[X] | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
[ ] | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Delaware | 42-1406317 |
(State or other jurisdiction of | (I.R.S. Employer |
incorporation or organization) | Identification Number) |
7700 Forsyth Boulevard | |
St. Louis, Missouri | 63105 |
(Address of principal executive offices) | (Zip Code) |
PAGE | ||
Part I | ||
Financial Information | ||
Item 1. | ||
Item 2. | ||
Item 3. | ||
Item 4. | ||
Part II | ||
Other Information | ||
Item 1. | ||
Item 1A. | ||
Item 2. | ||
Item 6. | ||
• | our ability to accurately predict and effectively manage health benefits and other operating expenses and reserves; |
• | competition; |
• | membership and revenue declines or unexpected trends; |
• | changes in healthcare practices, new technologies, and advances in medicine; |
• | increased health care costs; |
• | changes in economic, political or market conditions; |
• | changes in federal or state laws or regulations, including changes with respect to government health care programs as well as changes with respect to the Patient Protection and Affordable Care Act and the Health Care and Education Affordability Reconciliation Act and any regulations enacted thereunder that may result from changing political conditions; |
• | rate cuts or other payment reductions or delays by governmental payors and other risks and uncertainties affecting our government businesses; |
• | our ability to adequately price products on federally facilitated and state based Health Insurance Marketplaces; |
• | tax matters; |
• | disasters or major epidemics; |
• | the outcome of legal and regulatory proceedings; |
• | changes in expected contract start dates; |
• | provider, state, federal and other contract changes and timing of regulatory approval of contracts; |
• | the expiration, suspension, or termination of our contracts with federal or state governments (including but not limited to Medicaid, Medicare, and TRICARE); |
• | challenges to our contract awards; |
• | cyber-attacks or other privacy or data security incidents; |
• | the possibility that the expected synergies and value creation from acquired businesses, including, without limitation, the acquisition of Health Net, Inc. (Health Net), will not be realized, or will not be realized within the expected time period, including, but not limited to, as a result of conditions, terms, obligations or restrictions imposed by regulators in connection with their approval of, or consent to, the acquisition; |
• | the exertion of management’s time and our resources, and other expenses incurred and business changes required in connection with complying with the undertakings in connection with certain regulatory approvals; |
• | disruption from the acquisition making it more difficult to maintain business and operational relationships; |
• | the risk that unexpected costs will be incurred in connection with, among other things, the acquisition and/or the integration; |
• | changes in expected closing dates, estimated purchase price and accretion for acquisitions; |
• | the risk that acquired businesses will not be integrated successfully; |
• | our ability to maintain or achieve improvement in the Centers for Medicare and Medicaid Services (CMS) Star ratings and other quality scores that impact revenue; |
• | availability of debt and equity financing, on terms that are favorable to us; |
• | inflation; and |
• | foreign currency fluctuations. |
Three Months Ended March 31, | |||||||
2017 | 2016 | ||||||
GAAP net earnings (loss) from continuing operations | $ | 139 | $ | (15 | ) | ||
Amortization of acquired intangible assets | 40 | 9 | |||||
Health Net acquisition related expenses | 5 | 189 | |||||
Penn Treaty assessment expense | 47 | — | |||||
Income tax effects of adjustments (1) | (34 | ) | (87 | ) | |||
Adjusted net earnings from continuing operations | $ | 197 | $ | 96 | |||
GAAP diluted earnings (loss) per share (EPS) | $ | 0.79 | $ | (0.12 | ) | ||
Amortization of acquired intangible assets (2) | 0.14 | 0.04 | |||||
Health Net acquisition related expenses (3) | 0.02 | 0.82 | |||||
Penn Treaty assessment expense (4) | 0.17 | — | |||||
Adjusted Diluted EPS from continuing operations | $ | 1.12 | $ | 0.74 |
(1) | The income tax effects of adjustments are based on the effective income tax rates applicable to adjusted (non-GAAP) results. |
(2) | The amortization of acquired intangible assets per diluted share are net of an income tax benefit of $0.09 and $0.03 for the three months ended March 31, 2017 and 2016, respectively. |
(3) | The Health Net acquisition related expenses per diluted share are net of an income tax benefit of $0.01 and $0.64 for the three months ended March 31, 2017 and 2016, respectively. |
(4) | The Penn Treaty assessment expense per diluted share is net of an income tax benefit of $0.09 for the three months ended March 31, 2017. For a further discussion of the Penn Treaty assessment, see Note 9, Contingencies. |
Three Months Ended March 31, | |||||||
2017 | 2016 | ||||||
GAAP selling, general and administrative expenses | $ | 1,091 | $ | 722 | |||
Health Net acquisition related expenses | 5 | 189 | |||||
Penn Treaty assessment expense | 47 | — | |||||
Adjusted selling, general and administrative expenses | $ | 1,039 | $ | 533 |
March 31, 2017 | December 31, 2016 | ||||||
(Unaudited) | |||||||
ASSETS | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 4,839 | $ | 3,930 | |||
Premium and related receivables | 3,121 | 3,098 | |||||
Short-term investments | 725 | 505 | |||||
Other current assets | 723 | 832 | |||||
Total current assets | 9,408 | 8,365 | |||||
Long-term investments | 4,636 | 4,545 | |||||
Restricted deposits | 140 | 138 | |||||
Property, software and equipment, net | 841 | 797 | |||||
Goodwill | 4,712 | 4,712 | |||||
Intangible assets, net | 1,504 | 1,545 | |||||
Other long-term assets | 121 | 95 | |||||
Total assets | $ | 21,362 | $ | 20,197 | |||
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||
Current liabilities: | |||||||
Medical claims liability | $ | 4,290 | $ | 3,929 | |||
Accounts payable and accrued expenses | 4,275 | 4,377 | |||||
Unearned revenue | 633 | 313 | |||||
Current portion of long-term debt | 4 | 4 | |||||
Total current liabilities | 9,202 | 8,623 | |||||
Long-term debt | 4,643 | 4,651 | |||||
Other long-term liabilities | 1,295 | 869 | |||||
Total liabilities | 15,140 | 14,143 | |||||
Commitments and contingencies | |||||||
Redeemable noncontrolling interests | 138 | 145 | |||||
Stockholders’ equity: | |||||||
Preferred stock, $0.001 par value; authorized 10,000,000 shares; no shares issued or outstanding at March 31, 2017 and December 31, 2016 | — | — | |||||
Common stock, $0.001 par value; authorized 400,000,000 shares; 178,669,935 issued and 172,271,202 outstanding at March 31, 2017, and 178,134,306 issued and 171,919,071 outstanding at December 31, 2016 | — | — | |||||
Additional paid-in capital | 4,224 | 4,190 | |||||
Accumulated other comprehensive loss | (21 | ) | (36 | ) | |||
Retained earnings | 2,059 | 1,920 | |||||
Treasury stock, at cost (6,398,733 and 6,215,235 shares, respectively) | (192 | ) | (179 | ) | |||
Total Centene stockholders’ equity | 6,070 | 5,895 | |||||
Noncontrolling interest | 14 | 14 | |||||
Total stockholders’ equity | 6,084 | 5,909 | |||||
Total liabilities and stockholders’ equity | $ | 21,362 | $ | 20,197 |
Three Months Ended March 31, | |||||||
2017 | 2016 | ||||||
Revenues: | |||||||
Premium | $ | 10,638 | $ | 5,986 | |||
Service | 527 | 425 | |||||
Premium and service revenues | 11,165 | 6,411 | |||||
Premium tax and health insurer fee | 559 | 542 | |||||
Total revenues | 11,724 | 6,953 | |||||
Expenses: | |||||||
Medical costs | 9,322 | 5,311 | |||||
Cost of services | 441 | 367 | |||||
Selling, general and administrative expenses | 1,091 | 722 | |||||
Amortization of acquired intangible assets | 40 | 9 | |||||
Premium tax expense | 590 | 450 | |||||
Health insurer fee expense | — | 74 | |||||
Total operating expenses | 11,484 | 6,933 | |||||
Earnings from operations | 240 | 20 | |||||
Other income (expense): | |||||||
Investment and other income | 41 | 15 | |||||
Interest expense | (62 | ) | (33 | ) | |||
Earnings from continuing operations, before income tax expense | 219 | 2 | |||||
Income tax expense | 87 | 16 | |||||
Earnings (loss) from continuing operations, net of income tax expense | 132 | (14 | ) | ||||
Discontinued operations, net of income tax (benefit) | — | (1 | ) | ||||
Net earnings (loss) | 132 | (15 | ) | ||||
(Earnings) loss attributable to noncontrolling interests | 7 | (1 | ) | ||||
Net earnings (loss) attributable to Centene Corporation | $ | 139 | $ | (16 | ) | ||
Amounts attributable to Centene Corporation common shareholders: | |||||||
Earnings (loss) from continuing operations, net of income tax expense | $ | 139 | $ | (15 | ) | ||
Discontinued operations, net of income tax (benefit) | — | (1 | ) | ||||
Net earnings (loss) | $ | 139 | $ | (16 | ) | ||
Net earnings (loss) per common share attributable to Centene Corporation: | |||||||
Basic: | |||||||
Continuing operations | $ | 0.81 | $ | (0.12 | ) | ||
Discontinued operations | — | (0.01 | ) | ||||
Basic earnings (loss) per common share | $ | 0.81 | $ | (0.13 | ) | ||
Diluted: | |||||||
Continuing operations | $ | 0.79 | $ | (0.12 | ) | ||
Discontinued operations | — | (0.01 | ) | ||||
Diluted earnings (loss) per common share | $ | 0.79 | $ | (0.13 | ) | ||
Weighted average number of common shares outstanding: | |||||||
Basic | 172,073,968 | 125,543,076 | |||||
Diluted | 175,836,290 | 125,543,076 |
Three Months Ended March 31, | |||||||
2017 | 2016 | ||||||
Net earnings (loss) | $ | 132 | $ | (15 | ) | ||
Reclassification adjustment, net of tax | — | 1 | |||||
Change in unrealized gain on investments, net of tax | 14 | 18 | |||||
Foreign currency translation adjustments | 1 | 1 | |||||
Other comprehensive earnings | 15 | 20 | |||||
Comprehensive earnings | 147 | 5 | |||||
Comprehensive (earnings) loss attributable to noncontrolling interests | 7 | (1 | ) | ||||
Comprehensive earnings attributable to Centene Corporation | $ | 154 | $ | 4 |
Centene Stockholders’ Equity | |||||||||||||||||||||||||||||||||
Common Stock | Treasury Stock | ||||||||||||||||||||||||||||||||
