UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)



☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~June 30, 2019~~March 31, 2020



☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 001-31826

CENTENE CORPORATION

(Exact name of registrant as specified in its charter)



Delaware		42-1406317
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification Number)

7700 Forsyth Boulevard
St. Louis,	Missouri	63105
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (314) 725-4477

Securities registered pursuant to Section 12(b) of the Act:



Title of Each Class	Trading Symbol(s)	Name of Each Exchange on Which Registered
Common Stock $0.001 Par Value	CNC	New York Stock Exchange

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days ☒ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files) ☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “small reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.



Large Accelerated Filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of ~~July 12, 2019,~~April 17, 2020, the registrant had ~~413,605,377~~579,129,418 shares of common stock outstanding.

CENTENE CORPORATION

QUARTERLY REPORT ON FORM 10-Q

TABLE OF CONTENTS



		PAGE

	Part I
	Financial Information
Item 1.	Financial Statements	1
	Consolidated Balance Sheets as of ~~June 30, 2019~~March 31, 2020 (unaudited) and December 31, ~~2018~~2019	1
	Consolidated Statements of Operations for the Three ~~and Six~~ Months Ended ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~ (unaudited)	2
	Consolidated Statements of Comprehensive Earnings (Loss) for the Three ~~and Six~~ Months Ended ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~ (unaudited)	3
	Consolidated Statements of Stockholders' Equity for the Three ~~and Six~~ Months Ended ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~ (unaudited)	4
	Consolidated Statements of Cash Flows for the ~~Six~~Three Months Ended ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~ (unaudited)	65
	Notes to the Consolidated Financial Statements (unaudited)	76
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	2019
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3432
Item 4.	Controls and Procedures	3432
	Part II
	Other Information
Item 1.	Legal Proceedings	3533
Item 1A.	Risk Factors	3533
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	5350
Item 6.	Exhibits	5451
Signatures		5552

CAUTIONARY STATEMENT ON FORWARD-LOOKING STATEMENTS

All statements, other than statements of current or historical fact, contained in this filing are forward-looking statements. Without limiting the foregoing, forward-looking statements often use words such as “believe,” “anticipate,” “plan,” “expect,” “estimate,” “intend,” “seek,” “target,” “goal,” “may,” “will,” “would,” “could,” “should,” “can,” “continue” and other similar words or expressions (and the negative thereof). ~~We intend~~Centene Corporation (Centene, the Company, our or we) intends such forward-looking statements to be covered by the safe-harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and we are including this statement for purposes of complying with these safe-harbor provisions. In particular, these statements include, without limitation, statements about our future operating or financial performance, market opportunity, growth strategy, competition, expected activities in completed and future acquisitions, including statements about the impact of our ~~proposed~~recently completed acquisition (the WellCare ~~Transaction)~~Acquisition) of WellCare Health Plans, Inc. (WellCare), ~~our~~other recent ~~acquisition (the Fidelis Care Acquisition) of substantially all the assets of New York State Catholic Health Plan, Inc., d/b/a Fidelis Care New York ( Fidelis Care),~~and future acquisitions, investments and the adequacy of our available cash resources. These statements may be found in the various sections of this filing, such as Part I, Item 2. ~~“Management's~~ "Management's Discussion and Analysis of Financial Condition and Results of Operations,”" Part II, Item 1. ~~“Legal~~"Legal Proceedings,”" and Part II, Item ~~1A.~~ ~~“Risk~~1A "Risk Factors.”"

These forward-looking statements reflect our current views with respect to future events and are based on numerous assumptions and assessments made by us in light of our experience and perception of historical trends, current conditions, business strategies, operating environments, future developments and other factors we believe appropriate. By their nature, forward-looking statements involve known and unknown risks and uncertainties and are subject to change because they relate to events and depend on circumstances that will occur in the future, including economic, regulatory, competitive and other factors that may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. These statements are not guarantees of future performance and are subject to risks, uncertainties and assumptions.

All forward-looking statements included in this filing are based on information available to us on the date of this filing. Except as may be otherwise required by law, we undertake no obligation to update or revise the forward-looking statements included in this filing, whether as a result of new information, future events or otherwise, after the date of this filing. You should not place undue reliance on any forward-looking statements, as actual results may differ materially from projections, estimates, or other forward-looking statements due to a variety of important factors, variables and events including but not limited to:


•	the risk that regulatory or other approvals required for the WellCare Transaction may be delayed or not obtained or are obtained subject to conditions that are not anticipated that could require the exertion of management's time and our resources or otherwise have an adverse effect on us;


•	the possibility that certain conditions to the consummation of the WellCare Transaction will not be satisfied or completed on a timely basis and, accordingly, the WellCare Transaction may not be consummated on a timely basis or at all;


•	uncertainty as to ~~the~~our expected financial performance ~~of the combined company~~ following completion of the WellCare ~~Transaction;~~Acquisition;


•	the possibility that the expected synergies and value creation from the WellCare ~~Transaction~~Acquisition will not be realized, or will not be realized within the expected time period;


•	the exertion of management's time and the Company's resources, and other expenses incurred and business changes required, in connection with any regulatory, governmental or third party consents or approvals for the WellCare Transaction;


•	~~the~~ risk that unexpected costs will be incurred in connection with the ~~completion and/or~~ integration of the WellCare ~~Transaction~~Acquisition or that the integration of WellCare will be more difficult or time consuming than expected;

the risk that potential litigation in connection with the WellCare Transaction may affect the timing or occurrence of the WellCare Transaction, cause it not to close at all, or result in significant costs of defense, indemnification and liability;


•	unexpected costs, charges or expenses resulting from the WellCare ~~Transaction;~~


•	~~the possibility that competing offers will be made to acquire WellCare;~~Acquisition;


•	the inability to retain key personnel;

disruption from the ~~announcement, pendency and/or~~ completion and integration of the WellCare ~~Transaction,~~Acquisition, including potential adverse reactions or changes to business relationships with customers, employees, suppliers or regulators, making it more difficult to maintain business and operational relationships;


•	the risk that ~~following the WellCare Transaction, the combined company~~we may not be able to effectively manage ~~its~~our expanded operations;


•	our ability to accurately predict and effectively manage health benefits and other operating expenses and reserves;


•	competition;


•	membership and revenue declines or unexpected trends;


•	disasters or major epidemics;~~Table of Contents~~


•	the impact of the COVID-19 pandemic and response by governments and other third parties;


•	changes in healthcare practices, new technologies, and advances in medicine;


•	increased healthcare costs;


•	changes in economic, political or market conditions;

•

changes in federal or state laws or regulations, including changes with respect to income tax reform or government healthcare programs as well as changes with respect to the Patient Protection and Affordable Care Act and the Health Care and Education Affordability Reconciliation Act, collectively referred to as the Affordable Care Act (ACA) and any regulations enacted thereunder that may result from changing political conditions or judicial actions, including the ultimate outcome ~~of the District Court decision~~ in "Texas v. United States of America" regarding the constitutionality of the ACA;


•	rate cuts or other payment reductions or delays by governmental payors and other risks and uncertainties affecting our government businesses;


•	our ability to adequately price products on ~~federally facilitated and state-based~~the Health Insurance ~~Marketplaces;~~Marketplaces and other commercial and Medicare products;

Table of Contents


•	tax matters;


•	~~disasters or major epidemics;~~


•	the outcome of legal and regulatory proceedings;


•	changes in expected contract start dates;


•	provider, state, federal and other contract changes and timing of regulatory approval of contracts;


•	the expiration, suspension, or termination of our contracts with federal or state governments (including but not limited to Medicaid, Medicare, TRICARE or other customers);


•	the difficulty of predicting the timing or outcome of pending or future litigation or government investigations;


•	challenges to our contract awards;


•	cyber-attacks or other privacy or data security incidents;


•	the possibility that the expected synergies and value creation from acquired businesses, including ~~without limitation,~~businesses we may acquire in the ~~Fidelis Care Acquisition,~~future, will not be realized, or will not be realized within the expected time period;


•	the exertion of management’s time and our resources, and other expenses incurred and business changes required in connection with complying with the undertakings in connection with any regulatory, governmental or third party consents or approvals for ~~acquisitions, including the Fidelis Care Acquisition;~~acquisitions;


•	disruption caused by significant completed and pending acquisitions, including, among others, the ~~Fidelis Care~~WellCare Acquisition, making it more difficult to maintain business and operational relationships;


•	the risk that unexpected costs will be incurred in connection with the completion and/or integration of acquisition ~~transactions, including among others, the Fidelis Care Acquisition;~~transactions;


•	changes in expected closing dates, estimated purchase price and accretion for acquisitions;


•	the risk that acquired businesses ~~including Fidelis Care,~~ will not be integrated successfully;


•	the risk that ~~following the Fidelis Care Acquisition,~~ we may not be able to effectively manage our operations as they have expanded ~~operations;~~as a result of the WellCare Acquisition;


•	restrictions and limitations in connection with our indebtedness;


•	our ability to maintain or achieve improvement in the Centers for Medicare and Medicaid Services (CMS) Star ratings and maintain or achieve improvement in other quality scores in each case that can impact revenue and future growth;


•	availability of debt and equity financing, on terms that are favorable to us;

inflation; and

foreign currency fluctuations.

This list of important factors is not intended to be exhaustive. We discuss certain of these matters more fully, as well as certain other factors that may affect our business operations, financial condition and results of operations, in our filings with the Securities and Exchange Commission (SEC), including ~~the registration statement on Form S-4 filed by Centene with the SEC on May 23, 2019,~~ our annual report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K. Item 1A. “Risk Factors” of Part II of this filing contains a further discussion of these and other important factors that could cause actual results to differ from expectations. Due to these important factors and risks, we cannot give assurances with respect to our future performance, including without limitation our ability to maintain adequate premium levels or our ability to control our future medical and selling, general and administrative costs.

Table of Contents

Non-GAAP Financial Presentation

The Company is providing certain non-GAAP financial measures in this report, as the Company believes that these figures are helpful in allowing investors to more accurately assess the ongoing nature of the Company's operations and measure the Company's performance more consistently across periods. The Company uses the presented non-GAAP financial measures internally to allow management to focus on period-to-period changes in the Company's core business operations. Therefore, the Company believes that this information is meaningful in addition to the information contained in the GAAP presentation of financial information. The presentation of this additional non-GAAP financial information is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with GAAP.

Specifically, the Company believes the presentation of non-GAAP financial information that excludes amortization of acquired intangible assets and acquisition related expenses, as well as other items, allows investors to develop a more meaningful understanding of the Company's performance over time. The tables below provide reconciliations of non-GAAP items ($ in millions, except per share data):


	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended March 31,
	2019			2018			2019			2018			2020			2019

GAAP net earnings	$	495		$	300		$	1,017		$	640		$	46		$	522
Amortization of acquired intangible assets	64			45			129			84			166			65
Acquisition related expenses	23			1			41			22			313			18
Other adjustments ⁽¹⁾	—			30			—			30			23			—
Income tax effects of adjustments⁽²⁾	(21		)	(16		)	(41		)	(30		)	(72		)	(20		)
Adjusted net earnings	$	561		$	360		$	1,146		$	746		$	476		$	585

GAAP diluted earnings per share (EPS)	$	1.18		$	0.75		$	2.42		$	1.70		$	0.08		$	1.24
Amortization of acquired intangible assets ⁽³⁾	0.12			0.09			0.24			0.17			0.23			0.12
Acquisition related expenses ⁽⁴⁾	0.04			—			0.07			0.05			0.49			0.03
Other adjustments ⁽¹⁾	—			0.06			—			0.06			0.06			—
Adjusted Diluted EPS	$	1.34		$	0.90		$	2.73		$	1.98		$	0.86		$	1.39

(1)

Other adjustments include the ~~2018 impact of retroactive changes~~following items for the three months ended March 31, 2020: (a) gain related to the ~~California minimum medical loss ratio (MLR)~~divestiture of ~~$30~~certain products of our Illinois health plan of $93 million, or $0.10 per diluted share, net of ~~expense. The adjustment is~~an income tax expense of $0.07; (b) non-cash impairment of our third-party care management software business of $72 million, or $0.10 per diluted share, net of an income tax benefit of ~~$0.02~~$0.03; and (c) debt extinguishment costs of $44 million, or $0.06 per diluted share, ~~for both the three and six months ended June 30, 2018.~~net of an income tax benefit of $0.02.


(2)	The income tax effects of adjustments are based on the effective income tax rates applicable to ~~adjusted (non-GAAP) results.~~each adjustment.


(3)	The amortization of acquired intangible assets per diluted share is net of an income tax benefit of ~~$0.04~~$0.07 and ~~$0.02~~$0.04 for the three months ended ~~June 30,~~March 31, 2020 and 2019, ~~and 2018, respectively, and $0.07 and $0.05 for the six months ended June 30, 2019 and 2018,~~ respectively.


(4)	Acquisition related expenses per diluted share are net of an income tax benefit of $0.08 and $0.01 for the three months ended ~~June 30,~~March 31, 2020 and 2019, ~~and $0.03 and $0.01 for the six months ended June 30, 2019 and 2018,~~ respectively.


	Three Months Ended June 30,				Six Months Ended June 30,				Three Months Ended March 31,
	2019		2018		2019		2018		2020		2019

GAAP selling, general and administrative expenses	$	1,574	$	1,237	$	3,183	$	2,553	$	2,384	$	1,609
Acquisition related expenses	21		1		38		22		295		17
Adjusted selling, general and administrative expenses	$	1,553	$	1,236	$	3,145	$	2,531	$	2,089	$	1,592

iii

Table of Contents

PART I

FINANCIAL INFORMATION

ITEM 1. Financial Statements.

CENTENE CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(In millions, except shares in thousands and per share data in dollars)


	June 30, 2019			December 31, 2018			March 31, 2020			December 31, 2019
	(Unaudited)						(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	6,875		$	5,342		$	9,308		$	12,123
Premium and trade receivables	5,194			5,150			11,304			6,247
Short-term investments	765			722			1,386			863
Other current assets	762			784			2,698			1,090
Total current assets	13,596			11,998			24,696			20,323
Long-term investments	7,632			6,861			10,521			7,717
Restricted deposits	630			555			1,014			658
Property, software and equipment, net	1,878			1,706			2,439			2,121
Goodwill	7,126			7,015			17,417			6,863
Intangible assets, net	2,163			2,239			8,898			2,063
Other long-term assets	1,343			527			1,446			1,249
Total assets	$	34,368		$	30,901		$	66,431		$	40,994

LIABILITIES, REDEEMABLE NONCONTROLLING INTERESTS AND STOCKHOLDERS’ EQUITY
Current liabilities:
Medical claims liability	$	7,447		$	6,831		$	11,413		$	7,473
Accounts payable and accrued expenses	4,032			4,051			8,531			4,164
Return of premium payable	834			666			1,052			824
Unearned revenue	253			385			526			383
Current portion of long-term debt	87			38			129			88
Total current liabilities	12,653			11,971			21,651			12,932
Long-term debt	7,047			6,648			17,150			13,638
Other long-term liabilities	2,398			1,259			3,938			1,732
Total liabilities	22,098			19,878			42,739			28,302
Commitments and contingencies
Redeemable noncontrolling interests	22			10			36			33
Stockholders’ equity:
Preferred stock, $0.001 par value; authorized 10,000 shares; no shares issued or outstanding at June 30, 2019 and December 31, 2018	—			—
Common stock, $0.001 par value; authorized 800,000 shares; 419,319 issued and 413,527 outstanding at June 30, 2019, and 417,695 issued and 412,478 outstanding at December 31, 2018	—			—
Preferred stock, $0.001 par value; authorized 10,000 shares; no shares issued or outstanding at March 31, 2020 and December 31, 2019							—			—
Common stock, $0.001 par value; authorized 800,000 shares; 594,890 issued and 579,122 outstanding at March 31, 2020, and 421,508 issued and 415,048 outstanding at December 31, 2019							—			—
Additional paid-in capital	7,531			7,449			19,279			7,647
Accumulated other comprehensive earnings (loss)	119			(56		)	(5		)	134
Retained earnings	4,680			3,663			5,030			4,984
Treasury stock, at cost (5,792 and 5,217 shares, respectively)	(176		)	(139		)
Treasury stock, at cost (15,768 and 6,460 shares, respectively)							(755		)	(214		)
Total Centene stockholders’ equity	12,154			10,917			23,549			12,551
Noncontrolling interest	94			96
Nonredeemable Noncontrolling interest							107			108
Total stockholders’ equity	12,248			11,013			23,656			12,659
Total liabilities, redeemable noncontrolling interests and stockholders’ equity	$	34,368		$	30,901		$	66,431		$	40,994

The accompanying notes to the consolidated financial statements are an integral part of these statements.

CENTENE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(In millions, except shares in thousands and per share data in dollars)

(Unaudited)


	Three Months Ended June 30,						Six Months Ended June 30,						Three Months Ended March 31,
	2019			2018			2019			2018			2020			2019
Revenues:
Premium	$	16,554		$	12,113		$	32,757		$	24,016		$	23,214		$	16,203
Service	745			762			1,380			1,415			958			635
Premium and service revenues	17,299			12,875			34,137			25,431			24,172			16,838
Premium tax and health insurer fee	1,057			1,306			2,663			1,944			1,853			1,606
Total revenues	18,356			14,181			36,800			27,375			26,025			18,444
Expenses:
Medical costs	14,354			10,380			28,236			20,419			20,420			13,882
Cost of services	615			658			1,159			1,201			825			544
Selling, general and administrative expenses	1,574			1,237			3,183			2,553			2,384			1,609
Amortization of acquired intangible assets	64			45			129			84			166			65
Premium tax expense	1,106			1,189			2,765			1,735			1,625			1,659
Health insurer fee expense	—			183			—			354			345			—
Impairment													72			—
Total operating expenses	17,713			13,692			35,472			26,346			25,837			17,759
Earnings from operations	643			489			1,328			1,029			188			685
Other income (expense):
Investment and other income	120			65			219			106			167			99
Debt extinguishment costs													(44		)	—
Interest expense	(101		)	(80		)	(200		)	(148		)	(180		)	(99		)
Earnings from operations, before income tax expense	662			474			1,347			987			131			685
Income tax expense	170			175			336			350			85			166
Net earnings	492			299			1,011			637			46			519
Loss attributable to noncontrolling interests	3			1			6			3			—			3
Net earnings attributable to Centene Corporation	$	495		$	300		$	1,017		$	640		$	46		$	522

Net earnings per common share attributable to Centene Corporation:
Basic earnings per common share	$	1.20		$	0.77		$	2.46		$	1.73		$	0.08		$	1.26
Diluted earnings per common share	$	1.18		$	0.75		$	2.42		$	1.70		$	0.08		$	1.24

Weighted average number of common shares outstanding:
Basic	413,370			391,037			413,144			369,440			544,436			412,924
Diluted	419,671			398,902			419,707			377,142			552,062			419,752

The accompanying notes to the consolidated financial statements are an integral part of these statements.

CENTENE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS (LOSS)

(In millions)

(Unaudited)

Three Months Ended June 30, Six Months Ended June 30,
2019 2018 2019 2018
Net earnings $ 492
$ 299
$ 1,011
$ 637
Reclassification adjustment, net of tax 1
—
1
—
Change in unrealized gain (loss) on investments, net of tax 80
(11 ) 174
(63 )
Foreign currency translation adjustments —
(2 ) —
(1 )
Other comprehensive earnings (loss) 81
(13 ) 175
(64 )
Comprehensive earnings 573
286
1,186
573
Comprehensive loss attributable to noncontrolling interests 3
1
6
3
Comprehensive earnings attributable to Centene Corporation $ 576
$ 287
$ 1,192
$ 576



	Three Months Ended March 31,
	2020			2019
Net earnings	$	46		$	519
Change in unrealized gain on investments, net of tax	(134		)	94
Defined benefit pension plan net gain, net of tax	2			—
Foreign currency translation adjustments	(7		)	—
Other comprehensive earnings (loss)	(139		)	94
Comprehensive earnings (loss)	(93		)	613
Comprehensive (earnings) loss attributable to noncontrolling interests	—			3
Comprehensive earnings (loss) attributable to Centene Corporation	$	(93	)	$	616

The accompanying notes to the consolidated financial statements are an integral part of these statements.

CENTENE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In millions, except shares in thousands and per share data in dollars)

(Unaudited)

Three ~~and Six~~ Months Ended ~~June 30, 2019~~March 31, 2020


	Centene Stockholders’ Equity																				Centene Stockholders’ Equity
	Common Stock										Treasury Stock										Common Stock												Treasury Stock
	$0.001 Par Value Shares	Amt		Additional Paid-in Capital		Accumulated Other Comprehensive Earnings (Loss)			Retained Earnings		$.001 Par Value Shares	Amt			Non- controlling Interest			Total			$0.001 Par Value Shares		Amt		Additional Paid-in Capital			Accumulated Other Comprehensive Income (Loss)			Retained Earnings		$.001 Par Value Shares	Amt			Non-redeemable Non- controlling Interest			Total
Balance, December 31, 2018	417,695	$	—	$	7,449	$	(56	)	$	3,663	5,217	$	(139	)	$	96		$	11,013
Balance, December 31, 2019																					421,508		$	—	$	7,647		$	134		$	4,984	6,460	$	(214	)	$	108		$	12,659
Comprehensive Earnings:
Net earnings (loss)	—	—		—		—			522		—	—			(2		)	520			—		—		—			—			46		—	—			(3		)	43
Other comprehensive earnings, net of $30 tax	—	—		—		94			—		—	—			—			94
Other comprehensive loss, net of $40 tax																					—		—		—			(139		)	—		—	—			—			(139		)
Common stock issued for acquisitions																					171,225		—		11,526			—			—		—	—			—			11,526
Common stock issued for employee benefit plans	1,363	—		4		—			—		—	—			—			4			2,448		—		5			—			—		—	—			—			5
Common stock repurchases	—	—		—		—			—		536	(35		)	—			(35		)	(291	)	—		(17		)	—			—		9,308	(541		)	—			(558		)
Stock compensation expense	—	—		38		—			—		—	—			—			38			—		—		117			—			—		—	—			—			117
Balance, March 31, 2019	419,058	$	—	$	7,491	$	38		$	4,185	5,753	$	(174	)	$	94		$	11,634
Comprehensive Earnings:
Net earnings	—	—		—		—			495		—	—			—			495
Other comprehensive earnings, net of $25 tax	—	—		—		81			—		—	—			—			81
Common stock issued for employee benefit plans	261	—		6		—			—		—	—			—			6
Common stock repurchases	—	—		—		—			—		39	(2		)	—			(2		)
Stock compensation expense	—	—		34		—			—		—	—			—			34
Balance, June 30, 2019	419,319	$	—	$	7,531	$	119		$	4,680	5,792	$	(176	)	$	94		$	12,248
Contribution from noncontrolling interest																					—		—		—			—			—		—	—			2			2
Other																					—		—		1			—			—		—	—			—			1
Balance, March 31, 2020																					594,890		$	—	$	19,279		$	(5	)	$	5,030	15,768	$	(755	)	$	107		$	23,656

Three Months Ended March 31, 2019



	Centene Stockholders’ Equity
	Common Stock										Treasury Stock
	$0.001 Par Value Shares	Amt		Additional Paid-in Capital		Accumulated Other Comprehensive Income (Loss)			Retained Earnings		$.001 Par Value Shares	Amt			Non-redeemable Non- controlling Interest			Total
Balance, December 31, 2018	417,695	$	—	$	7,449	$	(56	)	$	3,663	5,217	$	(139	)	$	96		$	11,013
Comprehensive Earnings:
Net earnings (loss)	—	—		—		—			522		—	—			(2		)	520
Other comprehensive earnings, net of $30 tax	—	—		—		94			—		—	—			—			94
Common stock issued for employee benefit plans	1,363	—		4		—			—		—	—			—			4
Common stock repurchases	—	—		—		—			—		536	(35		)	—			(35		)
Stock compensation expense	—	—		38		—			—		—	—			—			38
Balance, March 31, 2019	419,058	$	—	$	7,491	$	38		$	4,185	5,753	$	(174	)	$	94		$	11,634

The accompanying notes to the consolidated financial statements are an integral part of this statement.

