Despite forecasts that the Trump administration will slash spending on Medicaid and the Affordable Care Act, the next four years probably won’t be that bad, Centene reassured investors on Thursday during its annual investor day.
Still, executives spent much of the conference lobbying Republicans to preserve the federal healthcare programs, which account for the lion’s share of Centene’s profits.
As the largest marketplace carrier in the U.S. and the biggest Medicaid managed care organization in the country, Centene has outsized exposure to changes in federal insurance programs.
The triumph of President-elect Donald Trump, who has been vocal about his desire to slash federal spending and his antipathy towards the ACA, is generally seen as negative for the St. Louis-based payer — especially as Trump sniffs out funding for promised tax cuts.
Yet “with every administration, and this administration is no different, each risk has an equal and corresponding opportunity,” Centene CEO Sarah London said during the conference.
In Medicaid, for example, funding cuts could push more states to partner with private insurers to manage the care of their beneficiaries. And, arguments that Trump and the Republican-majority congress will cut generous financial assistance that’s led to historic enrollment in ACA plans aren’t as cut and dry as some believe, according to the payer.
“Republicans in Washington are going to have to grapple with some challenging optics before eliminating [the subsidies],” said Jon Dinesman, Centene’s EVP of External Affairs.
Centene’s investor day started with a moment of silence for Brian Thompson, the CEO of UnitedHealthcare, who was gunned down in Manhattan last week. The killing, which appears to be motivated by ill will against health insurers, sparked security concerns among other healthcare companies and caused Centene to move its investor day to a virtual-only event.
“It would be an understatement to say we are operating in unprecedented times,” London said. “2024 has been a long, complicated and now tragic year for the industry.”
Think of Republican voters, Centene warns
One of the biggest open questions facing the Trump administration next year is whether to allow enhanced financial assistance that’s helped millions of Americans afford ACA plans to expire. The tax credits will lapse at the end of 2025 if not extended by Congress. Roughly 4 million people could lose coverage as a result.
For Centene specifically, up to 30% of its ACA members — about 1.4 million people — could be at risk of disenrollment, according to London.
That worst-case scenario could lower Centene’s long-term adjusted diluted earnings per share by up to $1, CFO Drew Asher said.
Democrats have already introduced legislation to preserve the credits. However, Republicans say they’re concerned about the budgetary impact: Permanently expanding the subsidies could cost some $335 billion over 10 years, according to the Congressional Budget Office.
Centene’s pitch to the incoming administration to extend the financial assistance focused heavily on the political ramifications, citing that much of the subsidies have gone to voters in Republican districts.
If the tax credits are removed, “the uninsured rate will not only rise, but many people who lose coverage will be Republican constituents and Trump supporters,” Dinesman said.
Higher prices for healthcare will disproportionately hit lower-income Americans, many in rural areas. And along with destabilizing healthcare for consumers, doctors and hospitals will have to provide more uncompensated care, exacerbating already thin margins, executives noted.
“Failing to extend the [subsidies] is tantamount to raising taxes on hardworking low-income Americans across the country,” London argued. “Moreover, in rural counties where the marketplace has become integral to the healthcare infrastructure, the impact to rural providers of what will become uncompensated care could be catastrophic.”
Eliminating the subsidies could also have the unintended side effect of putting more pressure on states to expand Medicaid, given the increase in their uninsured population. As a result, efforts to cut entitlement spending could actually grow it, Dinesman warned.
For these reasons, Centene leaders said it’s unlikely that the financial assistance will be nixed in full. Instead, Republicans will likely strike a deal with Democrats to restructure the subsidies, such as creating an income cap for ACA enrollees to be eligible for the tax credits.
Centene is working to file two sets of rates for 2026 to hedge its bets if the future of the subsidies is still undetermined when proposals are due to state regulators early next year.
“We’ve already met with and are beginning to reach agreement with state customers on a process whereby the industry would file two sets of rates in the summer of 2025 if [subsidies] aren’t resolved by then. That way the industry could price for the 2026 risk pool shift in one scenario and for continued [subsidies] in the scenario that they are renewed,” Asher said, adding Centene plans to meet with the National Association of Insurance Commissioners to get its buy-in on the filing strategy.
‘Incredibly difficult’ to cut Medicaid
The Trump administration is also expected to try and shrink Medicaid by restricting eligibility or capping program funding, actions the president-elect attempted with varying levels of success in his first term.
However, Republicans’ small majority in the Senate and razor-thin majority in the House of Representatives make sweeping changes difficult, Dinesman said. The GOP has also shifted to a more populist, rural and blue-collar party more beholden to the voters, and the voters support Medicaid.
“Medicaid has never been more popular” and “never had more bipartisan support than it has today,” Dinesman said.
Washington will likely consider measures like block grants or per-capita caps to restrict Medicaid funding that have “been historically hard sells politically,” he said. “With such a slim margin in the House, the way forward for these alternate funding mechanisms will be incredibly difficult.”
On the bright side, if Republicans do cap Medicaid funding it could drive states without managed care programs to adopt them, wanting a partner to help them control costs, Dinesman said. All but 11 states currently have some form of Medicaid managed care in place.
Further pressure in Medicaid could be difficult for Centene to absorb coming out of 2024, a year characterized by historic turbulence as states removed millions of beneficiaries during eligibility checks set off by the end of the COVID-19 pandemic.
Earlier this year, managed care companies began reporting a mismatch in state rates and the cost of covering healthcare for the Medicaid beneficiaries who remained in the program. Earnings calls in the back half of 2024 were characterized by the drumbeat of executives promising investors that states were aware of the issue and hiking their rates.
But “we still haven’t reached sufficiency,” London said. Centene will need to make more progress to recapture Medicaid margins in 2025, the CEO noted.
Centene expects to bring in up to $169.5 billion in revenue in 2025, according to formal guidance released Thursday. That’s up from expectations of roughly $160 billion this year.
