CNC 10-K & 10-Q changes, risk factors and insider trading

Failure to accurately estimatetimely and priceeffectively ouridentify and mitigate medical expensescost ortrends effectivelyand managereceive ouradequate medicalrate costsadjustments orto relatedaccount administrativefor costsincreased acuity could have a material adverse effect on our results of operations, financial condition and cash flows.

Our profitability depends to a significant degree on our ability to accurately estimate and effectively manage expenses related to health benefits through, among other things, our ability to contract favorably with hospitals, physicians and other healthcare providers.providers, as well as related administrative costs. For example, our government-sponsored health programs revenue is often based on bids submitted before the start of the initial contract year. If our actual medical expenses exceed our estimates,estimates for any reason, our health benefits ratio (HBR), or our expenses related to medical services as a percentage of premium revenues, would increase and our profits would decline. For example, late in the second quarter of 2025, data from an independent actuarial firm suggested a materially higher implied aggregate morbidity of the Marketplace membership as a whole than anticipated, resulting in a significant reduction of our expected net risk adjustment revenue for 2025. In addition, during 2025, our Medicaid membership had higher than expected medical costs, including due to unanticipated increased costs in behavioral health, home health and high-cost drugs. Because of the narrow margins of our health plan business, relatively small changes in our HBR can create significant changes in our financial results. Changes in healthcare regulations and practices, including due to the OBBBA, the level of utilization of healthcare services, including due to eligibility changes, benefit design, provider or consumer behavior changes, out-of-network utilization and pricing, medical claim submission patterns, including due to the use of artificial intelligence, hospital and pharmaceutical costs, including new high-cost specialty drugs, unexpected events, such as natural disasters, the effects of climate change, acts of war or aggression, geopolitical instability, major epidemics, pandemics and their resurgence, or newly emergent diseases, new medical technologies, increases in provider fraudfraud, tariffs, unexpected increases in taxes and fees, including provider taxes, and other external factors, including general economic conditions such as interest rates, inflation and unemployment levels, are generally beyond our control and could reduce our ability to accurately predict and effectively control the costs of providing health benefits. Also, member and provider behavior could continue to be influenced by the uncertainty surrounding the ACA,availability, includingaffordability, potentialfunding changesand inaccess premiumto subsidies,health insurance, whether under Medicaid programs or the Affordable Care Act (ACA) or the OBBBA, including due to changesthe inexpiration of the eligibilityEnhanced orAdvance amountPremium ofTax enhancedCredits advance(APTCs) premiumand taxadditional creditsprogram integrity initiatives for Marketplace products.

In addition, as a result of the expiration of the public health emergency (PHE) due to the COVID-19 pandemic, and the resulting Medicaid redeterminations process, as well as changes in state benefit designs, we have experiencedcontinued to experience a higher HBR related to the remaining members, due to the acuity profile of this membership, as well as the gaps in eligibility for certain members who have rejoined the Medicaid plans. In particular, as part of the Medicaid rate setting process, state actuaries determine actuarial soundness of rates based on historical data. The delay in time between making claims payments and receiving rate adjustments when we experience an increased rate of change in medical expenses, whether due to the increased acuity profile of the membership or the increased utilization of health care services, such as behavioral health, home health and high-cost drugs, may cause the profitability of our Medicaid plans to be reduced. While we continue to work with our state partners to match rates to acuity post-redeterminations,to reflect more recent experience, such rate adjustments may be delayed or insufficient to offset the increased acuity.

Our medical expenses include claims reported but not paid, estimates for claims incurred but not reported (IBNR),reported, and estimates for the costs necessary to process unpaid claims at the end of each period. Our development of the medical claims liability estimate is a continuous process that we monitor and refine on a monthly basis as claims receipts and payment information as well as inpatient acuity information becomes available. As more complete information becomes available, we adjust the amount of the estimate, and include the changes in estimates in medical expenses in the period in which the changes are identified. Given the extensive judgment and uncertainties inherent in such estimates, there can be no assurance that our medical claims liability estimate will be accurate, and any adjustments to the estimate may unfavorably impact our results of operations and financial condition and may be material.

Assumptions and estimates are utilized in establishing premium deficiency reserves.reserves, Forwhen example,necessary. weIn havethe establishedinstance a premium deficiency reserve inis connectionnecessary, with the 2025 Medicare Advantage business as of December 31, 2024. Ifif our assumptions are inaccurate, we may be required to increase our premium deficiency reserves which could have a material adverse effect on our results of operations and financial condition.

Additionally, when we commence operations in a new state or region or launch a new product, we have limited information with which to estimate our medical claims liability.liability and continuity of care requirements, which can affect our ability to accurately predict medical claims. For a period of time after the inception of the new business, we base our estimates on government-provided historical actuarial data and limited actual incurred and received claims and inpatient acuity information. In addition, we have limited ability to manage the utilization of services until continuity of care requirements expire. For example, in 2025, we had higher utilization than we expected in several applied behavioral health services programs. The addition of new categories of eligible individuals, as well as evolving Health Insurance Marketplace plans,plans and eligibility changes, may pose difficulty in estimating our medical claims liability.

From time to time in the past, our actual results have varied from our estimates, particularly in times of significant changes in the number and acuity profile of our members. If it is determined that our estimates are significantly different than actual results, our results of operations and financial condition could be materially adversely affected. In addition, if there is a significant delay in our receipt of premiums, our business operations, cash flows or earnings could be negatively impacted.

Any failure to adequately and timely price or anticipate demand for products offered, anticipate changes to the competitive landscape or any reduction in products offered for Medicare Advantage and in the Health Insurance Marketplace may have a material adverse effect on our results of operations, financial condition and cash flows.

In the Health Insurance Marketplace, we may be adversely impacted if we have not accurately and timely predicted the health needs of our members, including individuals exiting or entering the marketmarket, causing the morbidity of the risk pool to rise without a proportionate change to risk adjustment. The premium rates we charge are typically determined in the summer prior to the next plan year, and delays in receiving data upon which the assumptions our based may impact our ability to timely adjust and receive state approval for these rates. In addition, the risk adjustment provisions of the ACA established to apportion risk amongst insurers may not be effective in appropriately mitigating the financial risks related to the Health Insurance Marketplace product, are affected by our members' acuity relative to the membership acuity of other insurers and are subject to a high degree of estimation and variability, including estimation of the ultimate level of program funding based on the financial performance of other insurers. For example, late in the second quarter of 2025, we made a significant negative adjustment to our expected net risk adjustment revenue attributable to the 2025 Marketplace plan year. Further, changes in the competitive market for both Health Insurance Marketplace and the Medicare Advantage products over time, unanticipated changes to member eligibility requirements or verification processes in the program design, including due to changes to the eligibility or amountexpiration of the enhancedEnhanced advanced premium tax creditsAPTCs and the timing of those changes, additional program integrity initiatives that have the effect of reducing membership or causing the morbidity of the risk pool to rise, changes in consumer or provider behavior, or changes in the financial incentives of individuals, brokers and competitors to participate in such products may make pricing difficult to predict. For example, competitors may introduce pricing, broker incentives or broker distribution channels that we may not be able to match, which may adversely affect our ability to compete effectively. Competitors may also choose to exit the market altogether or otherwise suffer financial difficulty, which could adversely impact the pool of potential insured, affect collectability of risk adjustment payable or require us to increase premium rates. Any significant variation from our expectations regarding acuity,acuity of our members, the Marketplace membership as a whole, enrollment levels, adverse selection, out-of-network costs or other increased costs, including due to tariffs or other assumptions utilized in setting adequate premium rates could have a material adverse effect on our results of operations, financial condition and cash flows for both our Health Insurance Marketplace and Medicare Advantageproducts. products.While we have received approvals in the vast majority of states for our 2026 refiled Marketplace rates reflecting the increased medical expenses we experienced in 2025 and adjusted our benefit design and strategy, these actions may not be sufficient to maintain or increase the profitability of these products, which may unfavorably impact our results of operations and financial condition and may be material.