CENTENE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF ~~STOCKHOLDERS’ EQUITY~~

~~(In millions, except shares in thousands and per share data in dollars)~~

~~(Unaudited)~~

~~Three and Six Months Ended June 30, 2018~~

Centene Stockholders’ Equity
Common Stock Treasury Stock
$0.001 Par
Value
Shares Amt
Additional
Paid-in
Capital
Accumulated
Other
Comprehensive
Earnings (Loss)
Retained
Earnings
$.001 Par
Value
Shares Amt
Non-
controlling
Interest
Total
Balance, December 31, 2017 360,758
$ —
$ 4,349
$ (3 ) $ 2,748
13,884
$ (244 ) $ 14
$ 6,864
Comprehensive Earnings:
Net earnings —
—
—
—
340
—
—
1
341
Other comprehensive loss, net of ($16) tax —
—
—
(51 ) —
—
—
—
(51 )
Common stock issued for acquisitions —
—
210
—
—
(6,351 ) 114
—
324
Common stock issued for employee benefit plans 529
—
4
—
—
—
—
—
4
Common stock repurchases —
—
—
—
—
165
(9 ) —
(9 )
Stock compensation expense —
—
33
—
—
—
—
—
33
Cumulative-effect of accounting guidance —
—
—
—
16
—
—
—
16
Purchase of noncontrolling interests —
—
(4 ) —
—
—
—
—
(4 )
Acquisition resulting in noncontrolling interests —
—
—
—
—
—
—
62
62
Balance, March 31, 2018 361,287
$ —
$ 4,592
$ (54 ) $ 3,104
7,698
$ (139 ) $ 77
$ 7,580
Comprehensive Earnings:
Net earnings —
—
—
—
300
—
—
—
300
Other comprehensive loss, net of ($3) tax —
—
—
(13 ) —
—
—
—
(13 )
Common stock issued for acquisitions —
—
121
—
—
(3,437 ) 62
—
183
Common stock issued for stock offering 53,209
—
2,780
—
—
—
—
—
2,780
Common stock issued for employee benefit plans 330
—
4
—
—
—
—
—
4
Common stock repurchases —
—
—
—
—
71
(4 ) —
(4 )
Stock compensation expense —
—
35
—
—
—
—
—
35
Cumulative-effect of accounting guidance —
—
—
—
(1 ) —
—
—
(1 )
Purchase of noncontrolling interests —
—
(177 ) —
—
—
—
—
(177 )
Acquisition resulting in noncontrolling interests —
—
—
—
—
—
—
10
10
Balance, June 30, 2018 414,826
$ —
$ 7,355
$ (67 ) $ 3,403
4,332
$ (81 ) $ 87
$ 10,697

~~The accompanying notes to the consolidated financial statements are an integral part of this statement.~~

~~CENTENE CORPORATION AND SUBSIDIARIES~~

~~CONSOLIDATED STATEMENTS OF~~ CASH FLOWS

(In ~~millions)~~

~~(Unaudited)~~millions, unaudited)



	Three Months Ended March 31,
	2020			2019
Cash flows from operating activities:
Net earnings	$	46		$	519
Adjustments to reconcile net earnings to net cash provided by operating activities
Depreciation and amortization	288			155
Stock compensation expense	117			38
Impairment	72			—
Loss on debt extinguishment	44			—
Deferred income taxes	112			23
Gain on divestiture	(93		)	—
Other adjustments, net	24			(11		)
Changes in assets and liabilities
Premium and trade receivables	(2,182		)	(662		)
Other assets	97			20
Medical claims liabilities	252			548
Unearned revenue	(88		)	(22		)
Accounts payable and accrued expenses	704			357
Other long-term liabilities	361			347
Other operating activities, net	6			4
Net cash (used in) provided by operating activities	(240		)	1,316
Cash flows from investing activities:
Capital expenditures	(177		)	(176		)
Purchases of investments	(1,400		)	(580		)
Sales and maturities of investments	902			383
Acquisitions, net of cash acquired	(3,048		)	—
Divestiture proceeds, net of divested cash	456			—
Other investing activities, net	(5		)	—
Net cash used in investing activities	(3,272		)	(373		)
Cash flows from financing activities:
Proceeds from long-term debt	2,542			1,018
Payments of long-term debt	(1,039		)	(927		)
Common stock repurchases	(558		)	(35		)
Payments for debt extinguishment	(21		)	—
Debt issuance costs	(92		)	—
Other financing activities, net	7			2
Net cash provided by financing activities	839			58
Effect of exchange rate changes on cash, cash equivalents, and restricted cash	(1		)	—
Net increase (decrease)	(2,674		)	1,001
Cash, cash equivalents, and restricted cash and cash equivalents, beginning of period	12,131			5,350
Cash, cash equivalents, and restricted cash and cash equivalents, end of period	$	9,457		$	6,351
Supplemental disclosures of cash flow information:
Interest paid	$	104		$	87
Income taxes paid	$	3		$	6
Equity issued in connection with acquisitions	$	11,526		$	—

The following table provides a reconciliation of cash, cash equivalents, and restricted cash and cash equivalents reported within the Consolidated Balance Sheets to the totals above:
	March 31,
	2020			2019
Cash and cash equivalents	$	9,308		$	6,345
Restricted cash and cash equivalents, included in restricted deposits	149			6
Total cash, cash equivalents, and restricted cash and cash equivalents	$	9,457		$	6,351

Six Months Ended June 30,
2019 2018
Cash flows from operating activities:
Net earnings $ 1,011
$ 637
Adjustments to reconcile net earnings to net cash provided by operating activities
Depreciation and amortization 313
215
Stock compensation expense 72
67
Deferred income taxes (10 ) 4
Changes in assets and liabilities

Premium and trade receivables 234
(553 )
Other assets (47 ) 2
Medical claims liabilities 558
717
Unearned revenue (138 ) 202
Accounts payable and accrued expenses (616 ) (865 )
Other long-term liabilities 869
865
Other operating activities, net (13 ) 29
Net cash provided by operating activities 2,233
1,320
Cash flows from investing activities:

Capital expenditures (336 ) (362 )
Purchases of investments (1,280 ) (1,375 )
Sales and maturities of investments 719
721
Acquisitions, net of cash acquired (32 ) (237 )
Net cash used in investing activities (929 ) (1,253 )
Cash flows from financing activities:

Proceeds from the issuance of common stock —
2,780
Proceeds from long-term debt 5,617
5,146
Payments of long-term debt (5,353 ) (3,471 )
Common stock repurchases (37 ) (13 )
Purchase of noncontrolling interest —
(63 )
Other financing activities, net 9
(1 )
Net cash provided by financing activities 236
4,378
Effect of exchange rate changes on cash, cash equivalents and restricted cash 2
—
Net increase in cash, cash equivalents and restricted cash and cash equivalents 1,542
4,445
Cash, cash equivalents, and restricted cash and cash equivalents, beginning of period
5,350
4,089
Cash, cash equivalents, and restricted cash and cash equivalents, end of period
$ 6,892
$ 8,534
Supplemental disclosures of cash flow information:

Interest paid $ 132
$ 130
Income taxes paid $ 381
$ 195
Equity issued in connection with acquisitions $ —
$ 507

The following table provides a reconciliation of cash, cash equivalents, and restricted cash and cash equivalents reported within the Consolidated Balance Sheets to the totals above:
June 30,
2019 2018
Cash and cash equivalents $ 6,875
$ 6,707
Restricted cash and cash equivalents, included in restricted deposits 17
1,827
Total cash, cash equivalents, and restricted cash and cash equivalents $ 6,892
$ 8,534

The accompanying notes to the consolidated financial statements are an integral part of these statements.

CENTENE CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1.Organization and Operations

Basis of Presentation

The accompanying interim financial statements have been prepared under the presumption that users of the interim financial information have either read or have access to the audited financial statements included in the Form 10-K for the fiscal year ended December 31, ~~2018.~~2019. The unaudited interim financial statements herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, footnote disclosures that would substantially duplicate the disclosures contained in the December 31, ~~2018~~2019 audited financial statements have been omitted from these interim financial statements, where appropriate. In the opinion of management, these financial statements reflect all adjustments, consisting only of normal recurring adjustments, which are necessary for a fair presentation of the results of the interim periods presented.

Certain ~~2018~~2019 amounts in the consolidated financial statements and notes to the consolidated financial statements have been reclassified to conform to the ~~2019~~2020 presentation. These reclassifications have no effect on net earnings or stockholders' equity as previously reported.

On ~~December 12, 2018, our Board~~January 23, 2020, the Company acquired all of ~~Directors declared~~the issued and outstanding shares of WellCare Health Plans, Inc. (WellCare) (the WellCare Acquisition). The acquisition was accounted for as a two-for-one split of our common stock in the form of a 100% stock dividend distributed on February 6, 2019 to stockholders of record as of December 24, 2018. All historical share and per share information presented in this Form 10-Q has been adjustedbusiness combination. See Note 2. Acquisitions for ~~the two-for-one stock split.~~further details.

Recently Adopted Accounting Guidance

In ~~February~~June 2016, the ~~FASB~~Financial Accounting Standards Board (FASB) issued an Accounting Standards Update (ASU) which changes how entities measure credit losses for most financial assets and certain other investments that are not measured at fair value through net income. The ASU ~~that introduces a lessee model that~~is intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. The amended guidance requires the ~~majority~~measurement of ~~leases to be recognized~~all expected credit losses for financial assets (or groups of financial assets) and available for sale debt securities held at the reporting date over the remaining life based on ~~the balance sheet.~~historical experience, current conditions, and reasonable and supportable forecasts. The ~~new standard also aligns many of the underlying principles of the new lessor model with those in Accounting Standards Codification 606, the FASB's new revenue recognition standard,~~guidance is effective for annual and addresses other concerns related to the current lessee model. The standard also requires lessors to increase the transparency of their exposure to changes in value of their residual assets and how they manage that exposure.interim periods beginning after December 15, 2019. The Company adopted the new guidance in the first quarter of ~~2019 using~~2020. The majority of the ~~modified retrospective transition approach. In addition,~~Company’s receivables and other financial instruments are with government entities and, therefore, the adoption did not have a material impact on its receivables and other financial instruments. The Company ~~elected the package of practical expedients permitted~~evaluated its investment portfolio under the ~~transition guidance within~~new available-for-sale debt securities impairment model guidance. The vast majority of the ~~new standard, which allows an entity to not reassess lease classification for existing leases.~~Company’s investment portfolio are low risk, investment grade securities. The impact of our evaluation of the ~~new guidance is further discussed~~investment portfolio resulted in ~~Note 8.~~ ~~Leases~~.

~~In August 2017, the FASB issued~~ an ~~ASU that amends the hedge accounting model~~immaterial decrease to enable entities to better align the economics of risk management activities and financial reporting. In addition, the new standard enhances the understandability of hedge results and simplifies the application of hedge accounting in certain situations.retained earnings at January 1, 2020. The Company ~~adopted~~evaluates available-for-sale debt securities on a regular basis and records an allowance for credit losses, if necessary. The comparative information has not been restated and continues to be reported under the ~~new guidance~~accounting standards in ~~the first quarter of 2019.~~effect for those periods. The new guidance did not have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

In ~~March 2017,~~August 2018, the FASB issued an ASU which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that ~~changes~~is a service contract with the ~~period~~requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal use software license). The accounting for the service element of a hosting arrangement that is a service contract is not affected by the amendments in this update. The amendments in this ASU require an entity that is the customer in a hosting arrangement to follow the guidance on internal-use software to determine which implementation costs to capitalize and which costs to expense. The standard also requires an entity that is the customer to expense the capitalized implementation costs of a hosting arrangement over ~~which premiums on callable debt securities are amortized. The new standard requires~~ the ~~premiums on callable debt securities to be amortized to the earliest call date rather than to the contractual maturity date~~term of the ~~instrument.~~hosting arrangement. The new guidance ~~more closely aligns~~requires an entity to present the ~~amortization period of premiums~~expense related to ~~expectations incorporated~~the capitalized implementation costs in the ~~market pricing on~~same line item in the ~~underlying securities.~~statement of income as the fees associated with the hosting element of the arrangement and classify payments for capitalized implementation costs in the statement of cash flows in the same manner as payments made for fees associated with the hosting element. The entity is also required to present the capitalized implementation costs in the statement of financial position in the same line item that a prepayment for the fees of the associated hosting arrangement would be presented. The guidance is effective for annual and interim periods beginning after December 15, 2019. The Company adopted the new guidance in the first quarter of ~~2019.~~2020. The new guidance did not have a material impact on the Company's consolidated financial position, results of operations or cash flows.

Recent Accounting Guidance Not Yet Adopted

In December 2019, the FASB issued an ASU which simplifies the accounting for income taxes by removing certain exceptions to the general principles in ASC Topic 740. The ASU also clarifies and amends certain areas of ASC Topic 740 to improve consistent application of and simplify the generally accepted accounting principles within Topic 740. The guidance is effective for annual and interim periods beginning after December 15, 2020. The Company is currently evaluating the potential impact of the ASU on the Company's consolidated financial position, results of operations and cash flows.

2. Acquisitions

WellCare ~~Transaction~~Acquisition

On ~~March 26, 2019,~~January 23, 2020, the Company ~~entered into an Agreement and Plan~~acquired all of ~~Merger (the Merger Agreement) with Wellington Merger Sub I, Inc., a direct, wholly owned subsidiary of~~ the Company (Merger Sub I), Wellington Merger Sub II, Inc., a direct, wholly owned subsidiary of the Company (Merger Sub II), and WellCare, providing for (i) the merger of Merger Sub I with and into WellCare (the First Merger), with WellCare continuing as the surviving corporation of the First Merger and a direct, wholly owned subsidiary of the Company (the Surviving Corporation), and (ii) immediately after the effective time of the First Merger (the First Effective Time), the merger of the Surviving Corporation with and into Merger Sub II (the Second Merger), with Merger Sub II continuing as the surviving corporation of the Second Merger and a direct, wholly owned subsidiary of the Company. At the First Effective Time, each share of common stock of WellCare issued and outstanding ~~immediately prior~~shares of WellCare. The transaction was valued at $19,555 million, including the assumption of debt. The WellCare Acquisition brings a high-quality Medicare platform and further extends our robust Medicaid offerings. The WellCare Acquisition also enables us to provide access to more comprehensive and differentiated solutions across more markets with a continued focus on affordable, high-quality, culturally-sensitive healthcare services. With the WellCare Acquisition, we further broadened our product offerings by adding a Medicare prescription drug plan to our existing business lines.

Total consideration paid for the acquisition was $17,605 million, consisting of Centene common shares valued at $11,431 million (based on Centene's stock price of $66.76), $6,079 million in cash, and $95 million related to the ~~First Effective Time will be automatically canceled and~~fair value of replacement equity awards associated with pre-combination service. Each WellCare share was converted into ~~the right to receive~~ 3.38 of validly issued, fully paid, ~~and nonassessable~~non-assessable shares of Centene common stock and $120.00 in cash. In total, 171 million shares of Centene common stock were issued to the WellCare stockholders. The cash ~~without interest. The WellCare transaction is valued at approximately $17.3 billion, including existing WellCare debt (based on the Centene closing stock price on March 25, 2019).~~

In June 2019, the Company and WellCare announced the transaction was approved by both the Centene and WellCare shareholders. The transaction is expected to close by the first half of 2020 and is conditioned on clearance under the Hart-Scott Rodino Act, receipt of required state regulatory approvals and other customary closing conditions.

~~Fidelis Care Acquisition~~

~~On July 1, 2018, the Company acquired substantially all~~portion of the ~~assets~~acquisition was funded through the issuance of ~~Fidelis Care~~long-term debt as further discussed in Note 7. Debt. The Company also recognized $313 million of acquisition related costs, primarily related to WellCare, that were in the consolidated statement of operations for ~~approximately $3.6 billion of cash consideration, including a working capital adjustment. The Fidelis Care acquisition expanded~~ the ~~Company's scale and presence to New York State.~~three months ended March 31, 2020.

The acquisition of ~~Fidelis Care~~WellCare was accounted for as a business combination using the acquisition method of accounting that requires assets acquired and liabilities assumed to be recognized at fair value as of the acquisition date. ~~The~~Due to the timing of the acquisition, the valuation of ~~all~~the assets acquired and liabilities assumed ~~was~~has not yet been finalized, and as a result, the preliminary estimates have been recorded and are subject to change. Any necessary adjustments from our preliminary estimates will be finalized within one year from the date of acquisition. Measurement period adjustments will be recorded in the ~~second quarter of 2019.~~period in which they are determined, as if they had been completed at the acquisition date.

The Company's preliminary allocation of the fair value of assets acquired and liabilities assumed as of the acquisition date of ~~July 1, 2018~~January 23, 2020 is as follows ($ in millions):



Assets acquired and liabilities assumed
Cash and cash equivalents	$	2,899
Premium and related receivables	3,414
Short-term investments	403
Other current assets	1,158
Long-term investments	2,699
Restricted deposits	319
Property, software and equipment	270
Intangible assets ^(a)	7,000
Other long-term assets	261
Total assets acquired	18,423

Medical claims liability	3,962
Accounts payable and accrued expenses	3,142
Return of premium payable	238
Unearned revenue	223
Long-term debt^(b)	2,055
Deferred tax liabilities ^(c)	1,537
Other long-term liabilities	281
Total liabilities assumed	11,438

Total identifiable net assets	6,985
Goodwill ^(d)	10,620
Total assets acquired and liabilities assumed	$	17,605

Assets acquired and liabilities assumed
Cash and cash equivalents $ 2,001
Premium and related receivables 442
Other current assets 32
Restricted deposits 495
Property, software and equipment, net 48
Intangible assets ^(a)
956
Other long-term assets 2
Total assets acquired 3,976

Medical claims liability 1,218
Accounts payable and accrued expenses 238
Return of premium payable 123
Unearned revenue 115
Other long-term liabilities 324
Total liabilities assumed 2,018

Total identifiable net assets 1,958
Goodwill ^(b)
1,663
Total assets acquired and liabilities assumed $ 3,621

The Company has made the following preliminary fair value adjustments based on information reviewed through March 31, 2020. Significant fair value adjustments are noted as follows:

(a)

The identifiable intangible assets acquired are to be measured at fair value as of the completion of the acquisition. The fair value of intangible assets iswill be determined primarily using variations of the ~~"income~~income approach," which is based on the present value of the future after tax cash flows attributable to each identified intangible asset. Other valuation methods, including the market approach and cost approach, ~~were also~~will be considered in estimating the fair value. The identifiable intangible assets include purchased contract rights, trade names, provider contracts and developed technologies. The Company has estimated the preliminary fair value of intangible assets to be ~~$956~~$7,000 million with a weighted average life of 13 years. ~~The identifiable intangible assets include customer relationships, trade names, provider contracts and developed technology.~~

The preliminary fair values and weighted average useful lives for identifiable intangible assets acquired are as follows:



	Fair Value		Weighted Average Useful Life (in years)
Purchased contract rights	$	5,200
Trade names	800
Provider contracts	700
Developed technologies	300
Total intangible assets acquired	$	7,000	13

Fair Value Weighted Average Useful Life (in years)
Customer relationships $ 711
11
Trade name 196
20
Provider contracts 33
15
Developed technologies 16
2
Total intangible assets acquired $ 956
13


(b)	Debt is required to be measured at fair value under the acquisition method of accounting. The fair value of WellCare's aggregate principle of $1,950 million Senior Notes assumed in the acquisition was $2,055 million. The $105 million increase will be amortized as a reduction to interest expense over the remaining life of the debt.


(c)	The preliminary deferred tax liabilities are presented net of $408 million of deferred tax assets.

(d)

The acquisition resulted in ~~$1.7~~$10.6 billion of goodwill related primarily to synergies expected from the acquisition and the assembled workforce of ~~Fidelis Care. All~~WellCare. The assignment of goodwill to the Company's respective segments has not been completed at this time, but the majority of goodwill ~~has been assigned~~is expected to be allocated to the Managed Care segment. The majority of the goodwill is not deductible for income tax purposes.

Divestitures

Immediately prior to the closing of the WellCare Acquisition, Anthem, Inc. acquired WellCare's Missouri Medicaid health plan, a WellCare Missouri Medicare Advantage health plan, and WellCare's Nebraska Medicaid health plan. CVS Health Corporation acquired portions of Centene's Illinois Medicaid and Medicare Advantage health plans as part of previously announced divestiture agreements. The Company recorded a $93 million pre-tax gain as a result of the Illinois divestiture, which is included in investment and other income on the Consolidated Statements of Operations.

Unaudited Pro Forma Financial Information

The following table presents supplemental pro forma information for the three months ended March 31, 2019 ($ in millions, except per share data):



	Three Months Ended March 31, 2019
Total revenues	$	25,169
Net earnings attributable to common stockholders	$	552
Diluted earnings per share	$	0.93

The unaudited pro forma total revenues for the three months ended March 31, 2020 were $27,815 million. It is impracticable for the Company to determine the pro forma earnings information for the three months ended March 31, 2020 due to the nature of obtaining that information as the Company immediately began integrating WellCare into its ongoing operations.

The unaudited pro forma financial information reflects the historical results of Centene and WellCare adjusted as if the acquisition had occurred on January 1, 2019, primarily for the following:

Interest expense associated with debt incurred to finance the transaction.

Elimination of historical WellCare intangible asset amortization expense and addition of amortization expense based on the preliminary estimated values of identifiable intangible assets of approximately $7.0 billion.

Issuance of 171 million shares of Centene common stock in connection with the per share common stock consideration.

Elimination of acquisition related costs.

Adjustments to income tax expense related to pro forma adjustments and increased income tax expense related to IRS Regulation 162(m)(6).

The pro forma results do not reflect any anticipated synergies, efficiencies, or other cost savings of the acquisition. Accordingly, the unaudited pro forma financial information is not indicative of the results if the acquisition had been completed on January 1, 2019 and is not a projection of future results. The unaudited pro forma financial information does not reflect the previously discussed divestitures as the impact would be impracticable to quantify.

3. Short-term and Long-term Investments, Restricted Deposits

Short-term and long-term investments and restricted deposits by investment type consist of the following ($ in millions):


	June 30, 2019									December 31, 2018									March 31, 2020									December 31, 2019
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Debt securities:
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	228	$	1	$	—		$	229	$	362	$	1	$	(2	)	$	361	$	771	$	7	$	—		$	778	$	211	$	1	$	—		$	212
Corporate securities	3,583		87		(5		)	3,665		3,190		8		(52		)	3,146		5,036		76		(134		)	4,978		3,629		108		(4		)	3,733
Restricted certificates of deposit	477		—		—			477		433		—		—			433		153		—		—			153		482		—		—			482
Restricted cash equivalents	17		—		—			17		8		—		—			8		149		—		—			149		8		—		—			8
Short-term time deposits																			84		—		—			84		—		—		—			—
Municipal securities	2,290		60		(1		)	2,349		2,196		9		(18		)	2,187		2,511		77		(4		)	2,584		2,320		69		(1		)	2,388
Asset-backed securities	709		6		(1		)	714		686		1		(4		)	683		1,050		4		(36		)	1,018		741		5		(2		)	744
Residential mortgage-backed securities	453		7		(3		)	457		452		1		(9		)	444		997		32		(2		)	1,027		464		8		(1		)	471
Commercial mortgage-backed securities	402		10		(1		)	411		366		1		(6		)	361		590		10		(13		)	587		380		9		(1		)	388
Equity securities⁽¹⁾																			685		—		—			685		—		—		—			—
Private equity investments	567		—		—			567		387		—		—			387		748		—		—			748		664		—		—			664
Life insurance contracts	141		—		—			141		128		—		—			128		130		—		—			130		148		—		—			148
Total	$	8,867	$	171	$	(11	)	$	9,027	$	8,208	$	21	$	(91	)	$	8,138	$	12,904	$	206	$	(189	)	$	12,921	$	9,047	$	200	$	(9	)	$	9,238

(1)Investments in equity securities primarily consists of exchange traded funds in fixed income securities.																			(1)Investments in equity securities primarily consists of exchange traded funds in fixed income securities.

