Centene Faces HBR Pressures: Will Scale Support Stability?

Centene Corporation CNC relies on its Health Benefit Ratio (HBR) as a measure of profitability. Because Medicaid and ACA marketplace plans generate thinner margins than commercial insurance, even modest increases in HBR can meaningfully pressure earnings. As a dominant player in both markets, Centene remains highly sensitive to these shifts.

Recently, several factors have strained HBR. Rising utilization in outpatient and behavioral health services, escalating specialty drug expenses, and the return of deferred care have all increased medical costs. At the same time, Medicaid redeterminations are shifting enrollment toward higher-acuity members, driving up claims severity. In second-quarter 2025, Centene’s HBR rose 550 basis points, reflecting lower Marketplace risk adjustment transfers, higher medical costs across Medicaid and Marketplace, and a Medicare Advantage premium deficiency reserve.

To counter these headwinds, Centene is strengthening utilization management, expanding value-based care contracts, tightening pharmacy cost controls, and pursuing digital efficiency investments. Streamlining through divestitures further supports operational discipline.

The newly enacted One Big Beautiful Bill Act adds structural challenges. Cuts to Medicaid funding, stricter verification requirements, and ACA enrollment curbs threaten to reduce membership, increase administrative costs, and cap premium growth potential.

Looking forward, balancing medical cost containment with careful enrollment management prudently will drive profitability. Despite near-term margin pressures, its scale, government program expertise, and ongoing efficiency measures provide resilience. Over the long term, these strengths should enable Centene to stabilize operations and maintain its leadership position in managed care.

What About its Peers?

HBR at UnitedHealth Group UNH and Humana HUM, two other healthcare plan providers, are influenced by medical cost trends, service utilization, and pharmacy spending. By effectively managing these elements, UnitedHealth as well as Humana maintains stable HBR levels that drive profitability. Leveraging technology, value-based care models, care coordination, and scale, UnitedHealth and Humana ensure margin strength and reinforce their leadership as sustainable healthcare providers.

CNC’s Price Performance

Shares of CNC have lost 51.5% year to date, underperforming the industry.

CNC’s Cheap Valuation

CNC trades at a forward 12-month price-to-earnings of 11.55, below the industry average of 14.96.

Estimate Movements for CNC

The Zacks Consensus Estimate for CNC’s third-quarter and fourth-quarter 2025 EPS witnessed a southward revision over the past seven days. The consensus estimate for full-year 2025 and 2026 EPS also followed suit.
 

The consensus estimate for CNC’s 2025 revenues indicates a year-over-year increase, but the same for EPS suggests a decline. For 2026, the case is exactly the opposite.

CNC stock currently carries a Zacks Rank #5 (Strong Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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