In addition, we may be unable to accurately predict demand for both our Health Insurance Marketplace and Medicare Advantage products, as demand depends on factors outside of our control such as the competitiveness of our bids, the broker distribution channels, additional program integrity initiatives that have the effect of reducing membership and the entry and exit of other competitors in the markets. If we experience higher demand for our products than anticipated, we may not have adequate staffing to be able to adequately meet service level requirements in our call centers, which could negatively impact our quality scores, our relationships with our members and providers, as well as our regulators.

If we fail to design and maintain programs that are attractive to Medicare participants; if our Medicare operations are subject to negative outcomes from program audits, sanctions, penalties or other actions; if we do not submit adequate bids in our existing markets or any expansion markets; if our existing contracts are modified or terminated; or if we fail to maintain or improve our quality Star ratings, our current Medicare business and our ability to expand our Medicare operations could be materially and adversely affected, negatively impacting our results of operations and financial performance. As of December 2024,2025, approximately 55%60% of our Medicare Advantage membership was associated with contracts rated 3.5 stars or better. OurWhile qualitywe improvement goal iscontinue to movefocus 85%on of our members into contracts with 3.5 stars or better forStar rating yearimprovement, 2026 (anticipated to be published in October 2025), whichwe may not be achieved.able to improve or maintain our Star ratings. Additionally, although we expect to have a higher percentage of D-SNP members than most of our competitors, we may be unsuccessful in advocating for adjustments in the Star score rating system or other risk adjustment criteria to reflect the socio-economic barriers to health for this population.

CMS establishes annually different pricing components of the Medicare Advantage program that may not adequately reflect changes in the underlying health care costs, and which may reduce the profitability or desirability of various Medicare Advantage plans. For calendar year 2025,2026, CMS again applied a negative rate adjustment for risk model revisions and fee for service normalization. AsOn aJanuary result26, of2026, CMS released its draft 2027 Medicare rate announcement. We believe these rates are insufficient to reflect the Medicare Advantage 2025 rates and our 2025 Medicare Advantage bid design and membership projections, we have established a premium deficiency reserveincreases in connectioncontinuing withmedical thecost 2025 Medicare Advantage business as of December 31, 2024.trend. In addition, CMS' new risk model may not account for the full severity of several chronic conditions, which could also disproportionately affect the dual-eligible population which is more medically complex and faces additional socio-economic barriers to health compared to others. As a result of these changes and potential future changes to Medicare Advantage pricing components, we may not be able to design products that will be profitable, attractive or competitive for this population.

Government customers have performed and continue to perform audits of selected plans to validate the provider coding practices under the risk adjustment model used to calculate the premium paid for each member. In 2023, CMS announced the removal of the fee-for-service adjuster from the risk adjustment data validation audit methodology beginning for audit year 2018, which could increase our audit error scores. Additionally in 2025, CMS announced the intent to accelerate the timing and expand the scope of risk adjustment data validation audits. We anticipate that CMS will continue to conduct audits of our Medicare contracts and contract years on an on-going basis.basis with increased focus. An audit may result in the refund of premiums to CMS. It is likely that a payment adjustment could occur as a result of these audits; and any such adjustment could have a material adverse effect on our results of operations, financial condition and cash flows.

When our contracts with government entities expire, they may be opened for bidding by competing healthcare providers, and there is no guarantee that our contracts will be renewed or extended. For example, we are currently protesting the DepartmentTexas ofand DefenseGeorgia didMedicaid reprocurements in which we were not awarda thesuccessful West region TRICARE Managed Care Support Contract commencing in 2025 to Health Net Federal Services, and the contract ended as of December 31, 2024.bidder. In addition, as part of the normal course of business, several of our Medicaid contracts are routinely up for reprocurement in 2025 (for contracts largely commencing in 2026).reprocurement. Competitors may be more aggressive in the descriptions of their capabilities and the assumptions utilized in their bids.bids or more willing to accept the financial and other terms offered by the states. Even if our responsive bids are successful, the bids may be based upon assumptions or other factors which could result in the contracts being less profitable than we had anticipated. Further, our government contracts contain certain provisions regarding readiness review, eligibility, enrollment and dis-enrollment processes for covered services, eligible providers, periodic financial and informational reporting, financial standards, quality assurance, timeliness of claims payment, compliance with contract terms and law and our agreement to maintain a Medicare plan in the state, among other things, and are subject to cancellation if we fail to perform in accordance with the standards set by regulatory agencies.

We derive a portion of our cash flow and gross margin from our PDP operations, for which we submit annual bids for participation. The results of our bids and the design of the risk-sharing program could have a material adverse effect on our results of operations, financial condition and cash flows.

A significant portion of our PDP membership is obtained from the auto-assignment of beneficiaries in CMS-designated regions where our PDP premium bids are below benchmarks of other plans' bids. In general, our premium bids are based on assumptions regarding PDP membership, utilization, drug costs, drug rebates and other factors for each region. Our 2026 PDP bids were below the benchmarks for all 34 CMS regions, compared to our 2025 PDP bidsbids, which resulted in 33 of the 34 CMS regions for which we were below the benchmarks and one region for which we were above the benchmark. As of January 1, 2025,2026, we experienced an increase to over 7.58.7 million PDP members compared to 6.98.1 million in December 2024,2025, due to our 20252026 bid positioning. If our future Part D premium bids are not below the CMS benchmarks, we risk losing PDP members who were previously assigned to us and we may not have additional PDP members auto-assigned to us, which could materially reduce our revenue.