The Company’s investments are debt securities classified as available-for-sale with the exception of equity securities, life insurance contracts and certain private equity investments. The Company’s investment policies are designed to provide liquidity, preserve capital and maximize total return on invested assets with the focus on high credit quality securities. The Company limits the size of investment in any single issuer other than U.S. treasury securities and obligations of U.S. government corporations and agencies. As of ~~June 30, 2019,~~March 31, 2020, 97% of the Company’s investments in rated securities carry an investment grade rating by nationally recognized statistical rating organizations. At ~~June 30, 2019,~~March 31, 2020, the Company held certificates of deposit, equity securities, life insurance contracts and private equity investments ~~that~~which did not carry a credit rating. Accrued interest income on available for sale debt securities was $78 million at March 31, 2020, and is included in other current assets on the consolidated balance sheet.

The Company's residential mortgage-backed securities are primarily issued by the Federal National Mortgage Association, Government National Mortgage Association or Federal Home Loan Mortgage Corporation, which carry implicit or explicit guarantees of the U.S. government. The Company's commercial mortgage-backed securities are primarily senior tranches with a weighted average rating of AA+ and a weighted average duration of ~~4.1~~4 years at ~~June 30, 2019.~~March 31, 2020.

The fair value of available-for-sale debt securities with gross unrealized losses by investment type and length of time that individual securities have been in a continuous unrealized loss position were as follows ($ in millions):


	June 30, 2019										December 31, 2018										March 31, 2020										December 31, 2019
	Less Than 12 Months					12 Months or More					Less Than 12 Months					12 Months or More					Less Than 12 Months					12 Months or More					Less Than 12 Months					12 Months or More
	Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	—		$	—	$	—		$	102	$	—		$	59	$	(2	)	$	202	$	—		$	374	$	—		$	—	$	—		$	11	$	—		$	31
Corporate securities	(2		)	220		(3		)	375		(27		)	1,389		(25		)	871		(130		)	2,461		(4		)	16		(2		)	192		(2		)	48
Municipal securities	—			49		(1		)	117		(4		)	591		(14		)	806		(4		)	275		—			1		(1		)	185		—			11
Asset-backed securities	(1		)	128		—			170		(2		)	318		(2		)	168		(30		)	628		(6		)	102		(1		)	153		(1		)	151
Residential mortgage-backed securities	—			11		(3		)	163		(1		)	61		(8		)	233		(2		)	68		—			6		—			44		(1		)	81
Commercial mortgage-backed securities	—			28		(1		)	73		(2		)	137		(4		)	140		(13		)	280		—			3		(1		)	118		—			21
Short-term time deposits																					—			—		—			2		—			—		—			—
Total	$	(3	)	$	436	$	(8	)	$	1,000	$	(36	)	$	2,555	$	(55	)	$	2,420	$	(179	)	$	4,086	$	(10	)	$	130	$	(5	)	$	703	$	(4	)	$	343

As of ~~June 30, 2019,~~March 31, 2020, the gross unrealized losses were generated from ~~1,066~~2,636 positions out of a total of ~~4,407~~5,998 positions. The change in fair value of fixed income securities is primarily a result of movement in interest rates subsequent to the purchase of the security.

For each security in an unrealized loss position, the Company assesses whether it intends to sell the security or if it is more likely than not the Company will be required to sell the security before recovery of the amortized cost basis for reasons such as liquidity, contractual or regulatory purposes. If the security meets this criterion, the decline in fair value is ~~other-than-temporary and is~~ recorded in earnings. The Company does not intend to sell these securities prior to maturity and it is not likely that the Company will be required to sell these securities prior to maturity; therefore, ~~there is no indication of other-than-temporary~~the Company did not record impairment for these securities.

~~The contractual maturities of short-term and long-term investments and restricted deposits are as follows ($ in millions):~~

June 30, 2019 December 31, 2018
Investments Restricted Deposits Investments Restricted Deposits

Amortized
Cost

Fair
Value

Amortized
Cost

Fair
Value

Amortized
Cost

Fair
Value

Amortized
Cost

Fair
Value
One year or less $ 683
$ 683
$ 529
$ 529
$ 647
$ 646
$ 205
$ 205
One year through five years 3,125
3,179
100
101
3,026
2,998
351
350
Five years through ten years 2,804
2,888
—
—
2,387
2,362
—
—
Greater than ten years 62
65
—
—
88
89
—
—
Asset-backed securities 1,564
1,582
—
—
1,504
1,488
—
—
Total $ 8,238
$ 8,397
$ 629
$ 630
$ 7,652
$ 7,583
$ 556
$ 555

~~Actual maturities may differ from contractual maturities due to call or prepayment options. Private equity investments and life insurance contracts are included in~~In addition, the five years through ten years category. Residential mortgage-backed securities and commercial mortgage-backed securities are included in the asset-backed securities category. The Company has an option to redeem at amortized cost substantially all of the securities included in the greater than ten years category listed above.

~~The~~ Company continuously monitors investments for ~~other-than-temporary impairment.~~credit losses. Certain investments have experienced a decline in fair value due to changes in credit quality, market interest rates and/or general economic conditions. The Company recognizes an ~~impairment loss for investments~~allowance when evidence demonstrates that it is ~~other-than-temporarily impaired.~~credit related. Evidence of a credit related loss ~~in value that is other-than-temporary~~ may include rating agency actions, adverse conditions specifically related to the ~~absence of an ability to recover the carrying amount~~security, or failure of the ~~investment or the inability~~issuer of the ~~investee~~security to ~~sustain~~make scheduled payments.

The contractual maturities of short-term and long-term debt securities and restricted deposits are as follows ($ in millions):



	March 31, 2020								December 31, 2019
	Investments				Restricted Deposits				Investments				Restricted Deposits
	Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Cost		Fair Value
One year or less	$	1,239	$	1,237	$	841	$	842	$	750	$	752	$	550	$	550
One year through five years	3,954		3,935		169		172		3,034		3,106		106		108
Five years through ten years	2,430		2,465		—		—		2,162		2,257		—		—
Greater than ten years	72		74		—		—		48		50		—		—
Asset-backed securities	2,636		2,633		—		—		1,585		1,603		—		—
Total	$	10,331	$	10,344	$	1,010	$	1,014	$	7,579	$	7,768	$	656	$	658

Actual maturities may differ from contractual maturities due to call or prepayment options. Equity securities, private equity investments and life insurance contracts are excluded from the table above because they do not have a ~~level of earnings that would justify the carrying amount~~contractual maturity. The Company has an option to redeem at amortized cost substantially all of the ~~investment.~~securities included in the greater than ten years category listed above.

4.Fair Value Measurements

Assets and liabilities recorded at fair value in the Consolidated Balance Sheets are categorized based upon observable or unobservable inputs used to estimate fair value. Level inputs are as follows:



Level Input:		Input Definition:
Level I		Inputs are unadjusted, quoted prices for identical assets or liabilities in active markets at the measurement date.

Level II		Inputs other than quoted prices included in Level I that are observable for the asset or liability through corroboration with market data at the measurement date.

Level III		Unobservable inputs that reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date.

The following table summarizes fair value measurements by level at ~~June 30, 2019,~~March 31, 2020, for assets and liabilities measured at fair value on a recurring basis ($ in millions):


	Level I		Level II		Level III		Total		Level I		Level II		Level III		Total
Assets
Cash and cash equivalents	$	6,875	$	—	$	—	$	6,875	$	9,308	$	—	$	—	$	9,308
Investments available for sale:
Investments:
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	111	$	—	$	—	$	111	$	114	$	—	$	—	$	114
Corporate securities	—		3,653		—		3,653		—		4,960		—		4,960
Municipal securities	—		2,343		—		2,343		—		2,554		—		2,554
Short-term time deposits									—		84		—		84
Asset-backed securities	—		714		—		714		—		1,018		—		1,018
Residential mortgage-backed securities	—		457		—		457		—		1,027		—		1,027
Commercial mortgage-backed securities	—		411		—		411		—		587		—		587
Equity securities									683		2		—		685
Total investments	$	111	$	7,578	$	—	$	7,689	$	797	$	10,232	$	—	$	11,029
Restricted deposits available for sale:
Restricted deposits:
Cash and cash equivalents	$	17	$	—	$	—	$	17	$	149	$	—	$	—	$	149
Certificates of deposit	—		477		—		477		—		153		—		153
Corporate securities	—		12		—		$	12	—		18		—		$	18
Municipal securities	—		6		—		6		—		30		—		30
U.S. Treasury securities and obligations of U.S. government corporations and agencies	118		—		—		118		664		—		—		664
Total restricted deposits	$	135	$	495	$	—	$	630	$	813	$	201	$	—	$	1,014
Other long-term assets:
Interest rate swap agreements	$	—	$	8	$	—	$	8

Total assets at fair value	$	7,121	$	8,081	$	—	$	15,202	$	10,918	$	10,433	$	—	$	21,351
Liabilities
Other long-term liabilities:
Interest rate swap agreements	$	—	$	21	$	—	$	21
Total liabilities at fair value	$	—	$	21	$	—	$	21

The following table summarizes fair value measurements by level at December 31, ~~2018,~~2019, for assets and liabilities measured at fair value on a recurring basis ($ in millions):


	Level I		Level II		Level III		Total		Level I		Level II		Level III		Total
Assets
Cash and cash equivalents	$	5,342	$	—	$	—	$	5,342	$	12,123	$	—	$	—	$	12,123
Investments available for sale:
Investments:
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	247	$	—	$	—	$	247	$	73	$	—	$	—	$	73
Corporate securities	—		3,146		—		3,146		—		3,713		—		3,713
Municipal securities	—		2,187		—		2,187		—		2,379		—		2,379
Asset-backed securities	—		683		—		683		—		744		—		744
Residential mortgage-backed securities	—		444		—		444		—		471		—		471
Commercial mortgage-backed securities	—		361		—		361		—		388		—		388
Total investments	$	247	$	6,821	$	—	$	7,068	$	73	$	7,695	$	—	$	7,768
Restricted deposits available for sale:
Restricted deposits:
Cash and cash equivalents	$	8	$	—	$	—	$	8	$	8	$	—	$	—	$	8
Certificates of deposit	—		433		—		433		—		482		—		482
Corporate securities									—		20		—		20
Municipal securities									—		9		—		9
U.S. Treasury securities and obligations of U.S. government corporations and agencies	114		—		—		114		139		—		—		139
Total restricted deposits	$	122	$	433	$	—	$	555	$	147	$	511	$	—	$	658

Other long-term assets:
Interest rate swap agreements									$	—	$	10	$	—	$	10
Total assets at fair value	$	5,711	$	7,254	$	—	$	12,965	$	12,343	$	8,216	$	—	$	20,559
Liabilities
Other long-term liabilities:
Interest rate swap agreements	$	—	$	95	$	—	$	95	$	—	$	11	$	—	$	11
Total liabilities at fair value	$	—	$	95	$	—	$	95	$	—	$	11	$	—	$	11

The Company utilizes matrix-pricing services to estimate fair value for securities ~~that~~which are not actively traded on the measurement date. The Company designates these securities as Level II fair value measurements. In addition, the aggregate carrying amount of the Company’s life insurance contracts and other private equity investments, which approximates fair value, was ~~$708~~$878 million and ~~$515~~$812 million as of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, respectively.

5.Medical Claims Liability

The following table summarizes the change in medical claims liability ($ in millions):


	Six Months Ended June 30,						Three Months Ended March 31,
	2019			2018			2020			2019
Balance, January 1	$	6,831		$	4,286		$	7,473		$	6,831
Less: Reinsurance recoverable	27			18			20			27
Balance, January 1, net	6,804			4,268			7,453			6,804
Acquisitions and purchase accounting adjustments	61			—
Acquisitions and divestitures							3,697			6
Incurred related to:
Current year	28,791			20,748			20,866			14,376
Prior years	(555		)	(329		)	(446		)	(494		)
Total incurred	28,236			20,419			20,420			13,882
Paid related to:
Current year	22,384			16,738			15,147			8,771
Prior years	5,289			2,963			5,031			4,560
Total paid	27,673			19,701			20,178			13,331
Balance at June 30, net	7,428			4,986
Balance at March 31, net							11,392			7,361
Plus: Reinsurance recoverable	19			17			21			20
Balance, June 30	$	7,447		$	5,003
Balance, March 31							$	11,413		$	7,381

Reinsurance recoverables related to medical claims are included in premium and ~~related~~trade receivables. Changes in estimates of incurred claims for prior years are primarily attributable to reserving under moderately adverse conditions. Additionally, as a result of ~~development within "Incurred related to: Prior years" due to~~ minimum health benefits ratio (HBR) and other return of premium programs, we recorded ~~$20 million and $22~~$31 million as a reduction ~~from~~to premium revenue and $8 million as an increase to premium revenues in the ~~six~~three months ended ~~June 30,~~March 31, 2020 and 2019, ~~and 2018,~~ respectively.

Incurred but not reported (IBNR) plus expected development on reported claims as of ~~June 30, 2019~~March 31, 2020 was ~~$5,521~~$7,527 million. Total IBNR plus expected development on reported claims represents estimates for claims incurred but not reported, development on reported claims, and estimates for the costs necessary to process unpaid claims at the end of each period. We estimate our liability using actuarial methods that are commonly used by health insurance actuaries and meet Actuarial Standards of Practice. These actuarial methods consider factors such as historical data for payment patterns, cost trends, product mix, seasonality, utilization of healthcare services and other relevant factors.

6.Affordable Care Act

The Affordable Care Act ~~contains~~established risk spreading premium stabilization programs as well as a minimum annual ~~MLR~~medical loss ratio and cost sharing reductions. The Company's net receivables (payables) for each of the ~~ongoing~~ programs are as follows ($ in millions):

June 30, 2019 December 31, 2018
Risk adjustment $ (1,405 ) $ (928 )
Minimum MLR (426 ) (265 )
Cost sharing reductions 60
(50 )



	March 31, 2020			December 31, 2019
Risk adjustment receivable	$	326		$	245
Risk adjustment payable	(1,569		)	(1,239		)
Minimum medical loss ratio	(466		)	(367		)
Cost sharing reduction receivable	96			73
Cost sharing reduction payable	(1		)	(1		)

On June 28, 2019, the Centers for Medicare and Medicaid Services (CMS) announced the final risk adjustment transfers for the 2018 benefit year. As a result of the announcement, the Company reduced its risk adjustment net payables by $238 million from December 31, 2018. After consideration of minimum MLR, estimated Risk Adjustment Data Validation (RADV) audit results, and other related impacts, the net pre-tax benefit recognized was approximately $131 million for the six months ended June 30, 2019. Final RADV results are expected to be announced by CMS on August 1, 2019.

7.Debt

Debt consists of the following ($ in millions):


	June 30, 2019			December 31, 2018			March 31, 2020			December 31, 2019
$1,400 million 5.625% Senior notes, due February 15, 2021	$	1,400		$	1,400
$1,000 million 4.75% Senior notes, due May 15, 2022	1,004			1,005
$1,000 million 6.125% Senior notes, due February 15, 2024	1,000			1,000
$1,200 million 4.75% Senior notes, due January 15, 2025	1,200			1,200
$1,800 million 5.375% Senior notes, due June 1, 2026	1,800			1,800
$1,000 million 4.75% Senior Notes, due May 15, 2022							$	1,007		$	1,004
$1,000 million 6.125% Senior Notes, due February 15, 2024							—			1,000
$2,200 million 4.75% Senior Notes, due January 15, 2025							2,236			2,228
$1,200 million 5.250% Senior Notes due April 1, 2025							1,250			—
$1,800 million 5.375% Senior Notes, due June 1, 2026							1,800			1,800
$750 million 5.375% Senior Notes due August 15, 2026							800			—
$2,500 million 4.25% Senior Notes due December 15, 2027							2,480			2,479
$3,500 million 4.625% Senior Notes due December 15, 2029							3,500			3,500
$2,000 million 3.375% Senior Notes due February 15, 2030							2,000			—
Fair value of interest rate swap agreements	(13		)	(95		)	—			(1		)
Total senior notes	6,391			6,310			15,073			12,010
Term loan credit facility							1,450			1,450
Revolving credit agreement	513			284			588			93
Mortgage notes payable	56			57			53			54
Construction loan payable	102			63			149			140
Finance leases and other	138			47			119			122
Debt issuance costs	(66		)	(75		)	(153		)	(143		)
Total debt	7,134			6,686			17,279			13,726
Less current portion	(87		)	(38		)	(129		)	(88		)
Long-term debt	$	7,047		$	6,648		$	17,150		$	13,638

~~Revolving Credit Agreement~~

In May 2019, the Company amended and restated its unsecured revolving credit facility to, among other things, increase the revolving commitments thereunder from $1,500 million to $2,000 million. The agreement has a maturity date of May 7, 2024. At the Company’s option, borrowings under the credit agreement will bear interest at LIBOR, EURIBOR, CDOR, BBR or base rates plus, in each case, an applicable margin.

~~8. Leases~~Senior Notes

In February ~~2016,~~2020, the ~~FASB~~Company issued ~~ASU No. 2016-02, Leases, which introduced~~$2,000 million 3.375% Senior Notes due February 15, 2030 (the 2030 Notes). The Company used the net proceeds from the 2030 Notes to redeem all of its outstanding $1,000 million 6.125% Senior Notes, due February 15, 2024 (the 2024 Notes). The Company recognized a ~~lessee model that requires~~pre-tax loss on extinguishment of approximately $44 million, including the ~~majority~~call premium, the write-off of ~~leases to be recognized~~unamortized debt issuance costs and the loss on the ~~balance sheet. On January 1, 2019,~~termination of the $1,000 million interest rate swap associated with the 2024 Notes. The Company also intended to use remaining proceeds to redeem its $1,000 million 4.75% Senior Notes due May 15, 2022 (the 2022 Notes). However, as a result of the spread of COVID-19 and the resulting disruption and volatility in the global capital markets, the Company ~~adopted~~has deferred the ~~ASU using the modified retrospective transition approach and elected the transition option to recognize the adjustment in the period of adoption rather than in the earliest period presented. Adoption~~redemption of the ~~new guidance resulted~~2022 Notes at this time.

In connection with the WellCare Acquisition, in January 2020, the ~~initial recognition of right-of-use (ROU) assets of $661 million, ROU lease liabilities of $774 million and the elimination of $113~~Company completed an exchange offer for up to $1,200 million of ~~straight-line lease liabilities.~~5.25% Senior Notes due April 1, 2025 and $750 million of 5.375% Senior Notes due August 15, 2026 (collectively, the WellCare Notes) issued by WellCare and issued $1,146 million aggregate principal amount of 5.25% Senior Notes due April 1, 2025 and $747 million aggregate principal amount of 5.375% Senior Notes due August 15, 2026. Additionally, the Company's wholly owned subsidiary, WellCare Health Plans, Inc., assumed the remaining unexchanged WellCare Notes. The WellCare Notes were recorded at the acquisition date fair value of $2,055 million.

Interest Rate Swaps

During the three months ended March 31, 2020, the Company terminated the interest rate swap agreements associated with the 2022 Notes and $2,200 million 4.75% Senior Notes, due January 15, 2025, (the 2025 Notes). The interest rate swap associated with the 2024 Notes were also terminated in connection with the redemption of those notes as discussed above. In total, the Company terminated 3 interest rate swap contracts with a notional amount of $2,100 million. The swaps effectively converted $2,100 million of fixed rate notes to floating rates. As a result of the interest rate swap terminations, the Company received $9 million in cash. The corresponding net gain on the 2022 Notes and 2025 Notes is being amortized as a reduction to interest expense over the remaining term of the respective notes.

8. Leases

The Company records ~~ROU~~right of use (ROU) assets and liabilities for non-cancelable operating leases primarily for real estate and equipment. Leases with an initial term of 12 months or less are not recorded on the balance sheet. Expense related to leases is recorded on a straight-line basis over the lease term, including rent holidays. During the three ~~and six~~ months ended ~~June 30, 2019,~~March 31, 2020, the Company recognized operating lease expense of ~~$49 million and $99 million, respectively.~~$62 million.

The following table sets forth the ROU assets and liabilities as of ~~June 30, 2019~~March 31, 2020 ($ in millions):


	June 30, 2019		March 31, 2020
Assets
ROU assets (recorded within other long-term assets)	$	632	$	852

Liabilities
Short-term (recorded within accounts payable and accrued expenses)	$	157	$	198
Long-term (recorded within other long-term liabilities)	590		794
Total ROU liabilities	$	747	$	992

During the three ~~and six~~ months ended ~~June 30, 2019,~~March 31, 2020, the Company reduced its ROU liabilities by ~~$53~~$63 million, ~~and $117 million, respectively,~~ for cash paid. ~~In addition,~~The Company did not have any new operating leases commence during the three ~~and six~~ months ended ~~June 30, 2019, new operating leases commenced resulting~~March 31, 2020, that resulted in the recognition of ROU assets and ~~liabilities of $18 million and $50 million, respectively.~~liabilities. As of ~~June 30, 2019,~~March 31, 2020, the Company had additional operating leases that have not yet commenced of ~~$474~~$421 million, which included ~~two~~4 significant leases executed during the ~~second~~first quarter. These operating leases will commence in ~~2019~~2020 with lease terms of ~~1 year~~2 years to 1716 years. In connection with the WellCare Acquisition, we acquired approximately $240 million and $260 million of ROU assets and liabilities, respectively.

As of ~~June 30, 2019,~~March 31, 2020, the weighted average remaining lease term of the Company's operating leases was ~~6.0~~6.8 years. The ROU liabilities as of ~~June 30, 2019~~March 31, 2020 reflect a weighted average discount rate of ~~4.6%~~4.7%. Lease payments over the next five years and thereafter are as follows ($ in millions):

June 30, 2019
2019 $ 90
2020 191
2021 155
2022 113
2023 84
2024 63
Thereafter 155
Total lease payments 851
Less: imputed interest (104 )
Total ROU liabilities $ 747

The following discussion relates to the Company's lease accounting policy under ASC Topic 840 for the year ended December 31, 2018. Annual noncancellable minimum lease payments over the next five years and thereafter were as follows (in millions):


	December 31, 2018		March 31, 2020
2019	$	174
2020	176		$	177
2021	145		223
2022	101		174
2023	71		140
2024			117
2025			82
Thereafter	200		258
Total lease payments	$	867	1,171
Less: imputed interest			(179		)
Total ROU liabilities			$	992

9. Stockholders' Equity

In January 2020, the Company issued 171 million shares of Centene common stock with a fair value of $11,431 million and paid $6,079 million in cash in exchange for all the outstanding shares of WellCare common stock. In addition, the Company recorded $95 million related to the fair value of replacement equity awards associated with pre-combination service.

During the three months ended March 31, 2020, the Company used proceeds from divestitures to repurchase 8,672 thousand shares of Centene common stock for $500 million through the Company's stock repurchase program. As of March 31, 2020, the Company has a remaining amount of 5,488 thousand shares available under the program. The remaining common stock repurchases during the quarter relate to the purchase of shares to satisfy tax withholding requirements in connection with employee equity awards.