$.001 Par Value Shares | Amt | Additional Paid-in Capital | Accumulated Other Comprehensive Earnings (Loss) | Retained Earnings | $.001 Par Value Shares | Amt | Non- controlling Interest | Total | |||||||||||||||||||||||||
Balance, December 31, 2016 | 178,134,306 | $ | — | $ | 4,190 | $ | (36 | ) | $ | 1,920 | 6,215,235 | $ | (179 | ) | $ | 14 | $ | 5,909 | |||||||||||||||
Comprehensive Earnings: | |||||||||||||||||||||||||||||||||
Net earnings | — | — | — | — | 139 | — | — | — | 139 | ||||||||||||||||||||||||
Other comprehensive earnings, net of $8 tax | — | — | — | 15 | — | — | — | — | 15 | ||||||||||||||||||||||||
Common stock issued for employee benefit plans | 535,629 | — | 2 | — | — | — | — | — | 2 | ||||||||||||||||||||||||
Common stock repurchases | — | — | — | — | — | 183,498 | (13 | ) | — | (13 | ) | ||||||||||||||||||||||
Stock compensation expense | — | — | 32 | — | — | — | — | — | 32 | ||||||||||||||||||||||||
Balance, March 31, 2017 | 178,669,935 | $ | — | $ | 4,224 | $ | (21 | ) | $ | 2,059 | 6,398,733 | $ | (192 | ) | $ | 14 | $ | 6,084 |
Three Months Ended March 31, | |||||||
2017 | 2016 | ||||||
Cash flows from operating activities: | |||||||
Net earnings (loss) | $ | 132 | $ | (15 | ) | ||
Adjustments to reconcile net earnings (loss) to net cash provided by operating activities | |||||||
Depreciation and amortization | 86 | 35 | |||||
Stock compensation expense | 32 | 51 | |||||
Deferred income taxes | (51 | ) | (17 | ) | |||
Gain on contingent consideration | — | (1 | ) | ||||
Changes in assets and liabilities | |||||||
Premium and related receivables | 59 | (174 | ) | ||||
Other assets | 89 | (46 | ) | ||||
Medical claims liabilities | 358 | 196 | |||||
Unearned revenue | 320 | (64 | ) | ||||
Accounts payable and accrued expenses | (237 | ) | 35 | ||||
Other long-term liabilities | 459 | 192 | |||||
Other operating activities, net | 1 | 4 | |||||
Net cash provided by operating activities | 1,248 | 196 | |||||
Cash flows from investing activities: | |||||||
Capital expenditures | (83 | ) | (45 | ) | |||
Purchases of investments | (594 | ) | (212 | ) | |||
Sales and maturities of investments | 349 | 203 | |||||
Investments in acquisitions, net of cash acquired | — | (782 | ) | ||||
Other investing activities, net | (1 | ) | — | ||||
Net cash used in investing activities | (329 | ) | (836 | ) | |||
Cash flows from financing activities: | |||||||
Proceeds from long-term debt | 560 | 3,790 | |||||
Payments of long-term debt | (560 | ) | (1,388 | ) | |||
Common stock repurchases | (13 | ) | (22 | ) | |||
Debt issuance costs | — | (51 | ) | ||||
Other financing activities, net | 3 | (13 | ) | ||||
Net cash (used in) provided by financing activities | (10 | ) | 2,316 | ||||
Net increase in cash and cash equivalents | 909 | 1,676 | |||||
Cash and cash equivalents, beginning of period | 3,930 | 1,760 | |||||
Cash and cash equivalents, end of period | $ | 4,839 | $ | 3,436 | |||
Supplemental disclosures of cash flow information: | |||||||
Interest paid | $ | 72 | $ | 3 | |||
Income taxes paid | $ | 2 | $ | 33 | |||
Equity issued in connection with acquisitions | $ | — | $ | 3,105 |
March 31, 2017 | December 31, 2016 | ||||||||||||||||||||||||||||||
Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | ||||||||||||||||||||||||
U.S. Treasury securities and obligations of U.S. government corporations and agencies | $ | 365 | $ | — | $ | (1 | ) | $ | 364 | $ | 364 | $ | — | $ | (1 | ) | $ | 363 | |||||||||||||
Corporate securities | 2,034 | 14 | (9 | ) | 2,039 | 1,933 | 12 | (13 | ) | 1,932 | |||||||||||||||||||||
Restricted certificates of deposit | 5 | — | — | 5 | 5 | — | — | 5 | |||||||||||||||||||||||
Restricted cash equivalents | 12 | — | — | 12 | 6 | — | — | 6 | |||||||||||||||||||||||
Municipal securities | 1,908 | 3 | (22 | ) | 1,889 | 1,767 | 1 | (35 | ) | 1,733 | |||||||||||||||||||||
Asset-backed securities | 331 | 1 | (1 | ) | 331 | 317 | 1 | (1 | ) | 317 | |||||||||||||||||||||
Residential mortgage-backed securities | 231 | 1 | (5 | ) | 227 | 219 | 1 | (5 | ) | 215 | |||||||||||||||||||||
Commercial mortgage-backed securities | 347 | 1 | (5 | ) | 343 | 343 | — | (5 | ) | 338 | |||||||||||||||||||||
Cost and equity method investments | 169 | — | — | 169 | 163 | — | — | 163 | |||||||||||||||||||||||
Life insurance contracts | 122 | — | — | 122 | 116 | — | — | 116 | |||||||||||||||||||||||
Total | $ | 5,524 | $ | 20 | $ | (43 | ) | $ | 5,501 | $ | 5,233 | $ | 15 | $ | (60 | ) | $ | 5,188 |
March 31, 2017 | December 31, 2016 | ||||||||||||||||||||||||||||||
Less Than 12 Months | 12 Months or More | Less Than 12 Months | 12 Months or More | ||||||||||||||||||||||||||||
Unrealized Losses | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | Fair Value | ||||||||||||||||||||||||
U.S. Treasury securities and obligations of U.S. government corporations and agencies | $ | (1 | ) | $ | 311 | $ | — | $ | 3 | $ | (1 | ) | $ | 215 | $ | — | $ | 2 | |||||||||||||
Corporate securities | (9 | ) | 806 | — | 30 | (12 | ) | 1,020 | (1 | ) | 39 | ||||||||||||||||||||
Municipal securities | (22 | ) | 1,177 | — | 39 | (35 | ) | 1,423 | — | 30 | |||||||||||||||||||||
Asset-backed securities | (1 | ) | 127 | — | 14 | (1 | ) | 101 | — | 18 | |||||||||||||||||||||
Residential mortgage-backed securities | (4 | ) | 175 | (1 | ) | 16 | (5 | ) | 188 | — | — | ||||||||||||||||||||
Commercial mortgage-backed securities | (4 | ) | 258 | (1 | ) | 15 | (5 | ) | 271 | — | — | ||||||||||||||||||||
Total | $ | (41 | ) | $ | 2,854 | $ | (2 | ) | $ | 117 | $ | (59 | ) | $ | 3,218 | $ | (1 | ) | $ | 89 |
March 31, 2017 | December 31, 2016 | ||||||||||||||||||||||||||||||
Investments | Restricted Deposits | Investments | Restricted Deposits | ||||||||||||||||||||||||||||
Amortized Cost | Fair Value | Amortized Cost | Fair Value | Amortized Cost | Fair Value | Amortized Cost | Fair Value | ||||||||||||||||||||||||
One year or less | $ | 656 | $ | 656 | $ | 92 | $ | 92 | $ | 500 | $ | 500 | $ | 91 | $ | 91 | |||||||||||||||
One year through five years | 1,967 | 1,967 | 48 | 48 | 1,982 | 1,974 | 47 | 47 | |||||||||||||||||||||||
Five years through ten years | 1,636 | 1,621 | — | — | 1,101 | 1,089 | — | — | |||||||||||||||||||||||
Greater than ten years | 216 | 216 | — | — | 633 | 617 | — | — | |||||||||||||||||||||||
Asset-backed securities | 909 | 901 | — | — | 879 | 870 | — | — | |||||||||||||||||||||||
Total | $ | 5,384 | $ | 5,361 | $ | 140 | $ | 140 | $ | 5,095 | $ | 5,050 | $ | 138 | $ | 138 |
Level Input: | Input Definition: | |
Level I | Inputs are unadjusted, quoted prices for identical assets or liabilities in active markets at the measurement date. | |
Level II | Inputs other than quoted prices included in Level I that are observable for the asset or liability through corroboration with market data at the measurement date. | |
Level III | Unobservable inputs that reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. |
Level I | Level II | Level III | Total | ||||||||||||
Assets | |||||||||||||||
Cash and cash equivalents | $ | 4,839 | $ | — | $ | — | $ | 4,839 | |||||||
Investments available for sale: | |||||||||||||||
U.S. Treasury securities and obligations of U.S. government corporations and agencies | $ | 237 | $ | 4 | $ | — | $ | 241 | |||||||
Corporate securities | — | 2,039 | — | 2,039 | |||||||||||
Municipal securities | — | 1,889 | — | 1,889 | |||||||||||
Asset-backed securities | — | 331 | — | 331 | |||||||||||
Residential mortgage-backed securities | — | 227 | — | 227 | |||||||||||
Commercial mortgage-backed securities | — | 343 | — | 343 | |||||||||||
Total investments | $ | 237 | $ | 4,833 | $ | — | $ | 5,070 | |||||||
Restricted deposits available for sale: | |||||||||||||||
Cash and cash equivalents | $ | 12 | $ | — | $ | — | $ | 12 | |||||||
Certificates of deposit | 5 | — | — | 5 | |||||||||||
U.S. Treasury securities and obligations of U.S. government corporations and agencies | 123 | — | — | 123 | |||||||||||
Total restricted deposits | $ | 140 | $ | — | $ | — | $ | 140 | |||||||
Other long-term assets: Interest rate swap agreements | $ | — | $ | 3 | $ | — | $ | 3 | |||||||
Total assets at fair value | $ | 5,216 | $ | 4,836 | $ | — | $ | 10,052 | |||||||
Liabilities | |||||||||||||||
Other long term liabilities: | |||||||||||||||
Interest rate swap agreements | $ | — | $ | 72 | $ | — | $ | 72 | |||||||
Total liabilities at fair value | $ | — | $ | 72 | $ | — | $ | 72 |
Level I | Level II | Level III | Total | ||||||||||||
Assets | |||||||||||||||
Cash and cash equivalents | $ | 3,930 | $ | — | $ | — | $ | 3,930 | |||||||
Investments available for sale: | |||||||||||||||
U.S. Treasury securities and obligations of U.S. government corporations and agencies | $ | 221 | $ | 15 | $ | — | $ | 236 | |||||||
Corporate securities | — | 1,932 | — | 1,932 | |||||||||||
Municipal securities | — | 1,733 | — | 1,733 | |||||||||||
Asset-backed securities | — | 317 | — | 317 | |||||||||||
Residential mortgage-backed securities | — | 215 | — | 215 | |||||||||||
Commercial mortgage-backed securities | — | 338 | — | 338 | |||||||||||
Total investments | $ | 221 | $ | 4,550 | $ | — | $ | 4,771 | |||||||
Restricted deposits available for sale: | |||||||||||||||
Cash and cash equivalents | $ | 6 | $ | — | $ | — | $ | 6 | |||||||
Certificates of deposit | 5 | — | — | 5 | |||||||||||
U.S. Treasury securities and obligations of U.S. government corporations and agencies | 127 | — | — | 127 | |||||||||||
Total restricted deposits | $ | 138 | $ | — | $ | — | $ | 138 | |||||||
Other long-term assets: | |||||||||||||||
Interest rate swap agreements | $ | — | $ | 4 | $ | — | $ | 4 | |||||||
Total assets at fair value | $ | 4,289 | $ | 4,554 | $ | — | $ | 8,843 | |||||||
Liabilities | |||||||||||||||
Other long-term liabilities: | |||||||||||||||
Interest rate swap agreements | $ | — | $ | 62 | $ | — | $ | 62 | |||||||
Total liabilities at fair value | $ | — | $ | 62 | $ | — | $ | 62 |
Three Months Ended March 31, | ||||||||
2017 | 2016 | |||||||
Balance, January 1 | $ | 3,929 | $ | 2,298 | ||||
Less: Reinsurance Recoverable | 5 | — | ||||||
Balance, January 1, net | 3,924 | 2,298 | ||||||
Acquisitions | — | 1,370 | ||||||
Incurred related to: | ||||||||
Current year | 9,557 | 5,478 | ||||||
Prior years | (235 | ) | (167 | ) | ||||
Total incurred | 9,322 | 5,311 | ||||||
Paid related to: | ||||||||
