CENTENE CORP
For the period ended Jun 30, 2024. Filed Jul 26, 2024.
View on SEC.govAbout this filing
A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Jun 30, 2024 · Filed Jul 26, 2024
CNC$69.74-6.0%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2024-03-31; filed 2024-04-26.
0001071739-24-000097
Item 2. Management's Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2024-06-30; filed 2024-07-26.
0001071739-24-000157
Item 2. Management's Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 131 previous paragraphs and 160 current paragraphs.
66 unchanged; 55 reworded; 30 added; 9 removed; 1 previous and 9 current paragraphs rearranged.
Tables are not compared: 6 previous and 8 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (30)
Current report
Second Quarter 2024 Highlights
Current report
•SG&A expense ratio of 8.0%, compared to 8.7% for the second quarter of 2023.
Current report
•Operating cash flows provided cash of $2.2 billion in the second quarter of 2024.
Current report
•In April 2023, eligibility redeterminations related to the PHE began. We anticipate that any remaining reductions will be limited as the majority of states have substantially completed their unwinding processes as of July 2024. We continue to work with our state partners to match rates to acuity post-redeterminations.
Current report
•In June 2024, our subsidiary, Western Sky Community Care, concluded serving members upon the expiration of its New Mexico Medicaid managed care contract.
Current report
•In May 2024, our subsidiary, Sunflower Health Plan, was selected to continue providing managed health care services through KanCare, the State of Kansas' Medicaid and Children's Health Insurance Program. The new, three-year contract is expected to take effect on January 1, 2025, with the option to renew for up to two, 12-month extensions.
Current report
•In July 2024, we entered into a definitive agreement to sell Collaborative Health Systems, a management services organization, to Astrana Health, Inc. The transaction is expected to close by the end of 2024.
Current report
•In December 2022, the Department of Defense announced that the TRICARE Managed Care Support Contract commencing in 2025 were not awarded to Health Net Federal Services.
Current report
The HBR for the three months ended June 30, 2024, was 87.6%, compared to 87.0% in the same period in 2023. The increase was driven by higher acuity in Medicaid as we progressed through the redetermination process and continue to work with states to match rates with acuity. The increase was also driven by Medicare Star rating impacts. The increase was partially offset by Marketplace membership growth and improved margin through strong 2024 product design and execution as well as outperformance in Marketplace risk adjustment for the 2023 benefit year.
Current report
During the second quarter of 2023, we recorded total impairment charges of $18 million related to our ongoing real estate optimization initiative.
Current report
The three months ended June 30, 2023 included a $91 million gain on the sale of Apixio and a $15 million gain on the previously reported divestiture of Centurion, partially offset by an additional loss on the divestiture of our Spanish and Central European businesses of $13 million.
Current report
Six Months Ended June 30, 2024 Compared to Six Months Ended June 30, 2023
Current report
Total Revenues
Current report
Operating Expenses
Current report
Medical Costs/HBR
Current report
The HBR for the six months ended June 30, 2024 was 87.3%, compared to 87.0% in the same period in 2023. The increase was driven by higher acuity in Medicaid as we progressed through the redetermination process and continue to work with states to match rates with acuity. The increase was also driven by Medicare Star rating impacts. The increase was partially offset by Marketplace membership growth and improved margin through strong 2024 product design and execution as well as outperformance in Marketplace risk adjustment for the 2023 benefit year.
Current report
Cost of Services
Current report
Selling, General & Administrative Expenses
Current report
The SG&A expense ratio for the six months ended June 30, 2024 was 8.5%, compared to 8.6% for the corresponding period in 2023. The adjusted SG&A expense ratio for the six months ended June 30, 2024 was 8.3%, compared to 8.6% for the six months ended June 30, 2023. The decrease in the adjusted SG&A expense ratio was driven by Marketplace risk adjustment revenue, the divestiture of Circle Health, which operated at a higher SG&A expense ratio, and ongoing SG&A reduction initiatives. The decrease was partially offset by growth in the Marketplace business, which operates at a meaningfully higher SG&A expense ratio as compared to Medicaid, and Medicare distribution costs.
Current report
Impairment
Current report
During the six months ended June 30, 2023, we recorded total impairment charges of $38 million related to our ongoing real estate optimization initiative.