9.10. Earnings Per Share

The following table sets forth the calculation of basic and diluted net earnings per common share ($ in millions, except ~~shares in thousands and~~ per share data in ~~dollars)~~dollars and shares in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,				Three Months Ended March 31,
	2019		2018		2019		2018		2020		2019

Earnings attributable to Centene Corporation	$	495	$	300	$	1,017	$	640	$	46	$	522

Shares used in computing per share amounts:
Weighted average number of common shares outstanding	413,370		391,037		413,144		369,440		544,436		412,924
Common stock equivalents (as determined by applying the treasury stock method)	6,301		7,865		6,563		7,702		7,626		6,828
Weighted average number of common shares and potential dilutive common shares outstanding	419,671		398,902		419,707		377,142		552,062		419,752

Net earnings per common share attributable to Centene Corporation:
Basic earnings per common share	$	1.20	$	0.77	$	2.46	$	1.73	$	0.08	$	1.26
Diluted earnings per common share	$	1.18	$	0.75	$	2.42	$	1.70	$	0.08	$	1.24

The calculation of diluted earnings per common share for the three and six months ended June 30, 2019 excludes the impact of 1.5 million and 1.4 million shares, respectively, related to anti-dilutive stock options, restricted stock and restricted stock units.

The calculation of diluted earnings per common share for the three ~~and six~~ months ended ~~June 30, 2018~~March 31, 2020 and March 31, 2019 excludes the impact of 27400 thousand and 261,400 thousand shares, respectively, related to anti-dilutive stock options, restricted stock and restricted stock units.

~~10.~~11. Segment Information

Centene operates in ~~two~~2 segments: Managed Care and Specialty Services. The Managed Care segment consists of Centene’s health plans, including all of the functions needed to operate them. Subsequent to the closing of the WellCare Acquisition, the Managed Care segment also includes WellCare's legacy Medicaid Health Plans, Medicare Health Plans and Medicare Prescription Drug Plan (PDP) segments. The Specialty Services segment consists of Centene’s specialty companies offering auxiliary healthcare services and products. Factors used in determining the reportable business segments include the nature of operating activities, the existence of separate senior management teams, and the type of information presented to the Company's chief operating decision-maker to evaluate all results of operations.

Segment information for the three months ended ~~June 30, 2019,~~March 31, 2020, follows ($ in millions):


	Managed Care		Specialty Services		Eliminations			Consolidated Total		Managed Care		Specialty Services			Eliminations			Consolidated Total
Total revenues from external customers	$	17,509	$	847	$	—		$	18,356	$	24,936	$	1,089		$	—		$	26,025
Total revenues from internal customers	37		2,556		(2,593		)	—		100		2,814			(2,914		)	—
Total revenues	$	17,546	$	3,403	$	(2,593	)	$	18,356	$	25,036	$	3,903		$	(2,914	)	$	26,025
Earnings from operations	$	587	$	56	$	—		$	643	$	217	$	(29	)	$	—		$	188

Segment information for the three months ended ~~June 30, 2018~~March 31, 2019, follows ($ in millions):


	Managed Care		Specialty Services		Eliminations			Consolidated Total		Managed Care		Specialty Services		Eliminations			Consolidated Total
Total revenues from external customers	$	13,283	$	898	$	—		$	14,181	$	17,687	$	757	$	—		$	18,444
Total revenues from internal customers	26		2,338		(2,364		)	—		35		2,449		(2,484		)	—
Total revenues	$	13,309	$	3,236	$	(2,364	)	$	14,181	$	17,722	$	3,206	$	(2,484	)	$	18,444
Earnings from operations	$	421	$	68	$	—		$	489	$	615	$	70	$	—		$	685

~~Segment information for the six months ended June 30, 2019, follows ($ in millions):~~

Managed Care
Specialty
Services
Eliminations
Consolidated
Total
Total revenues from external customers $ 35,196
$ 1,604
$ —
$ 36,800
Total revenues from internal customers 72
5,006
(5,078 ) —
Total revenues $ 35,268
$ 6,610
$ (5,078 ) $ 36,800
Earnings from operations $ 1,202
$ 126
$ —
$ 1,328

~~Segment information for the six months ended June 30, 2018, follows ($ in millions):~~

Managed Care
Specialty
Services
Eliminations
Consolidated
Total
Total revenues from external customers $ 25,733
$ 1,642
$ —
$ 27,375
Total revenues from internal customers 51
4,569
(4,620 ) —
Total revenues $ 25,784
$ 6,211
$ (4,620 ) $ 27,375
Earnings from operations $ 891
$ 138
$ —
$ 1,029

~~11.~~12. Contingencies

Overview

The Company is routinely subjected to legal and regulatory proceedings in the normal course of business. These matters can include, without limitation:

periodic compliance and other reviews and investigations by various federal and state regulatory agencies with respect to requirements applicable to the Company's business, including, without limitation, those related to payment of out-of-network claims, submissions to CMS for risk adjustment payments or the False Claims Act, submissions to state agencies related to payments or state false claims acts, pre-authorization penalties, timely review of grievances and appeals, timely and accurate payment of claims, and the Health Insurance Portability and Accountability Act of 1996 and other federal and state fraud, waste and abuse laws;

litigation arising out of general business activities, such as tax matters, disputes related to healthcare benefits coverage or reimbursement, putative securities class actions and medical malpractice, privacy, real estate, intellectual property and employment-related claims;

disputes regarding reinsurance arrangements, claims arising out of the acquisition or divestiture of various assets, class actions and claims relating to the performance of contractual and non-contractual obligations to providers, members, employer groups and others, including, but not limited to, the alleged failure to properly pay claims and challenges to the manner in which the Company processes claims and claims alleging that the Company has engaged in unfair business practices.

Among other things, these matters may result in awards of damages, fines or penalties, which could be substantial, and/or could require changes to the Company's business. The Company intends to vigorously defend itself against legal and regulatory proceedings to which it is currently a party; however, these proceedings are subject to many uncertainties. In some of the cases pending against the Company, substantial non-economic or punitive damages are being sought.

The Company records reserves and accrues costs for certain legal proceedings and regulatory matters to the extent that it determines an unfavorable outcome is probable and the amount of the loss can be reasonably estimated. While such reserves and accrued costs reflect the Company's best estimate of the probable loss for such matters, the recorded amounts may differ materially from the actual amount of any such losses. In some cases, no estimate of the possible loss or range of loss in excess of amounts accrued, if any, can be made because of the inherently unpredictable nature of legal and regulatory proceedings, which may be exacerbated by various factors, including but not limited to, they may involve indeterminate claims for monetary damages or may involve fines, penalties or punitive damages; present novel legal theories or legal uncertainties; involve disputed facts; represent a shift in regulatory policy; involve a large number of parties, claimants or regulatory bodies; are in the early stages of the proceedings; involve a number of separate proceedings and/or a wide range of potential outcomes; or result in a change of business practices.

As of the date of this report, amounts accrued for legal proceedings and regulatory matters were not material. However, it is possible that in a particular quarter or annual period the ~~Company’s~~Company's financial condition, results of operations, cash flow and/or liquidity could be materially adversely affected by an ultimate unfavorable resolution of, or development in, legal and/or regulatory proceedings, including as described below. Except for the proceedings discussed below, the Company believes that the ultimate outcome of any of the regulatory and legal proceedings that are currently pending against it should not have a material adverse effect on financial condition, results of operations, cash flow or liquidity.

California

On October 20, 2015, the Company's California subsidiary, Health Net of California, Inc. (Health Net California), was named as a defendant in a California taxpayer action filed in Los Angeles County Superior Court, captioned as Michael D. Myers v. State Board of Equalization, Dave Jones, Insurance Commissioner of the State of California, Betty T. Yee, Controller of the State of California, et al., Los Angeles Superior Court Case No. BS158655. This action is brought under a California statute that permits an individual taxpayer to sue a governmental agency when the taxpayer believes the agency has failed to enforce governing law. Plaintiff contends that Health Net California, a California licensed Health Care Service Plan (HCSP), is an ~~“insurer”~~"insurer" for purposes of taxation despite acknowledging it is not an ~~“insurer”~~"insurer" under regulatory law. Under California law, ~~“insurers”~~"insurers" must pay a gross premiums tax (GPT), calculated as 2.35% on gross premiums. As a licensed HCSP, Health Net California has paid the California Corporate Franchise Tax (CFT), the tax generally paid by California businesses. Plaintiff contends that Health Net California must pay the GPT rather than the CFT. Plaintiff seeks a writ of mandate directing the California taxing agencies to collect the GPT, and

seeks an order requiring Health Net California to pay GPT, interest and penalties for a period dating to eight years prior to the October 2015 filing of the complaint. This lawsuit is being coordinated with similar lawsuits filed against other entities (collectively, "Related Actions"). In March 2018, the Court overruled the Company's demurrer seeking to dismiss the complaint and denied the Company's motion to strike allegations seeking retroactive relief. In August 2018, the trial court stayed all the Related Actions pending determination of a writ of mandate by the California Court of Appeals in two of the Related Actions. In March 2019, the California Court of Appeals denied the writ of mandate. The defendants in those Related Actions sought review by the California Supreme Court, which declined to review the matter. ~~The case is back before~~Upon the ~~trial court which has scheduled a hearing in January 2020~~return of the matter to ~~consider a~~the Los Angeles County Superior Court, motions for summary judgment were scheduled. Health Net California's motion for summary judgment was heard by the Court on March 4, 2020. On March 29, 2020, the Court granted Health Net ~~California. In~~California's motion for summary judgment. The plaintiff may or may not appeal the ~~meantime, discovery will proceed. No trial date has been set.~~Court's decision. The Company intends to ~~vigorously defend itself~~continue its vigorous defense against these claims; however, this matter is subject to many uncertainties, and an adverse outcome in this matter could potentially have a materially adverse impact on ~~our~~the Company's financial position, results of operations and cash flows.

~~Federal Securities Class Action~~

On November 14, 2016, a putative federal securities class action, Israel Sanchez v. Centene Corp., et al., was filed against the Company and certain of its executives in the U.S. District Court for the Central District of California. In March 2017, the court entered an order transferring the matter to the U.S. District Court for the Eastern District of Missouri. The plaintiffs in the lawsuit allege that the Company's accounting and related disclosures for certain liabilities acquired in the acquisition of Health Net violated federal securities laws. In July 2017, the lead plaintiff filed a Consolidated Class Action Complaint. The Company filed a motion to dismiss this complaint in September 2017. In February 2018, the Court held a hearing on the motion to dismiss but has not yet issued a ruling.

The Company denies any wrongdoing and is vigorously defending itself against these claims. Nevertheless, this matter is subject to many uncertainties and the Company cannot predict how long this litigation will last or what the ultimate outcome will be, and an adverse outcome in this matter could potentially have a materially adverse impact on our financial position and results of operations.

Additionally, on January 24, 2018, a separate derivative action was filed by plaintiff Harkesh Parekh on behalf of Centene Corporation against the Company and certain of its officers and directors in the United States District Court for the Eastern District of Missouri. Plaintiff purports to bring suit derivatively on behalf of the Company against certain officers and directors for violation of securities laws, breach of fiduciary duty, waste of corporate assets and unjust enrichment. The derivative complaint repeats many of the allegations in the federal securities class action described above and asserts that defendants made inaccurate or misleading statements, and/or failed to correct the alleged misstatements.

A second shareholder derivative action was filed on March 9, 2018, by plaintiffs Laura Wood and Peoria Police Pension Fund on behalf of Centene Corporation against the Company and certain of its officers and directors in the United States District Court for the Eastern District of Missouri. This second derivative complaint repeats many of the allegations in the securities class action and the first derivative suit.

A third shareholder derivative action was filed on December 14, 2018, by plaintiffs Carpenters Pension Fund of Illinois and Iron Workers Local 11 Pension Fund on behalf of Centene Corporation against the Company and certain of its officers and directors in the United States District Court for the Eastern District of Missouri. This third derivative action repeats many of the allegations in the securities class action and the other derivative suits and adds additional allegations asserting violations of securities laws, breach of fiduciary duty, insider trading and unjust enrichment. The three derivative suits have been consolidated. Lead plaintiffs and counsel have been appointed. On July 11, 2019, the Court entered an order staying the consolidated derivative action, pending resolution of the motion to dismiss that is under submission in the Sanchez matter.

~~Medicare Parts C and D Matter~~

In December 2016, a Civil Investigative Demand (CID) was issued to Health Net by the United States Department of Justice regarding Health Net’s submission of risk adjustment claims to CMS under Parts C and D of Medicare. The CID may be related to a federal qui tam lawsuit filed under seal in 2011 naming more than a dozen health insurers including Health Net. The lawsuit was unsealed in February 2017 when the Department of Justice intervened in the case with respect to one of the insurers (not Health Net). In subsequent pleadings, both the Department of Justice and the Relator excluded Health Net from the lawsuit. The Company is complying with the CID and will vigorously defend any lawsuits. At this point, it is not possible to determine what level of liability, if any, the Company may face as a result of this matter.

Veterans Administration Matter

In October 2017, a ~~CID~~Civil Investigative Demand (CID) was issued to Health Net Federal Services, LLC (HNFS) by the United States Department of Justice. The CID seeks documents and interrogatory responses concerning whether HNFS submitted, or caused to be submitted, excessive, duplicative or otherwise improper claims to the U.S. Department of Veterans Affairs (VA) under a contract to provide healthcare coordination services for veterans. The contract began in late 2014 and ended September 30, 2018. In 2016, modifications to the contract were made to allow for possible duplicate billings with a reconciliation period at the end of the contract term. The Company is complying with the CID and believes it has met its contractual obligations. At this point, it is not possible to determine what level of liability, if any, the Company may face as a result of this matter. ~~This matter is separate from the negotiated settlements with the VA in connection with the contract expiration on September 30, 2018.~~

Ambetter Class Action

On January 11, 2018, a putative class action lawsuit was filed by Cynthia Harvey and Steven A. Milman against the Company and certain subsidiaries in the U.S. District Court for the Eastern District of Washington. The complaint alleges that the Company failed to meet federal and state requirements for provider networks and directories with regard to its Ambetter policies, denied coverage and/or refused to pay for covered benefits, and failed to address grievances adequately, causing some members to incur unexpected costs. In March 2018, the Company filed separate motions to dismiss each defendant. In July 2018, the plaintiff voluntarily filed a First Amended Complaint that removed Steven Milman as a plaintiff, dropped Centene Corporation and Superior Health Plan as defendants, abandoned certain claims, narrowed the putative class to Washington State only, and added Centene Management Company as a defendant. In August 2018, the Company moved to dismiss the First Amended Complaint. In response, the plaintiff voluntarily filed a Second Amended Complaint. In September 2018, the Company filed a motion to dismiss the Second Amended Complaint. On November 21, 2018, the Court granted in part and denied in part the Company's motion to dismiss. Plaintiff Cynthia Harvey filed a Third Amended Complaint, on November 28, 2018, against Centene Management Company and Coordinated Care Corporation ~~("Defendants")~~(Defendants), both subsidiaries of the Company. Defendants filed an answer on December 12, 2018. ~~Class~~The plaintiffs filed a motion for class certification ~~discovery~~on January 8, 2020. The hearing on that motion is ~~occurring.~~scheduled for May 12, 2020. The Company intends to vigorously defend itself against these claims. Nevertheless, this matter is subject to many uncertainties and the Company cannot predict how long this litigation will last or what the ultimate outcome will be, and an adverse outcome in this matter could potentially have a materially adverse impact on ~~our~~the Company's financial position and results of operations.

~~Miscellaneous Proceedings~~

~~Excluding the matters discussed above, the Company is also routinely subjected to legal and regulatory proceedings in the normal course of business. These matters can include, without limitation:~~

periodic compliance and other reviews and investigations by various federal and state regulatory agencies with respect to requirements applicable to the Company's business, including, without limitation, those related to payment of out-of-network claims, submissions to CMS for risk adjustment payments or the False Claims Act, pre-authorization penalties, timely review of grievances and appeals, timely and accurate payment of claims, and the Health Insurance Portability and Accountability Act of 1996;

Among other things, these matters may result in awards of damages, fines or penalties, which could be substantial, and/or could require changes to the Company’s business. The Company intends to vigorously defend itself against the miscellaneous legal and regulatory proceedings to which it is currently a party; however, these proceedings are subject to many uncertainties. In some of the cases pending against the Company, substantial non-economic or punitive damages are being sought.

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the related notes included elsewhere in this filing. The discussion contains forward-looking statements that involve known and unknown risks and uncertainties, including those set forth under Part II, Item 1A. “Risk Factors” of this Form 10-Q.

EXECUTIVE OVERVIEW

General

We are a ~~diversified,~~leading multi-national healthcare enterprise that ~~provides~~is committed to helping people live healthier lives. We take a local approach - with local brands and local teams - to provide fully integrated, high-quality, and cost-effective services to ~~government sponsored~~government-sponsored and commercial healthcare programs, focusing on under-insured and uninsured individuals. We provide member-focused services through locally based staff by assisting in accessing care, coordinating referrals to related health and social services and addressing member concerns and questions.

Results of operations depend on our ability to manage expenses associated with health benefits (including estimated costs incurred) and selling, general and administrative (SG&A) costs. We measure operating performance based upon two key ratios. The health benefits ratio (HBR) represents medical costs as a percentage of premium revenues, excluding premium tax and health insurer fee revenues that are separately billed, and reflects the direct relationship between the premiums received and the medical services provided. The SG&A expense ratio represents SG&A costs as a percentage of premium and service revenues, excluding premium tax and health insurer fee revenues that are separately billed.

Our insurance subsidiaries are subject to the Affordable Care Act (ACA) annual health insurer fee (HIF), absent a HIF ~~moratorium. The Affordable Care Act (ACA) imposed the HIF in 2018, however the HIF was suspended in 2019. In 2018, the Company recognized~~moratorium or repeal. We recognize revenue for reimbursement of the HIF, including the “gross-up” to reflect the non-deductibility of the HIF. Collectively, this revenue is recorded as premium tax and health insurer fee revenue in the Consolidated Statements of Operations. For certain products, premium taxes, state assessments and the HIF are not pass-through payments and are recorded as premium revenue and premium tax expense or health insurer fee expense in the Consolidated Statements of Operations. A moratorium suspended the HIF for the 2019 calendar year. Due to the size of the ~~HIF~~health insurer fee, one of the primary drivers of the year-over-year variances discussed throughout this section is related to the ~~moratorium~~reinstatement of the HIF in ~~2019.~~2020.

WellCare Acquisition

On December 12, 2018, the Board of Directors declared a two-for-one split of our common stock in the form of a 100% stock dividend distributed on February 6, 2019 to stockholders of record as of December 24, 2018. All historical share and per share information presented in this Form 10-Q has been adjusted for the two-for-one stock split.

~~WellCare Transaction~~

~~On March 26, 2019,~~January 23, 2020, we ~~entered into a definitive merger agreement (the Merger Agreement) with WellCare Health Plans, Inc., (WellCare) under which Centene will acquire~~acquired all of the issued and outstanding shares of WellCare Health Plans, Inc. (WellCare) (the WellCare ~~Transaction)~~Acquisition). Under the terms of the agreement, at the closing of the transaction, WellCare common stock will be automatically canceled and converted into the right to 3.38 of validly issued, fully paid, nonassessable shares of Centene common stock and $120.00 in cash, without interest. The transaction iswas valued at approximately ~~$17.3~~$19.6 billion, including the ~~existing WellCare debt (based on the Centene closing stock price on March 25, 2019), and is expected to close by the first half~~assumption of 2020. In June 2019, Centene and WellCare announced the transaction was approved by both the Centene and WellCare stockholders. The transaction is conditioned on clearance under the Hart-Scott Rodino Act, receipt of state regulatory approvals and other customary closing conditions. We have an $8.4 billion financing commitment, but intend to fund the cash portion of the acquisition primarily through debt financing in advance of the closing date.

~~Fidelis Care Acquisition~~

~~On July 1, 2018, we acquired substantially all of the assets of New York State Catholic Health Plan, Inc., d/b/a Fidelis Care New York (Fidelis Care) for approximately $3.60~~$1.95 billion of ~~cash consideration, including~~outstanding debt. The WellCare Acquisition brings a ~~working capital adjustment.~~high-quality Medicare platform and further extends our robust Medicaid offerings. The combination enables us to provide access to more comprehensive and differentiated solutions across more markets with a continued focus on affordable, high-quality, culturally-sensitive healthcare services. Due to the size of the acquisition, one of the primary drivers of the year-over-year variances discussed throughout this section is related to the acquisition of ~~Fidelis Care.~~WellCare.

COVID-19 Trends and Uncertainties

The COVID-19 outbreak has created unique and unprecedented challenges. To support our members, providers, employees and the communities we serve, we have taken several actions and made numerous investments related to the COVID-19 crisis. We have extended coverage of COVID-19 testing and screening services for Medicaid, Medicare and Marketplace members and are waiving all associated member cost share amounts for COVID-19 testing and screening. We are delivering new critical support to Safety Net providers, including Federally Qualified Healthcare Centers (FQHCs), behavioral health providers, and long-term service and support organizations. We are addressing social determinants of health for vulnerable populations during the COVID-19 crisis with a commitment to research and investment in non-medical barriers to achieving quality health outcomes. We developed initiatives designed to support the disability community affected by the pandemic. We created a provider support program to assist our network providers who are seeking benefits from the Small Business Administration (SBA) through the CARES Act. We established a Medical Reserve Leave policy to support clinical staff who want to join a medical reserve force and serve their communities during the COVID-19 pandemic. We are providing additional employee benefits including waiving cost-sharing for COVID-19 related treatment, emergency paid sick leave, and one-time payments to employees in a small number of critical office functions. We are converting our 2020 Annual Meeting of Stockholders to a virtual-only format.

~~International~~We have taken significant steps to support our employees to protect their health and safety, while also ensuring that our business can continue to operate and that provider and member payments continue without disruption. We have implemented our business continuity plans and have taken actions to support our workforce. We have transitioned the vast majority of our employees to work from home, allowing Centene to continue to operate at close to full capacity, while continuing to maintain our internal control framework.

~~In June 2019,~~The impact on our business in both the short-term and long-term is uncertain. It largely depends on future developments, including but not limited to: the length and severity of the outbreak, effectiveness of containment actions, and the timing around the development of treatments and vaccinations. The pandemic and these future developments will most likely impact our membership and utilization trends. We expect an increase in membership, driven by unemployment rates, causing an estimated increase of $4.0 billion to our original full year 2020 revenue guidance. Also, we ~~purchased an additional 40% ownership~~expect decreased utilization, related to shelter-in-place and similar orders, which could cause delayed or avoided costs. We have already seen a significant decrease in ~~Ribera Salud from Banco Sabadell~~dental and vision claims. However, the deferral of medical services may lead to higher costs of treatment once members return to seeking medical care, as their health issues may have become more acute. We expect incremental COVID-19 costs in medical expenses related to the waivers for ~~$54 million, bringing~~tests and treatments. We also expect incremental costs due to investments and actions we have already taken and continued efforts to protect our ~~total ownership~~members, employees and communities we serve. The pandemic has widespread economic impact, driving interest rate decreases and lowering our investment income. We also expect higher interest expense due the deferral of the early redemption of senior notes. At this point in time, we do not expect the impact of all these items to ~~90%.~~significantly impact our bottom line, and as such, we have maintained our previous Adjusted diluted EPS guidance range.

We are confident we have the team, systems, expertise and financial strength to effectively navigate this challenging pandemic landscape.

Regulatory Trends and Uncertainties

The United States government, politicians, and healthcare experts continue to discuss and debate various elements of the United States healthcare payment model. From the constitutionality of the Affordable Care Act, to Medicare for All (single payer), to pharmacy pricing structures, all areas of healthcare are being challenged to assure adequate healthcare is delivered to all segments of the population.

During this time of deliberation, ~~the Company remains~~we remain focused on the promise of delivering access to high quality, affordable healthcare to all of ~~its~~our members and ~~believes it is~~believe we are well positioned to meet the needs of the changing healthcare landscape.