Current year | 5,973 | 3,391 | ||||||
Prior years | 2,991 | 1,725 | ||||||
Total paid | 8,964 | 5,116 | ||||||
Balance at March 31, net | 4,282 | 3,863 | ||||||
Plus: Reinsurance Recoverable | 8 | — | ||||||
Balance, March 31 | $ | 4,290 | $ | 3,863 |
March 31, 2017 | December 31, 2016 | ||||||
Risk adjustment | $ | (735 | ) | $ | (425 | ) | |
Reinsurance | 90 | 122 | |||||
Risk corridor | (5 | ) | (3 | ) | |||
Minimum MLR | (13 | ) | (18 | ) | |||
Cost sharing reductions | (199 | ) | (147 | ) |
March 31, 2017 | December 31, 2016 | ||||||
$1,400 million 5.625% Senior notes, due February 15, 2021 | $ | 1,400 | $ | 1,400 | |||
$1,000 million 4.75% Senior notes, due May 15, 2022 | 1,008 | 1,008 | |||||
$1,000 million 6.125% Senior notes, due February 15, 2024 | 1,000 | 1,000 | |||||
$1,200 million 4.75% Senior notes, due January 15, 2025 | 1,200 | 1,200 | |||||
Fair value of interest rate swap agreements | (69 | ) | (58 | ) | |||
Total senior notes | 4,539 | 4,550 | |||||
Revolving credit agreement | 100 | 100 | |||||
Mortgage notes payable | 63 | 64 | |||||
Capital leases and other | 18 | 18 | |||||
Debt issuance costs | (73 | ) | (77 | ) | |||
Total debt | 4,647 | 4,655 | |||||
Less current portion | (4 | ) | (4 | ) | |||
Long-term debt | $ | 4,643 | $ | 4,651 |
Three Months Ended March 31, | |||||||
2017 | 2016 | ||||||
Earnings (loss) attributable to Centene Corporation: | |||||||
Earnings (loss) from continuing operations, net of tax | $ | 139 | $ | (15 | ) | ||
Discontinued operations, net of tax | — | (1 | ) | ||||
Net earnings (loss) | $ | 139 | $ | (16 | ) | ||
Shares used in computing per share amounts: | |||||||
Weighted average number of common shares outstanding | 172,073,968 | 125,543,076 | |||||
Common stock equivalents (as determined by applying the treasury stock method) | 3,762,322 | — | |||||
Weighted average number of common shares and potential dilutive common shares outstanding | 175,836,290 | 125,543,076 | |||||
Net earnings (loss) per common share attributable to Centene Corporation: | |||||||
Basic: | |||||||
Continuing operations | $ | 0.81 | $ | (0.12 | ) | ||
Discontinued operations | — | (0.01 | ) | ||||
Basic earnings (loss) per common share | $ | 0.81 | $ | (0.13 | ) | ||
Diluted: | |||||||
Continuing operations | $ | 0.79 | $ | (0.12 | ) | ||
Discontinued operations | — | (0.01 | ) | ||||
Diluted earnings (loss) per common share | $ | 0.79 | $ | (0.13 | ) |
Managed Care | Specialty Services | Eliminations | Consolidated Total | ||||||||||||
Total revenues from external customers | $ | 11,115 | $ | 609 | $ | — | $ | 11,724 | |||||||
Total revenues from internal customers | 11 | 2,333 | (2,344 | ) | — | ||||||||||
Total revenues | $ | 11,126 | $ | 2,942 | $ | (2,344 | ) | $ | 11,724 | ||||||
Earnings from operations | $ | 187 | $ | 53 | $ | — | $ | 240 |
Managed Care | Specialty Services | Eliminations | Consolidated Total | ||||||||||||
Total revenues from external customers | $ | 6,517 | $ | 436 | $ | — | $ | 6,953 | |||||||
Total revenues from internal customers | 34 | 1,448 | (1,482 | ) | — | ||||||||||
Total revenues | $ | 6,551 | $ | 1,884 | $ | (1,482 | ) | $ | 6,953 | ||||||
Earnings (loss) from operations | $ | (19 | ) | $ | 39 | $ | — | $ | 20 |
• | periodic compliance and other reviews and investigations by various federal and state regulatory agencies with respect to requirements applicable to the Company's business, including, without limitation, those related to payment of out-of-network claims, submissions to CMS for risk adjustment payments or the False Claims Act, pre-authorization penalties, timely review of grievances and appeals, timely and accurate payment of claims, and the Health Insurance Portability and Accountability Act of 1996; |
• | litigation arising out of general business activities, such as tax matters, disputes related to health care benefits coverage or reimbursement, putative securities class actions and medical malpractice, privacy, real estate, intellectual property and employment-related claims; |
• | disputes regarding reinsurance arrangements, claims arising out of the acquisition or divestiture of various assets, class actions and claims relating to the performance of contractual and non-contractual obligations to providers, members, employer groups and others, including, but not limited to, the alleged failure to properly pay claims and challenges to the manner in which the Company processes claims, and claims alleging that the Company has engaged in unfair business practices. |
• | Managed care membership of 12.1 million, an increase of 605,000 members, or 5% year over year. |
• | Total revenues of $11.7 billion, representing 69% growth year over year. |
• | Health benefits ratio of 87.6%, compared to 88.7% in 2016. |
• | SG&A expense ratio of 9.8%, or 9.3% excluding the Penn Treaty assessment and Health Net acquisition related expenses, for the first quarter of 2017, compared to 11.3%, or 8.3% excluding Health Net acquisition related expenses, in the first quarter of 2016. |
• | Operating cash flows of $1,248 million. |
• | Diluted earnings (loss) per share (EPS) for the first quarter of 2017 of $0.79, compared to $(0.12) for the first quarter of 2016. |
• | Adjusted Diluted EPS for the first quarter of 2017 of $1.12, compared to $0.74 for the first quarter of 2016. |
Three Months Ended March 31, | |||||||
2017 | 2016 | ||||||
GAAP diluted EPS | $ | 0.79 | $ | (0.12 | ) | ||
Amortization of acquired intangible assets | 0.14 | 0.04 | |||||
Health Net acquisition related expenses | 0.02 | 0.82 | |||||
Penn Treaty assessment expense | 0.17 | — | |||||
Adjusted Diluted EPS from continuing operations | $ | 1.12 | $ | 0.74 |
• | Arizona. In January 2017, we continued our participation as a qualified health plan issuer in the Arizona Health Insurance Marketplace and exited the Health Net preferred provider organization offerings in Arizona. |
• | Centurion. In April 2016, Centurion began providing correctional healthcare services for the Florida Department of Corrections in Regions 1, 2 and 3. In June 2016, Centurion began operating under two new contracts with the State of New Mexico Corrections Department to provide correctional medical healthcare services and pharmacy services. |
• | Health Insurance Marketplace. In January 2017, we added over 500,000 new members across our Health Insurance Marketplace service areas. |
• | Health Net. On March 24, 2016, we acquired all of the issued and outstanding shares of Health Net for approximately $6.0 billion, including the assumption of debt. This strategic acquisition broadened our service offerings, providing expansion in both Medicaid and Medicare programs. This acquisition provided further diversification across our markets and products through the addition of commercial products and government sponsored care under federal contracts with the Department of Defense (DoD) and the U.S. Department of Veteran's Affairs (VA), as well as Medicare Advantage. Health Net's operations are primarily concentrated in the states of California, Arizona, Oregon, and Washington. |
• | Indiana. In January 2017, our Indiana subsidiary, Managed Health Services, began operating under a contract with the Indiana Family & Social Services Administration to provide risk-based managed care services for enrollees in the Healthy Indiana Plan and Hoosier Healthwise programs. |
• | Louisiana. In July 2016, our Louisiana subsidiary, Louisiana Healthcare Connections began serving Medicaid expansion members. |
• | Nebraska. In January 2017, our Nebraska subsidiary, Nebraska Total Care, began operating under a contract with the Nebraska Department of Health and Human Services' Division of Medicaid and Long Term Care as one of three managed care organizations to administer its new Heritage Health Program for Medicaid, ABD, CHIP, Foster Care and LTC enrollees. |
• | Texas. In November 2016, our Texas subsidiary, Superior HealthPlan, Inc., began operating under a new contract with the Texas HHSC to serve STAR Kids Medicaid population in seven delivery areas, more than any other successful bidder. |
• | Washington. In April 2016, our Washington subsidiary, Coordinated Care of Washington, began operating as the sole contractor with the Washington State Health Care Authority to provide foster care services through the Apple Health Foster Care contract. |
• | We expect to realize the full year benefit in 2017 from the Health Net acquisition completed on March 24, 2016. |
• | We expect to realize the full year benefit in 2017 of business commenced during 2016 in Florida, Louisiana, New Mexico, Texas and Washington, and Health Insurance Marketplace membership growth in January 2017, as discussed above. |
• | In January 2017, we signed a joint venture agreement with the North Carolina Medical Society, working in conjunction with the North Carolina Community Health Center, to collaborate on a patient-focused approach to Medicaid under the reform plan enacted in the State of North Carolina. The newly created health plan, Carolina Complete Health, was created to establish, organize and operate a physician-led health plan to provide Medicaid managed care services in North Carolina. |
• | In January 2017, our Pennsylvania subsidiary, Pennsylvania Health & Wellness, was selected by the Pennsylvania Department of Human Services to serve Medicaid recipients enrolled in the HealthChoices program in three zones. Expected contract commencement dates vary by zone, starting January 2018, and will be fully implemented by January 2019, pending regulatory approval and successful completion of a readiness review. |
• | In November 2016, our Georgia subsidiary, Peach State Health Plan, was awarded a statewide managed care contract to continue serving members enrolled in the Georgia Families managed care program, including PeachCare for Kids and Planning for Healthy Babies. Through the new contract, Peach State Health Plan will be one of four managed care organizations providing medical, behavioral, dental and vision health benefits for its members. The contract is expected to become effective July 1, 2017. |
• | In November 2016, our Nevada subsidiary, Silver Summit Health Plan, was selected to serve Medicaid recipients enrolled in Nevada's Medicaid managed care program. The contract is expected to commence on July 1, 2017, pending regulatory approval and successful completion of a readiness review. |