Current report
Other Income (Expense)
Current report
Investment and other income. Investment and other income increased by $230 million in the six months ended June 30, 2024, compared to the corresponding period in 2023, driven by higher interest rates on larger investment balances. The six months ended June 30, 2024 also included an $83 million Magellan Specialty Health divestiture gain, $21 million net gain on the sale of property, $20 million Circle Health divestiture gain and $7 million HealthSmart divestiture gain partially offset by an additional loss on the divestiture of our Spanish and Central European businesses of $7 million.
Current report
The six months ended June 30, 2023 included a $91 million gain on the sale of Apixio, the $79 million gain on the sale of Magellan Specialty Health, and the $15 million gain on the previously reported divestiture of Centurion, partially offset by an additional loss on the divestiture of our Spanish and Central European businesses of $13 million.
Current report
Income Tax Expense
Current report
For the six months ended June 30, 2024, we recorded income tax expense of $685 million on pre-tax earnings of $3.0 billion, or an effective tax rate of 22.9%. The effective tax rate for 2024 reflects tax effects of the Circle Health divestiture. For the six months ended June 30, 2024, our effective tax rate on adjusted earnings was 24.5%.
Current report
Segment Results
Current report
Total revenues increased 48% in the six months ended June 30, 2024, compared to the corresponding period in 2023. Gross margin increased $2.0 billion in the six months ended June 30, 2024, compared to the corresponding period in 2023. Increases were primarily driven by 34% membership growth in the Marketplace business along with improved margin through strong 2024 product design and execution as well as outperformance in Marketplace risk adjustment for the 2023 benefit year.
Current report
Other
Current report
Total revenues decreased 24% in the six months ended June 30, 2024, compared to the corresponding period in 2023. Gross margin decreased $295 million in the six months ended June 30, 2024, compared to the corresponding period in 2023. Decreases were primarily due to recent divestitures.
Removed paragraphs (9)
Previous report
First Quarter 2024 Highlights
Previous report
•Adjusted SG&A expense ratio of 8.7%, compared to 8.5% for the first quarter of 2023.
Previous report
•Operating cash flows used cash of $456 million in the first quarter of 2024.
Previous report
(a) Magellan Specialty Health divestiture gain of $79 million, or $0.14 per share ($0.12 after-tax) and real estate impairments of $26 million, or $0.05 per share ($0.04 after-tax).
Previous report
•In April 2023, eligibility redeterminations related to the PHE began. We expect that these redeterminations will extend over a 14-month period, with the majority of states concluding in the second quarter of 2024. Eligibility suspensions from the onset of the PHE drove increased membership through March 2023, followed by decreases beginning in April 2023 and continuing through the first quarter of 2024. Per the Consolidated Appropriations Act, 2023 and clarifying CMS guidance, redeterminations related to the PHE should conclude during the second quarter of 2024, however some states could see redeterminations extend past the second quarter given CMS compliance actions.
Previous report
Commercial
Previous report
The HBR for the three months ended March 31, 2024, was 87.1%, compared to 87.0% in the same period in 2023. The increase is primarily driven by lower Medicare Advantage revenue resulting from the Star quality ratings impact discussed above and continued elevated utilization, as well as higher acuity in Medicaid primarily through the redetermination process as we continue to work with our state partners to match rates and acuity, partially offset by Commercial as our Marketplace product improved margin through strong 2024 product design and execution.
Previous report
Commercial
Previous report
Investing activities provided cash of $852 million in the three months ended March 31, 2024, and used cash of $253 million in the comparable period in 2023. Cash flows provided by investing activities in the first quarter of 2024 primarily consisted of divestiture proceeds.
Reworded paragraphs (55)
Previous wording
We are a leading provider of government-sponsored healthcare. We provide access to quality healthcare for nearly 1 in 15 individuals nationwide through government-sponsored programs, including Medicaid, Medicare and the Health Insurance Marketplace. Our focus is on improving health and health care for low-income, complex populations.
Current wording
We are a leading provider of government-sponsored healthcare. We provide access to quality healthcare for more than 1 in 15 individuals nationwide through government-sponsored programs, including Medicaid, Medicare and the Health Insurance Marketplace. Our focus is on improving health and health care for low-income, complex populations.