We have more than three decades of experience, spanning six presidents from both sides of the aisle, in delivering high-quality healthcare services on behalf of states and the ~~Federal~~federal government to under-insured and uninsured families, commercial organizations and military families. This expertise has allowed us to deliver cost effective services to our government sponsors and our members. While healthcare experts maintain focus on personalized healthcare technology, we continue to make strategic decisions to accelerate development of new software platforms and analytical ~~capabilities, including meaningful investments in RxAdvance, Interpreta and Casenet.~~capabilities. We continue to believe we have both the capacity and capability to successfully navigate industry changes to the benefit of our members, customers and shareholders.

On April 27, 2020, the Supreme Court ruled that the federal government will be required to pay health insurers for payments due under the risk corridor program, originally established under the Affordable Care Act. The Company will have a claim for risk corridor payments, which it intends to pursue. As of March 31, 2020, the Company did not have any risk corridor receivables recorded on its balance sheet.

For additional information regarding regulatory trends and uncertainties, see Part II, Item 1A, "Risk Factors."

~~Second~~First Quarter ~~2019~~2020 Highlights

Our financial performance for the ~~second~~first quarter of ~~2019~~2020 is summarized as follows:

Managed care membership of ~~15.0~~23.8 million, an increase of ~~2.2~~9.0 million members, or ~~17%~~61% year-over-year.

Total revenues of ~~$18.4~~$26.0 billion, representing ~~29%~~41% growth year-over-year.

~~Health benefits ratio~~HBR of ~~86.7%~~88.0%, compared to 85.7% for the ~~second~~first quarter of ~~2018.~~2019.

SG&A expense ratio of ~~9.1%~~9.9%, compared to 9.6% for the ~~second~~first quarter of ~~2018.~~2019.

Adjusted SG&A expense ratio of ~~9.0%~~8.6%, compared to ~~9.6%~~9.5% for the ~~second~~first quarter of ~~2018.~~2019.

Operating cash flows of ~~$917~~$(240) million. Operating cash flow was negatively affected by a delay in premium payments from the state of New York of approximately $700 million and growth in our Medicare Prescription Drug Plan (PDP) business, which used working capital.

Diluted earnings per share (EPS) for the ~~second~~first quarter of 2020 of $0.08, compared to $1.24 for the first quarter of 2019, reflecting an increase of ~~$1.18, compared~~acquisition related expenses due to ~~$0.75 for~~ the ~~second quarter~~closing of ~~2018.~~the WellCare Acquisition.

Adjusted Diluted EPS for the ~~second~~first quarter of ~~2019~~2020 of ~~$1.34,~~$0.86, compared to ~~$0.90~~$1.39 for the ~~second~~first quarter of ~~2018.~~2019. Both diluted EPS and Adjusted Diluted EPS for the first quarter of 2020 have been negatively impacted by $0.05 due to lower investment income and incremental senior note interest expense.

A reconciliation from GAAP Diluted EPS to Adjusted Diluted EPS is highlighted below, and additional detail is provided above under the heading "Non-GAAP Financial Presentation":


	Three Months Ended June 30,				Three Months Ended March 31,
	2019		2018		2020		2019
GAAP diluted EPS	$	1.18	$	0.75
GAAP Diluted EPS, attributable to Centene					$	0.08	$	1.24
Amortization of acquired intangible assets	0.12		0.09		0.23		0.12
Acquisition related expenses	0.04		—		0.49		0.03
Other adjustments ⁽¹⁾	—		0.06		0.06		—
Adjusted Diluted EPS	$	1.34	$	0.90	$	0.86	$	1.39

(1)

Other adjustments include the ~~2018 impact of retroactive changes~~following items for the three months ended March 31, 2020: (a) gain related to the ~~California minimum medical loss ratio.~~divestiture of certain products of our Illinois health plan of $93 million or $0.10 per diluted share, net of an income tax expense of $0.07; (b) non-cash impairment of our third-party care management software business of $72 million or $0.10 per diluted share, net of an income tax benefit of $0.03; and (c) debt extinguishment costs of $44 million or $0.06 per diluted share, net of an income tax benefit of $0.02.

The following items contributed to our growth over the last year:


•	Arkansas. In ~~February 2018,~~March 2019, our Arkansas subsidiary, Arkansas Total Care, ~~began managing~~assumed full-risk on a Medicaid special needs population comprised of people with high behavioral health needs and individuals with developmental/intellectual disabilities. ~~Arkansas Total Care assumed full-risk on this population in March 2019.~~


•	~~Arizona.~~ In October 2018, our Arizona subsidiary, Health Net Access, began providing physical and behavioral healthcare services under a new integrated contract through the Arizona Health Care Cost Containment System Complete Care program in the Central region and the Southern region.

•

Correctional. In July 2019, Centurion began operating under a contract to provide comprehensive healthcare services to inmates housed in Arizona's state prison system. In July 2019, Centurion began operating under a re-awarded contract to continue the provision of mental and dental health services to the Georgia Department of Correction's state prison facilities. In February 2019, Centurion began operating under a new contract to provide comprehensive healthcare services to detainees of the Metropolitan Detention Center located in Albuquerque, New Mexico. ~~In December 2018, Centurion began operating under a new contract to provide comprehensive healthcare services to detainees of Volusia County detention facilities located near Daytona, Florida.~~


•	~~Fidelis Care.~~ ~~In July 2018, we completed the acquisition of substantially all of the assets of Fidelis Care for $3.6 billion of cash consideration, making Fidelis Care Centene's health plan in New York State.~~


•	Florida. In December 2018, our Florida subsidiary, Sunshine Health, began providing physical and behavioral healthcare services through Florida's Statewide Medicaid Managed Care Program under its new five year contract which was implemented for all 11 regions by February 2019.


•	Health Insurance Marketplace. In January ~~2019,~~2020, we expanded our offerings in the ~~2019~~2020 Health Insurance ~~Marketplace. We entered Pennsylvania,~~Marketplace in ten existing markets: Arizona, Florida, Georgia, Kansas, North Carolina, Ohio, South Carolina, Tennessee, Texas, and ~~Tennessee,~~Washington.

•

HealthSmart. In May 2019, we acquired HealthSmart, a third party administrator providing customizable and ~~expanded our footprint in six existing markets: Florida, Georgia, Indiana, Kansas, Missouri~~scalable health plan solutions for self-funded employers, universities and ~~Texas.~~colleges, and Native American Tribal Enterprises. Services include plan administration, care management and wellness programs, network, casualty claim, and pharmacy benefit solutions.

•

Illinois.In ~~January 2018, our Illinois subsidiary, IlliniCare Health,~~February 2020, we began operating in Illinois under ~~a state-wide~~the first phase of an expanded contract for the Medicaid Managed Care Program. ~~Implementation dates varied~~The expanded contract includes children who are in need through the Department of Children and Family Services/Youth Care by ~~region~~Illinois Department of Healthcare and Family Services and Foster Care.


•	Iowa. In July 2019, our Iowa subsidiary, Iowa Total Care, Inc., began operating under a new statewide contract for the ~~contract was fully implemented statewide in April 2018.~~IA Health Link Program.


•	Kansas. In January 2019, our Kansas subsidiary, Sunflower Health Plan, continued providing managed care services to KanCare beneficiaries statewide under a new contract.

•

Louisiana. In January 2020, our Louisiana subsidiary, Louisiana HealthCare Connections, began operating under a one-year emergency contract extension in response to protested contract awards. Louisiana's state procurement officer overturned the Louisiana Department of Health's plan to award Medicaid contracts to four health plans, excluding our Louisiana subsidiary. According to the chief procurement officer, the state health department failed to follow state law or its own evaluation and bid guidelines in its award.


•	Medicare. In January 2020, we expanded our Medicare offerings. We entered Nevada and expanded our footprint in twelve existing markets: Arizona, Arkansas, California, Georgia, Kansas, Louisiana, Missouri, New Mexico, New York, Ohio, Pennsylvania, and Texas.


•	New ~~Mexico.~~Hampshire. In ~~January~~September 2019, our New ~~Mexico~~Hampshire subsidiary, ~~Western Sky Community Care,~~NH Healthy Families, began operating under a new ~~statewide~~five-year contract ~~in New Mexico for the Centennial Care 2.0 Program.~~to continue to provide service to Medicaid enrollees statewide.


•	Pennsylvania. In January ~~2019,~~2018, our Pennsylvania subsidiary, Pennsylvania Health & Wellness, began serving enrollees in the Community HealthChoices program in the Southeast region as part of the statewide contract that ~~is expected to be~~was fully implemented statewide by January 2020.


•	~~Spain.~~ In June 2019, our Spanish subsidiary, Primero Salud, acquired additional ownership in Ribera Salud, increasing our ownership in the Spanish healthcare company from 50% to 90%. In December 2018, Primero Salud acquired 89% of Torrejón Salud, a public-private partnership in the Community of Madrid.


•	QualChoice. In April 2019, we completed the acquisition of QCA Health Plan, Inc. and QualChoice Life and Health Insurance Company, Inc. The acquisition expands our footprint in Arkansas by adding additional members primarily through Commercial products.

•

~~RxAdvance.~~Spain. In December 2019, our Spanish subsidiary, Ribera Salud, acquired 93% of Hospital Povisa, S.A., a private hospital in the Vigo region of Spain. In June 2019, ~~we made an~~our Spanish subsidiary, Primero Salud, acquired additional ~~investment~~ownership in ~~RxAdvance (RxA), bringing~~Ribera Salud, increasing our ownership in the ~~total ownership~~Spanish healthcare company from 50% to ~~approximately 35%~~90%.

•

Washington. In ~~September 2018, we made an additional investment~~January 2019, our Washington State subsidiary, Coordinated Care of Washington, began providing managed care services to Apple Health's Fully Integrated Managed Care beneficiaries in ~~convertible preferred stock. In 2018, we began moving our health plans onto~~ the ~~RxAdvance pharmacy platform, beginning~~Greater Columbia, King and Pierce Regions. This integration continued with the ~~transition~~addition of the North Sound Region in July 2019.

•

WellCare. On January 23, 2020, we completed the WellCare Acquisition. The WellCare Acquisition brings a high-quality Medicare platform and further extends our robust Medicaid offerings. The WellCare Acquisition is a key part of our ~~Mississippi~~growth as we become one of the nation's largest sponsors of government health ~~plan in November 2018.~~coverage. The transaction is valued at approximately $19.6 billion, including the assumption of $1.95 billion of outstanding debt.

The growth items listed above were partially offset by the following items:

In January 2020, in connection with the WellCare Acquisition, we completed the divestiture of certain products in our Illinois health plan, including the Medicaid and Medicare Advantage lines of business.

Effective December 2019, we no longer serve under the state-wide correctional contract in New Mexico.

Beginning January 1, 2019, Health Net of Arizona, Inc. began discontinuing and non-renewing all of its Employer Group plans for small and large business groups in Arizona. The effective date of coverage termination for existing groups is dependent on remaining renewals; however, coverage ~~will~~is no longer be provided to any group policyholders and/or members ~~after~~as of December 31, 2019.

~~Beginning in July 2018, we no longer serve correctional healthcare members in Massachusetts.~~

~~Effective October 2018, we no longer provide healthcare coordination services to veterans under the Patient-Centered Community Care and Veterans Choice Programs.~~

We expect the following items to contribute to our revenue or future growth potential:

We expect to realize the ~~full year~~ benefit in ~~2019~~2020 of acquisitions, investments, and business commenced during ~~2018~~2019 and ~~2019,~~2020, as discussed above.

•

In July 2019, our Oregon subsidiary, Trillium Community Health Plan, was notified by the Oregon Health Authority (OHA) of its intent to award Trillium an expanded contract to serve as a coordinated care organization for six counties in the state. Pending successful completion of OHA's readiness review and additional contract negotiations, the contract is scheduled to begin on January 1, 2020.

In April 2020, Centurion was awarded a contract by the Kansas Department of Administration to provide healthcare services in the Department of Corrections’ facilities. The two-year contract is expected to commence on July 1, 2020 and includes two, two-year renewal options.

•

In March 2019, we signed a definitive Merger Agreement to acquire all of the issued and outstanding shares of WellCare. The transaction is valued at approximately $17.3 billion (based on the Centene closing stock price on March 25, 2019) and is expected to close in the first half of 2020. In June 2019, Centene and WellCare announced the transaction was approved by both the Centene and WellCare shareholders. The transaction is conditioned on clearance under the Hart-Scott Rodino Act, receipt of state regulatory approvals and other customary closing conditions.


•	In March 2019, our New Hampshire subsidiary, NH Healthy Families, was awarded a contract to continue providing Medicaid services to enrollees statewide under a new five-year contract, which is expected to commence September 1, 2019.

In ~~February~~April 2020, Centurion began providing medical services, behavioral healthcare, and substance abuse treatment within four prisons and six community corrections centers across the state of Delaware.

In October 2019, our North Carolina joint venture, Carolina Complete Health, was awarded ~~a contract for~~an additional service area to provide Medicaid managed care services in Region 4. With the ~~Medicaid Managed Care program. Under the agreement,~~addition of this new Region, Carolina Complete Health will provide Medicaid managed care services in ~~Regions~~three contiguous regions: Region 3, 4 and 5. ~~Pending regulatory approval, the new three-year~~In February 2019, WellCare was awarded a statewide contract ~~is effective February 1, 2020.~~

~~In January 2019, Centurion was notified by Arizona’s Department of Corrections of~~to administer the state’s ~~intent~~Medicaid Prepaid Health Plans. The new contracts are expected to ~~award a contract to provide comprehensive healthcare services to inmates housed~~commence in ~~Arizona’s state prison system. The contract commenced July 1, 2019.~~the second half of 2020.

In October 2018, CMS published updated Medicare Star quality ratings for the 2019 rating year. Our Star ratings returned to a 4.0 Star parent rating. The 2019 rating year will positively affect quality bonus payments for Medicare Advantage plans in 2020.

The future growth items listed above are partially offset by the following items:

In October 2019, CMS published updated Medicare Star quality ratings for the 2020 rating year. Approximately 46% of our Medicare members are in a 4 star or above plan for the 2021 bonus year, compared to 86% for the 2020 bonus year. Our quality bonus and rebates may be negatively impacted in 2021.

In July ~~2018, we announced~~2019, our Oregon subsidiary, Trillium Community Health Plan, was notified by the Oregon Health Authority (OHA) of its intent to award Trillium Community Health Plan an expanded contract to serve as a ~~joint venture with Ascension~~coordinated care organization for six counties in the state; however, an additional competitor was added to ~~establish~~Lane County. As a ~~Medicare Advantage plan. The plan~~result, our membership is expected to ~~be implemented in multiple geographic markets beginning in 2020.~~

~~In May 2018, our Iowa subsidiary, Iowa Total Care, Inc., was selected to negotiate a new statewide~~decrease. Pending successful completion of OHA's readiness review and additional contract ~~for~~negotiations, the ~~IA Health Link Program. The~~ contract ~~commenced on July 1, 2019.~~

In January 2018, our Illinois subsidiary, IlliniCare Health, began operating under a state-wide contract for the Medicaid Managed Care Program. The new contract will also include children who are in need through the Department of Children and Family Services/Youth in Care by the Illinois Department of Healthcare and Family Services and Foster Care. These additional products areis expected to ~~be implemented in~~begin July 2020.

MEMBERSHIP

From ~~June 30, 2018~~March 31, 2019 to ~~June 30, 2019,~~March 31, 2020, we increased our managed care membership by ~~2,200,400,~~8,979,700, or ~~17%~~61%. The following table sets forth our membership by line of business:


	June 30, 2019	December 31, 2018	June 30, 2018	March 31, 2020	December 31, 2019	March 31, 2019
Medicaid:
TANF, CHIP & Foster Care	7,388,700	7,356,200	5,852,000	10,259,700	7,528,700	7,491,100
ABD & LTSS	997,900	1,002,100	874,200	1,410,100	1,043,500	1,036,200
Behavioral Health	68,800	36,500	454,600	158,000	66,500	56,000
Total Medicaid	8,455,400	8,394,800	7,180,800	11,827,800	8,638,700	8,583,300
Medicare Prescription Drug Plan (PDP)				4,416,500	—	—
Commercial	2,449,400	1,978,000	2,051,700	2,728,200	2,331,100	2,472,700
Medicare ⁽¹⁾	398,500	416,900	343,800	976,700	404,500	393,900
International	463,100	151,600	—	599,900	599,800	151,600
Correctional	153,900	151,300	157,900	172,000	180,000	153,200
Total at-risk membership	11,920,300	11,092,600	9,734,200	20,721,100	12,154,100	11,754,700
TRICARE eligibles	2,855,800	2,858,900	2,851,500	2,864,800	2,860,700	2,855,800
Non-risk membership	228,100	219,700	218,100	216,200	227,000	211,900
Total	15,004,200	14,171,200	12,803,800	23,802,100	15,241,800	14,822,400

(1) Membership includes Medicare Advantage, Medicare Supplement, Special Needs Plans, and Medicare-Medicaid Plans (MMP).

The following table sets forth additional membership statistics, which are included in the membership information above:


	June 30, 2019	December 31, 2018	June 30, 2018	March 31, 2020	December 31, 2019	March 31, 2019
Dual-eligible⁽²⁾	600,800	598,200	489,500	879,000	639,200	625,600
Health Insurance Marketplace	1,910,700	1,459,100	1,503,100	2,199,300	1,805,200	1,968,700
Medicaid Expansion	1,290,200	1,262,100	1,079,700	1,764,600	1,346,700	1,312,100

(2) Membership includes dual-eligible ABD & LTSS and dual-eligible Medicare membership in the table above.

RESULTS OF OPERATIONS

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,~~March 31, 2020 and 2019, ~~and 2018,~~ prepared in accordance with generally accepted accounting principles in the United States.

Summarized comparative financial data for the three ~~and six~~ months ended ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~ is as follows ($ in millions, except per share data in dollars):


	Three Months Ended June 30,							Six Months Ended June 30,							Three Months Ended March 31,
	2019		2018			% Change 2018-2019		2019		2018			% Change 2018-2019		2020			2019			% Change
Premium	$	16,554	$	12,113		37	%	$	32,757	$	24,016		36	%	$	23,214		$	16,203		43	%
Service	745		762			(2	)%	1,380		1,415			(2	)%	958			635			51	%
Premium and service revenues	17,299		12,875			34	%	34,137		25,431			34	%	24,172			16,838			44	%
Premium tax and health insurer fee	1,057		1,306			(19	)%	2,663		1,944			37	%	1,853			1,606			15	%
Total revenues	18,356		14,181			29	%	36,800		27,375			34	%	26,025			18,444			41	%
Medical costs	14,354		10,380			38	%	28,236		20,419			38	%	20,420			13,882			47	%
Cost of services	615		658			(7	)%	1,159		1,201			(3	)%	825			544			52	%
Selling, general and administrative expenses	1,574		1,237			27	%	3,183		2,553			25	%	2,384			1,609			48	%
Amortization of acquired intangible assets	64		45			42	%	129		84			54	%	166			65			155	%
Premium tax expense	1,106		1,189			(7	)%	2,765		1,735			59	%	1,625			1,659			(2	)%
Health insurer fee expense	—		183			n.m.		—		354			n.m.		345			—			n.m.
Impairment															72			—			n.m.
Earnings from operations	643		489			31	%	1,328		1,029			29	%	188			685			(73	)%
Investment and other income (expense), net	19		(15		)	227	%	19		(42		)	145	%
Investment and other income															167			99			69	%
Debt extinguishment costs															(44		)	—			n.m.
Interest expense															(180		)	(99		)	82	%
Earnings from operations, before income tax expense	662		474			40	%	1,347		987			36	%	131			685			(81	)%
Income tax expense	170		175			(3	)%	336		350			(4	)%	85			166			(49	)%
Net earnings	492		299			65	%	1,011		637			59	%	46			519			(91	)%
Loss attributable to noncontrolling interests	3		1			200	%	6		3			100	%	—			3			n.m.
Net earnings attributable to Centene Corporation	$	495	$	300		65	%	$	1,017	$	640		59	%	$	46		$	522		(91	)%
Diluted earnings per common share attributable to Centene Corporation	$	1.18	$	0.75		57	%	$	2.42	$	1.70		42	%	$	0.08		$	1.24		(94	)%

n.m.: not meaningful

Three Months Ended ~~June 30, 2019~~March 31, 2020 Compared to Three Months Ended ~~June 30, 2018~~March 31, 2019

Total Revenues

The following table sets forth supplemental revenue information for the three months ended ~~June 30,~~March 31, ($ in millions):


	2019		2018		% Change 2018-2019		2020		2019		% Change
Medicaid	$	12,119	$	8,919	36	%	$	17,041	$	12,608	35	%
Commercial	3,872		3,143		23	%	4,119		3,645		13	%
Medicare ⁽¹⁾	1,465		1,203		22	%	3,016		1,382		118	%
Medicare PDP							600		—		n.m.
Other	900		916		(2	)%	1,249		809		54	%
Total Revenues	$	18,356	$	14,181	29	%	$	26,025	$	18,444	41	%
													(1) Medicare includes Medicare Advantage, Medicare Supplement, Special Needs Plans, and MMP.
n.m.: not meaningful							n.m.: not meaningful

Total revenues increased ~~29%~~41% in the three months ended ~~June 30, 2019~~March 31, 2020 over the corresponding period in ~~2018, primarily~~2019, due to the acquisition of ~~Fidelis Care,~~WellCare, growth in the Health Insurance Marketplace business, expansions and new programs in many of our states throughout 2019 and 2020, particularly Iowa and Pennsylvania, and the reinstatement of the health insurer fee in ~~2018 and 2019, particularly Arkansas, New Mexico, and Pennsylvania. These increases were~~2020, partially offset by the divestiture of our Illinois health ~~insurer fee moratorium in 2019.~~plan and the timing of pass through payments from the state of New York. During the three months ended March 31, 2020, we received premium rate adjustments that yielded a net 1% composite change across all of our markets.

Operating Expenses

Medical Costs

Results of operations depend on our ability to manage expenses associated with health benefits and to accurately estimate costs incurred. The health benefits ratio, or HBR, represents medical costs as a percentage of premium revenues (excluding premium tax and health insurer fee revenues that are separately billed) and reflects the direct relationship between the premium received and the medical services provided.

The HBR for the three months ended ~~June 30, 2019~~March 31, 2020, was ~~86.7%~~88.0%, compared to 85.7% in the same period in ~~2018.~~2019. The year-over-year increase was ~~primarily~~ attributable to the Health Insurance Marketplace business where margins ~~have normalized,~~continue to normalize, as ~~expected, from the favorable performance in 2018.~~expected. The increase ~~was~~ also ~~due to~~includes the acquisition of WellCare and new or expanded markets, which initially operate at a higher HBR. These increases were partially offset by the reinstatement of the health insurer ~~fee moratorium and the acquisition of Fidelis Care, which operates at a higher HBR.~~fee.

Cost of Services

Cost of services ~~decreased~~increased by ~~$43~~$281 million in the three months ended ~~June 30, 2019~~March 31, 2020, compared to the corresponding period in ~~2018. The cost of services decrease is~~2019, primarily attributable to ~~the Veterans Affairs contract expiration, effective October 2018, partially offset by the operations of~~an increase in specialty pharmacy volume, pharmacy sales to our recently divested Illinois health plan, and growth from newly acquired businesses.

The cost of service ratio for the three months ended ~~June 30, 2019,~~March 31, 2020, was ~~82.6%~~86.1%, compared to ~~86.4%~~85.7% in the same period in ~~2018.~~2019. The ~~decrease~~increase in the cost of service ratio was ~~primarily due to the previously mentioned Veterans Affairs contract expiration.~~driven by a higher mix of specialty pharmacy business, which carries a higher cost of service ratio.