TheIn addition, the IRA is expected tohas substantially increaseincreased PDP's risk exposure in 2025.exposure. Under the IRA, PDP plan costs will increaseincreased significantly due to a reduction in members cost share (close of coverage gap, and the $2,000 cap on member out-of-pocket expenses) and a decrease in federal reinsurance (from 80% to 20%, while a greater portion of the plan drug costs will fall into the catastrophic phase). In the meantime, Part D risk sharing program thresholds would be applied to the increased Part D plan costs, so the plan cost at risk will be much greater before any risk sharing kicks in. These changes mayhave leadled to heightened underwriting risks and increased market volatility and uncertainty for 2025future bids, which could materially reduce our revenue and profit. The IRA also offers Part D enrollees the option to defer payment of out-of-pocket prescription drug costs across monthly payments throughout the benefit year instead of to the pharmacy at the point of sale under the Medicare Prescription Payment Plan (M3P). This change may lead to increased bad debt exposure along with potential challenges with collecting deductibles and other cost-sharing amounts from beneficiaries. The change may also lead to estimation uncertainty as we develop our experience with the M3P. Due to the uncertainty of the new Part D pricing structure, Centene has elected into the Part D Premium Stabilization Demonstration program, which subsidizes member premiums and provides additional protection through the risk corridor in the event of unforeseen losses, but such election may not be sufficient to offset the uncertainty or risks relating to our experience with M3P as well as the increased risk exposure.

Operations in a number of states have accounted for a significant portion of our premium revenues to date. If we were unable to continue to operate in any of those states or if our current operations in any portion of one of those states were significantly curtailed, our revenues could decrease materially. For example, as part of the normal course of business, several of our Medicaid contracts are routinely up for reprocurement in 2025 (for contracts largely commencing in 2026).reprocurement. Our reliance on operations in a limited number of states could cause our revenues and profitability to change suddenly and unexpectedly depending on legislative or other governmental or regulatory actions and decisions or changes in governmental administrations, economic conditions and similar factors in those states. Government entities in states we currently serve could open the bidding for their Medicaid or other healthcare programs to other health insurers through a request for proposal process. For example, aswe are currently protesting the Texas and Georgia Medicaid reprocurements in which we were not a resultsuccessful of Medicaid reprocurement process in California, in January 2024 our subsidiary, Health Net of California, began subcontracting a portion of its Medicaid membership in Los Angeles, which reduced our membership compared to December 2023.bidder. Reductions in our service area or services provided in any of the states in which we operate could harm our business.

From time to time, healthcare providers assert or threaten to assert claims seeking to terminate non-cancelable agreements due to alleged actions or inactions by us. If we are unable to retain our current provider contract terms or enter into new provider contracts timely or on favorable terms, our profitability may be materially adversely affected. In addition, from time to time, we may be subject to class action or other lawsuits by healthcare providers with respect to claim payment procedures or similar matters. For example, our wholly owned subsidiary, Health Net Life Insurance Company (HNL), is and may continue to be subject to such disputes with respect to HNL's payment levels in connection with the processing of out-of-network provider reimbursement claims for the provision of certain substance abuse related services. In the event HNL receives an adverse finding in any related legal proceeding or from a regulator or is otherwise required to reimburse providers for these claims at rates that are higher than expected or for claims HNL otherwise believes are unallowable, our financial condition and results of operations may be materially adversely affected. In addition, regardless of whether any such lawsuits brought against us are successful or have merit, they will still be time-consuming and costly and could distract our management's attention. As a result, under such circumstances, we may incur significant expenses and may be unable to operate our business effectively.

In addition, we are subject to certain state and federal regulations and contractual provisions regarding provider directory accuracy. If we cannotare complydetermined to be out of compliance with such accuracy requirements or other contractual operational requirements, we may be subject to penalties, sanctions, damages or other consequences resulting from regulatory audits and investigations,investigations and/or litigation and otherwise suffer competitive harm, which could have a material adverse impact on our business reputation, financial condition, cash flows or results of operations.

Our operations depend significantly on effective information systems and networks. The information gathered and processed by information systems and networks assists us in, among other things, monitoring utilization and other cost factors, processing provider claims and providing data to our regulators. Our healthcare providers also depend upon our information systems and networks for membership verifications, claims status and other information. Our information systems, networks and applications require continual maintenance, upgrading and enhancement to meet our operational needs and regulatory requirements. We regularly upgrade and expand our information systems' and networks' capabilities. If we, our healthcare providers, brokers'brokers or our third-party vendors experience difficulties with the transition to or from information systems or networks or do not appropriately integrate, maintain, enhanceenhance, secure or expand information systems or networks, we could suffer, among other things, operational disruptions, loss of existing members and providers and difficulty in attracting new members and providers, complaints, regulatory problems and increases in administrative expenses. In addition, our healthcare providers', our brokers' or our third-party vendors' ability to integrate and manage information systems and networks may be impaired as the result of events outside our control, including natural disasters, such as earthquakes or fires, or acts of wars, aggression or terrorism, which may include cyber-attacks or other data security incidents by terrorists or other governmental or non-governmental actors. Further, as connectivity of technology advances, artificial intelligence and business processes supported by large language models that are used by us, our healthcare providers, our brokers, or our third-party vendors may not operate as expected or may give rise to risks related to accuracy, bias, discrimination, intellectual property infringement, cybersecurity and data privacy, among others. The development and use of artificial intelligence technologies is still in its early stages, and as a result it is not possible to predict all of the risks and potentially unintended consequences related to the use of artificial intelligence by us, our health care providers, our brokers or our third-party vendors.

We maintain a system of prevention and detection controls through our security programs; however, our prevention and detection controls may not prevent or identify all such attacks on a timely basis, or at all. Despite our best attempts to maintain adherence to data privacy and security best practices, as well as compliance with applicable laws, regulations, rules, standards and contractual requirements, our facilities, systems and networks, and those of our third-party vendors, may be vulnerable to data privacy or security breaches, acts of vandalism or theft, malware, ransomware, social engineering attacks (including phishing attacks), denial-of-service attacks or other forms of cyber-attack, misplaced or lost data including paper or electronic media, programming and/or human errors or other similar events. We experience attempted external hacking or malicious attacks on a regular basis. In the past, we have experienced cyber-attacks and data breaches, and our third-party vendors have experienced cyber-attacks and security incidents, resulting in disclosure of confidential or protected health information that have not resulted in any material financial loss or penalty to date. For example, in 2024, Change Healthcare, Inc. experienced a cybersecurity incident that disrupted its ability to provide services, impacting payers, providers and pharmacies nationwide, including Centene and some of its subsidiaries. While this incident did not have a material impact on Centene, there can be no assurance that this incident and other privacy or security breaches will not require us to expend significant resources to remediate any damage, interrupt our operations and damage our business or reputation, subject us to state, federal,state or internationalfederal agency review, and result in enforcement actions, material fines and penalties, litigation or other actions which could have a material adverse effect on our business, reputation, results of operations, financial condition and cash flows.