Previous wording
The COVID-19 pandemic impacted and continues to affect our business as it relates to Medicaid eligibility changes. The Families First Coronavirus Response Act, enacted in March 2020, increased federal matching rates for state Medicaid programs with a requirement that states suspend Medicaid redeterminations throughout the public health emergency (PHE). As a result, since the onset of the PHE through March 2023, our Medicaid membership increased by 3.6 million members (excluding new states North Carolina and Delaware and various state product expansions or managed care organization changes). The Consolidated Appropriations Act, 2023, signed into law on December 29, 2022, delinked the Medicaid continuous coverage requirements from the PHE and, as a result, some states began Medicaid disenrollments on April 1, 2023. Per the Act and clarifying CMS guidance, redeterminations related to the PHE should conclude during the second quarter of 2024. Redeterminations in certain states may move at a slower pace due to CMS compliance action to pause and/or complete corrective action prior to disenrolling beneficiaries. Some states could see redeterminations extend past the second quarter of 2024 given CMS compliance actions.
Current wording
The COVID-19 pandemic impacted and continues to affect our business as it relates to Medicaid eligibility changes. The Families First Coronavirus Response Act, enacted in March 2020, increased federal matching rates for state Medicaid programs with a requirement that states suspend Medicaid redeterminations throughout the public health emergency (PHE). As a result, since the onset of the PHE through March 2023, our Medicaid membership increased by 3.6 million members (excluding new states North Carolina and Delaware and various state product expansions or managed care organization changes). The Consolidated Appropriations Act, 2023, signed into law on December 29, 2022, delinked the Medicaid continuous coverage requirements from the PHE and, as a result, some states began Medicaid disenrollments on April 1, 2023. Per the Act and clarifying CMS guidance, redeterminations related to the PHE were largely intended to conclude during the second quarter of 2024. However, redeterminations in certain states moved at a slower pace due to CMS compliance action to pause and/or complete corrective action prior to disenrolling beneficiaries and some states have seen redeterminations extend past the second quarter of 2024. Since redeterminations began in April 2023, our Medicaid membership decreased by 2.4 million members. We anticipate that any remaining reductions will be limited as the majority of states have substantially completed their unwinding processes as of July 2024.
Previous wording
•In January 2024, key coverage expansion provisions outlined in the 2022 year-end spending bill went into effect requiring states to provide 12 months of continuous coverage for children under Medicaid and the Children's Health Insurance Program (CHIP). The spending bill also made the state option to extend coverage for postpartum women for up to 12 months permanent.
Current wording
We also closely monitor state legislation across our markets and are advocating for and seeing adoption of coverage expansions for Medicaid adult populations (e.g., North Carolina), postpartum, foster care children, among others, as well as mitigating adverse legislation addressing pharmacy, prior authorization and other issues. The Consolidated Appropriations Act, 2023 outlined key coverage expansion provisions, which went into effect in January 2024, requiring states to provide 12 months of continuous coverage for children under Medicaid and the Children's Health Insurance Program (CHIP). The year-end spending bill also made the state option to extend coverage for postpartum women for up to 12 months permanent.
Previous wording
Our financial performance for the first quarter of 2024 is summarized as follows:
Current wording
Our financial performance for the second quarter of 2024 is summarized as follows:
Previous wording
•Managed care membership of 28.4 million, a decrease of 33 thousand members, or (0.1)% year-over-year.
Current wording
•Managed care membership of 28.5 million, an increase of 66 thousand members, or 0.2% year-over-year.
Previous wording
•Total revenues of $40.4 billion, representing 4% growth year-over-year.
Current wording
•Total revenues of $39.8 billion, representing 6% growth year-over-year.
Previous wording
•Premium and service revenues of $36.3 billion, representing 4% growth year-over-year.
Current wording
•Premium and service revenues of $36.0 billion, representing 3% growth year-over-year.
Previous wording
•HBR of 87.1%, compared to 87.0% for the first quarter of 2023.
Current wording
•HBR of 87.6%, compared to 87.0% for the second quarter of 2023.
Previous wording
•SG&A expense ratio of 8.9%, compared to 8.6% for the first quarter of 2023.
Current wording
•Adjusted SG&A expense ratio of 8.0%, compared to 8.6% for the second quarter of 2023.
Previous wording
•Diluted earnings per share (EPS) of $2.16, compared to $2.04 for the first quarter of 2023.
Current wording
•Diluted earnings per share (EPS) of $2.16, compared to $1.92 for the second quarter of 2023.
Previous wording
•Adjusted diluted EPS of $2.26, compared to $2.11 for the first quarter of 2023.
Current wording
•Adjusted diluted EPS of $2.42, compared to $2.10 for the second quarter of 2023.
