CNC Q2 Deep Dive: Marketplace Risk Adjustment and Medicaid Cost Trends Challenge Profitability

August 12, 2025 at 23:32 PM EDT

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Health coverage company Centene (NYSE: CNC) beat Wall Street’s revenue expectations in Q2 CY2025, with sales up 22.4% year on year to $48.74 billion. Its non-GAAP loss of $0.16 per share was significantly below analysts’ consensus estimates.

Is now the time to buy CNC? Find out in our full research report (it’s free).

Centene (CNC) Q2 CY2025 Highlights:

Revenue: $48.74 billion vs analyst estimates of $43.67 billion (22.4% year-on-year growth, 11.6% beat)
Adjusted EPS: -$0.16 vs analyst estimates of $0.23 (significant miss)
Adjusted EBITDA: -$88 million vs analyst estimates of $91.23 million (-0.2% margin, significant miss)
Operating Margin: -0.9%, down from 3.1% in the same quarter last year
Customers: 28 million, up from 27.94 million in the previous quarter
Market Capitalization: $12.85 billion

StockStory’s Take

Centene’s second quarter was shaped by unexpected challenges in both its Marketplace and Medicaid businesses, with management openly acknowledging disappointment in the results. CEO Sarah London cited a sharp deterioration in Marketplace risk adjustment revenue and higher medical cost trends in Medicaid as the main drivers behind the non-GAAP loss. The company’s commercial segment faced a significant morbidity shift, attributed to the loss of healthier members and higher utilization among new enrollees, which London called a “disappointing outcome.” In Medicaid, elevated behavioral health, home health, and high-cost drug expenses drove operating margin lower, and management described the quarter’s performance as “unacceptable.”

Looking ahead, Centene’s guidance is anchored by plans to reprice Marketplace products for 2026 and secure Medicaid rate adjustments to better reflect current medical trends. Management said they are “aggressively taking actions” to restore profitability, including filing new rates in most states and pushing for policy changes at the state level. CFO Drew Asher highlighted “substantial future earnings power” in the company’s revenue base, but cautioned that further Medicaid cost acceleration would pressure earnings. London stated, “We are focused on returning our marketplace portfolio to profitability in the short term and sustainable profitable growth over the long term.”

Key Insights from Management’s Remarks

Management attributed the quarter’s underperformance to a marketplace risk adjustment shortfall, higher medical utilization, and specific Medicaid cost pressures, while highlighting ongoing efforts to correct these issues.

Marketplace risk adjustment shortfall: Centene faced a $2.4 billion pretax headwind in its Marketplace segment due to unexpected changes in risk adjustment revenue. CEO Sarah London explained that a higher-than-expected proportion of healthy, low-utilization members left the market, while new sign-ups displayed higher morbidity, leading to elevated claims and underpricing.
Elevated Medicaid medical trends: Medicaid margins deteriorated as costs rose in behavioral health, home health, and high-cost drugs. Behavioral health, particularly applied behavioral analysis (ABA) services, was the largest contributor. Management responded by deploying task forces to address these areas and advocating for rate adjustments with state partners.
Targeted interventions in key states: The company identified Florida and New York as outsized contributors to Medicaid cost pressure. In Florida, rate inadequacy and continuity of care provisions limited cost controls, though recent changes have allowed Centene to start implementing interventions. In New York, state-driven program changes and provider mix issues prompted leadership to execute a specific turnaround plan.
Medicare Advantage progress: Despite broader challenges, Centene’s Medicare Advantage and Part D businesses showed operational improvement. The Medicare Advantage segment is on track for breakeven in 2027, supported by effective pricing, network optimization, and gains in clinical quality measures.
SG&A discipline and rate advocacy: Management emphasized aggressive selling, general, and administrative (SG&A) cost control, and ongoing efforts to secure higher Medicaid rates, especially with a large proportion of contracts up for renewal in the next six months. These initiatives are intended to stabilize margins and support long-term profitability.

Drivers of Future Performance

Centene’s outlook hinges on repricing Marketplace products, securing Medicaid rate increases, and executing cost containment measures amid ongoing regulatory and utilization pressures.

Marketplace repricing for 2026: Management aims to reprice nearly all Marketplace offerings to address the morbidity shift and restore profitability. London said, “We are making excellent progress against our goal to reprice 100% of the Marketplace book,” but noted that further market contraction and regulatory changes could impact membership and margins.
Medicaid rate negotiations and interventions: With 88% of Medicaid contracts set for rate updates in the next six months, Centene is focused on securing adjustments that reflect rising costs, especially in behavioral health and home health. The company is also rolling out targeted fraud, waste, and abuse initiatives to address cost drivers and improve margins over the next year.
Operational discipline and policy adaptation: Centene continues to pursue SG&A efficiency and policy advocacy, particularly in light of the One Big Beautiful Bill Act (OB3), which introduces new regulatory requirements. Management is also preparing for further changes in Medicaid eligibility and potential disenrollment, which could affect the risk pool and margin recovery trajectory.

Catalysts in Upcoming Quarters

Over the coming quarters, the StockStory team will monitor (1) execution of Marketplace repricing and the impact of rate approvals on membership and profitability; (2) Medicaid rate updates and effectiveness of interventions in high-cost states like Florida and New York; and (3) progress toward Medicare Advantage breakeven, especially as regulatory and policy changes unfold. Additional focus will be placed on detecting early signs of cost containment success and membership stabilization across segments.

Centene currently trades at $26.17, down from $26.77 just before the earnings. At this price, is it a buy or sell? See for yourself in our full research report (it’s free).

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