Changes in business strategy, divestitures, government regulations or economic or market conditions and non-renewal of government contracts have resulted and may result in impairments of our real estate portfolio, goodwill and other intangible assets at any time in the future. For example, as a result of market conditions in July 2025, including the OBBBA and the decline in our stock price, we performed a quantitative impairment analysis during the third quarter to determine whether goodwill was impaired, which resulted in a non-cash goodwill impairment of $6.7 billion in the third quarter of 2025. For additional information, see Note 6. Property, Software and Equipment, Note 7. Goodwill and Intangible Assets, and Note 11. Leases to the consolidated financial statements included in Part II of this Annual Report on Form 10-K. We may have additional impairment charges in connection with our periodic evaluation of our goodwill and intangible assets using assumptions and judgments regarding the estimated fair value of our reporting units. Our assumptions and judgments regarding the existence of impairment indicators are based on, among other things, legal factors, contract terms, market conditions and operational performance. Further, the estimated value of our reporting units may be impacted because of business decisions we make associated with any future changes to laws and regulations, which could unfavorably affect the carrying value of certain goodwill and other intangible assets and result in impairment charges in future periods. If an event or events occur that would cause us to revise our estimates and assumptions used in analyzing the value of our goodwill and other intangible assets, such revision could result in a non-cash impairment charge that could have a material impact on our results of operations and shareholders' equity in the period in which the impairment occurs.

Reductions or delays in funding,funding of, changes to eligibility requirements forfor, government-sponsored healthcare programs in which we participate, and any inability on our part to effectively adapt to changes to these programs could have a material adverse effect on our results of operations, financial condition and cash flows.

The majority of our revenues come from government subsidized healthcare programs including Medicaid, Medicare, CHIP, LTSS, ABD, Foster Care and Health Insurance Marketplace premiums. Changes in these programs, including due to executive orders or other regulatory actions from the current political administration, could change the number of persons enrolled in or eligible for these programs, reduce funding, delay funding and increase our administrative and healthcare costs under these programs. For example, due to the declaration of the end of the PHE and the subsequent expiration of the eligibility determination waivers, the resumption of the Medicaid eligibility redeterminations significantly reduced our membership in our Medicaid programs, and we did not fully offset the loss of this membership by increased enrollment in our Health Insurance Marketplace products. In addition, as a result of the expiration of the PHE due to the COVID-19 pandemic, and the resulting Medicaid redeterminations process, we have experienced a higher HBR related to the remaining members, due to the acuity profile of this membership, as well as the gaps in eligibility for certain members who have rejoined the Medicaid plans. While we continue to work with our state partners to match rates to acuity post-redeterminations, such rate adjustments may be delayed or insufficient to offset the increased acuity. In addition,some cases, states may decide to reduce reimbursement or reduce benefits. If any state in which we operate were to decrease premiums paid to us or pay us less than the amount necessary to keep pace with our cost trends, it could have a material adverse effect on our results of operations, financial condition and cash flows.

Payments from government payors may be delayed in the future, which, if extended for any significant period of time, could have a material adverse effect on our results of operations, financial condition, cash flows or liquidity. For example, we have a receivable due to us from CMS for Part D risk-sharing programs attributable to the 2025 plan year that we expect to be paid by CMS within a year after the plan year closes. If the payments from CMS are delayed, our cash flows may be materially adversely affected. In addition, delays in obtaining, or failure to obtain or maintain, governmental approvals, or moratoria imposed by regulatory authorities, could adversely affect our revenues or membership, increase costs or adversely affect our ability to bring new products to market as forecasted. Other changes to our government programs could affect our willingness or ability to participate in any of these programs or otherwise have a material adverse effect on our business, financial condition or results of operations.

Under most of these programs, the base premium rate paid for each program differs, depending on a combination of factors such as defined upper payment limits, a member's health status, age, gender, county or region and benefit mix. Since Medicaid was created in 1965, the federal government and states have shared the costs for this program, with the federal government share currently averaging approximately 60%. We are therefore exposed to risks associated with federal and state government contracting or participating in programs involving a government payor, including but not limited to the general ability of the federal and/or state governments to terminate or modify contracts with them, in whole or in part, without prior notice, for convenience or for default based on performance; potential regulatory or legislative action that may materially modify amounts owed; our dependence upon Congressional or legislative appropriation and allotment of funds and the impact that delays in government payments could have on our operating cash flow and liquidity; responses to pandemics, resurgences and new emergent diseases and other regulatory, legislative or judicial actions that may have an impact on the operations of government subsidized healthcare programsprograms, including ongoing litigation involving the ACA.

Future levels of funding and premium rates may be affected by continuing government efforts to contain healthcare costs and may further be affected by state and federal budgetary constraints and spending initiatives or changes in political party or administrations at the state and federal level. Governments periodically consider reducing or reallocating the amount of money they spend for Medicaid, Medicare, CHIP, LTSS, ABD and Foster Care. Additionally, as a result of the CMS Medicare Advantage 2025 rate actions, combined with our quality scores, we have established a premium deficiency reserve in connection with the 2025 Medicare Advantage business as of December 31, 2024. Furthermore, Medicare remains subject to the automatic spending reductions imposed by the Budget Control Act of 2011 and the American Taxpayer Relief Act of 2012 (sequestration), subject to a 2% cap, which was extended by the Bipartisan Budget Act of 2019 through 2029, which was reinstated on July 1, 2022, after a temporary suspension due to the COVID pandemic. Additional changes to the funding or eligibility criteria for these programs could materially impact our membership, revenues, financial condition and cash flows.

The IRA enactsenacted significant changes to the Medicare Part D program beginning on January 1, 2025. These changes createcreated additional uncertainty for 2025 Medicare Part D bids, including their profitability and the competitive market landscape. If our future Part D premium bids are not profitable or below the CMS benchmarks or competitors price their products with significantly lower premiums, membership, revenue and profitability of this product could be materially reduced, which in turn could have a material adverse effect on our results of operations and financial conditions. Further, changes in the Medicare Part D program could impact membership and cause the timing of our cash flows to be impacted, which in turn could impact the timing and level of our interest income.expense.

In addition, new CMS regulations will require beneficiaries dually enrolled in Medicare and in a Medicaid managed care plan to receive integrated care through the Medicaid company's Medicare Advantage D-SNPs beginning in 2030, with certain restrictions beginning in 2027, which may restrict our product offerings in some geographic service areas. However, some states have already moved or are planning to exclusively align dual-eligible enrollment under an aligned D-SNP before this timeframe.

In addition, adverse economic conditions may put pressures on state budgets as tax and other state revenues decrease while the population that is eligible to participate in these programs remains steady or increases, creating more need for funding. We anticipate this will require government agencies to find funding alternatives, which may result in reductions or delays in funding for programs, contraction of covered benefitsbenefits, increases to taxes and fees and limited or no premium rate increases or premium rate decreases. A reduction (or less than expected increase), a protracted delay or a change in allocation methodology in government funding for these programs, as well as termination of one or more contracts for the convenience of the government, may materially and adversely affect our results of operations, financial condition and cash flows.

Also, if legislation increasing the federal debt ceiling is not enacted and the debt ceiling is reached, the federal government may stop or delay making payments on its obligations. In addition, if another federal government shutdown were to occur for a prolonged period of time, federal government payment obligations, including its obligations under Medicaid, Medicare, TRICARE, CHIP, LTSS, ABD, Foster Care and the Health Insurance Marketplace, may be delayed. Similarly, if state government shutdowns were to occur, state payment obligations may be delayed. If the federal or state governments fail to make payments under these programs on a timely basis, our business could suffer, and our financial condition, results of operations or cash flows may be materially affected.