Previous wording
(a) Net gain on the previously reported divestiture of Magellan Specialty Health due to the achievement of contingent consideration of $81 million, or $0.15 per share ($0.11 after-tax), net gain on the sale of property, subject to closing costs, of $24 million, or $0.04 per share ($0.03 after-tax), Health Net Federal Services asset impairment due to the 2024 final ruling on the TRICARE Managed Care Support Contracts of $14 million, or $0.03 per share ($0.02 after-tax), gain on the previously reported divestiture of Circle Health Group (Circle Health) of $10 million, or $0.02 per share ($0.10 after-tax), severance costs due to a restructuring of $9 million, or $0.01 per share ($0.01 after-tax) and gain on the previously reported divestiture of HealthSmart due to the finalization of working capital adjustments of $7 million, or $0.01 per share ($0.01 after-tax).
Current wording
(a) gain on the previously reported divestiture of Circle Health Group (Circle Health) of $10 million, or $0.02 per share ($0.02 after-tax), an additional loss on the divestiture of our Spanish and Central European businesses of $7 million, or $0.01 per share ($0.01 after-tax), severance costs due to a restructuring of $4 million, or $0.01 per share ($0.01 after-tax), reduction to the net gain on the sale of property due to closing costs of $3 million, or $0.00 per share ($0.00 after-tax) and net gain on the finalization of working capital adjustments for the previously reported divestiture of Magellan Specialty Health of $2 million, or $0.00 per share ($0.00 after-tax);
Previous wording
(2) The income tax effects of adjustments are based on the effective income tax rates applicable to each adjustment. The three months ended March 31, 2023, include a one-time income tax benefit of $69 million, or $0.13 per share, resulting from the distribution of long-term stock awards to the estate of the Company's former CEO.
Current wording
(2) The income tax effects of adjustments are based on the effective income tax rates applicable to each adjustment. The six months ended June 30, 2023, include a one-time income tax benefit of $69 million, or $0.12 per share, resulting from the distribution of long-term stock awards to the estate of the Company's former CEO.
Previous wording
•Given our strong bid positioning, Medicare Prescription Drug Plan (PDP) membership increased 44% year-over-year.
Current wording
•Given our strong bid positioning, Medicare Prescription Drug Plan (PDP) membership increased 47% year-over-year.
Previous wording
•The decrease in our Star quality ratings in the 2023 rating year, which CMS published in October 2022, adversely impacts our 2024 Medicare revenue. The decrease in Star quality ratings is driven by the expiration of certain disaster relief provisions as well as deterioration in select metrics. As a result of this expectation, we recorded a premium deficiency reserve of $250 million in the fourth quarter of 2023, which increased to $300 million in the first quarter of 2024 to reflect the seasonality of earnings, in connection with the 2024 Medicare Advantage business. Our leadership team launched a multi-year plan to build and improve quality across the enterprise with a strong focus on enhanced patient experience and access to care.
Current wording
•The decrease in our Star quality ratings in the 2023 rating year, which CMS published in October 2022, adversely impacts our 2024 Medicare revenue. The decrease in Star quality ratings is driven by the expiration of certain disaster relief provisions as well as deterioration in select metrics. As a result of this expectation, we recorded a premium deficiency reserve of $250 million in the fourth quarter of 2023, which increased to $300 million in the first quarter of 2024 and to $335 million in the second quarter of 2024 to reflect the seasonality of earnings, in connection with the 2024 Medicare Advantage business.
Previous wording
•In 2024, our Health Insurance Marketplace product, Ambetter Health expanded into Delaware. In total, the Marketplace plan is available across 29 states. Additionally, Marketplace membership increased year-over-year due to the expanded footprint, strong product positioning and open enrollment results, as well as overall market growth.
Current wording
•In 2024, our Health Insurance Marketplace product, Ambetter Health expanded into Delaware. In total, the Marketplace plan is available across 29 states. Additionally, Marketplace membership increased 34% year-over-year due to the expanded footprint, strong product positioning and open enrollment results, as well as overall market growth.
Previous wording
The benefits of successful execution of our Value Creation Plan have impacted our current results of operations and will continue to impact future results of operations, including the implementation of our new third-party pharmacy benefits management (PBM) contract, which commenced in January 2024.
Current wording
The benefits of successful execution of our value creation initiatives have impacted our current results of operations and will continue to impact future results of operations, including the implementation of our new third-party pharmacy benefits management (PBM) contract, which commenced in January 2024.