• | In October 2016, our Missouri subsidiary, Home State Health, was selected to provide managed care services to MO HealthNet Managed Care beneficiaries. Under the new contract, Home State Health expects to serve MO HealthNet Managed Care beneficiaries in each of the state's 114 counties and the city of St. Louis. The contract is expected to commence May 1, 2017. |
• | In August 2016, our Pennsylvania subsidiary, Pennsylvania Health & Wellness, was selected by the Pennsylvania Department of Human Services to serve enrollees in the Community HealthChoices program statewide. Expected contract commencement dates vary by zone, starting January 2018, and will be fully implemented by January 2019, pending regulatory approval and successful completion of a readiness review. |
• | In July 2016, it was announced that the Department of Defense awarded our wholly-owned subsidiary, Health Net Federal Services, the TRICARE West Region contract. We currently administer services for the TRICARE program in the North Region. In connection with this latest generation of TRICARE contracts, the Department of Defense has consolidated the prior North, South and West TRICARE regions into two: the West and East Regions (the East combining the current North and South Regions). We expect health care delivery for this new contract to begin on January 1, 2018. |
• | In May 2016, our specialty solutions subsidiary, Envolve, Inc., was selected by Maryland Care Inc. d/b/a Maryland Physicians Care MCO to provide health plan management services for its Medicaid operations in Maryland effective July 1, 2017. |
March 31, 2017 | December 31, 2016 | March 31, 2016 | ||||||
Arizona | 684,300 | 598,300 | 607,000 | |||||
Arkansas | 98,100 | 58,600 | 50,700 | |||||
California | 2,980,100 | 2,973,500 | 3,125,400 | |||||
Florida | 872,000 | 716,100 | 660,800 | |||||
Georgia | 568,300 | 488,000 | 495,500 | |||||
Illinois | 253,800 | 237,700 | 239,100 | |||||
Indiana | 335,800 | 285,800 | 290,300 | |||||
Kansas | 133,100 | 139,700 | 141,100 | |||||
Louisiana | 484,100 | 472,800 | 381,200 | |||||
Massachusetts | 44,200 | 48,300 | 52,400 | |||||
Michigan | 2,100 | 2,000 | 2,600 | |||||
Minnesota | 9,500 | 9,400 | 9,500 | |||||
Mississippi | 349,500 | 310,200 | 328,300 | |||||
Missouri | 106,100 | 105,700 | 100,000 | |||||
Nebraska | 79,200 | — | — | |||||
New Hampshire | 77,800 | 77,400 | 81,500 | |||||
New Mexico | 7,100 | 7,100 | — | |||||
Ohio | 328,900 | 316,000 | 314,000 | |||||
Oregon | 211,900 | 217,800 | 209,000 | |||||
South Carolina | 121,900 | 122,500 | 107,700 | |||||
Tennessee | 21,900 | 21,700 | 20,100 | |||||
Texas | 1,243,900 | 1,072,400 | 1,036,700 | |||||
Vermont | 1,600 | 1,600 | 1,500 | |||||
Washington | 254,400 | 238,400 | 226,500 | |||||
Wisconsin | 71,700 | 73,800 | 78,400 | |||||
Total at-risk membership | 9,341,300 | 8,594,800 | 8,559,300 | |||||
TRICARE eligibles | 2,804,100 | 2,847,000 | 2,819,700 | |||||
Non-risk membership | — | — | 161,400 | |||||
Total | 12,145,400 | 11,441,800 | 11,540,400 |
March 31, 2017 | December 31, 2016 | March 31, 2016 | ||||||
Medicaid: | ||||||||
TANF, CHIP & Foster Care | 5,714,100 | 5,630,000 | 5,464,200 | |||||
ABD & LTC | 825,600 | 785,400 | 757,600 | |||||
Behavioral Health | 466,900 | 466,600 | 456,500 | |||||
Commercial | 1,864,700 | 1,239,100 | 1,487,900 | |||||
Medicare & Duals (1) | 328,100 | 334,300 | 334,100 | |||||
Correctional | 141,900 | 139,400 | 59,000 | |||||
Total at-risk membership | 9,341,300 | 8,594,800 | 8,559,300 | |||||
TRICARE eligibles | 2,804,100 | 2,847,000 | 2,819,700 | |||||
Non-risk membership | — | — | 161,400 | |||||
Total | 12,145,400 | 11,441,800 | 11,540,400 | |||||
(1) Membership includes Medicare Advantage, Medicare Supplement, Special Needs Plans, and Medicare-Medicaid Plans. |
March 31, 2017 | March 31, 2016 | ||||
Dual-eligible | 458,700 | 435,100 | |||
Health Insurance Marketplace | 1,188,700 | 683,000 | |||
Medicaid Expansion | 1,091,300 | 984,900 |
Three Months Ended March 31, | ||||||||||
2017 | 2016 | % Change 2016-2017 | ||||||||
Premium | $ | 10,638 | $ | 5,986 | 78 | % | ||||
Service | 527 | 425 | 24 | % | ||||||
Premium and service revenues | 11,165 | 6,411 | 74 | % | ||||||
Premium tax and health insurer fee | 559 | 542 | 3 | % | ||||||
Total revenues | 11,724 | 6,953 | 69 | % | ||||||
Medical costs | 9,322 | 5,311 | 76 | % | ||||||
Cost of services | 441 | 367 | 20 | % | ||||||
Selling, general and administrative expenses | 1,091 | 722 | 51 | % | ||||||
Amortization of acquired intangible assets | 40 | 9 | 344 | % | ||||||
Premium tax expense | 590 | 450 | 31 | % | ||||||
Health insurer fee expense | — | 74 | (100 | )% | ||||||
Earnings from operations | 240 | 20 | n.m. | |||||||
Investment and other income (expense), net | (21 | ) | (18 | ) | (17 | )% | ||||
Earnings from continuing operations, before income tax expense | 219 | 2 | n.m. | |||||||
Income tax expense | 87 | 16 | 444 | % | ||||||
Earnings (loss) from continuing operations, net of income tax expense | 132 | (14 | ) | n.m. | ||||||
Discontinued operations, net of income tax (benefit) | — | (1 | ) | 100 | % | |||||
Net earnings (loss) | 132 | (15 | ) | n.m. | ||||||
(Earnings) loss attributable to noncontrolling interests | 7 | (1 | ) | n.m. | ||||||
Net earnings (loss) attributable to Centene Corporation | $ | 139 | $ | (16 | ) | n.m. | ||||
Amounts attributable to Centene Corporation common shareholders: | ||||||||||
Earnings (loss) from continuing operations, net of income tax expense | $ | 139 | $ | (15 | ) | n.m. | ||||
Discontinued operations, net of income tax (benefit) | — | (1 | ) | 100 | % | |||||
Net earnings (loss) | $ | 139 | $ | (16 | ) | n.m. | ||||
Diluted earnings (loss) per common share attributable to Centene Corporation: | ||||||||||
Continuing operations | $ | 0.79 | $ | (0.12 | ) | n.m. | ||||
Discontinued operations | — | (0.01 | ) | 100 | % | |||||
Total diluted earnings (loss) per common share | $ | 0.79 | $ | (0.13 | ) | n.m. |
2017 | 2016 | ||||||
Investment and other income | $ | 41 | $ | 15 | |||
Interest expense | (62 | ) | (33 | ) | |||
Other income (expense), net | $ | (21 | ) | $ | (18 | ) |
2017 | 2016 | % Change 2016-2017 | ||||||||
Total Revenues | ||||||||||
Managed Care | $ | 11,126 | $ | 6,551 | 70 | % | ||||
Specialty Services | 2,942 | 1,884 | 56 | % | ||||||
Eliminations | (2,344 | ) | (1,482 | ) | (58 | )% | ||||
Consolidated Total | $ | 11,724 | $ | 6,953 | 69 | % | ||||
Earnings (loss) from Operations | ||||||||||
Managed Care | $ | 187 | $ | (19 | ) | n.m. | ||||
Specialty Services | 53 | 39 | 36 | % | ||||||
Consolidated Total | $ | 240 | $ | 20 | n.m. |
Three Months Ended March 31, | |||||||
2017 | 2016 | ||||||
Net cash provided by operating activities | $ | 1,248 | $ | 196 | |||
Net cash used in investing activities | (329 | ) | (836 | ) | |||
Net cash (used in) provided by financing activities | (10 | ) | 2,316 | ||||
Net increase in cash and cash equivalents | $ | 909 | $ | 1,676 |
• | the diversion of management’s attention from ongoing business concerns and performance shortfalls as a result of the devotion of management’s attention to the integration; |
• | managing a larger combined company; |
• | maintaining employee morale and retaining key management and other employees; |
• | the possibility of faulty assumptions underlying expectations regarding the integration process; |
• | retaining existing business and operational relationships and attracting new business and operational relationships; |
• | consolidating corporate and administrative infrastructures and eliminating duplicative operations; |
• | coordinating geographically separate organizations; |
• | unanticipated issues in integrating information technology, communications and other systems; |
• | unanticipated changes in federal or state laws or regulations, including the ACA and any regulations enacted thereunder; and |
• | unforeseen expenses or delays associated with the acquisition and/or integration. |
Issuer Purchases of Equity Securities First Quarter 2017 | |||||||||||
Period | Total Number of Shares Purchased (1) | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs(2) | |||||||
January 1 - January 31, 2017 | 15,941 | $ | 61.27 | — | 3,335,448 | ||||||
February 1 - February 28, 2017 | 149,209 | 67.76 | — | 3,335,448 | |||||||
March 1 - March 31, 2017 | 18,348 | 67.48 | — | 3,335,448 | |||||||
Total | 183,498 | $ | 67.17 | — | 3,335,448 | ||||||
(1) Shares acquired represent shares relinquished to the Company by certain employees for payment of taxes or option cost upon vesting of restricted stock units or option exercise. (2) Our Board of Directors adopted a stock repurchase program which allows for repurchases of up to a remaining amount of 3,335,448 shares. No duration has been placed on the repurchase program. |
EXHIBIT NUMBER | DESCRIPTION | ||
12.1 | Computation of ratio of earnings to fixed charges. | ||
31.1 | Certification of Chairman, President and Chief Executive Officer pursuant to Rule 13(a)-14(a) under the Securities Exchange Act of 1934, as amended. | ||
31.2 | Certification of Executive Vice President and Chief Financial Officer pursuant to Rule 13(a)-14(a) under the Securities Exchange Act of 1934, as amended. | ||
32.1 | Certification of Chairman, President and Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | ||
32.2 | Certification of Executive Vice President and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | ||
101.1 | XBRL Taxonomy Instance Document. | ||
101.2 | XBRL Taxonomy Extension Schema Document. | ||
101.3 | XBRL Taxonomy Extension Calculation Linkbase Document. | ||
101.4 | XBRL Taxonomy Extension Definition Linkbase Document. | ||
101.5 | XBRL Taxonomy Extension Label Linkbase Document. | ||
101.6 | XBRL Taxonomy Extension Presentation Linkbase Document. | ||
CENTENE CORPORATION | ||
By: | /s/ MICHAEL F. NEIDORFF | |
Chairman, President and Chief Executive Officer (principal executive officer) |
By: | /s/ JEFFREY A. SCHWANEKE | |
Executive Vice President and Chief Financial Officer (principal financial officer) |
By: | /s/ CHRISTOPHER R. ISAAK | |
Senior Vice President, Corporate Controller and Chief Accounting Officer (principal accounting officer) |