Significant changes or judicial challenges to the ACA and the other government-sponsored healthcare programs in which we participate could materially and adversely affect our results of operations, financial condition, and cash flows.

Among the most significant of the ACA's provisions was the establishment of the Health Insurance Marketplace for individuals and small employers to purchase health insurance coverage that included a minimum level of benefits and restrictions on coverage limitations and premium rates, as well as the expansion of Medicaid coverage to all individuals under age 65 with incomes up to 138% of the federal poverty level beginning January 1, 2014, subject to each state's election. The HHS additionally indicated that it would consider a limited number of premium assistance demonstration proposals from states that want to privatize Medicaid expansion. Several states in which we operate have obtained Section 1115 waivers to implement the ACA's Medicaid expansion in ways that extend beyond the flexibility provided by the federal law,law. withIn additionalJuly states2025, pursuingCMS indicated that it would no longer approve new Section 1115 waivers regarding eligibility criteria, benefits, and cost-sharing, and provider payments across their Medicaid programs. Litigation challenging Section 1115 waiver activity for bothcontinuous newcare andcoverage previouslyor approvedworkforce waivers is expected to continue both through administrative actions and the courts.assistance.

Additionally, the taxes and fees paid to federal, state, local and internationallocal governments may increase due to several factors, including: enactment of, changes to or interpretations of tax laws and regulations, audits by government authorities, and geographic expansions into higher taxing jurisdictions and the effect of expansions into international markets.jurisdictions.

In April 2016, CMS issued final regulations that revised existing Medicaid managed care rules by establishing a minimum MLR standard for Medicaid of 85% and strengthening provisions related to network adequacy and access to care, enrollment and disenrollment protections, beneficiary support information, continued service during beneficiary appeals, and delivery system and payment reform initiatives, among others. In May 2024, CMS issued further revisions to the Medicaid managed care regulations which become effective between July 2024 and July 2027. The 2024 Final Rule focused on changes in areas including access to care, delivery system and payment reform initiatives, MLR standards and quality oversight. Although we strive to comply with all existing regulations and to meet performance standards applicable to our business, failure to meet these requirements could result in financial fines and penalties. Also, states or other governmental entities may carve out certain services and benefits from the government programs in which we participate, or they may not allow us to continue to participate in their government programs or we may fail to win procurements to participate in such programs, any of which could materially and adversely affect our results of operations, financial condition and cash flows. See also Note 17. Contingencies to the consolidated financial statements included in Part II of this Annual Report on Form 10-K.

From time to time, we are a defendant in lawsuits and regulatory actions and are subject to investigations relating to our business, including, without limitation, medicalclaims malpracticethat claims;may claimshave retroactive application and periodic compliance and other reviews and investigations by membersvarious federal and providersstate allegingregulatory failureagencies with respect to timelyrequirements andapplicable accuratelyto payour forbusiness, orincluding, providewithout healthcare;limitation, claimsthose related to non-paymentpayment orof insufficient payments for out-of-network services; claims related to provider directory accuracy, claims related to network adequacy; claims alleging bad faith;claims, compliance with the CMS Medicare and Marketplace regulations, including risk adjustmentadjustment, prior authorizations and broker compensation;compensation, claimscompliance related towith the False Claims Act, the calculation of minimum MLR and rebates related thereto;thereto, claimssubmissions to state agencies related to privacy,payments intellectualor propertystate false claims acts, pre-authorization penalties, timely review of grievances and vendorappeals, disputes;timely investigationsand regardingaccurate our submissionpayment of riskclaims, adjusterprovider claims;directory putativeaccuracy, securitiesnetwork class actions; protests and appeals related to Medicaid procurement awards;adequacy, cybersecurity issues, including those related to our or our third-party vendors' information systems;systems, employment-related disputes, including wageHIPAA and hourother claims;federal submissions toand state agenciesfraud, waste and abuse laws; litigation arising out of general business activities, such as tax matters, disputes related to paymentshealthcare benefits coverage or statereimbursement, falseputative securities class actions and related derivative lawsuits, and medical malpractice, privacy, real estate, intellectual property, vendor disputes and employment-related claims; and disputes regarding reinsurance arrangements, claims acts,arising preauthorization penalties, timely reviewout of grievancethe acquisition or divestiture of various assets, class actions and appeals;claims relating to the performance of contractual and non-contractual obligations to providers, members, employer groups, vendors and others, including, but not limited to, the alleged failure to properly pay claims and challenges to the manner in which we processes claims, claims related to thenetwork impositionadequacy ofand newclaims taxes,alleging includingthat butwe nothave limitedengaged in unfair business practices; and protests and appeals related to claimsMedicaid thatprocurement may have retroactive application.awards. Although we maintain some third-party insurance coverage, including excess liability insurance with third-party insurance carriers, certain liabilities or types of damages, such as punitive damages, may not be covered by insurance, insurers may dispute coverage or the amount of insurance may be insufficient to cover the entire damages awarded. In addition, regardless of the outcome of any litigation or regulatory proceedings, such proceedings are costly and time-consuming and require significant attention from our management and could therefore have a material adverse effect on our business and financial condition, results of operations or cash flows.

As part of our normal operations, we and our third-party vendors collect, retain and otherwise process confidential member information, including personal information. We and our third-party vendors are subject to various federal, statefederal and internationalstate laws, regulations, rules, standards and contractual requirements regarding the use, disclosure and other processing of confidential member information (including personal information), including HIPAA, the HITECH Act, the Gramm-Leach-Bliley Act, which require us to protect the privacy of medical records and safeguard personal health information we maintain, use and otherwise process. Additionally, legislative and regulatory action at the federal, state and local levels is emerging in the areas of artificial intelligence and automation. These laws, rules and contractual requirements are subject to change and the regulatory environment surrounding data privacy and security laws is increasingly demanding. Compliance with existing or new data privacy and security laws, regulations and requirements may result in increased operating costs, and may constrain or require us to alter our business model or operations. In some cases, such laws, rules, regulations and contractual requirements also apply to our third-party vendors and require us to obtain written assurances of their compliance with such requirements. Certain of our businesses are also subject to the Payment Card Industry Data Security Standard, which is a multifaceted security standard that is designed to protect credit card account data as mandated by payment card industry entities.

We are subject to the tax laws in the U.S. at the federal, state and local government levels and to the tax laws of other jurisdictions in which we operate. Tax laws might change in ways that adversely affect our tax positions, effective tax rate and cash flow. WeFor areexample, subjecton November 14, 2025, CMS issued guidance to implement the OBBBA's requirement that states can no longer impose higher tax examinationsrates on Medicaid MCOs than commercial insurance by the end of the fiscal year ending in various2026. jurisdictionsIf thatthe mightstates assessincrease additionalthe tax liabilitiesrates againstapplicable us.to Ourour taxMarketplace reportingline positionsof mightbusiness beduring challenged2026, we cannot offset those increases by relevantincreasing taxpremiums, authorities,as weour mightMarketplace incurrates significantwere expenseapproved and determined in our2025, effortswhich to defend those challenges and we might be unsuccessful in those efforts. Developments in examinations and challenges might materially change our provision for taxes in the affected periods and might differ materially from our historical tax accruals. Any of these risks mightcould have a material adverse impact on the profitability of our business,Marketplace products, results of operations, financial condition and cash flows.