Previous wording
We expect the following items to impact our future results of operations:
Current wording
We expect the following items to impact our future results of operations, subject to the resolution of various third-party protests within the Medicaid segment:
Previous wording
•In August 2021, our subsidiaries, Carolina Complete Health and WellCare of North Carolina, were selected to coordinate physical and/or other health services with Local Management Entities/Managed Care Organizations under the state's new Tailored Plans. The Tailored Plans are integrated health plans designed for individuals with significant behavioral health needs and intellectual/developmental disabilities. The Tailored Plans are expected to begin on July 1, 2024.
Current wording
•In July 2024, our subsidiaries, Carolina Complete Health and WellCare of North Carolina, began coordinating physical and/or other health services with Local Management Entities/Managed Care Organizations under the state's new Tailored Plan program. The Tailored Plans are integrated health plans designed for individuals with significant behavioral health needs or intellectual/developmental disabilities.
Previous wording
•In December 2023, our subsidiary, Arizona Complete Health, was selected by the Arizona Health Care Cost Containment System – Arizona's single state Medicaid agency – to provide managed care for the Arizona Long Term Care System (ALTCS). The program supports nearly 26,000 Arizonans who are elderly and/or have a physical disability (E/PD) with physical and behavioral healthcare, as well as provides pharmacy benefits. The new ALTCS-E/PD contract is anticipated to begin in October 2024, subject to the resolution of third-party protests, and is a three-year term, with four optional one-year extensions, for a total of seven possible contract years.
Current wording
•In December 2023, our subsidiary, Arizona Complete Health, was selected by the Arizona Health Care Cost Containment System – Arizona's single state Medicaid agency – to provide managed care for the Arizona Long Term Care System (ALTCS). The program supports Arizonans who are elderly and/or have a physical disability (E/PD) with physical and behavioral healthcare, as well as provides pharmacy benefits. The new ALTCS-E/PD contract is anticipated to begin in October 2024 and is a three-year term, with four optional one-year extensions, for a total of seven possible contract years.
Previous wording
•In October 2023, CMS issued 2024 Medicare Advantage Star Ratings on the Medicare Plan Finder. Based on the data, approximately 73% of membership is associated with contracts showing year-over-year unrounded score improvement, and approximately 87% of membership is associated with contracts rated 3.0 stars or better - compared to 53% in the prior year. While we have work to do to improve Star scores, this demonstrated the first step towards our multi-year goals.
Current wording
•In October 2023, CMS issued 2024 Medicare Advantage Star Ratings on the Medicare Plan Finder, which was subsequently updated in July 2024. Based on the data, approximately 74% of membership is associated with contracts showing year-over-year unrounded score improvement, and approximately 91% of membership is associated with contracts rated 3.0 stars or better - compared to 53% in the prior year.
Previous wording
•In June 2023, our subsidiary, Magellan Health, was awarded the Idaho Behavioral Health Plan contract. The contract is anticipated to begin in July 2024 for a four-year term.
Current wording
•In July 2024, our subsidiary, Magellan Health, commenced the Idaho Behavioral Health Plan contract.
Previous wording
From March 31, 2023 to March 31, 2024, our managed care membership decreased by 33 thousand, or (0.1)%. The following table sets forth our membership by line of business:
Current wording
From June 30, 2023 to June 30, 2024, our managed care membership increased by 66 thousand, or 0.2%. The following table sets forth our membership by line of business:
Previous wording
The following discussion and analysis is based on our Consolidated Statements of Operations, which reflect our results of operations for the three months ended March 31, 2024 and 2023, prepared in accordance with generally accepted accounting principles in the United States (GAAP).
Current wording
The following discussion and analysis is based on our Consolidated Statements of Operations, which reflect our results of operations for the three and six months ended June 30, 2024 and 2023, prepared in accordance with generally accepted accounting principles in the United States (GAAP).
Previous wording
Summarized comparative financial data for the three months ended March 31, 2024 and 2023 is as follows ($ in millions, except per share data in dollars):
Current wording
Summarized comparative financial data for the three and six months ended June 30, 2024 and 2023 is as follows ($ in millions, except per share data in dollars):
Previous wording
Total revenues increased 4% in the three months ended March 31, 2024, over the corresponding period in 2023, driven by membership growth in the Marketplace business due to strong product positioning as well as overall market growth, partially offset by recent divestitures in the Other segment and lower Medicaid membership primarily due to redeterminations.