Selling, General & Administrative Expenses

Selling, general and administrative expenses, or SG&A, increased by ~~$337~~$775 million in the three months ended ~~June 30, 2019,~~March 31, 2020, compared to the corresponding period in ~~2018.~~2019. The SG&A increase was primarily ~~attributable~~due to the addition of the WellCare business and $295 million of acquisition ~~of Fidelis Care, expansions, new programs, and growth in many of our states in 2018 and 2019, including growth~~related costs in the ~~Health Insurance Marketplace business.~~first quarter of 2020.

The SG&A expense ratio was ~~9.1%~~9.9% for the ~~second~~first quarter of ~~2019,~~2020, compared to 9.6% in the ~~second~~first quarter of ~~2018.~~2019. The increase to the SG&A expense ratio was driven by higher acquisition related expenses due to the closing of the WellCare acquisition, partially offset by the addition of the WellCare business, which operates at a lower SG&A ratio. The Adjusted SG&A expense ratio was ~~9.0%~~8.6% for the ~~second~~first quarter of ~~2019,~~2020, compared to ~~9.6%~~9.5% in the ~~second~~first quarter of ~~2018.~~2019. The ~~SG&A and~~ Adjusted SG&A expense ~~ratios both decreased due to~~ratio benefited from the ~~acquisition~~addition of ~~Fidelis Care,~~the WellCare business, which operates at a lower SG&A ~~expense ratio.~~ratio, and the leveraging of expenses over higher revenues.

Health Insurer Fee Expense

~~As a result of the HIF moratorium, which suspended the health insurance provider~~Health insurer fee ~~for the 2019 calendar year, we did not record HIF~~ expense was $345 million for the three months ended ~~June 30, 2019, compared to $183 million in the corresponding period in 2018.~~

~~Other Income (Expense)~~

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

2019 2018
Investment and other income $ 120
$ 65
Interest expense (101 ) (80 )
Other income (expense), net $ 19
$ (15 )

Investment and other income increased by $55 million in the three months ended June 30, 2019 compared to the corresponding period in 2018. This reflects increased investment balances over 2018, including the impact of higher investment balances as a result of the Fidelis Care acquisition, higher interest rates, and the Ribera Salud acquisition gain of $16 million. Interest expense increased by $21 million in the three months ended June 30, 2019, compared to the corresponding period in 2018, reflecting a net increase in borrowings, primarily related to the financing of the Fidelis Care acquisition, and the effect of our interest rate swaps.

~~Income Tax Expense~~

For the three months ended June 30, 2019, we recorded income tax expense of $170 million on pre-tax earnings of $662 million, or an effective tax rate of 25.7%, which reflects the impact of the health insurer fee moratorium. For the three months ended June 30, 2018, we recorded income tax expense of $175 million on pre-tax earnings of $474 million, or an effective tax rate of 36.9%, which reflects the non-deductibility of the health insurer fee.

~~Segment Results~~

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

2019 2018 % Change 2018-2019
Total Revenues
Managed Care $ 17,546
$ 13,309
32 %
Specialty Services 3,403
3,236
5 %
Eliminations (2,593 ) (2,364 ) (10 )%
Consolidated Total $ 18,356
$ 14,181
29 %
Earnings from Operations

Managed Care $ 587
$ 421
39 %
Specialty Services 56
68
(18 )%
Consolidated Total $ 643
$ 489
31 %

~~Managed Care~~

Total revenues increased 32% in the three months ended June 30, 2019, compared to the corresponding period in 2018, primarily due to the acquisition of Fidelis Care, growth in the Health Insurance Marketplace business, expansions and new programs in many of our states in 2018 and 2019, particularly Arkansas, New Mexico, and Pennsylvania. These increases were partially offset by the health insurer fee moratorium in 2019. Earnings from operations increased $166 million between years primarily as a result of the acquisition of Fidelis Care and growth in the Health Insurance Marketplace business, partially offset by the health insurer fee moratorium in 2019.

~~Specialty Services~~

Total revenues increased 5% in the three months ended June 30, 2019, compared to the corresponding period in 2018, resulting primarily from increased services associated with membership growth in the Managed Care segment and acquisitions, partially offset by the Veterans Affairs contract expiration, effective October 2018. Earnings from operations decreased 18% in the three months ended June 30, 2019, compared to the corresponding period in 2018, primarily due to our transition to transparent pharmacy pricing. This decrease is offset by higher earnings in our Managed Care segment and reflects our commitment to transparency and more closely aligns the costs of care within each segment. It also aligns with our ongoing transition to the next generation RxAdvance pharmacy platform.

~~Six Months Ended June 30, 2019 Compared to Six Months Ended June 30, 2018~~

~~Total Revenues~~

~~The following table sets forth supplemental revenue information for the six months ended June 30, ($ in millions):~~

2019 2018 % Change 2018-2019
Medicaid $ 24,727
$ 17,124
44 %
Commercial 7,517
6,206
21 %
Medicare ⁽¹⁾
2,848
2,365
20 %
Other 1,708
1,680
2 %
Total Revenues $ 36,800
$ 27,375
34 %

(1) Medicare includes Medicare Advantage, Medicare Supplement, Special Needs Plans, and MMP.

Total revenues increased 34% in the six months ended June 30, 2019 over the corresponding period in 2018 primarily due to the acquisition of Fidelis Care, growth in the Health Insurance Marketplace business, expansions and new programs in many of our states in 2018 and 2019, particularly Arkansas, Florida, Illinois, and Pennsylvania. These increases were partially offset by the health insurer fee moratorium in 2019. Total revenues also increased due to pass through payments, including approximately $535 million from the State of New York and approximately $370 million from the State of California that were recorded in premium tax revenue and premium tax expense. During the six months ended June 30, 2019, we received premium rate adjustments which yielded a net 1% composite change across all of our markets.

~~Operating Expenses~~

~~Medical Costs~~

The HBR for the six months ended June 30, 2019 was 86.2%, compared to 85.0% in the same period in 2018. The increase was primarily attributable to the Health Insurance Marketplace business where margins have normalized, as expected, from the favorable performance in 2018. The increase was also due to the health insurer fee moratorium and the acquisition of Fidelis Care, which operates at a higher HBR.

~~Cost of Services~~

Cost of services decreased by $42 million in the six months ended June 30, 2019, compared to the corresponding period in 2018. The cost of services decrease is primarily attributable to the Veterans Affairs contract expiration, effective October 2018, partially offset by the operations of newly acquired businesses.

The cost of service ratio for the six months ended June 30, 2019, was 84.0%, compared to 84.9% in the same period in 2018. The decrease in the cost of service ratio was primarily due to the previously mentioned Veterans Affairs contract expiration.

~~Selling, General & Administrative Expenses~~

SG&A increased by $630 million in the six months ended June 30, 2019, compared to the corresponding period in 2018. The SG&A increase was primarily attributable to the acquisition of Fidelis Care, expansions, new programs, and growth in many of our states in 2018 and 2019, including growth in the Health Insurance Marketplace business.

The SG&A expense ratio for the six months ended June 30, 2019 was 9.3%, compared to 10.0% for the corresponding period in 2018. The Adjusted SG&A expense ratio for the six months ended June 30, 2019 was 9.2%, compared to 10.0% for the six months ended June 30, 2018. Both ratios decreased due to the acquisition of Fidelis Care, which operates at a lower SG&A expense ratio.

~~Health Insurer Fee Expense~~

March 31, 2020. As a result of the health insurer fee moratorium, which suspended the health insurance provider fee for the 2019 calendar year, we did not record ~~HIF~~health insurer fee expense for ~~the six months ended June 30, 2019, compared to $354 million in~~ the corresponding period in ~~2018.~~2019.

Impairment

During the first quarter of 2020, we recorded $72 million of a non-cash impairment of our third-party care management software business.

Other Income (Expense)

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


	2019			2018			2020			2019
Investment and other income	$	219		$	106		$	167		$	99
Debt extinguishment costs							(44		)	—
Interest expense	(200		)	(148		)	(180		)	(99		)
Other income (expense), net	$	19		$	(42	)	$	(57	)	$	—

Investment and other income.Investment and other income increased by ~~$113~~$68 million in the ~~six~~three months ended ~~June 30, 2019~~March 31, 2020 compared to the corresponding period in ~~2018.~~2019. The increase ~~in investment income in 2019 reflects~~was due to a $93 million gain related to the divestiture of certain products of our Illinois health plan as part of the previously announced divestiture agreements associated with the WellCare Acquisition as well as overall higher investment ~~balances over 2018, including~~balances. This was partially offset by a decline in the ~~impact~~performance of ~~higher investment balances as a result of the Fidelis Care acquisition, higher interest rates, the Ribera Salud acquisition gain of $16 million, and improved performance associated with~~ our deferred compensation investment fund portfolio and our exchange traded funds, which ~~fluctuates~~both fluctuate with ~~its~~their underlying investments. The ~~earnings~~losses from our deferred compensation portfolio were substantially offset by ~~increases~~decreases in deferred compensation expense, recorded in SG&A expense.

Debt extinguishment costs. In February 2020, we redeemed all of our outstanding $1.0 billion 6.125% Senior Notes, due February 15, 2024 (the 2024 Notes) and recognized a pre-tax loss on extinguishment of approximately $44 million. The loss includes the call premium, the write-off of unamortized debt issuance costs and the loss on the termination of the $1.0 billion interest rate swap associated with the 2024 Notes.

Interest expense. Interest expense increased by ~~$52~~$81 million in the ~~six~~three months ended ~~June 30, 2019,~~March 31, 2020 compared to the corresponding period in ~~2018, reflecting a net~~2019. The increase is driven by an increase in borrowings ~~primarily~~ related to the ~~financing~~issuance of an additional $7.0 billion in senior notes in December 2019 to finance the cash consideration of the ~~Fidelis Care acquisition and~~WellCare Acquisition. The increase was also driven by incremental interest expense related to our decision to defer the ~~effect~~redemption of our ~~interest rate swaps.~~$1.0 billion 2022 Senior Notes as well as incremental borrowings on our revolving credit facility, both as measures to preserve liquidity due to the economic environment created by COVID-19.

Income Tax Expense

For the ~~six~~three months ended ~~June 30,~~March 31, 2020, we recorded income tax expense of $85 million on pre-tax earnings of $131 million, or an effective tax rate of 64.9%, driven by the reinstatement of the health insurer fee in 2020, the non-deductibility of certain acquisition related expenses, and the tax impact associated with the Illinois divestiture. For the three months ended March 31, 2019, we recorded income tax expense of ~~$336~~$166 million on pre-tax earnings of ~~$1,347~~$685 million, or an effective tax rate of ~~24.9%~~24.2%, which reflects the ~~impact of the~~ health insurer fee moratorium and a 75 basis point reduction due to the favorable resolution of an outstanding audit in the first quarter of 2019. For the six months ended June 30, 2018, we recorded income tax expense of $350 million on pre-tax earnings of $987 million, or an effective tax rate of 35.5%, which reflects the impact of the non-deductibility of the health insurer fee.moratorium.

Segment Results

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


	2019			2018			% Change 2018-2019		2020			2019			% Change
Total Revenues
Managed Care	$	35,268		$	25,784		37	%	$	25,036		$	17,722		41	%
Specialty Services	6,610			6,211			6	%	3,903			3,206			22	%
Eliminations	(5,078		)	(4,620		)	(10	)%	(2,914		)	(2,484		)	(17	)%
Consolidated Total	$	36,800		$	27,375		34	%	$	26,025		$	18,444		41	%
Earnings from Operations
Managed Care	$	1,202		$	891		35	%	$	217		$	615		(65	)%
Specialty Services	126			138			(9	)%	(29		)	70			(141	)%
Consolidated Total	$	1,328		$	1,029		29	%	$	188		$	685		(73	)%

Managed Care

Total revenues increased ~~37%~~41% in the ~~six~~three months ended ~~June 30, 2019,~~March 31, 2020, compared to the corresponding period in ~~2018, primarily~~2019, due to the acquisition of ~~Fidelis Care,~~WellCare, growth in the Health Insurance Marketplace business, expansions and new programs in many of our states throughout 2019 and 2020, particularly Iowa and Pennsylvania, and the reinstatement of the health insurer fee in ~~2018 and 2019, particularly Arkansas, Florida, Illinois, and Pennsylvania. These increases were~~2020, partially offset by the divestiture of our Illinois health ~~insurer fee moratorium in 2019. Total revenues also increased due to~~plan and the timing of pass through payments ~~including approximately $535 million~~ from the ~~State~~state of New ~~York and approximately $370 million from the State of California that were recorded in premium tax revenue and premium tax expense.~~York. Earnings from operations ~~increased $311~~decreased $398 million between years, primarily as a result of ~~the~~higher acquisition ~~of Fidelis Care~~related expenses and ~~growth~~normalized margins in the Health Insurance Marketplace business, partially offset by the reinstatement of the health insurer fee ~~moratorium~~ in ~~2019.~~2020.

Specialty Services

Total revenues increased 6%22% in the ~~six~~three months ended ~~June 30, 2019,~~March 31, 2020, compared to the corresponding period in ~~2018,~~2019, resulting primarily from increased services associated with membership growth in the Managed Care segment, acquisitions, increased volume in our specialty pharmacy business, and ~~acquisitions, partially offset by the previously mentioned Veterans Affairs contract expiration.~~sales to our recently divested Illinois business. Earnings from operations decreased 9%$99 million in the ~~six~~three months ended ~~June 30, 2019,~~March 31, 2020, compared to the corresponding period in ~~2018, primarily~~2019, due to the previously discussed $72 million impairment related to our ~~transition~~third-party care management software business and our move to transparent pharmacy ~~pricing. This decrease is offset by higher earnings~~pricing which began in ~~our Managed Care segment and reflects our commitment to transparency and more closely aligns~~ the ~~costs~~second quarter of ~~care within each segment. It also aligns with our ongoing transition to the next generation RxAdvance pharmacy platform.~~ 2019.

LIQUIDITY AND CAPITAL RESOURCES

Shown below is a condensed schedule of cash flows used in the discussion of liquidity and capital resources ($ in millions).


	Six Months Ended June 30,						Three Months Ended March 31,
	2019			2018			2020			2019
Net cash provided by operating activities	$	2,233		$	1,320
Net cash (used in) provided by operating activities							$	(240	)	$	1,316
Net cash used in investing activities	(929		)	(1,253		)	(3,272		)	(373		)
Net cash provided by financing activities	236			4,378			839			58
Effect of exchange rate changes on cash and cash equivalents	2			—			(1		)	—
Net increase in cash, cash equivalents, and restricted cash and cash equivalents	$	1,542		$	4,445
Net increase (decrease) in cash, cash equivalents, and restricted cash and cash equivalents							$	(2,674	)	$	1,001

Cash Flows Provided by Operating Activities

Normal operations are funded primarily through operating cash flows and borrowings under our revolving credit facility. Operating activities ~~provided~~used cash of ~~$2.2 billion~~$240 million in the ~~six~~three months ended ~~June 30, 2019~~March 31, 2020 compared to providing cash of $1.3 billion in the comparable period in ~~2018. The~~2019. Operating cash flow in 2020 was negatively affected by a delay in premium payments from the state of New York of approximately $700 million and growth in our Medicare PDP business, which used working capital.

Cash flows provided by ~~operating activities~~operations in 2019 was due to net earnings, an increase in medical claims liabilities, primarily resulting from growth in the Health Insurance Marketplace business, the commencement or expansion of the Arkansas, Florida, Pennsylvania and New Mexico health plans, and an increase in other long-term liabilities, driven by the recognition of the risk adjustment payable for Health Insurance Marketplace in 2019, and an increase in medical claims liabilities, primarily resulting from growth in the Health Insurance Marketplace business and the commencement or expansion of the Arkansas, Florida, Pennsylvania and New Mexico health plans.

Cash flows provided by operations in 2018 was primarily due to net earnings, an increase in other long-term liabilities, driven by the recognition of risk adjustment payable for Health Insurance Marketplace in 2018, and an increase in medical claims liabilities, primarily resulting from growth in the Health Insurance Marketplace business. Cash provided by operations was also driven by increases in unearned revenue, due to the receipt of several July capitation payments received in June.2019. Cash flows from operations were partially offset by an increase in premium and trade receivables, ~~of $553 million,~~ primarily due to ~~an increase~~a delay in ~~receivables~~payment from ~~several~~one of our ~~federal and~~ state customers and a decrease in accounts payable and accrued expenses due to the repayment of approximately $630 million of Medicaid expansion rate overpayments in California, which was previously accrued.customers.

Cash flows from operations in each year ~~were~~can be impacted by the timing of payments we receive from our states. As we have seen historically, states may prepay the following month premium payment, which we record as unearned revenue, or they may delay our premium payment, which we record as a receivable. We typically receive capitation payments monthly; however, the states in which we operate may decide to adjust their payment schedules which could positively or negatively impact our reported cash flows from operating activities in any given period.

Cash Flows Used in Investing Activities

Investing activities used cash of ~~$929 million~~$3.3 billion for the ~~six~~three months ended ~~June 30, 2019,~~March 31, 2020, and ~~$1,253~~$373 million in the comparable period in ~~2018.~~ 2019. Cash flows used in investing activities in 2020 primarily consisted of our acquisition of WellCare and net additions to the investment portfolio of our regulated subsidiaries (including transfers from cash and cash equivalents to long-term investments), partially offset by divestiture proceeds.

In January 2020, we completed the acquisition of WellCare for $19.6 billion, including the assumption of debt. Total consideration for the acquisition was $17.6 billion, consisting of Centene common shares valued at $11.4 billion, $6.1 billion in cash, and $95 million related to the fair value of replacement equity awards associated with pre-combination service.

Cash flows used in investing activities in 2019 primarily consisted of the net additions to the investment portfolio of our regulated subsidiaries (including transfers from cash and cash equivalents to long-term investments)~~, capital expenditures and acquisitions.~~

Cash flows used in investing activities in 2018 primarily consisted of the net additions to the investment portfolio of our regulated subsidiaries, including transfers from cash and cash equivalents to long-term investments, the acquisitions of CMG and MHM, the investment in RxAdvance, and capital expenditures.

We spent ~~$336~~$177 million and ~~$362~~$176 million in the ~~six~~three months ended ~~June 30,~~March 31, 2020 and 2019, ~~and 2018,~~ respectively, on capital expenditures for system enhancements, ~~and~~ market growth, and corporate headquarters expansions.

As of ~~June 30, 2019,~~March 31, 2020, our investment portfolio consisted primarily of fixed-income securities with an average duration of ~~3.2~~3.0 years. We had unregulated cash and investments of ~~$801 million~~$2.9 billion at ~~June 30, 2019,~~March 31, 2020, compared to ~~$478 million~~$7.2 billion at December 31, ~~2018.~~2019. Of the $2.9 billion, $2.0 billion represents cash and cash equivalents held by unregulated entities.

Cash Flows Provided by Financing Activities

Our financing activities provided cash of ~~$236~~$839 million in the ~~six~~three months ended ~~June 30, 2019,~~March 31, 2020, compared to ~~a $4,378~~$58 million in the comparable period in ~~2018.~~2019. During 2020 and 2019, our net financing activities ~~primarily related~~were due to increased borrowings, on our revolving credit agreement. During 2018, our net financing activities primarily related to our offering of $2.86 billion in shares of common stock, par value $0.001 per share, and approximately $1.8 billion of new long-term debt. Proceeds from both offerings were used to fund the Fidelis Care Acquisition, which closed on July 1, 2018, to pay related fees and expenses, and for general corporate purposes, including the repayment of outstanding indebtedness. Cash flows provided by financing activities were partially offset by ~~the purchase of noncontrolling interest.~~common stock repurchases.

Liquidity Metrics

In ~~May 2019,~~connection with the WellCare Acquisition, in January 2020, we ~~amended~~completed an exchange offer for $1.2 billion of 5.25% Senior Notes due 2025 and ~~restated~~$750 million of 5.375% Senior Notes due 2026 (collectively, the WellCare Notes) issued by WellCare and issued $1.1 billion aggregate principal amount of 5.25% Senior Notes due 2025 and $747 million aggregate principal amount of 5.375% Senior Notes due 2026. Additionally, our ~~unsecured revolving credit facility~~wholly owned subsidiary, WellCare Health Plans, Inc., assumed the remaining unexchanged WellCare Notes.

In February 2020, we issued $2.0 billion 3.375% Senior Notes due 2030 (the 2030 Notes). We used the net proceeds from the 2030 Notes to ~~among other things, increase~~redeem all of our outstanding 2024 Notes. We recognized a pre-tax loss on extinguishment of approximately $44 million, including the ~~revolving commitments thereunder from $1,500 million~~call premium, the write-off of unamortized debt issuance costs and a loss on the termination of the $1.0 billion interest rate swap associated with the 2024 Notes. We also intended to ~~$2,000 million.~~use remaining proceeds to redeem our $1.0 billion 4.75% Senior Notes due 2022 (the 2022 Notes). However, as a result of the spread of COVID-19 and the resulting disruption and volatility in the global capital markets, we deferred the redemption of the 2022 Notes at this time.

During the three months ended March 31, 2020, the Company terminated the interest rate swap agreements associated with the 2022 Notes and the Senior Notes due January 15, 2025, (the 2025 Notes). The ~~agreement has~~interest rate swaps associated with the 2024 Notes were also terminated in connection with the redemption of those notes as discussed above. In total, the Company terminated three interest rate swap contracts with a ~~maturity date~~notional amount of ~~May 7, 2024. At our option, borrowings under the credit agreement will bear interest at LIBOR, EURIBOR, CDOR, BBR or base rates plus, in each case, an applicable margin.~~$2.1 billion.

The credit agreement underlying our ~~revolving credit facility~~Revolving Credit Facility and Term Loan Facility contains customary covenants as well as financial covenants including a minimum fixed charge coverage ratio and a maximum debt-to-EBITDA ratio. Our maximum debt-to-EBITDA ratio under the credit agreement may not exceed ~~3.5~~4.0 to 1.0. As of ~~June 30, 2019,~~March 31, 2020, we had ~~$513~~$588 million of borrowings outstanding under our ~~revolving credit facility,~~Revolving Credit Facility, $1.45 billion of borrowings under our Term Loan Facility, and we were in compliance with all covenants. As of ~~June 30, 2019,~~March 31, 2020, there were no limitations on the availability ~~under the revolving credit agreement~~of our Revolving Credit Facility as a result of the debt-to-EBITDA ratio.

We have a $200 million non-recourse construction loan to fund the expansion of our corporate headquarters. The loan bears interest based on the one month LIBOR plus 2.70% and matures in April 2021 with an optional one-year extension. The agreement contains financial and non-financial covenants aligning with our revolving credit agreement. We have guaranteed completion of the construction project associated with the loan. As of ~~June 30, 2019,~~March 31, 2020, we had ~~$102~~$149 million in borrowings outstanding under the loan.

We had outstanding letters of credit of ~~$56~~$114 million as of ~~June 30, 2019,~~March 31, 2020, which were not part of our revolving credit facility. We also had letters of credit for ~~$27~~$13 million (valued at the ~~June 30, 2019~~March 31, 2020 conversion rate), or ~~€24~~€12 million, representing our proportional share of the letters of credit issued to support Ribera Salud’s outstanding debt which are a part of the revolving credit facility. Collectively, the letters of credit bore weighted interest of ~~0.9%~~0.7% as of ~~June 30, 2019.~~March 31, 2020. In addition, we had outstanding surety bonds of ~~$566~~$920 million as of ~~June 30, 2019.~~March 31, 2020.

The indentures governing our various maturities of senior notes contain restrictive covenants. As of ~~June 30, 2019,~~March 31, 2020, we were in compliance with all covenants.

At ~~June 30, 2019,~~March 31, 2020, we had working capital, defined as current assets less current liabilities, of ~~$943 million,~~$3.0 billion, compared to ~~$27 million~~$7.4 billion at December 31, ~~2018.~~2019. We manage our short-term and long-term investments with the goal of ensuring that a sufficient portion is held in investments that are highly liquid and can be sold to fund short-term requirements as needed.