Three Months Ended | Year Ended December 31, | ||||||||||||||||||||||
03/31/17 | 2016 | 2015 | 2014 | 2013 | 2012 | ||||||||||||||||||
Earnings: | |||||||||||||||||||||||
Pre-tax earnings from continuing operations | $ | 219 | $ | 1,157 | $ | 697 | $ | 457 | $ | 269 | $ | 123 | |||||||||||
Addback: | |||||||||||||||||||||||
Fixed charges | 76 | 262 | 65 | 50 | 37 | 29 | |||||||||||||||||
Add (Subtract): | |||||||||||||||||||||||
Noncontrolling interest | 7 | 1 | (2 | ) | 7 | (1 | ) | 13 | |||||||||||||||
Interest capitalized | — | — | — | — | — | — | |||||||||||||||||
Total earnings | $ | 302 | $ | 1,420 | $ | 760 | $ | 514 | $ | 305 | $ | 165 | |||||||||||
Fixed Charges: | |||||||||||||||||||||||
Interest expensed and capitalized | $ | 62 | $ | 217 | $ | 43 | $ | 35 | $ | 27 | $ | 20 | |||||||||||
Interest component of rental payments (1) | 14 | 45 | 22 | 15 | 10 | 9 | |||||||||||||||||
Total fixed charges | $ | 76 | $ | 262 | $ | 65 | $ | 50 | $ | 37 | $ | 29 | |||||||||||
Ratio of earnings to fixed charges | 4.0 | 5.4 | 11.7 | 10.3 | 8.2 | 5.7 | |||||||||||||||||
(1) Estimated at 33% of rental expense as a reasonable approximation of the interest factor. |
1. | I have reviewed this Quarterly Report on Form 10-Q of Centene Corporation; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c. | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d. | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Dated: | April 25, 2017 | /s/ MICHAEL F. NEIDORFF | |
Chairman, President and Chief Executive Officer (principal executive officer) |
1. | I have reviewed this Quarterly Report on Form 10-Q of Centene Corporation; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c. | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d. | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; |
5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Dated: | April 25, 2017 | /s/ JEFFREY A. SCHWANEKE | |
Executive Vice President and Chief Financial Officer (principal financial officer) |
(1) | the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
(2) | the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Dated: | April 25, 2017 | /s/ MICHAEL F. NEIDORFF | |
Chairman, President and Chief Executive Officer (principal executive officer) |
(1) | the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
(2) | the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Dated: | April 25, 2017 | /s/ JEFFREY A. SCHWANEKE | |
Executive Vice President and Chief Financial Officer (principal financial officer) |
Document And Entity Information - shares |
3 Months Ended | |
---|---|---|
Mar. 31, 2017 |
Apr. 14, 2017 |
|
Document and Entity Information [Abstract] | ||
Entity Registrant Name | CENTENE CORP | |
Entity Central Index Key | 0001071739 | |
Current Fiscal Year End Date | --12-31 | |
Entity Filer Category | Large Accelerated Filer | |
Document Type | 10-Q | |
Document Period End Date | Mar. 31, 2017 | |
Document Fiscal Year Focus | 2017 | |
Document Fiscal Period Focus | Q1 | |
Amendment Flag | false | |
Entity Common Stock, Shares Outstanding | 172,277,703 |
Consolidated Balance Sheets (Parenthetical) - $ / shares |
Mar. 31, 2017 |
Dec. 31, 2016 |
---|---|---|
Stockholders' equity | ||
Preferred stock, par value (in dollars per share) | $ 0.001 | $ 0.001 |
Preferred stock, shares authorized | 10,000,000 | 10,000,000 |
Preferred stock, shares issued | 0 | 0 |
Preferred stock, shares outstanding | 0 | 0 |
Common stock, par value (in dollars per share) | $ 0.001 | $ 0.001 |
Common stock, shares authorized | 400,000,000 | 400,000,000 |
Common stock, shares issued | 178,669,935 | 178,134,306 |
Common stock, shares outstanding | 172,271,202 | 171,919,071 |
Treasury stock (in shares) | 6,398,733 | 6,215,235 |
Consolidated Statements of Comprehensive Earnings - USD ($) $ in Millions |
3 Months Ended | |
---|---|---|
Mar. 31, 2017 |
Mar. 31, 2016 |
|
Statement of Comprehensive Income [Abstract] | ||
Net earnings (loss) | $ 132 | $ (15) |
Reclassification adjustment, net of tax | 0 | 1 |
Change in unrealized gain on investments, net of tax | 14 | 18 |
Foreign currency translation adjustments | 1 | 1 |
Other comprehensive earnings | 15 | 20 |
Comprehensive earnings | 147 | 5 |
Comprehensive (earnings) loss attributable to noncontrolling interests | 7 | (1) |
Comprehensive earnings attributable to Centene Corporation | $ 154 | $ 4 |
Consolidated Statement of Stockholders' Equity - USD ($) $ in Millions |
Total |
Common Stock |
Additional Paid-in Capital |
Accumulated Other Comprehensive Earnings (Loss) |
Retained Earnings |
Treasury Stock |
Non- controlling Interest |
---|---|---|---|---|---|---|---|
Treasury Stock, Shares | 6,215,235 | 6,215,235 | |||||
Balance at Dec. 31, 2016 | $ 5,909 | $ 0 | $ 4,190 | $ (36) | $ 1,920 | $ (179) | $ 14 |
Balance (in shares) at Dec. 31, 2016 | 171,919,071 | 178,134,306 | |||||
Increase (Decrease) in Stockholders' Equity [Roll Forward] | |||||||
Net earnings | $ 139 | 139 | |||||
Other comprehensive earnings, net of $8 tax | 15 | 15 | |||||
Common stock issued for employee benefit plans | 2 | 2 | |||||
Common stock issued for employee benefit plans (in shares) | 535,629 | ||||||
Common stock repurchases | (13) | $ (13) | |||||
Common stock repurchases (in shares) | 183,498 | ||||||
Stock compensation expense | 32 | 32 | |||||
Balance at Mar. 31, 2017 | $ 6,084 | $ 0 | $ 4,224 | $ (21) | $ 2,059 | $ (192) | $ 14 |
Balance (in shares) at Mar. 31, 2017 | 172,271,202 | 178,669,935 | |||||
Treasury Stock, Shares | 6,398,733 | 6,398,733 |
Consolidated Statement of Stockholders' Equity (Parenthetical) - USD ($) $ in Millions |
3 Months Ended | |
---|---|---|
Mar. 31, 2017 |
Dec. 31, 2016 |
|
Common stock, par value (in dollars per share) | $ 0.001 | $ 0.001 |
Other comprehensive earnings, tax | $ 8 | |
Common Stock | ||
Common stock, par value (in dollars per share) | $ 0.001 | 0.001 |
Treasury Stock | ||
Common stock, par value (in dollars per share) | $ 0.001 | $ 0.001 |
Organization and Operations |
3 Months Ended |
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Mar. 31, 2017 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Organization and Operations | Organization and Operations Basis of Presentation The accompanying interim financial statements have been prepared under the presumption that users of the interim financial information have either read or have access to the audited financial statements included in the Form 10-K for the fiscal year ended December 31, 2016. The unaudited interim financial statements herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, footnote disclosures which would substantially duplicate the disclosures contained in the December 31, 2016 audited financial statements have been omitted from these interim financial statements where appropriate. In the opinion of management, these financial statements reflect all adjustments, consisting only of normal recurring adjustments, which are necessary for a fair presentation of the results of the interim periods presented. Certain 2016 amounts in the consolidated financial statements and notes to the consolidated financial statements have been reclassified to conform to the 2017 presentation. The Company adopted Accounting Standards Update (ASU) 2016-09, Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting during the fourth quarter of 2016. The ASU simplifies several aspects of the accounting for employee share-based payment transactions. Among other elements, the ASU requires an entity to recognize all excess tax benefits and deficiencies related to stock-based compensation expense as income tax expense or benefit in the statements of operations. The ASU requires adjustments be reflected as of the beginning of the fiscal year of adoption and as a result, prior periods have been restated accordingly. The adoption resulted in a decrease to income tax expense of $1 million for the three months ended March 31, 2016. In January 2017, the Company reclassified Cenpatico Behavioral Health of Arizona, LLC and the related Cenpatico Integrated Care health plan from the Specialty Services segment to the Managed Care segment due to a reorganization of the Arizona management structure following the Health Net integration. As a result, the financial results of Cenpatico Behavioral Health of Arizona, LLC and the related Cenpatico Integrated Care health plan have been reclassified from the Specialty Services segment to the Managed Care segment for all periods presented. On March 24, 2016, the Company completed the acquisition of Health Net, Inc. (Health Net) for $6.0 billion, including the assumption of debt. The acquisition was accounted for as a business combination, which requires that assets acquired and liabilities assumed be recognized at their fair values as of the acquisition date. The valuation of all the assets acquired and liabilities assumed was finalized in the fourth quarter of 2016. As a result of the completion of the Health Net acquisition, the Company's results of operations for the three months ended March 31, 2016 include the results of operations of Health Net from March 24, 2016 to March 31, 2016. Accounting Guidance Not Yet Adopted In March 2017, the Financial Accounting Standards Board (FASB) issued an ASU which changes the period over which premiums on callable debt securities are amortized. The new standard requires the premiums on callable debt securities to be amortized to the earliest call date rather than to the contractual maturity date of the instrument. The new guidance more closely aligns the amortization period of premiums to expectations incorporated in the market pricing on the underlying securities. The new guidance is effective for annual and interim periods beginning after December 15, 2018. Early adoption is permitted. The new guidance is not expected to have a material impact on the Company's consolidated financial position, results of operations or cash flows. In May 2014, the FASB issued an ASU which supersedes existing revenue recognition standards with a single model unless those contracts are within the scope of other standards (e.g., an insurance entity's insurance contracts). Under the new standard, recognition of revenue occurs when a customer obtains control of promised goods or services in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. In addition, the standard requires disclosure of the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The new effective date is for annual and interim periods beginning after December 15, 2017. Early adoption is permitted. The Company is currently analyzing selected contracts to determine the impact of the new guidance and anticipates adopting the new guidance in the first quarter of 2018 using the modified retrospective approach with a cumulative-effect adjustment to retained earnings in the period of initial application. The Company also plans to elect the practical expedient of applying the new guidance only to contracts that are not completed as of the date of initial application. The majority of the Company's revenues are derived from insurance contracts and are excluded from the new standard; therefore, the new guidance is not expected to have a material impact on the Company's consolidated financial position, results of operations or cash flows. |