Current wording
Total revenues increased 6% in the three months ended June 30, 2024, over the corresponding period in 2023, primarily driven by membership growth in the Marketplace business due to strong product positioning as well as overall market growth and outperformance in Marketplace risk adjustment for the 2023 benefit year, along with increased premium tax revenue, partially offset by recent divestitures in the Other segment and lower Medicaid membership primarily due to redeterminations.
Previous wording
Cost of services decreased by $201 million in the three months ended March 31, 2024, compared to the corresponding period in 2023. The decrease was driven by recent divestitures. The cost of service ratio for the three months ended March 31, 2024, was 82.8%, compared to 77.2% in the same period in 2023. The increase was driven by the divestiture of Circle Health, which operated at a lower cost of service ratio.
Current wording
Cost of services decreased by $197 million in the three months ended June 30, 2024, compared to the corresponding period in 2023. The decrease was driven by recent divestitures. The cost of service ratio for the three months ended June 30, 2024, was 81.6%, compared to 78.0% in the same period in 2023. The increase was primarily driven by the divestiture of Circle Health, which operated at a lower cost of service ratio.
Previous wording
The SG&A expense ratio was 8.9% for the first quarter of 2024, compared to 8.6% in the first quarter of 2023. The adjusted SG&A expense ratio was 8.7% for the first quarter of 2024, compared to 8.5% in the first quarter of 2023. The increases were driven by growth in the Marketplace business, which operates at a meaningfully higher SG&A ratio as compared to Medicaid, along with Medicare distribution costs. The increases were partially offset by ongoing SG&A reduction initiatives and the divestiture of Circle Health, which operated at a higher SG&A expense ratio. The SG&A expense ratio in the first quarter of 2024 was also impacted by higher acquisition and divestiture related costs in addition to severance costs due to a restructuring.
Current wording
The SG&A expense ratio was 8.0% for the second quarter of 2024, compared to 8.7% in the second quarter of 2023. The adjusted SG&A expense ratio was 8.0% for the second quarter of 2024, compared to 8.6% in the second quarter of 2023. The decreases were driven by Marketplace risk adjustment revenue, the divestiture of Circle Health, which operated at a higher SG&A expense ratio, and ongoing SG&A reduction initiatives. The decreases were partially offset by growth in the Marketplace business, which operates at a meaningfully higher SG&A expense ratio as compared to Medicaid.
Previous wording
Investment and other income. Investment and other income increased by $192 million in the three months ended March 31, 2024, compared to the corresponding period in 2023. The three months ended March 31, 2024 included increased interest income on investments driven by higher interest rates and cash balances, an $81 million Magellan Specialty Health divestiture gain, $24 million net gain on the sale of property, subject to closing costs, $10 million Circle Health divestiture gain and $7 million HealthSmart divestiture gain. The three months ended March 31, 2023 included a $79 million Magellan Specialty Health divestiture gain.
Current wording
Investment and other income. Investment and other income increased by $38 million in the three months ended June 30, 2024, compared to the corresponding period in 2023. The three months ended June 30, 2024 included increased interest income on investments driven by higher interest rates and cash balances. The three months ended June 30, 2024 also included a $10 million gain on the previously reported divestiture of Circle Health partially offset by a $7 million additional loss on the divestiture of our Spanish and Central European businesses, a $3 million reduction to the net gain on the sale of property due to closing costs and a net gain on the finalization of working capital adjustments for the previously reported divestiture of Magellan Specialty Health of $2 million.
Previous wording
Interest expense. Interest expense decreased by $2 million in the three months ended March 31, 2024, compared to the corresponding period in 2023.
Current wording
Interest expense. Interest expense decreased by $5 million in the three months ended June 30, 2024, compared to the corresponding period in 2023.
Previous wording
For the three months ended March 31, 2024, we recorded income tax expense of $315 million on pre-tax earnings of $1.5 billion, or an effective tax rate of 21.4%. The effective tax rate for the first quarter of 2024 reflects tax effects of the Circle Health divestiture. For the first quarter of 2024, our effective tax rate on adjusted earnings was 24.6%.
Current wording
For the three months ended June 30, 2024, we recorded income tax expense of $370 million on pre-tax earnings of $1.5 billion, or an effective tax rate of 24.4%. The effective tax rate for the second quarter of 2024 reflects tax effects of settlements with taxing authorities. For the second quarter of 2024, our effective tax rate on adjusted earnings was 24.4%.