Among other things, our Revolving Credit Facility and Term Loan Facility (collectively, the Company Credit Facility) and the indentures governing our notes require us to comply with various covenants that impose restrictions on our operations, including our ability to incur additional indebtedness, create liens, pay dividends, make certain investments or other restricted payments, sell or otherwise dispose of substantially all of our assets and engage in other activities. We are also exposed to interest rate risk to the extent of our variable rate indebtedness. Changes in interest rates can increase our cost of borrowing, and volatility in U.S. and global financial markets could impact our access to, or further increase the cost of, financing. OurThe Company Credit Facility also requires us to comply with a maximum debt-to-EBITDA ratio and a minimum fixed charge coveragedebt-to-capital ratio. TheseThis restrictive covenantscovenant could limit our ability to pursue our business strategies. In addition, any failure by us to comply with thesethis restrictive covenantscovenant could result in an event of default under ourthe Company Credit Facility and, in some circumstances, under the indentures governing our notes, which, in any case, could have a material adverse effect on our financial condition.

In December 2022, we completed the divestiture of Magellan Rx for $1.3 billion and recognized a gain of $269 million, or $99 million after-tax. During 2023, we recorded a reduction to the previously reported gain of $22 million, or $10 million after-tax,after-tax. dueDuring 2025, we recorded a favorable adjustment to the finalizationgain on sale of workingMagellan capitalRx adjustments.of $2 million, or $1 million after-tax.

Regulatory Trends and Uncertainties

The COVID-19 pandemic impacted our business as it relates to Medicaid eligibility changes. From the onset of the public health emergency (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). Since March 31, 2023, redeterminations are the primary driver of our Medicaid membership decline. While some states may still be concluding the redetermination process for certain populations of members, weWe anticipate that any remainingfuture reductions willcould beoccur limitedresulting asfrom theongoing majoritystate ofredetermination states have substantially completed their unwinding processes as of December 2024.processes. We continue to work with our state partners to match rates to acuity post-redeterminations.

In addition, newlythe finalizedCMS Centerscalendar foryear 2025 Medicare and MedicaidPart ServicesD (CMS)policy rule and finalized regulations will require beneficiaries dually enrolled in Medicare and in a Medicaid Managedmanaged Carecare Planplan to receive integrated care through the Medicaid company's Medicare Advantage Dual Eligible Special Needs Plans (D-SNPs) beginning in 2030, with certain restrictions beginning in 2027. However,Integrated some states have already moved orD-SNPs are planningdesigned to exclusivelyenhance alignthe dual-eligiblecoordination enrollmentof undercare anand alignedstreamline D-SNPservices beforewhile thisdelivering timeframe.improved outcomes. We believe we are positioned well given our overlapping Medicaid and Medicare Advantage footprints and arewe committedwill continue to navigatingplace evolvingenterprise-level regulations.focus on the D-SNP opportunity to drive long-term growth.

We haveremain fourfocused decadeson our promise of experience, spanning seven presidents from both sides of the aisle, in delivering high-quality healthcare services on behalf of states and the federal government to under-insured families and uninsured families, commercial organizations. ThisOur expertisedecades hasof experience and deep industry knowledge have allowed us to deliver cost-effective services to our government partners and our members. With trendsa infocus on the personalization of healthcare technology, we continue the use of data and analytics to improve the provider and member experience. We continue to believe we have both the capacity and capability to successfully navigate industry changes to the benefit of our members, customers, providers and shareholders.shareholders through program and bid design, product placement and other strategic factors.

•Year-end membership of 28.627.6 million, ana increasedecrease of 1.1967 millionthousand members, or 4%3% over 2023.2024.

•SG&A expense ratioHBR of 8.5%91.9% for 2024,2025, compared to 9.0%88.3% for 2023.2024.

•Adjusted SG&A expense ratio of 8.5%7.4% for 2024,2025, compared to 8.9%8.5% for 2023.2024.

•DilutedAdjusted earningsSG&A perexpense share (EPS)ratio of $6.317.4% for 2024,2025, compared to $4.958.5% for 2023.2024.

•Operating cash flows of $5.1 billion for 2025, compared to $154 million for 2024, compared to $8.1 billion for 2023.2024.

A reconciliation from GAAP diluted EPSearnings (loss) per share to Adjustedadjusted Diluteddiluted EPS is highlighted below, and additional detail is provided under the heading "Non-GAAP Financial Presentation":

We reference the adjusted SG&A expense ratio defined as adjusted SG&A expenses, which excludes acquisition and divestiture related expenses and other items, divided by premium and service revenues. We also reference effective tax rate on adjusted earnings, defined as GAAP income tax expense (benefit) excluding the income tax effects of adjustments to net earnings divided by adjusted earnings (loss) before income tax expense.

(ab) net gain on the previously reported divestiture of Magellan Specialty Health due to the achievement of contingent consideration and finalization of working capital adjustments of $83 million, or $0.16 per share ($0.12 after-tax), net gain on the sale of property of $24 million, or $0.04 per share ($0.03 after-tax), gain on the previously reported divestiture of Circle Health of $20 million, or $0.04 per share ($0.12 after-tax), gain on the sale of CHS of $17 million, or $0.03 per share ($0.02 after-tax), Health Net Federal Services asset impairment due to the 2024 final ruling on the TRICARE Managed Care Support Contract of $14 million, or $0.03 per share ($0.02 after-tax), severance costs due to a restructuring of $13 million, or $0.02 per share ($0.01 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) 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).

(2) The income tax effects of adjustments are based on the effective income tax rates applicable to each adjustment. In addition, the year ended December 31, 2025, includes a tax benefit of $4 million, or $0.01 per share, related to tax adjustments on previously reported divestitures and impacts of the OBBBA. The year ended December 31, 2024, includes a tax benefit of $1 million, or $0.00 per share, related to tax adjustments on previously reported divestitures. The year ended December 31, 2023 includes 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 and tax expense of $3 million, or $0.01 per share, related to tax adjustments on previously reported divestitures.

The COVID-19 pandemic impacted our business as it relates to Medicaid eligibility changes. From the onset of the public health emergency (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). Since March 31, 2023, eligibility redeterminations arehave been the primary driver of our Medicaid membership decline. We anticipate that future reductions could occur resulting from ongoing state eligibility redetermination processes. We continue to work with our state partners to match rates to acuity post-redeterminations.

