid Programs                                 22,400                      24,600                         29,100                    35,700    48,100

    Long-term Care                                  24,400                      23,700                          8,500                     8,500     8,400
                                                    ------                      ------                          -----                     -----     -----

              TOTAL                              2,696,900                   2,686,100                      2,560,300                 2,503,000 2,397,500
                                                 =========                   =========                      =========                 ========= =========

    Specialty Services(a):

    Cenpatico Behavioral Health

    Arizona                                        157,100                     156,200                        157,900                   162,000   159,900

    Kansas                                               -                           -                         49,800                    48,500    44,300

              TOTAL                                157,100                     156,200                        207,700                   210,500   204,200
                                                   =======                     =======                        =======                   =======   =======

    (a) Includes external membership only.

    REVENUE PER MEMBER PER
     MONTH(b)                                                 $305                                    $304                                 $292           $283 $279

    CLAIMS(b)

    Period-end inventory                           752,800                   1,020,100                        641,000                   826,800 1,195,000

    Average inventory                              539,800                     587,800                        555,200                   547,400   640,600

    Period-end inventory per
     member                                           0.28                        0.38                           0.25                      0.33      0.50

    (b) Revenue per member and claims information are presented for the Managed Care at-risk members.

    NUMBER OF EMPLOYEES                              7,900                       7,100                          6,800                     6,400     6,200


                                                      Q2                   Q1                   Q4                   Q3                   Q2

                                                       2013                  2013                2012                  2012                2012
                                                       ----                  ----                ----                  ----                ----

    DAYS IN CLAIMS PAYABLE (c)                         43.7                           42.4                             41.1                          42.8                            41.4

    (c) Days in Claims Payable is a calculation of Medical Claims Liabilities at the end of the period divided by average claims expense per calendar day for such period, excluding the Kentucky premium deficiency reserve liability.

    CASH AND INVESTMENTS (in millions)

    Regulated                                                $1,595.4                                  $1,619.0                                  $1,595.3                                  $1,493.8                                  $1,198.2

    Unregulated                                        33.8                           45.5                             37.3                          36.0                            40.6
                                                       ----                           ----                             ----                          ----                            ----

              TOTAL                                          $1,629.2                                  $1,664.5                                  $1,632.6                                  $1,529.8                                  $1,238.8
                                                             ========                                  ========                                  ========                                  ========                                  ========

    DEBT TO CAPITALIZATION                             32.9%                          35.2%                            36.1%                         29.2%                           30.1%

    DEBT TO CAPITALIZATION
     EXCLUDING NON-RECOURSE
     DEBT(d)                                           29.8%                          31.9%                            32.7%                         25.0%                           25.9%

    Debt to Capitalization is calculated as follows: total debt divided by (total debt + total equity).

    (d) The non-recourse debt represents the Company's mortgage note payable ($74.1 million at June 30, 2013).

    Operating Ratios:

                       Three Months Ended             Six Months Ended
                             June 30,                     June 30,
                      -------------------            -----------------

                        2013              2012         2013            2012
                        ----              ----         ----            ----

    Health
     Benefits
     Ratios:

    Medicaid and
     CHIP               89.0%                  92.4%                   90.7% 90.2%

    ABD and
     Medicare           89.0                   93.0                    88.5  91.4

    Specialty
     Services           82.0                   98.0                    82.5  93.9

    Total               88.8                   92.9                    89.6  90.8

    Total General
     &
     Administrative
     Expense
     Ratio               8.7%                   8.2%                    8.5%  8.9%

    MEDICAL CLAIMS LIABILITY (In thousands)

    The changes in medical claims liability are summarized as follows:

    Balance, June 30, 2012                                 $859,035

    Incurred related to:

          Current period                     8,666,880

          Prior period                         (41,913)
                                               -------

             Total incurred                  8,624,967

        Paid related to:

          Current period                     7,604,434

          Prior period                         800,166
                                               -------

             Total paid                      8,404,600
                                             =========

        Less: Premium Deficiency Reserve         1,016
                                                 -----

    Balance, June 30, 2013                               $1,078,386
                                                         ==========

Centene’s claims reserving process utilizes a consistent actuarial methodology to estimate Centene’s ultimate liability. Any reduction in the “Incurred related to: Prior period” amount may be offset as Centene actuarially determines “Incurred related to: Current period.” As such, only in the absence of a consistent reserving methodology would favorable development of prior period claims liability estimates reduce medical costs. Centene believes it has consistently applied its claims reserving methodology in each of the periods presented.

The amount of the “Incurred related to: Prior period” above represents favorable development and includes the effects of reserving under moderately adverse conditions, new markets where we use a conservative approach in setting reserves during the initial periods of operations, receipts from other third party payors related to coordination of benefits and lower medical utilization and cost trends for dates of service prior to June 30, 2012.

SOURCE Centene Corporation


Source: PR Newswire