Short-term and Long-term Investments, Restricted Deposits |
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Investments, Debt and Equity Securities [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Short-term and Long-term Investments, Restricted Deposits | Short-term and Long-term Investments, Restricted Deposits Short-term and long-term investments and restricted deposits by investment type consist of the following ($ in millions):
The Company’s investments are classified as available-for-sale with the exception of life insurance contracts and certain cost and equity method investments. The Company’s investment policies are designed to provide liquidity, preserve capital and maximize total return on invested assets with the focus on high credit quality securities. The Company limits the size of investment in any single issuer other than U.S. treasury securities and obligations of U.S. government corporations and agencies. As of March 31, 2017, 96% of the Company’s investments in rated securities carry an investment grade rating by S&P and Moody’s. At March 31, 2017, the Company held certificates of deposit, life insurance contracts and cost and equity method investments which did not carry a credit rating. The Company's residential mortgage-backed securities are primarily issued by the Federal National Mortgage Association, Government National Mortgage Association or Federal Home Loan Mortgage Corporation, which carry implicit or explicit guarantees of the U.S. government. The Company's commercial mortgage-backed securities are primarily senior tranches with a weighted average rating of AA+ and a weighted average duration of 4.0 years at March 31, 2017. The fair value of available-for-sale investments with gross unrealized losses by investment type and length of time that individual securities have been in a continuous unrealized loss position were as follows ($ in millions):
As of March 31, 2017, the gross unrealized losses were generated from 1,682 positions out of a total of 2,985 positions. The change in fair value of fixed income securities is primarily a result of movement in interest rates subsequent to the purchase of the security. For each security in an unrealized loss position, the Company assesses whether it intends to sell the security or if it is more likely than not the Company will be required to sell the security before recovery of the amortized cost basis for reasons such as liquidity, contractual or regulatory purposes. If the security meets this criterion, the decline in fair value is other-than-temporary and is recorded in earnings. The Company does not intend to sell these securities prior to maturity and it is not likely that the Company will be required to sell these securities prior to maturity; therefore, there is no indication of other-than-temporary impairment for these securities. The contractual maturities of short-term and long-term investments and restricted deposits are as follows ($ in millions):
Actual maturities may differ from contractual maturities due to call or prepayment options. Cost and equity method investments and life insurance contracts are included in the five years through ten years category. The Company has an option to redeem at amortized cost substantially all of the securities included in the greater than ten years category listed above. The Company continuously monitors investments for other-than-temporary impairment. Certain investments have experienced a decline in fair value due to changes in credit quality, market interest rates and/or general economic conditions. The Company recognizes an impairment loss for cost and equity method investments when evidence demonstrates that it is other-than-temporarily impaired. Evidence of a loss in value that is other-than-temporary may include the absence of an ability to recover the carrying amount of the investment or the inability of the investee to sustain a level of earnings that would justify the carrying amount of the investment. |
Fair Value Measurements |
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Fair Value Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value Measurements | Fair Value Measurements Assets and liabilities recorded at fair value in the Consolidated Balance Sheets are categorized based upon observable or unobservable inputs used to estimate fair value. Level inputs are as follows:
The following table summarizes fair value measurements by level at March 31, 2017, for assets and liabilities measured at fair value on a recurring basis ($ in millions):
The following table summarizes fair value measurements by level at December 31, 2016, for assets and liabilities measured at fair value on a recurring basis ($ in millions):
The Company periodically transfers U.S. Treasury securities and obligations of U.S. government corporations and agencies between Level I and Level II fair value measurements dependent upon the level of trading activity for the specific securities at the measurement date. The Company’s policy regarding the timing of transfers between Level I and Level II is to measure and record the transfers at the end of the reporting period. At March 31, 2017, there were $4 million of transfers from Level I to Level II and $15 million of transfers from Level II to Level I. The Company utilizes matrix pricing services to estimate fair value for securities which are not actively traded on the measurement date. The Company designates these securities as Level II fair value measurements. The aggregate carrying amount of the Company’s life insurance contracts and other non-majority owned investments, which approximates fair value, was $291 million and $279 million as of March 31, 2017 and December 31, 2016, respectively. |
Medical Claims Liability |
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Insurance [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Medical Claims Liability | Medical Claims Liability In January 2017, the Company reclassified Cenpatico Behavioral Health of Arizona, LLC and the related Cenpatico Integrated Care health plan from the Specialty Services segment to the Managed Care segment due to a reorganization of the Arizona management structure following the Health Net integration. As a result, the financial results of Cenpatico Behavioral Health of Arizona, LLC and the related Cenpatico Integrated Care health plan have been reclassified from the Specialty Services segment to the Managed Care segment for all periods presented. Due to this change in segment reporting, the Specialty Services segment now has an insignificant amount of medical claims liability and therefore disclosures related to medical claims liabilities have been aggregated and are presented on a consolidated basis. The following table summarizes the change in medical claims liability ($ in millions):
Reinsurance recoverables related to medical claims are included in premium and related receivables. Changes in estimates of incurred claims for prior years are primarily attributable to reserving under moderately adverse conditions. Additionally, as a result of minimum HBR and other return of premium programs, approximately $3 million and $17 million of the "Incurred related to: Prior years" was recorded as a reduction to premium revenues in the three months ended March 31, 2017 and 2016, respectively. Incurred but not reported (IBNR) plus expected development on reported claims as of March 31, 2017 was $3,288 million. Total IBNR plus expected development on reported claims represents estimates for claims incurred but not reported, development on reported claims, and estimates for the costs necessary to process unpaid claims at the end of each period. We estimate our liability using actuarial methods that are commonly used by health insurance actuaries and meet Actuarial Standards of Practice. These actuarial methods consider factors such as historical data for payment patterns, cost trends, product mix, seasonality, utilization of healthcare services and other relevant factors. |
Affordable Care Act |
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Affordable Care Act [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Affordable Care Act | Affordable Care Act The Affordable Care Act (ACA) established risk spreading premium stabilization programs effective January 1, 2014. These programs, commonly referred to as the “three Rs,” include a permanent risk adjustment program, a transitional reinsurance program, and a temporary risk corridor program. Additionally, the ACA established a minimum annual medical loss ratio (MLR) and cost sharing reductions. Each of the three R programs are taken into consideration to determine if the Company’s estimated annual medical costs are less than the minimum loss ratio and require an adjustment to Premium revenue to meet the minimum MLR. The 2016 benefit year was the final year for transitional reinsurance and risk corridor. No additional balances were recorded for the 2017 benefit year for these programs. The Company's receivables (payables) for each of these programs are as follows ($ in millions):
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Debt |
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Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Debt | Debt Debt consists of the following ($ in millions):