The OBBBA, passed in July 2025, includes requirements that may reduce the number of members eligible for state Medicaid Expansion programs by requiring work or community engagement by members and for state Medicaid agencies to redetermine member eligibility at more frequent intervals, along with adding a "Cost Sharing" or "Co-Pay" for certain medical services. These changes could have the effect of increasing the overall morbidity of the Medicaid Expansion population largely beginning in 2027, subject to state implementation plans. Several other provisions of the OBBBA, such as adjustments to provider taxes and state directed payments beginning in 2028, may have the effect of reducing the amount of federal funding for Medicaid, which could result in changes in the design of Medicaid programs, including coverage of benefits, eligibility, and/or provider payment rates. For example, in July 2026, New York will terminateterminated its Essential Plan-5, which provided state-subsidized healthcare for individuals from 200% to 250% of the Federal Poverty Level (FPL). The OBBBA also includes a restriction against paying certain providers designated as "prohibited entities" as of October 1, 2025, which has the potential to create access to care issues and network gaps. The timing of regulatory guidance and other rulemaking changes will be critical to ensuring state and MCO implementation readiness. On June 29, 2026, a coalition of 26 states, including 24 Democratic attorney generals and two governors, challenged CMS' interim rule issued on June 3, 2026 implementing the work requirements. The lawsuit is asking the court to block certain provisions of the interim final rule that it alleges are unlawful. The lawsuit may create additional delays and uncertainty regarding the implementation and effect of work requirements on Medicaid beneficiary eligibility.

The Marketplace Integrity and Affordability Final Rule (Final Rule) was published in the Federal Register on June 25, 2025. The Final Rule makesincluded changes to policies intended to strengthen program integrity measures in the Marketplace. For example, the Special Enrollment Period for those under 150% of the FPL was repealed beginning August 25, 2025. Several of the provisions of theThe Final Rule also included several provisions that would have beenreduced eligibility for Marketplace coverage, which were stayed dueand toultimately ongoingvacated litigation. These include a requirement for certain consumers who automatically re-enroll into a fully subsidized Marketplace plan to be re-enrolled intoby the samedistrict plan with a $5 premium until the consumer updates their exchange application to confirm APTC eligibility. Additionally, exchanges may no longer accept a consumer's self-attestation of projected annual household income when the Internal Revenue Service (IRS) cannot verify it due to lack of tax return data; rather, exchanges must verify household income using other trusted data sources.court.

In addition, the OBBBA placed additional restrictions on APTC requirements. For example, beginning January 1, 2026, should individuals mis-estimate their projected income, the OBBBA requires them to reimburse the IRS for the full amount of excess tax credit received. In addition,Further, as of January 1, 2026, the OBBBA prohibits individuals from receiving APTCs if they enroll in health coverage through a Special Enrollment Period associated with their income. The combined effect of the expiration of the Enhanced APTCs and the Final Rule reduced 2026 Marketplace membership in the first quartersix months of 2026 compared to 2025 and we anticipate that the combined effects will continue to increase the overall morbidity of the Marketplace population. We continue to advocate for legislation and regulations aimed at leveraging Medicaid and the Health Insurance Marketplace to maintain health insurance coverage and affordability for consumers.

The IRA significantly changed Medicare Part D, impacting stand-alone Medicare PDPs as well as the Part D benefit in many of our Medicare Advantage plans beginning in 2025, most notably by eliminating the coverage gap and capping members' annual out-of-pocket costs at $2,100 in 2026 in order to provide more predictable and affordable prescription drug coverage for Medicare beneficiaries. The IRA changeschanges, effectivewhich forwent 2025into effect beginning in 2025, resulted in a meaningful shift in cost-sharing responsibilities between members, drug companies, Centers for Medicare and Medicaid Services (CMS), and PDPs and have resulted in a significant increase in our premiums in consideration for our PDPs' responsibility for a larger portion of total Part D benefit costs. To help mitigate significant premium impacts and address these changes, CMS introduced the Medicare Part D Premium Stabilization Demonstration program. This program began in calendar year 2025 and was intended by CMS to exist for three years. The parameters of the program are expected to be different each year. For example, in 2025, participating PDPs operated under narrowed risk corridor thresholds as part of the supports CMS introduced to limit market volatility. For 2026, CMS eliminated these narrowed risk corridors entirely, shifting PDPs back toward standard program financial risk‑sharing. Starting in 2026, CMS created a Drug Subsidy to compensate plans for the loss of the Manufacturer Discount Program (MDP) for maximum fair price drugs. We continue to advocate for policies that promote cost-effective, high-quality care for our PDP enrolled members. We have receivables due to us from CMS for Part D risk-sharing programs attributable to the 2025 plan year that we expect to be paid by CMS within a year after the plan year closes. If the payments from CMS are delayed, our cash flows may be materially adversely affected.

We remain focused on our promise of delivering high-quality healthcare services to our members on behalf of states and the federal government to under-insured families and commercial organizations.government. Our decades of experience and deep industry knowledge have allowed us to deliver cost-effective services to our government partners and our members. With a focus on the personalization of healthcare technology, we continue the use of data and analytics to improve the provider and member experience. We continue to believe we have both the capacity and capability to successfully navigate industry changes to the benefit of our members, customers, providers and shareholders through program and bid design, product placement and other strategic factors.

FirstSecond Quarter 2026 Highlights

Our financial performance for the firstsecond quarter of 2026 is summarized as follows:

•HBR of 87.3%,89.6%, compared to 87.5%93.0% for the firstsecond quarter of 2025.

•SG&A expense ratio of 7.6%,7.0%, compared to 7.9%7.1% for the firstsecond quarter of 2025.

•Adjusted SG&A expense ratio of 7.6%,6.9%, compared to 7.9%7.1% for the firstsecond quarter of 2025.

•Operating cash flows provided cash of $4.4$3.6 billion in the firstsecond quarter of 2026.

•GAAP diluted earnings per share (EPS) of $3.11$2.19 for the firstsecond quarter of 2026.

•Adjusted diluted EPS of $3.37$2.51 for the firstsecond quarter of 2026.

A reconciliation from GAAP diluted EPSearnings (loss) per share to adjusted diluted EPSearnings (loss) per share is highlighted below, and additional detail is provided above under the heading "Non-GAAP Financial Presentation":

(a) enterprise optimization costs of $13$37 million, or $0.03$0.07 per share ($0.02$0.06 after-tax), gain on sale of a provider network in the Other segment of $10 million, or $0.02 per share ($0.01 after-tax), net loss on debt extinguishment of $5 million, or $0.01 per share ($0.01 after-tax), a net gain on real estate transactions of $4 million, or $0.01 per share ($0.01 after-tax), and severance costs due to enterprise optimization and contract exits of $3$15 million, or $0.00$0.03 per share ($0.00$0.02 after-tax) and net gain on debt extinguishment of $6 million, or $0.01 per share ($0.01 after-tax).

(a) intangible asset impairment related to the wind-down of certain contracts in the Other segment of $55 million, or $0.11 per share ($0.08 after-tax), and a reduction to the previously reported gain on the sale of Magellan Rx of $10 million, or $0.02 per share ($0.02 after-tax) and a net gain on real estate transactions of $7$3 million, or $0.01 per share ($0.01 after-tax).