At ~~June 30, 2019,~~March 31, 2020, our debt to capital ratio, defined as total debt divided by the sum of total debt and total equity, was ~~36.8%~~42.2%, compared to ~~37.8%~~52.0% at December 31, ~~2018.~~2019. Excluding ~~$158~~$202 million of non-recourse debt, our debt to capital ratio was ~~36.3%~~41.9% as of ~~June 30, 2019,~~March 31, 2020, compared to ~~37.4%~~51.7% at December 31, ~~2018.~~2019. We utilize the debt to capital ratio as a measure, among others, of our leverage and financial flexibility.

~~2019~~2020 Expectations

During the remainder of ~~2019,~~2020, we expect to receive net dividends from our insurance subsidiaries of approximately ~~$15~~$210 million and spend approximately ~~$350~~$950 million in additional capital expenditures primarily associated with system enhancements and market and corporate headquarters expansions. These amounts are expected to be funded by unregulated cash flow generation in ~~2019~~2020 and borrowings on our Revolving Credit Facility and construction loan. However, from time to time we may elect to raise additional funds for these and other purposes, either through issuance of debt or equity, the sale of investment securities or otherwise, as appropriate. In addition, we may strategically pursue refinancing or redemption opportunities to extend maturities and/or improve terms of our indebtedness if we believe such opportunities are favorable to us.

In addition, on March 26, 2019, we entered into a definitive Merger Agreement with WellCare, under which Centene will acquire all of the issued and outstanding shares of WellCare. Under the terms of the agreement, at the closing of the transaction, WellCare common stock will be automatically canceled and converted into the right to 3.38 of validly issued, fully paid, nonassessable shares of Centene common stock and $120.00 in cash, without interest, for each share of WellCare common stock. The transaction is valued at approximately $17.3 billion, including existing WellCare debt (based on the Centene closing stock price on March 25, 2019), and is expected to close by the first half of 2020. In June 2019, Centene and WellCare announced the transaction was approved by both the Centene and WellCare stockholders. The transaction is conditioned on clearance under the Hart-Scott Rodino Act, receipt of state regulatory approvals and other customary closing conditions. We have an $8.4 billion financing commitment, but intend to fund the cash portion of the acquisition primarily through debt financing in advance of the closing date.

Based on our operating plan, we expect that our available cash, cash equivalents and investments, cash from our operations and cash available under our Revolving Credit Facility will be sufficient to finance our general operations and capital expenditures for at least 12 months from the date of this filing.While we are currently in a strong liquidity position and believe we have adequate access to capital, we may elect to increase borrowings on our Revolving Credit Facility, and we have deferred the intended early redemption of the 2022 Notes as a result of the spread of COVID-19 and the related disruption and volatility in the global capital markets.

Contractual Obligations

Our contractual obligations, including medical claims liabilities, debt and interest, and lease obligations were significantly impacted due to the WellCare Acquisition, which closed in the first quarter of 2020. For additional information regarding the WellCare Acquisition and the impact to our estimated contractual obligations, refer to Note 2. Acquisitions, Note 5. Medical Claims Liability, Note 7. Debt and Note 8. Leases, included in Part I, Item 1. "Notes to the Consolidated Financial Statements" of this filing.

REGULATORY CAPITAL AND DIVIDEND RESTRICTIONS

Our operations are conducted through our subsidiaries. As managed care organizations, most of our subsidiaries are subject to state regulations and other requirements that, among other things, require the maintenance of minimum levels of statutory capital, as defined by each state, and restrict the timing, payment and amount of dividends and other distributions that may be paid to us. Generally, the amount of dividend distributions that may be paid by a regulated subsidiary without prior approval by state regulatory authorities is limited based on the entity’s level of statutory net income and statutory capital and surplus.

Our regulated subsidiaries are required to maintain minimum capital requirements prescribed by various regulatory authorities in each of the states in which we operate. As of June 30, 2019, our subsidiaries had aggregate statutory capital and surplus of $8,282 million, compared with the required minimum aggregate statutory capital and surplus requirements of $3,680 million. During the ~~six~~three months ended ~~June 30, 2019,~~March 31, 2020, we made net capital contributions of ~~$64~~$181 million to our regulated subsidiaries. For our subsidiaries that file with the National Association of Insurance Commissioners (NAIC), ~~we estimate our~~the aggregate RBC ~~percentage to be~~level as of December 31, 2019, which was the most recent date for which reporting was required, was in excess of 350% of the Authorized Control Level. We intend to continue to maintain an aggregate RBC level in excess of 350% of the Authorized Control Level during 2020 (excluding the interim impact of the health insurer fee).

Under the California Knox-Keene Health Care Service Plan Act of 1975, as amended (“Knox-Keene”), certain of our California subsidiaries must comply with tangible net equity (TNE) requirements. Under these Knox-Keene TNE requirements, actual net worth less unsecured receivables and intangible assets must be more than the greater of (i) a fixed minimum amount, (ii) a minimum amount based on premiums or (iii) a minimum amount based on healthcare expenditures, excluding capitated amounts. In addition, certain of our California subsidiaries have made certain undertakings to the California Department of Managed Health Care (DMHC) to restrict dividends and loans to affiliates, to the extent that the payment of such would reduce such entities' TNE below the required amount as specified in the undertaking.

Under the New York State Department of Health Codes, Rules and Regulations Title 10, Part 98, our New York subsidiary must comply with contingent reserve requirements. Under these requirements, net worth based upon admitted assets must equal or exceed a minimum amount based on annual net premium income.

The NAIC has adopted rules which set minimum risk based capital requirements for insurance companies, managed care organizations and other entities bearing risk for healthcare coverage. As of ~~June 30, 2019,~~March 31, 2020, each of our health plans was in compliance with the risk-based capital requirements enacted in those states.

As a result of the above requirements and other regulatory requirements, certain of our subsidiaries are subject to restrictions on their ability to make dividend payments, loans or other transfers of cash to their parent companies. Such restrictions, unless amended or waived or unless regulatory approval is granted, limit the use of any cash generated by these subsidiaries to pay our obligations. The maximum amount of dividends that can be paid by our insurance company subsidiaries without prior approval of the applicable state insurance departments is subject to restrictions relating to statutory surplus, statutory income and unassigned surplus. ~~As of June 30, 2019, the amount of capital and surplus or net worth that was unavailable for the payment of dividends or return of capital to us was $3,680 million in the aggregate.~~

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk.

INVESTMENTS AND DEBT

As of ~~June 30, 2019,~~March 31, 2020, we had short-term investments of ~~$765~~$1,386 million and long-term investments of ~~$8,262~~$11,535 million, including restricted deposits of ~~$630~~$1,014 million. The short-term investments generally consist of highly liquid securities with maturities between three and 12 months. The long-term investments consist of municipal, corporate and U.S. Treasury securities, government sponsored obligations, life insurance contracts, ~~asset backed~~asset-backed securities and equity securities and have maturities greater than one year. Restricted deposits consist of investments required by various state statutes to be deposited or pledged to state agencies. Due to the nature of the states’ requirements, these investments are classified as long-term regardless of the contractual maturity date. Substantially all of our investments are subject to interest rate risk and will decrease in value if market rates increase. Assuming a hypothetical and immediate 1% increase in market interest rates at ~~June 30, 2019,~~March 31, 2020, the fair value of our fixed income investments would decrease by approximately ~~$263~~$323 million. Declines in interest rates over time, including those that have occurred as markets experienced volatility related to the COVID-19 pandemic, will reduce our investment income.

We have interest rate swap agreements for a notional amount of $2,700 million with creditworthy financial institutions to manage the impact of market interest rates on interest expense. Our swap agreements convert a portion of our interest expense from fixed to variable rates to better match the impact of changes in market rates on our variable rate cash equivalent investments. As a result, the fair value of $2,700 million of our long-term debt varies with market interest rates. Assuming a hypothetical and immediate 1% increase in market interest rates at June 30, 2019, the fair value of our debt would decrease by approximately $86 million. An increase in interest rates decreases the fair value of the debt and conversely, a decrease in interest rates increases the value.

For a discussion of the interest rate risk that our investments are subject to, see “Risk Factors – Our investment portfolio may suffer losses which could materially and adversely affect our results of operations or liquidity.”

~~INFLATION~~

Historically, the inflation rate for medical care costs has been higher than the overall inflation rate for all items. We use various strategies to mitigate the negative effects of healthcare cost inflation. Specifically, our health plans try to control medical and hospital costs through our state savings initiatives and contracts with independent providers of healthcare services. Through these contracted care providers, our health plans emphasize preventive healthcare and appropriate use of specialty and hospital services. Additionally, our contracts with states require actuarially sound premiums that include healthcare cost trend.

While we currently believe our strategies to mitigate healthcare cost inflation will continue to be successful, competitive pressures, new healthcare and pharmaceutical product introductions, demands from healthcare providers and customers, applicable regulations, an increase in the expected rate of inflation for healthcare costs or other factors may affect our ability to control the impact of healthcare cost increases.

ITEM 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures - We maintain disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (Exchange Act) that are designed to provide reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in SEC rules and forms; and (ii) accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

In connection with the filing of this Form 10-Q, management evaluated, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of the design and operation of our disclosure controls and procedures as of ~~June 30, 2019.~~March 31, 2020. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of ~~June 30, 2019.~~March 31, 2020.

Changes in Internal Control Over Financial Reporting - No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the quarter ended ~~June 30, 2019~~March 31, 2020 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

On January 23, 2020, we acquired WellCare. Management is currently in the process of evaluating the internal controls and procedures of WellCare and plans to integrate WellCare's internal controls over financial reporting with our existing internal controls over financial reporting. This integration may lead to changes in the internal controls over financial reporting for us or the acquired WellCare business in future periods. Management expects the integration process to be completed during 2020.

PART II

OTHER INFORMATION

ITEM 1. Legal Proceedings.

A description of the legal proceedings to which the Company and its subsidiaries are a party is contained in Note 1112 to the consolidated financial statements included in Part I of this Quarterly Report on Form 10-Q, and is incorporated herein by reference.

ITEM 1A. Risk Factors.

FACTORS THAT MAY AFFECT FUTURE RESULTS AND THE

TRADING PRICE OF OUR COMMON STOCK

You should carefully consider the risks described below before making an investment decision. The trading price of our common stock could decline due to any of these risks, in which case you could lose all or part of your investment. You should also refer to the other information in this filing, including our consolidated financial statements and related notes. The risks and uncertainties described below are those that we currently believe may materially affect our Company. Additional risks and uncertainties that we are unaware of or that we currently deem immaterial also may become important factors that affect our Company. Unless the context otherwise requires, the terms the “Company,” “we,” “us,” “our” or similar terms and “Centene” (i) prior to the closing of the WellCare Transaction, refer to Centene Corporation, together with its consolidated subsidiaries, without giving effect to the WellCare Transaction, and (ii) upon and after the closing of the WellCare Transaction, refer to us, after giving effect to the WellCare ~~Transaction.~~Acquisition.

Our business could be adversely affected by the effects of widespread public health pandemics, such as the spread of COVID-19.

Public health pandemics or widespread outbreaks of contagious diseases could adversely impact our business. In December 2019, a novel strain of coronavirus (COVID-19) emerged, which has now spread to several countries, including the United States, and infections have been reported globally. The extent to which COVID-19 impacts our business will depend on future developments, which are highly uncertain and cannot be predicted with confidence. Factors that may determine the severity of the impact include the duration of the outbreak, new information which may emerge concerning the severity of COVID-19, the costs of treatment of COVID-19 and the potential that we will not receive state and federal government reimbursement of additional expenses incurred by our members that contract COVID-19, employee mobility and productivity and the actions to contain COVID-19 or treat its impact (including federal, state and local directives to remain at home or forced business closures), among others. Additionally, the continued spread of COVID-19 has led to disruption and volatility in the global capital markets and a decline in interest rates, which increases the cost of capital, adversely impacts access to capital and could reduce our investment income. Finally, the impact of the above items on our state and government partners could result in delayed capitation payments to us. We cannot at this time predict the impact of the COVID-19 pandemic, but it could adversely affect our business, including our financial position, results of operations and/or cash flows.

Reductions in funding, changes to eligibility requirements for government sponsored healthcare programs in which we participate and any inability on our part to effectively adapt to changes to these programs could substantially affect our financial position, results of operations and cash flows.

The majority of our revenues come from government subsidized healthcare programs including Medicaid, Medicare, TRICARE, CHIP, LTSS, ABD, Foster Care and Health Insurance Marketplace premiums. Under most 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 the states have shared the costs for this program, with the federal share currently averaging ~~around 59%~~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 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; and 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. For example, 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. Governments periodically consider reducing or reallocating the amount of money they spend for Medicaid, Medicare, TRICARE, ~~VA,~~ CHIP, LTSS, ABD and Foster Care. 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 2018 for an additional two years through 2027. In addition, reductions in defense spending could have an adverse impact on certain government programs in which we currently participate by, among other things, terminating or materially changing such programs, or by decreasing or delaying payments made under such programs. Adverse economic conditions may ~~continue to~~ 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 in funding for programs, contraction of covered benefits, 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 position and cash flows. 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, ~~VA,~~ CHIP, LTSS, ABD, Foster Care and the Health Insurance Marketplaces, 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 position, results of operations or cash flows may be materially affected.

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 position, cash flows or liquidity. 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.

Finally, changes in these programs could reduce the number of persons enrolled in or eligible for these programs or increase our administrative or healthcare costs under these programs. For example, maintaining current eligibility levels could cause states to reduce reimbursement or reduce benefits in order for states to afford to maintain eligibility levels. 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 position and cash flows.

Our Medicare programs are subject to a variety of risks that could adversely impact our financial results.

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 or penalties; if we do not submit adequate bids in our existing markets or any expansion markets; if our existing contracts are 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 financial performance. For example, our parent Star rating for the ~~2018~~2020 rating year ~~was~~is 3.5, which ~~will~~may negatively affect quality bonus payments for Medicare Advantage plans in ~~2019. These~~2021. The lowered Star ~~ratings~~rating for the ~~2018~~2020 rating year ~~for the Medicare Advantage plan (H0562) and the Company~~ may have reduced the attractiveness of the affected plans and our other offerings to members, reduce revenue from the affected ~~plan~~plans and impact our Medicare expansion efforts, which are a strategic focus for the Company.

There are also specific additional risks under Title XVIII, Part D of the Social Security Act associated with our provision of Medicare Part D prescription drug benefits as part of our Medicare Advantage plan offerings. These risks include potential uncollectibility of receivables, inadequacy of pricing assumptions, inability to receive and process information and increased pharmaceutical costs, as well as the underlying seasonality of this business, and extended settlement periods for claims submissions. Our failure to comply with Part D program requirements can result in financial and/or operational sanctions on our Part D products, as well as on our Medicare Advantage products that offer no prescription drug coverage.

~~Our business could be adversely affected by~~Although we do not anticipate that a single-payer national health insurance system ~~currently contemplated~~will be enacted by ~~members of Congress. Several~~the current Congress, several legislative initiatives have been proposed by members of Congress and presidential candidates that would establish some form of a single public or quasi-public agency that organizes healthcare financing, but under which healthcare delivery would remain private. If enacted, such a system could adversely affect our business.

Failure to accurately estimate and price our medical expenses or effectively manage our medical costs or related administrative costs could negatively affect our financial position, results of operations and cash flows.

Our profitability depends to a significant degree on our ability to 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. For example, our Medicaid revenue is often based on bids submitted before the start of the initial contract year. If our actual medical expenses exceed our estimates, 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. 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, the level of utilization of healthcare services, hospital and pharmaceutical costs, disasters, the potential effects of climate change, major epidemics, pandemics or newly emergent viruses (such as COVID-19), new medical technologies, new pharmaceutical compounds, increases in provider fraud and other external factors, including general economic conditions such as 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 behavior could continue to be influenced by the uncertainty surrounding changes to the ACA, including the ~~repeal~~removal of the penalty associated with the ACA's individual mandate in ~~the Tax Cuts and Jobs Act of 2017 (TCJA).~~2019.

Our medical expenses include claims reported but not paid, estimates for claims incurred but not 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 which 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 uncertainties inherent in such estimates, there can be no assurance that our medical claims liability estimate will be adequate, and any adjustments to the estimate may unfavorably impact our results of operations and may be material.

Additionally, when we commence operations in a new state, region or product, we have limited information with which to estimate our medical claims liability. 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. The addition of new categories of eligible individuals, as well as evolving Health Insurance Marketplace plans, 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 of our members. If it is determined that our estimates are significantly different than actual results, our results of operations and financial position could be 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.

Risk-adjustment payment systems make our revenue and results of operations more difficult to estimate and could result in retroactive adjustments that have a material adverse effect on our results of operations, financial condition and cash flows.

Most of our government customers employ risk-adjustment models to determine the premium amount they pay for each member. This model pays more for members with predictably higher costs according to the health status of each beneficiary enrolled. Premium payments are generally established at fixed intervals according to the contract terms and then adjusted on a retroactive basis. We reassess the estimates of the risk adjustment settlements each reporting period and any resulting adjustments are made to premium revenue. In addition, revisions by our government customers to the risk-adjustment models have reduced, and may continue to reduce, our premium revenue.

As a result of the variability of certain factors that determine estimates for risk-adjusted premiums, including plan risk scores, the actual amount of retroactive payments could be materially more or less than our estimates. Consequently, our estimate of our plans’ risk scores for any period, and any resulting change in our accrual of premium revenues related thereto, could have a material adverse effect on our results of operations, financial condition and cash flows. The data provided to our government customers to determine the risk score are subject to audit by them even after the annual settlements occur. These audits may result in the refund of premiums to the government customer previously received by us, which could be significant and would reduce our premium revenue in the year that repayment is required.

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 2019, CMS proposed the removal of the fee for service adjuster from the risk adjustment data validation audit methodology. If adopted, this proposal could increase our audit error scores. We anticipate that CMS will continue to conduct audits of our Medicare contracts and contract years on an on-going basis. 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.

The implementation of the ACA, as well as potential repeal of, changes to, or ~~changes~~judicial challenges to the ACA, could materially and adversely affect our results of operations, financial position and cash flows.

~~In March 2010, the ACA was enacted. While the constitutionality~~The enactment of the ACA ~~was generally upheld by~~in March 2010 transformed the ~~Supreme Court (the Court) in 2012,~~U.S. healthcare delivery system through a series of complex initiatives; however, the ~~Court determined that states could elect to opt out~~implementation of the ~~Medicaid expansion portion~~ACA continues to face judicial challenges as well as challenges from the current administration to repeal or change certain of its significant provisions. Changes to, or repeal of, portions or the entirety of the ACA, ~~without losing all federal money for their existing Medicaid programs.~~as well as judicial interpretations in response to legal and other constitutional challenges, could materially and adversely affect our business and financial position, results of operations or cash flows. Even if the ACA is not amended or repealed, the current administration could continue to propose changes impacting implementation of the ACA, which could materially and adversely affect our financial position or operations.

~~Under~~Among the ~~ACA,~~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 ~~was expanded~~ 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. Arkansas was the first state to obtain federal ~~government paid~~approval to use Medicaid funding to purchase private insurance for low-income residents, and we began operations under the ~~entire cost for~~program beginning on January 1,2014. Several states have obtained Section 1115 waivers to implement the ACA's Medicaid ~~coverage for newly eligible beneficiaries for three years (2014 through 2016). Beginning~~expansion in ~~2017,~~ways that extend beyond the flexibility provided by the federal ~~share began~~law, with additional states pursuing Section 1115 waivers regarding eligibility criteria, benefits, and cost-sharing, and provider payments across their Medicaid programs. Litigation challenging Section 1115 waiver activity for both new and previously approved waivers is expected to ~~decline, and will end at 90% for 2020 and subsequent years. As of June 30, 2019, 36 states~~continue both through administrative actions and the ~~District of Columbia have expanded Medicaid eligibility, and additional states continue to discuss expansion. The ACA also maintained CHIP eligibility standards through September 2019.~~courts.

~~The~~There have been significant efforts by the current administration to repeal, or limit implementation of, certain provisions of the ACA ~~required the establishment~~through changes in regulations. Such initiatives include repeal of Health Insurance Marketplaces for individuals and small employers to purchase health insurance coverage. The ACA also required insurers participating on the Health Insurance Marketplaces to offer a minimum level of benefits and included guidelines on setting premium rates and coverage limitations. On December 22, 2017, the TCJA was signed, repealing the individual mandate ~~requirement of~~effective in 2019, as well as easing the ~~ACA beginning in 2019. On August 1, 2018, the HHS issued a final rule permitting the duration of~~regulatory restrictions placed on short-term health plans and association health plans (AHPs), which plans often provide fewer benefits than the traditional ACA insurance plans to be extended up to 36 months in total. The final rule went into effect on October 2, 2018, however, many states have implemented their own restrictions on the initial term and/or renewal term for such short-term plans. benefits.

Additionally, the U.S. Department of Labor issued a final rule on June 19, 2018 which expanded flexibility regarding the regulation and formation of ~~association health plans (AHPs)~~AHPs provided by small employer groups and associations. This final rule allows more employer groups and associations to form AHPs based upon common geography and industry sector. On March 29, 2019, the Court struck down the U.S. Department of Labor’s final rule as inconsistent with current law under ERISA. The U.S. Department of Justice filed an appeal on April 26, 2019. Short-term health insurance plans and AHPs often provide fewer benefits than the traditional ACA insurance benefits. These changes and other potential changes involving the functioning of the Health Insurance Marketplaces as a result of new legislation, regulation or executive action, could impact our business and results of operations. On June 13, 2019, the HHS, the U.S. Department of Labor and the U.S. Treasury issued a final rule allowing employers of all sizes that do not offer a group coverage plan to fund a new kind of health reimbursement arrangement (HRA), known as an individual coverage HRA (ICHRA). Beginning January 1, 2020, employees ~~will be~~are able to use employer-funded ICHRAs to buy individual-market insurance, including insurance purchased on the public exchanges formed under the ACA.

In addition to efforts by the current administration to expand the flexibility of other insurance plan options that are not required to meet ACA requirements, there have also been efforts to address the ACA's non-deductible tax imposed on health insurers based on prior year net premiums written (the "health insurer fee" or "HIF"). The ACA imposed HIF was $8.0 billion in 2014, and $11.3 billion in each of 2015 and 2016, with increasing annual amounts thereafter. The HIF payable in 2017 was suspended by the Consolidated Appropriations Act for fiscal year 2016; however, a $14.3 billion payment occurred in 2018. Collection of the HIF for 2019 was also suspended, but resumed in 2020 with an anticipated $15.5 billion payment. Congress passed a spending bill in December 2019, which would repeal the health insurance tax indefinitely, effective in 2021. There is continuing litigation pending against the federal government regarding the requirement to reimburse Medicaid managed care organizations for the health insurer fee. If we are not reimbursed by the states for the cost of the HIF (including the associated tax impact), or if we are unable to otherwise adjust our business model to address the current assessment, our results of operations, financial position and cash flows may be materially adversely affected.

The constitutionality of the ACA itself continues to face judicial challenge. In December 2018, a partial summary judgment ruling in Texas v. United States of America held that the ACA's individual mandate requirement was essential to the ACA, and without it, the remainder of the ACA was invalid (i.e., that it was not "severable" from the ACA). That decision was appealed to the Fifth Circuit, which ruled in December 2019 that the individual mandate was unconstitutional after Congress set the individual mandate penalty to $0, and remanded the case to the district court for additional analysis on the question of severability. The U.S. Supreme Court declined to hear the appeal on an expedited basis and so no decision will be forthcoming until the next Supreme Court term in late 2020 or early 2021. The ACA remains in effect until judicial review of the decision is concluded. The ultimate content, timing or effect of any potential future legislation enacted under the current administration or the outcome of the lawsuit cannot be predicted and may be delayed as a result of court closures and reduced court dockets as a result of the COVID-19 pandemic.