Senior Notes The indentures governing the senior notes listed in the table above, contain non-financial and financial covenants of Centene Corporation, including requirements of a minimum fixed charge coverage ratio. At March 31, 2017, the Company was in compliance with all covenants. Interest Rate Swaps In February 2017 and in connection with the November 2016 issuance of $1,200 million of 4.75% Senior Notes, due January 15, 2025 ($1,200 Million Notes), the Company entered into interest rate swap agreements for a notional amount of $600 million, at floating rates of interest based on the one month LIBOR plus 2.53%. Gains and losses due to the changes in the fair value of the interest rate swaps completely offset changes in the fair value of the hedged portion of the underlying debt and are recorded as an adjustment to the $1,200 Million Notes. The Company uses interest rate swap agreements to convert a portion of its interest rate exposure from fixed rates to floating rates to more closely align interest expense with interest income received on its cash equivalent and variable rate investment balances. The Company has $2,700 million of notional amount of interest rate swap agreements consisting of: •$600 million expiring on February 15, 2021; •$500 million expiring on May 15, 2022; •$1,000 million expiring on February 15, 2024; and •$600 million expiring on January 15, 2025. Under the Swap Agreements, the Company receives a fixed rate of interest and pays an average variable rate of either the three or one month LIBOR plus 3.61% adjusted monthly or quarterly, based on the terms of the individual swap agreements. At March 31, 2017, the weighted average rate was 4.62%. The Swap Agreements are formally designated and qualify as fair value hedges and are recorded at fair value in the Consolidated Balance Sheets in other assets or other liabilities. Gains and losses due to changes in fair value of the interest rate swap agreements completely offset changes in the fair value of the hedged portion of the underlying debt. Therefore, no gain or loss has been recognized due to hedge ineffectiveness. Offsetting changes in fair value of both the interest rate swaps and the hedged portion of the underlying debt both were recognized in interest expense in the Consolidated Statements of Operations. The Company does not hold or issue any derivative instrument for trading or speculative purposes. Revolving Credit Agreement The Company has an unsecured $1,000 million revolving credit facility. Borrowings under the agreement bear interest based upon LIBOR rates, the Federal Funds Rate or the Prime Rate. The agreement has a maturity date of March 24, 2021. As of March 31, 2017, the Company had $100 million of borrowings outstanding under the agreement with a weighted average interest rate of 4.5%. The revolving credit facility contains non-financial and financial covenants, including requirements of minimum fixed charge coverage ratios and maximum debt-to-EBITDA ratios. The Company is required to not exceed a maximum debt-to-EBITDA ratio of 3.0 to 1.0 on and subsequent to December 31, 2016. As of March 31, 2017, there were no limitations on the availability under the revolving credit agreement as a result of the debt-to-EBITDA ratio, and the Company was in compliance with all covenants. Letters of Credit & Surety Bonds The Company had outstanding letters of credit of $71 million as of March 31, 2017, which were not part of the revolving credit facility. The Company also had letters of credit for $45 million (valued at March 31, 2017 conversion rate), or €42 million, representing its proportional share of the letters of credit issued to support Ribera Salud’s outstanding debt, which are a part of the revolving credit facility. Collectively, the letters of credit bore interest at 1.42% as of March 31, 2017. The Company had outstanding surety bonds of $397 million as of March 31, 2017. |
Earnings Per Share |
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Earnings Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Earnings Per Share | Earnings Per Share The following table sets forth the calculation of basic and diluted net earnings (loss) per common share ($ in millions, except per share data):
The calculation of diluted earnings (loss) per common share for the three months ended March 31, 2017 and 2016 excludes the impact of 55,170 and 6,742,714 shares (before application of the treasury stock method), respectively, related to anti-dilutive stock options, restricted stock and restricted stock units. |
Segment Information |
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Segment Reporting [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Segment Information | Segment Information Centene operates in two segments: Managed Care and Specialty Services. The Managed Care segment consists of Centene’s health plans including all of the functions needed to operate them. The Specialty Services segment consists of Centene’s specialty companies offering auxiliary healthcare services and products. In January 2017, the Company reclassified Cenpatico Behavioral Health of Arizona, LLC and the related Cenpatico Integrated Care health plan from the Specialty Services segment to the Managed Care segment due to a reorganization of the Arizona management structure following the Health Net integration. As a result, the financial results of Cenpatico Behavioral Health of Arizona, LLC and the related Cenpatico Integrated Care health plan have been reclassified from the Specialty Services segment to the Managed Care segment for all periods presented. Segment information for the three months ended March 31, 2017, follows ($ in millions):
Segment information for the three months ended March 31, 2016, follows ($ in millions):
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Contingencies |
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Commitments and Contingencies Disclosure [Abstract] | |||||||||||||
Contingencies | Contingencies Overview The Company records reserves and accrues costs for certain legal proceedings and regulatory matters to the extent that it determines an unfavorable outcome is probable and the amount of the loss can be reasonably estimated. While such reserves and accrued costs reflect the Company's best estimate of the probable loss for such matters, the recorded amounts may differ materially from the actual amount of any such losses. In some cases, no estimate of the possible loss or range of loss in excess of amounts accrued, if any, can be made because of the inherently unpredictable nature of legal and regulatory proceedings, which may be exacerbated by various factors, including but not limited to, they may involve indeterminate claims for monetary damages or may involve fines, penalties or punitive damages; present novel legal theories or legal uncertainties; involve disputed facts; represent a shift in regulatory policy; involve a large number of parties, claimants or regulatory bodies; are in the early stages of the proceedings; involve a number of separate proceedings and/or a wide range of potential outcomes; or result in a change of business practices. As of the date of this report, amounts accrued for legal proceedings and regulatory matters were not material. However, it is possible that in a particular quarter or annual period the Company’s financial condition, results of operations, cash flow and/or liquidity could be materially adversely affected by an ultimate unfavorable resolution of or development in legal and/or regulatory proceedings, including as described below. Except for the proceedings discussed below, the Company believes that the ultimate outcome of any of the regulatory and legal proceedings that are currently pending against it should not have a material adverse effect on financial condition, results of operations, cash flow or liquidity. California The Company's California subsidiary, Health Net of California, Inc. (Health Net California), has been named as a defendant in a California taxpayer action filed in Los Angeles County Superior Court, captioned as Michael D. Myers v. State Board of Equalization, et al., Los Angeles Superior Court Case No. BS158655. This action is brought under a California statute that permits an individual taxpayer to sue a governmental agency when the taxpayer believes the agency has failed to enforce governing law. Plaintiff contends that Health Net California, a California licensed Health Care Service Plan (HCSP), is an “insurer” for purposes of taxation despite acknowledging it is not an “insurer” under regulatory law. Under California law, “insurers” must pay a gross premiums tax (GPT), calculated as 2.35% on gross premiums. As a licensed HCSP, Health Net California has paid the California Corporate Franchise Tax (CFT), the tax generally paid by California businesses. Plaintiff contends that Health Net California must pay the GPT rather than the CFT. Plaintiff seeks a writ of mandate directing the California taxing agencies to collect the GPT, and seeks an order requiring Health Net California to pay GPT, interest and penalties for a period dating to eight years prior to the October 20, 2015 filing of the complaint. This lawsuit is being coordinated with similar lawsuits filed against other entities. The Company expects an initial status conference shortly. The Company intends to vigorously defend itself against these claims; however, this matter is subject to many uncertainties, and an adverse outcome in this matter could potentially have a materially adverse impact on our financial position and results of operations. Federal Securities Class Action On November 14, 2016, a putative federal securities class action was filed against the Company and certain of its executives in the U.S. District Court for the Central District of California. On March 1, 2017, the court entered an order transferring the matter to the U.S. District Court for the Eastern District of Missouri. The plaintiffs in the lawsuit allege that the Company's accounting and related disclosures for certain liabilities acquired in the acquisition of Health Net violated federal securities laws. The Company denies any wrongdoing and is vigorously defending itself against these claims. Nevertheless, this