•The combined effect of ongoing, post-PHE state eligibility redeterminations and regulatory policy changes reduced our Medicaid membership in the firstsecond quarter compared to 2025.

•In December 2024, we recorded a premium deficiency reserve of $92 million related to the 2025 Medicare Advantage contract year, which was increased to $270 million in the first quarter of 2025 and to $389 million in the second quarter of 2025 based on the progression of earnings during the year (with higher earnings at the beginning of the year and lower at the end of the year, given cost sharing progression). No premium deficiency reserve related to the 2026 Medicare Advantage contract year has been recorded.

•The combined effect of the expiration of the Enhanced APTCs and the Final Rule led to a higher projected baseline of Marketplace morbidity and, as a result, we took corrective pricing actions for 2026 covering 95% of Marketplace membership. This dynamic contributed to the Marketplace membership decline in the first quarter of 2026 compared to 2025.

•The determination of the final balance of the 2025 net risk adjustment payable will be made as of June 2026. Further, the 2026 risk adjustment revenue transfer estimate will continue to be updated as industry relative member morbidity data is received from Wakely, an independent actuarial firm, throughout 2026.2026 and 2027.

From MarchJune 31,30, 2025 to MarchJune 31,30, 2026, our managed care membership decreased by 1.72.1 million, or (68)%. The following table sets forth our membership by line of business:

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 MarchJune 31,30, 2026 and 2025, prepared in accordance with generally accepted accounting principles in the United States (GAAP).

Summarized comparative financial data for the three and six months ended MarchJune 31,30, 2026 and 2025 is as follows ($ in millions, except per share data in dollars):

Three Months Ended MarchJune 31,30, 2026 Compared to Three Months Ended MarchJune 31,30, 2025

Total revenues increased 7%10% in the three months ended MarchJune 31,30, 2026, over the corresponding period in 2025, primarily driven by increased premium tax revenue driven by state pass-through payments, premium yield and membership growth in the PDP business, state-directed payments, and rate increases toin addressMarketplace medical trendand in the Medicaid business alongto withaddress increasedmedical premiumtrend, taxMarketplace revenue,risk adjustment revenue transfer for the 2025 and 2026 benefit years, and state directed payments. The increases were partially offset by lower Marketplace and Medicaid membership.

The HBR for the three months ended MarchJune 31,30, 2026, was 87.3%,89.6%, compared to 87.5%93.0% in the same period in 2025. The Medicaidconsolidated HBR benefited from a lower Marketplace HBR resulting from improved pricing and risk transfer reflecting the acuity of the Marketplace membership. The HBR also decreased bydue 50 basis points primarily driven byto rate and revenue increases,increases and continued tangible progress in managing medical costs andin moderatethe fluMedicaid costs.business. The consolidated HBR decreasebenefited by the favorable resolution of programmatic elements for the 2025 benefit year in Medicare and was also driven by an increase to the premium deficiency reserve (PDR) in 2025 versus no PDR in 2026 for our Medicare Advantage business as a result of our progression towards profitability. The decreases were partially offset by the decline in Marketplace membership and the corresponding impact on consolidated member mix.

Cost of services increased by $4$88 million in the three months ended MarchJune 31,30, 2026, compared to the corresponding period in 2025. The cost of service ratio for the three months ended MarchJune 31,30, 2026, was 91.4%,91.9%, compared to 89.8%88.2% in the same period in 2025.

The SG&A expense ratio was 7.6%7.0% for the firstsecond quarter of 2026, compared to 7.9%7.1% in the firstsecond quarter of 2025. The adjusted SG&A expense ratio was 7.6%6.9% for the firstsecond quarter of 2026, compared to 7.9%7.1% in the firstsecond quarter of 2025. The decreases were primarily driven by strong cost management, leveraging of expenses over higher revenues and reduced Marketplace membership, which operates at a meaningfully higher SG&A expense ratio, as well as overall discipline in Marketplace SG&A. The decreases were also driven by growth in the PDP business, which operates at a meaningfully lower SG&A expense ratio as compared to the overall company.

The following table summarizes the components of other income (expense) for the three months ended MarchJune 31,30, ($ in millions):

Investment and other income. Investment and other income increased by $25$64 million in the three months ended MarchJune 31,30, 2026, compared to the corresponding period in 2025, primarily driven by higher average investment balances during the quarter partially offset by lower interest rates.

Debt extinguishment. During the three months ended MarchJune 31, 2026,30, we repurchased $1.0$260 billionmillion of par value Senior Notes due 2027 and 2028 through the senior note debt repurchase program, resulting in a $5$6 million pre-tax lossgain on the repurchase of the notes.

Interest expense. Interest expense decreased by $6$17 million in the three months ended MarchJune 31,30, 2026, compared to the corresponding period in 2025.

For the three months ended MarchJune 31,30, 2026, we recorded income tax expense of $560$399 million on pre-tax earnings of $2.1$1.5 billion, or an effective tax rate of 26.7%.26.9%. For the firstsecond quarter of 2026, our effective tax rate on adjusted earnings was 26.5%.

The following table summarizes our consolidated operating results by segment for the three months ended MarchJune 31,30, ($ in millions):

Total revenues increased 9%14% in the three months ended MarchJune 31,30, 2026, compared to the corresponding period in 2025. The increase in total revenues was primarily driven by state directedpass-through payments and rate increases, partially offset by lower membership primarily due to eligibility redeterminations. Gross margin increased $186$271 million in the three months ended MarchJune 31,30, 2026, compared to the corresponding period in 2025 primarily driven by rate and revenue increases and continued tangible progress in managing medical costs.

Total revenues increased 18%17% in the three months ended MarchJune 31,30, 2026, compared to the corresponding period in 2025 primarily driven by increased PDP premiums and membership, partially offset by lower Medicare Advantage membership. Gross margin increased $350$302 million in the three months ended MarchJune 31,30, 2026, compared to the corresponding period in 2025 primarily driven by the favorable resolution of programmatic elements for the 2025 benefit year, rate increasesincreases, and an increase to the PDR for our Medicare Advantage business in 2025 versus no PDR in 2026 as a result of our progression towards profitability, partially offset by medical and pharmacy costs.

Total revenues decreased 6%7% in the three months ended MarchJune 31,30, 2026, compared to the corresponding period in 2025 primarily driven by reduced membership in the Marketplace business. Gross margin decreasedincreased $184$1.0 millionbillion in the three months ended MarchJune 31,30, 2026, compared to the corresponding period in 2025 primarily driven by rate increases, the current 2026 risk adjustment revenue transfer estimate based on the first round of Wakely relative risk adjustment transfer data and final 2025 risk adjustment revenue transfer, partially offset by reduced membership in the Marketplace business.

Total revenues decreased 8%2% in the three months ended MarchJune 31,30, 2026, compared to the corresponding period in 2025 primarily driven by Magellanthe Health.wind-down of certain contracts. Gross margin increased $10$25 million in the three months ended MarchJune 31,30, 2026, compared to the corresponding period in 2025 primarily driven by rateimproved increases.profitability.