Previous wording
Total revenues decreased 2% in the three months ended March 31, 2024, compared to the corresponding period in 2023. Gross margin decreased $273 million in the three months ended March 31, 2024, compared to the corresponding period in 2023. The decrease in total revenues was driven by lower membership largely due to redeterminations. Gross margin decreased due to lower overall membership as a result of the redetermination process, coupled with higher acuity as we continue to work with our state partners to match rates to the changes in acuity.
Current wording
Total revenues decreased 2% in the three months ended June 30, 2024, compared to the corresponding period in 2023. Gross margin decreased $973 million in the three months ended June 30, 2024, compared to the corresponding period in 2023. The decrease in total revenues was driven by lower membership largely due to redeterminations. Gross margin decreased due to lower overall membership as a result of the redetermination process, coupled with higher acuity post-redeterminations as we continue to work with our state partners to match rates to the changes in acuity.
Previous wording
Total revenues increased 1% in the three months ended March 31, 2024, compared to the corresponding period in 2023 driven by increased PDP membership of 44%, partially offset by lower Medicare Advantage revenue resulting from the Star quality ratings impact discussed above. Gross margin decreased $322 million in the three months ended March 31, 2024, compared to the corresponding period in 2023, driven by lower Medicare Advantage revenue and continued elevated utilization.
Current wording
Total revenues increased 6% in the three months ended June 30, 2024, compared to the corresponding period in 2023 primarily driven by increased PDP membership of 47%, partially offset by lower Medicare Advantage revenue resulting from the Star quality ratings impact discussed above. Gross margin decreased $136 million in the three months ended June 30, 2024, compared to the corresponding period in 2023, primarily driven by lower Medicare Advantage revenue.
Previous wording
Total revenues increased 48% in the three months ended March 31, 2024, compared to the corresponding period in 2023. Gross margin increased $824 million in the three months ended March 31, 2024, compared to the corresponding period in 2023. Increases were primarily driven by 41% membership growth in the Marketplace business along with improved margin through strong 2024 product design and execution.
Current wording
Total revenues increased 49% in the three months ended June 30, 2024, compared to the corresponding period in 2023. Gross margin increased $1.2 billion in the three months ended June 30, 2024, compared to the corresponding period in 2023. Increases were primarily driven by 34% membership growth in the Marketplace business along with improved margin through strong 2024 product design and execution as well as outperformance in Marketplace risk adjustment for the 2023 benefit year.
Previous wording
Total revenues decreased 25% in the three months ended March 31, 2024, compared to the corresponding period in 2023. Gross margin decreased $141 million in the three months ended March 31, 2024, compared to the corresponding period in 2023. Decreases were primarily due to recent divestitures.
Current wording
Total revenues decreased 22% in the three months ended June 30, 2024, compared to the corresponding period in 2023. Gross margin decreased $154 million in the three months ended June 30, 2024, compared to the corresponding period in 2023. Decreases were primarily due to recent divestitures.
Previous wording
During the first quarter of 2024, we recorded total impairment charges of $13 million, driven by Health Net Federal Services property, software and equipment related to the TRICARE Managed Care Support Contracts that was no longer recoverable following the 2024 final ruling. During the first quarter of 2023, we recorded impairment charges of $20 million related to the reduction of our real estate footprint consisting of leased and owned real estate assets and related fixed assets.
Current wording
During the six months ended June 30, 2024 we recorded total impairment charges of $13 million, driven by Health Net Federal Services property, software and equipment related to the TRICARE Managed Care Support Contract that was no longer recoverable following the 2024 final ruling.
Previous wording
For the three months ended March 31, 2023, we recorded an income tax expense of $261 million on pre-tax earnings of $1.4 billion, or an effective tax rate of 18.8%. The effective tax rate for the first quarter of 2023 reflects the tax effects of the distribution of long-term stock awards to the estate of the Company's former CEO as well as the Magellan Specialty Health gain. For the first quarter of 2023, our effective tax rate on adjusted earnings was 24.3%.
Current wording
For the six months ended June 30, 2023, we recorded income tax expense of $621 million on pre-tax earnings of $2.8 billion, or an effective tax rate of 22.1%. The effective tax rate for 2023 reflects the tax effects of the distribution of long-term stock awards to the estate of the Company's former CEO as well as divestiture gains. For the six months ended June 30, 2023, our effective tax rate on adjusted earnings was 24.6%.