matter is subject to many uncertainties and the Company cannot predict how long this litigation will last or what the ultimate outcome will be, and an adverse outcome in this matter could potentially have a materially adverse impact on our financial position and results of operations. Civil Investigative Demand On December 15, 2016, a Civil Investigative Demand (CID) was issued to Health Net by the United States Department of Justice regarding Health Net’s submission of risk adjustment claims to the CMS under Parts C and D of Medicare. The CID may be related to a federal qui tam lawsuit filed under seal in 2011 naming more than a dozen health insurers including Health Net. The lawsuit was recently unsealed when the Department of Justice intervened in the case with respect to one of the insurers (not Health Net). The Company is complying with the CID and will vigorously defend any lawsuits. At this point, it is not possible to determine what level of liability, if any, the Company may face as a result of this matter. Guaranty Fund Assessment Under state guaranty association laws, certain insurance companies can be assessed for certain obligations to the policyholders and claimants of impaired or insolvent insurance companies that write the same line or similar lines of business. In 2009, the Pennsylvania Insurance Commissioner placed long-term care insurer Penn Treaty Network America Insurance Company and its subsidiary (Penn Treaty), neither of which is affiliated with the Company, in rehabilitation and petitioned a state court for approval to liquidate Penn Treaty. In March 2017, the court issued the final liquidation order, and as a result, in the three months ended March 31, 2017, the Company recognized $47 million representing its undiscounted estimated share of the guaranty association assessment as selling, general and administrative expenses. Miscellaneous Proceedings Excluding the matters discussed above, the Company is also routinely subjected to legal and regulatory proceedings in the normal course of business. These matters can include, without limitation:
Among other things, these matters may result in awards of damages, fines or penalties, which could be substantial, and/or could require changes to the Company’s business. The Company intends to vigorously defend itself against the miscellaneous legal and regulatory proceedings to which it is currently a party; however, these proceedings are subject to many uncertainties. In some of the cases pending against the Company, substantial non-economic or punitive damages are being sought. |
Short-term and Long-term Investments, Restricted Deposits (Tables) |
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Investments, Debt and Equity Securities [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Short-term and long-term investments and restricted deposits by investment type | Short-term and long-term investments and restricted deposits by investment type consist of the following ($ in millions):
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Fair value of available-for-sale investments with gross unrealized losses byinvestment type and length of time | The fair value of available-for-sale investments with gross unrealized losses by investment type and length of time that individual securities have been in a continuous unrealized loss position were as follows ($ in millions):
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Contractual maturities of short-term and long-term investments and restricted deposits | The contractual maturities of short-term and long-term investments and restricted deposits are as follows ($ in millions):
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Fair Value Measurements (Tables) |
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Fair Value Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value Measurements by Level for Assets and Liabilities Measured at Fair Value on a Recurring Basis | The following table summarizes fair value measurements by level at March 31, 2017, for assets and liabilities measured at fair value on a recurring basis ($ in millions):
The following table summarizes fair value measurements by level at December 31, 2016, for assets and liabilities measured at fair value on a recurring basis ($ in millions):
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Medical Claims Liability (Tables) |
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Mar. 31, 2017 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Insurance [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of change in medical claims liability | The following table summarizes the change in medical claims liability ($ in millions):
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Affordable Care Act (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Affordable Care Act [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Receivables (Payables) Related to the Affordable Care Act Programs | The Company's receivables (payables) for each of these programs are as follows ($ in millions):
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Debt (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Debt | Debt consists of the following ($ in millions):
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Earnings Per Share (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Earnings Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Calculation of Basic and Diluted Net Earnings (Loss) Per Common Share | The following table sets forth the calculation of basic and diluted net earnings (loss) per common share ($ in millions, except per share data):
|
Segment Information (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Segment Reporting [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Segment Information | Segment information for the three months ended March 31, 2017, follows ($ in millions):
Segment information for the three months ended March 31, 2016, follows ($ in millions):
|
Organization and Operations (Details) - USD ($) $ in Millions |
3 Months Ended | |
---|---|---|
Mar. 24, 2016 |
Mar. 31, 2016 |
|
Business Acquisition [Line Items] | ||
Decrease to income tax expense due to adoption of ASU 2016-09 | $ 1 | |
Health Net, Inc. | ||
Business Acquisition [Line Items] | ||
Business combination, consideration transferred, including assumed debt | $ 6,000 |
Short-term and Long-term Investments, Restricted Deposits (Narrative) (Details) |
3 Months Ended |
---|---|
Mar. 31, 2017
position
| |
Schedule Of Investments And Restricted Deposits By Type [Line Items] | |
Positions from which gross unrealized losses were generated | 1,682 |
Total unrealized investment positions | 2,985 |
Rated Securities | External Credit Rating, Investment Grade | |
Schedule Of Investments And Restricted Deposits By Type [Line Items] | |
Percentage of investments in rated securities carry an investment grade rating by S&P and Moody's | 96.00% |
Commercial mortgage-backed securities | |
Schedule Of Investments And Restricted Deposits By Type [Line Items] | |
Investments recorded at fair value that carry rating of AA Plus, weighted average (in years) | 4 years |
Fair Value Measurements (Narrative) (Details) - USD ($) $ in Millions |
Mar. 31, 2017 |
Dec. 31, 2016 |
---|---|---|
Fair Value Disclosures [Abstract] | ||
Transfers from Level I to Level II | $ 4 | |
Transfers from Level II to Level I | 15 | |
Life insurance contracts and other non-majority owned investments, fair value | $ 291 | $ 279 |
Medical Claims Liability (Schedule of Change in Medical Claims Liability) (Details) - USD ($) $ in Millions |
3 Months Ended | |
---|---|---|
Mar. 31, 2017 |
Mar. 31, 2016 |
|
Liability for Unpaid Claims and Claims Adjustment Expense [Roll Forward] | ||
Balance, January 1 | $ 3,929 | $ 2,298 |
Less: Reinsurance Recoverable | 5 | 0 |
Balance, net | 3,924 | 2,298 |
Acquisitions | 0 | 1,370 |
Incurred related to: | ||
Current year | 9,557 | 5,478 |
Prior years | (235) | (167) |
Total incurred | 9,322 | 5,311 |
Paid related to: | ||
Current year | 5,973 | 3,391 |
Prior years | 2,991 | 1,725 |
Total paid | 8,964 | 5,116 |
Balance, net | 4,282 | 3,863 |
Plus: Reinsurance Recoverable | 8 | 0 |
Balance, March 31 | $ 4,290 | $ 3,863 |
Medical Claims Liability (Narrative) (Details) - USD ($) $ in Millions |
3 Months Ended | |
---|---|---|
Mar. 31, 2017 |
Mar. 31, 2016 |
|
Total IBNR Plus Expected Development on Reported Claims | ||
Incurred related to prior years | $ (235) | $ (167) |
Health insurance product line | ||
Total IBNR Plus Expected Development on Reported Claims | ||
Short-duration insurance contracts, Incurred but not reported and expected development on reported claims | 3,288 | |
Medicaid premium revenue | ||
Total IBNR Plus Expected Development on Reported Claims | ||
Incurred related to prior years | $ 3 | $ 17 |
Affordable Care Act (Details) - USD ($) $ in Millions |
Mar. 31, 2017 |
Dec. 31, 2016 |
---|---|---|
Affordable Care Act [Abstract] | ||
Risk adjustment | $ (735) | $ (425) |
Reinsurance | 90 | 122 |
Risk corridor | (5) | (3) |
Minimum MLR | (13) | (18) |
Cost sharing reductions | $ (199) | $ (147) |
Debt (Revolving Credit Agreement) (Details) - Revolving credit agreement |
3 Months Ended | |
---|---|---|
Mar. 31, 2017
USD ($)
|
Dec. 31, 2016
USD ($)
|
|
Debt Instrument [Line Items] | ||
Maximum borrowing capacity | $ 1,000,000,000 | |
Maturity date | Mar. 24, 2021 | |
Revolving credit agreement | $ 100,000,000 | $ 100,000,000 |
Weighted average interest rate (percent) | 4.50% | |
Ratio of debt to EBITDA, after current year | 3.0 |
Debt (Letters of Credit & Surety Bonds) (Details) € in Millions, $ in Millions |
Mar. 31, 2017
USD ($)
|
Mar. 31, 2017
EUR (€)
|
---|---|---|
Surety Bond | ||
Debt Instrument [Line Items] | ||
Surety bonds | $ 397 | |
Letter of Credit | ||
Debt Instrument [Line Items] | ||
Borrowings outstanding | $ 71 | |
Letters of credit, effective yield (percent) | 1.42% | 1.42% |
Letter of Credit | Ribera Salud | ||
Debt Instrument [Line Items] | ||
Borrowings outstanding | $ 45 | € 42 |
Contingencies (Details) $ in Millions |
3 Months Ended |
---|---|
Mar. 31, 2017
USD ($)
| |
Commitments and Contingencies Disclosure [Abstract] | |
Undiscounted estimated share of the guaranty | $ 47 |
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