Previous wording
Cash Flows (Used in) Provided by Operating Activities
Current wording
Cash Flows Provided by Operating Activities
Previous wording
Normal operations are funded primarily through operating cash flows and borrowings under our Revolving Credit Facility. Operating activities used cash of $456 million in the three months ended March 31, 2024, compared to providing cash of $4.3 billion in the comparable period in 2023.
Current wording
Normal operations are funded primarily through operating cash flows and borrowings under our Revolving Credit Facility. Operating activities provided cash of $1.7 billion in the six months ended June 30, 2024, compared to providing cash of $6.8 billion in the comparable period in 2023.
Previous wording
Cash flows used in operations for the three months ended March 31, 2024 were driven by net earnings, more than offset by timing of experience rebate payments, a delay in premium payments from one of our state partners subsequently received in April 2024 and pharmacy rebate remittance timing as we transitioned to the new third-party PBM, which commenced in January 2024.
Current wording
Cash flows provided by operations in 2024 were primarily driven by net earnings partially offset by pharmacy rebate remittance timing as we transitioned to the new third-party PBM, which commenced in January 2024.
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Rearranged current paragraphs (9)
Current report — wording carried from elsewhere
(a) gain on the sale of Apixio of $91 million, or $0.16 per share ($0.11 after-tax), gain on the previously reported divestiture of Centurion of $15 million, or $0.02 per share ($0.01 after-tax), an additional loss on the divestiture of our Spanish and Central European businesses of $13 million, or $0.02 per share ($0.01 after-tax) and real estate impairments of $19 million, or $0.03 per share ($0.02 after-tax).
Current report — wording carried from elsewhere
For the three months ended June 30, 2023, we recorded an income tax expense of $360 million on pre-tax earnings of $1.4 billion, or an effective tax rate of 25.4%. For the second quarter of 2023, our effective tax rate on adjusted earnings was 24.9%.
Current report — wording carried from elsewhere
Total revenues increased 5% in the six months ended June 30, 2024, over the corresponding period in 2023 primarily driven by membership growth in the Marketplace business due to strong product positioning as well as overall market growth and outperformance in Marketplace risk adjustment for the 2023 benefit year, along with increased premium tax revenue, partially offset by recent divestitures in the Other segment and lower Medicaid membership primarily due to redeterminations.
Current report — wording carried from elsewhere
Cost of services decreased by $398 million in the six months ended June 30, 2024, compared to the corresponding period in 2023. The decrease was driven by recent divestitures. The cost of service ratio for the six months ended June 30, 2024 was 82.2%, compared to 77.6% in the same period in 2023. The increase was primarily driven by the divestiture of Circle Health, which operated at a lower cost of service ratio.
Current report — wording carried from elsewhere
The following table summarizes the components of other income (expense) for the six months ended June 30, ($ in millions):
Current report — wording carried from elsewhere
Interest expense. Interest expense decreased by $7 million in the six months ended June 30, 2024, compared to the corresponding period in 2023.
Current report — wording carried from elsewhere
The following table summarizes our consolidated operating results by segment for the six months ended June 30, ($ in millions):
Current report — wording carried from elsewhere
Total revenues decreased 2% in the six months ended June 30, 2024, compared to the corresponding period in 2023. Gross margin decreased $1.2 billion in the six months ended June 30, 2024, compared to the corresponding period in 2023. The decrease in total revenues was driven by lower membership largely due to redeterminations. Gross margin decreased due to lower overall membership as a result of the redetermination process, coupled with higher acuity post-redeterminations as we continue to work with our state partners to match rates to the changes in acuity.
Current report — wording carried from elsewhere
Total revenues increased 3% in the six months ended June 30, 2024, compared to the corresponding period in 2023, primarily driven by increased PDP membership of 47%, partially offset by lower Medicare Advantage revenue resulting from the Star quality ratings impact discussed above. Gross margin decreased $458 million in the six months ended June 30, 2024, compared to the corresponding period in 2023 driven primarily by lower Medicare Advantage revenue.
Rearranged previous paragraphs (1)
Previous report — wording carried elsewhere
We also closely monitor state legislation across our markets and are advocating for and seeing adoption of coverage expansions for Medicaid adult populations (e.g., North Carolina), postpartum, foster care, children, among others, as well as mitigating adverse legislation addressing pharmacy, prior authorization and other issues.