These changes and other potential changes involving the functioning of the Health Insurance Marketplace as a result of new legislation, regulation or executive action, could impact our business and results of operations.

Any failure to adequately price products offered or reduction in products offered in the Health Insurance Marketplaces may have a negative impact on our results of operations, financial position and cash flow. Among other things, due to the ~~repeal~~elimination of the individual mandate penalty in the ~~TCJA,~~Tax Cuts and Jobs Act (TCJA), we may be adversely selected by individuals who have higher acuity levels than those individuals who selected us in the past and healthy individuals may decide to opt out of the pool altogether. 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 Marketplace product, are subject to a high degree of estimation and variability, and are affected by our members' acuity relative to the membership acuity of other insurers. Further, changes in the competitive marketplace over time may exacerbate the uncertainty in these relatively new markets. For example, competitors seeking to gain a foothold in the changing market may introduce pricing 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, or require us to increase premium rates. Any significant variation from our expectations regarding acuity, enrollment levels, adverse selection, or other assumptions utilized in setting adequate premium rates could have a material adverse effect on our results of operations, financial position and cash flows.

We derive a portion of our cash flow and gross margin from our PDP operations, for which we submit annual bids for participation. The ~~HHS has stated that it will consider a limited number~~results of premium assistance demonstration proposals from states that want to privatize Medicaid expansion. States must provide a choice between at least two qualified health plans and offer very similar benefits as those available in the Health Insurance Marketplaces. Arkansas was the first state to obtain federal approval to use Medicaid funding to purchase private insurance for low-income residents, and we began operations under the program beginning January 1, 2014. Several states have obtained Section 1115 waivers to implement the ACA's Medicaid expansion in ways that extend beyond the flexibility provided by the federal law. In addition, many states are pursuing Section 1115 waivers regarding eligibility criteria, benefits and cost-sharing, and provider payments across their Medicaid programs.

Each administration has some discretion over which waivers to approve and encourage, however, that discretion is not unlimited. Litigation challenging previous waiver approvals is also ongoing. Section 1115 waiver activity is expected to continue both through administrative actions and the courts.

The ACA imposed an annual insurance industry assessment of $8.0 billion in 2014, and $11.3 billion in each of 2015 and 2016, with increasing annual amounts thereafter. The health insurer fee payable in 2017 was suspended by the Consolidated Appropriations Act for fiscal year 2016. However, the $14.3 billion payment resumed in 2018. Collection of the health insurer fee for 2019 has also been suspended. Such assessments are not deductible for federal and most state income tax purposes. The fee is allocated based on health insurers' premium revenues in the previous year. Each health insurer's fee is calculated by multiplying its market share by the annual fee. Market share is based on commercial, Medicare, and Medicaid premium revenues. Not-for-profit insurers may have a competitive advantage since they are exempt from paying the fee if they receive at least 80% of their premium revenues from Medicare, Medicaid, and CHIP, and other not-for-profit insurers are allowed to exclude 50% of their premium revenues from the fee calculation. There are ongoing challenges pending against the federal government regarding the requirement to reimburse Medicaid managed care organizations for the industry assessment. If we are not reimbursed by the states for the cost of the federal premium assessment (including the associated tax impact), or if we are unable to otherwise adjust our ~~business model to address this new assessment,~~bids could materially affect our results of operations, financial ~~position~~condition and cash ~~flows~~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 2020 PDP bids resulted in 32 of 34 CMS regions in which we were below the benchmarks, and within the de minimis range in two other regions, compared with our 2019 PDP bids in which we were below the benchmarks in 21 of the 34 CMS regions, and within the de minimis range in ten other regions. For those regions in which we are within the de minimis range, we will not be eligible to have new members auto-assigned to us, but we will not lose our existing auto-assigned membership.

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 and profits.

Our encounter data may be ~~materially adversely affected.~~

~~There are numerous steps regulators require for continued implementation of the ACA, including the promulgation of~~inaccurate or incomplete, which could have a substantial number of potentially more onerous federal regulations. For example, 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. If we fail to effectively implement or appropriately adjust our operational and strategic initiatives with respect to the implementation of healthcare reform, or do not do so as effectively as our competitors,material adverse effect on our results of operations, ~~may be materially adversely affected.~~financial condition, cash flows and ability to bid for, and continue to participate in, certain programs.

~~On March 23, 2018, Congress further bolstered~~Our contracts require the ~~current administration’s position~~submission of complete and correct encounter data. The accurate and timely reporting of encounter data is increasingly important to ~~end cost-sharing subsidies by omitting cost sharing subsidy payments from~~ the ~~two-year Omnibus Spending Bill. This bill, coupled~~success of our programs because more states are using encounter data to determine compliance with performance standards and to set premium rates. We have expended and may continue to expend additional effort and incur significant additional costs to collect or correct inaccurate or incomplete encounter data and have been, and continue to be exposed to, operating sanctions and financial fines and penalties for noncompliance. In some instances, our government clients have established retroactive requirements for the ~~current administration’s decision~~encounter data we must submit. There also may be periods of time in which we are unable to ~~end payments, could affect our earnings and potential premium rate adjustments going forward.~~meet existing requirements. In either case, it may be prohibitively expensive or impossible for us to collect or reconstruct this historical data.

~~Changes~~We may experience challenges in obtaining complete and accurate encounter data, due to ~~or repeal of, portions or~~difficulties with providers and third-party vendors submitting claims in a timely fashion in the ~~entirety of the ACA, as well as judicial interpretations~~proper format, and with state agencies in ~~response to legal and other constitutional challenges,~~coordinating such submissions. As states increase their reliance on encounter data, these difficulties could ~~materially and~~ adversely affect ~~our business~~the premium rates we receive and how membership is assigned to us and subject us to financial ~~position,~~penalties, which could have a material adverse effect on our results of operations, orfinancial condition, cash ~~flows. Even if the ACA is not amended or repealed, the current administration could~~flows and our ability to bid for, and continue to ~~propose changes impacting implementation of the ACA, which could materially and adversely affect our financial position or operations. Most recently, a December 2018 partial summary judgment ruling~~participate in, ~~Texas v. United States of America~~ held that the ACA’s individual mandate requirement was essential to the ACA, and without it, the remainder of the ACA was invalid. This ruling is being appealed and the ACA remains in effect until the appeal is concluded. The ultimate content, timing or effect of any potential future legislation enacted under the current administration or the outcome of the lawsuit cannot be predicted.certain programs.

Our business activities are highly regulated and new laws or regulations or changes in existing laws or regulations or their enforcement or application could force us to change how we operate and could harm our business.

Our business is extensively regulated by the states in which we operate and by the federal government. In addition, the managed care industry has received negative publicity that has led to increased legislation, regulation, review of industry practices and private litigation in the commercial sector. Such negative publicity may adversely affect our stock price and damage our reputation in various markets.

In each of the jurisdictions in which we operate, we are regulated by the relevant insurance, health and/or human services or government departments that oversee the activities of managed care organizations providing or arranging to provide services to Medicaid, Medicare, Health Insurance Marketplace enrollees or other beneficiaries. For example, our health plan subsidiaries, as well as our applicable specialty companies, must comply with minimum statutory capital and other financial solvency requirements, such as deposit and surplus requirements.

The frequent enactment of, changes to, or interpretations of laws and regulations could, among other things: force us to restructure our relationships with providers within our network; require us to implement additional or different programs and systems; restrict revenue and enrollment growth; increase our healthcare and administrative costs; impose additional capital and surplus requirements; and increase or change our liability to members in the event of malpractice by our contracted providers. In addition, changes in political party or administrations at the state or federal level in the United States or ~~country level~~internationally may change the attitude towards healthcare programs and result in changes to the existing legislative or regulatory environment.

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

Our contracts with states may require us to maintain a minimum HBR or may require us to share profits in excess of certain levels. In certain circumstances, our plans may be required to return premiums back to the state in the event profits exceed established levels or HBR does not meet the minimum requirement. Factors that may impact the amount of premium returned to the state include transparent pharmacy pricing and rebate initiatives. Other states may require us to meet certain performance and quality metrics in order to maintain our contract or receive additional or full contractual revenue.

The governmental healthcare programs in which we participate are subject to the satisfaction of certain regulations and performance standards. There are numerous steps regulators require for continued implementation of the ACA, including the promulgation of a substantial number of potentially more onerous federal regulations. If we fail to effectively implement or appropriately adjust our operational and strategic initiatives with respect to the implementation of healthcare reform, or do not do so as effectively as our competitors, our results of operations may be materially adversely affected. For example, under the ACA, Congress authorized CMS and the states to implement managed care demonstration programs to serve dually eligible beneficiaries to improve the coordination of their care. Participation in these demonstration programs is subject to CMS approval and the satisfaction of conditions to participation, including meeting certain performance requirements. Our inability to improve or maintain adequate quality scores and Star ratings to meet government performance requirements or to match the performance of our competitors could result in limitations to our participation in or exclusion from these or other government programs. Specifically, several of our Medicaid contracts require us to maintain a Medicare health plan. ~~Additionally,~~

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. CMS subsequently issued a Notice of Proposed Rulemaking on November 8, 2018, advancing CMS’ efforts to streamline the Medicaid and CHIP managed care regulatory framework and to pursue a broader strategy to relieve regulatory burdens, support state flexibility and local leadership, and promote transparency, flexibility, and innovation in the delivery of care. Public comments were ~~due by~~submitted in January ~~14,~~ 2019; however, a final rule has yet to be ~~issued.~~issued and may be delayed as a result of the COVID-19 pandemic. 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 not allow us to continue to participate in their government programs, or we may fail to win procurements to participate in such programs, either of which could materially and adversely affect our results of operations, financial position and cash flows.

In addition, as a result of the expansion of our businesses and operations conducted in foreign countries, we face political, economic, legal, compliance, regulatory, operational and other risks and exposures that are unique and vary by jurisdiction. These foreign regulatory requirements with respect to, among other items, environmental, tax, licensing, intellectual property, privacy, data protection, investment, capital, management control, labor relations, and fraud and corruption regulations are different than those faced by our domestic businesses. In addition, we are subject to U.S. laws that regulate the conduct and activities of U.S.-based businesses operating abroad, such as the Foreign Corrupt Practices Act (FCPA). ~~Our~~Any failure to comply with laws and regulations governing our conduct outside the United States or to successfully navigate international regulatory regimes that apply to us could adversely affect our ability to market our products and services, which may have a material adverse effect on our business, financial condition and results of operations.

Our businesses providing pharmacy benefit management ~~(PBM)~~ and specialty pharmacy services face regulatory and other risks and uncertainties which could materially and adversely affect our results of operations, financial position and cash flows.

We provide ~~PBM~~pharmacy benefit management (PBM) and specialty pharmacy services, including through our Envolve Pharmacy Solutions product. These businesses are subject to federal and state laws that govern the relationships of the business with pharmaceutical manufacturers, physicians, pharmacies, customers and consumers. We also conduct business as a mail order pharmacy and specialty pharmacy, which subjects these businesses to extensive federal, state and local laws and regulations. In addition, federal and state legislatures and regulators regularly consider new regulations for the industry that could materially and adversely affect current industry practices, including the receipt or disclosure of rebates from pharmaceutical companies, the development and use of formularies, and the use of average wholesale prices.

Our PBM and specialty pharmacy businesses would be materially and adversely affected by an inability to contract on favorable terms with pharmaceutical manufacturers and other suppliers, including with respect to the structuring of rebates and pricing of new specialty and generic drugs. In addition, our PBM and specialty pharmacy businesses could face potential claims in connection with purported errors by our mail order or specialty pharmacies, including in connection with the risks inherent in the authorization, compounding, packaging and distribution of pharmaceuticals and other healthcare products. Disruptions at any of our mail order or specialty pharmacies due to an event that is beyond our control could affect our ability to process and dispense prescriptions in a timely manner and could materially and adversely affect our results of operations, financial position and cash flows.

If any of our government contracts are terminated or are not renewed on favorable terms or at all, or if we receive an adverse finding or review resulting from an audit or investigation, our business may be adversely affected.

A substantial portion of our business relates to the provision of managed care programs and selected services to individuals receiving benefits under governmental assistance or entitlement programs. We provide these and other healthcare services under contracts with government entities in the areas in which we operate. Our government contracts are generally intended to run for a fixed number of years and may be extended for an additional specified number of years if the contracting entity or its agent elects to do so. 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. Competitors may buy their way into the market by submitting bids with lower pricing. 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 eligibility, enrollment and dis-enrollment processes for covered services, eligible providers, periodic financial and informational reporting, quality assurance, timeliness of claims payment and agreement to maintain a Medicare plan in the state and financial standards, among other things, and are subject to cancellation if we fail to perform in accordance with the standards set by regulatory agencies.

We are also subject to various reviews, audits and investigations to verify our compliance with the terms of our contracts with various governmental agencies, as well as compliance with applicable laws and regulations. Any adverse review, audit or investigation could result in, among other things: cancellation of our contracts; refunding of amounts we have been paid pursuant to our contracts; imposition of fines, penalties and other sanctions on us; loss of our right to participate in various programs; increased difficulty in selling our products and services; loss of one or more of our licenses; lowered quality Star ratings; or required changes to the way we do business. In addition, under government procurement regulations and practices, a negative determination resulting from a government audit of our business practices could result in a contractor being fined, debarred and/or suspended from being able to bid on, or be awarded, new government contracts for a period of time.

If any of our government contracts are terminated, not renewed, renewed on less favorable terms, or not renewed on a timely basis, or if we receive an adverse finding or review resulting from an audit or investigation, our business and reputation may be adversely impacted, our goodwill could be impaired and our financial position, results of operations or cash flows may be materially affected.

We contract with independent third-party vendors and service providers who provide services to us and our subsidiaries or to whom we delegate selected functions. Violations of, or noncompliance with, laws and regulations governing our business by such third parties, or governing our dealings with such parties, could, among other things, subject us to additional audits, reviews and investigations and other adverse effects.

Ineffectiveness of state-operated systems and subcontractors could adversely affect our business.

A number of our health plans rely on other state-operated systems or subcontractors to qualify, solicit, educate and assign eligible members into managed care plans. The effectiveness of these state operations and subcontractors can have a material effect on a health plan’s enrollment in a particular month or over an extended period. When a state implements either new programs to determine eligibility or new processes to assign or enroll eligible members into health plans, or when it chooses new subcontractors, there is an increased potential for an unanticipated impact on the overall number of members assigned to managed care plans.

Our investment portfolio may suffer losses which could materially and adversely affect our results of operations or liquidity.

We maintain a significant investment portfolio of cash equivalents and short-term and long-term investments in a variety of securities, which are subject to general credit, liquidity, market and interest rate risks and will decline in value if interest rates increase or one of the issuers’ credit ratings is reduced. As a result, we may experience a reduction in value or loss of our investments, which may have a negative adverse effect on our results of operations, liquidity and financial condition.

Execution of our growth strategy may increase costs or liabilities, or create disruptions in our business.

Our growth strategy includes, without limitation, the acquisition and expansion of health plans participating in government sponsored healthcare programs and specialty services businesses, contract rights and related assets of other health plans both in our existing service areas and in new markets and start-up operations in new markets or new products in existing markets. We continue to pursue opportunistic acquisitions to expand into new geographies and complementary business lines as well as to augment existing operations, and we may be in discussions with respect to one or multiple targets at any given time. Although we review the records of companies or businesses we plan to acquire, it is possible that we could assume unanticipated liabilities or adverse operating conditions, or an acquisition may not perform as well as expected or may not achieve timely profitability. We also face the risk that we will not be able to effectively integrate acquisitions into our existing operations effectively without substantial expense, delay or other operational or financial problems and we may need to divert more management resources to integration than we planned.

In connection with start-up operations and system migrations, we may incur significant expenses prior to commencement of operations and the receipt of revenue. For example, in order to obtain a certificate of authority in most jurisdictions, we must first establish a provider network, have systems in place and demonstrate our ability to administer a state contract and process claims. We may experience delays in operational start ~~dates.~~dates, including those related to the stay-at-home directives of COVID-19. As a result of these factors, start-up operations may decrease our profitability. In addition, we are planning to further expand our business internationally and we will be subject to additional risks, including, but not limited to, political risk, an unfamiliar regulatory regime, currency exchange risk and exchange controls, cultural and language differences, foreign tax issues, and different labor laws and practices.

If we are unable to effectively execute our growth strategy, which may be impacted by COVID-19, our future growth will suffer and our results of operations could be harmed.

If competing managed care programs are unwilling to purchase specialty services from us, we may not be able to successfully implement our strategy of diversifying our business lines.

We are seeking to diversify our business lines into areas that complement our government sponsored health plan business in order to grow our revenue stream and ~~balance~~diversify our ~~dependence on risk reimbursement.~~business. In order to diversify our business, we must succeed in selling the services of our specialty subsidiaries not only to our managed care plans, but to programs operated by third parties. Some of these third-party programs may compete with us in some markets, and they therefore may be unwilling to purchase specialty services from us. In any event, the offering of these services will require marketing activities that differ significantly from the manner in which we seek to increase revenues from our government sponsored programs. Our ineffectiveness in marketing specialty services to third parties may impair our ability to execute our business strategy.

Adverse credit market conditions may have a material adverse effect on our liquidity or our ability to obtain credit on acceptable terms.

In the past, the securities and credit markets have experienced extreme volatility and ~~disruption.~~disruption, which has increased due to the effects of COVID-19. The availability of credit, from virtually all types of lenders, has at times been restricted. In the event we need access to additional capital to pay our operating expenses, fund subsidiary surplus requirements, make payments on or refinance our indebtedness, pay capital expenditures, or fund acquisitions, our ability to obtain such capital may be limited and the cost of any such capital may be significant, particularly if we are unable to access our existing credit facility.

Our access to additional financing will depend on a variety of factors such as prevailing economic and credit market conditions, the general availability of credit, the overall availability of credit to our industry, our credit ratings and credit capacity, and perceptions of our financial prospects. Similarly, our access to funds may be impaired if regulatory authorities or rating agencies take negative actions against us. If aone or any combination of these factors were to occur, our internal sources of liquidity may prove to be insufficient, and in such case, we may not be able to successfully obtain sufficient additional financing on favorable terms, within an acceptable time, or at all.

If state regulators do not approve payments of dividends and distributions by our subsidiaries to us, we may not have sufficient funds to implement our business strategy.

We principally operate through our health plan subsidiaries. As part of normal operations, we may make requests for dividends and distributions from our subsidiaries to fund our operations. ~~These~~In addition to state corporate law limitations, these subsidiaries are subject to more stringent state insurance and HMO laws and regulations that limit the amount of dividends and distributions that can be paid to us without prior approval of, or notification to, state regulators. If these regulators were to deny or delay our subsidiaries’ requests to pay dividends, the funds available to us would be limited, which could harm our ability to implement our business strategy.

We derive a ~~majority~~significant portion of our premium revenues from operations in a limited number of states, and our financial position, results of operations or cash flows ~~would~~could be materially affected by a decrease in premium revenues or profitability in any one of those states.

Operations in a limited number of states have accounted for ~~most~~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. 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, economic conditions and similar factors in those states. For example, states we currently serve may open the bidding for their Medicaid program to other health insurers through a request for proposal process. Our inability to continue to operate in any of the states in which we operate could harm our business.

Competition may limit our ability to increase penetration of the markets that we serve.

We compete for members principally on the basis of size and quality of provider networks, benefits provided and quality of service. We compete with numerous types of competitors, including other health plans and traditional state Medicaid programs that reimburse providers as care is provided, as well as technology companies, new joint ventures, financial services firms, consulting firms and other non-traditional competitors. In addition, the administration of the ACA has the potential to shift the competitive landscape in our segment.

Some of the health plans with which we compete have greater financial and other resources and offer a broader scope of products than we do. In addition, significant merger and acquisition activity has occurred in the managed care industry, as well as complementary industries, such as the hospital, physician, pharmaceutical, medical device and health information systems businesses. To the extent that competition intensifies in any market that we serve, as a result of industry consolidation or otherwise, our ability to retain or increase members and providers, or maintain or increase our revenue growth, pricing flexibility and control over medical cost trends may be adversely affected.

If we are unable to maintain relationships with our provider networks, our profitability may be harmed.

Our profitability depends, in large part, upon our ability to contract at competitive prices with hospitals, physicians and other healthcare providers. Our provider arrangements with our primary care physicians, specialists and hospitals generally may be canceled by either party without cause upon 90 to 120 days prior written notice. We cannot provide any assurance that we will be able to continue to renew our existing contracts or enter into new contracts on a timely basis or under favorable terms enabling us to service our members profitably. Healthcare providers with whom we contract may not properly manage the costs of, and access to services, be able to provide effective telehealth services, maintain financial solvency, including due to the impact of COVID-19, or avoid disputes with other providers. Any of these events could have a material adverse effect on the provision of services to our members and our operations.

In any particular market, physicians and other healthcare providers could refuse to contract, demand higher payments, or take other actions that could result in higher medical costs or difficulty in meeting regulatory or accreditation requirements, among other things. In some markets, certain healthcare providers, particularly hospitals, physician/hospital organizations or multi-specialty physician groups, may have significant market positions or near monopolies that could result in diminished bargaining power on our part. In addition, accountable care organizations, practice management companies, which aggregate physician practices for administrative efficiency and marketing leverage, and other organizational structures that physicians, hospitals and other healthcare providers choose may change the way in which these providers interact with us and may change the competitive landscape. Such organizations or groups of healthcare providers may compete directly with us, which could adversely affect our operations, and our results of operations, financial position and cash flows by impacting our relationships with these providers or affecting the way that we price our products and estimate our costs, which might require us to incur costs to change our operations. Provider networks may consolidate, resulting in a reduction in the competitive environment. In addition, if these providers refuse to contract with us, use their market position to negotiate contracts unfavorable to us or place us at a competitive disadvantage, our ability to market products or to be profitable in those areas could be materially and adversely affected.

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 harmed. 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. HNL expects to vigorously defend its claims payment practices. Nevertheless, 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.

We may be unable to attract, retain or effectively manage the succession of key personnel.

We are highly dependent on our ability to attract and retain qualified personnel to operate and expand our business. We would be adversely impacted if we are unable to adequately plan for the succession of our executives and senior management. While we have succession plans in place for members of our executive and senior management team, these plans do not guarantee that the services of our executive and senior management team will continue to be available to us. Our ability to replace any departed members of our executive and senior management team or other key employees may be difficult and may take an extended period of time because of the limited number of individuals in the Managed Care and Specialty Services industry with the breadth of skills and experience required to operate and successfully expand a business such as ours. Competition to hire from this limited pool is intense, and we may be unable to hire, train, retain or motivate these personnel. If we are unable to attract, retain and effectively manage the succession plans for key personnel, executives and senior management, our business and financial position, results of operations or cash flows could be harmed.

If we are unable to integrate and manage our information systems effectively, our operations could be disrupted.

Our operations depend significantly on effective information systems. The information gathered and processed by our information systems 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 for membership verifications, claims status and other information. Our information systems and applications require continual maintenance, upgrading and enhancement to meet our operational needs and regulatory requirements. We regularly upgrade and expand our information systems’ capabilities. If we experience difficulties with the transition to or from information systems or do not appropriately integrate, maintain, enhance or expand our information systems, we could suffer, among other things, operational disruptions, loss of existing members and difficulty in attracting new members, regulatory problems and increases in administrative expenses. In addition, our ability to integrate and manage our information systems may be impaired as the result of events outside our control, including acts of nature, such as earthquakes or fires, or acts of terrorists. In addition, we may from time to time obtain significant portions of our systems-related or other services or facilities from independent third parties, which may make our operations vulnerable if such third parties fail to perform adequately.

From time to time, we may become involved in costly and time-consuming litigation and other regulatory proceedings, which require significant attention from our management.

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, medical malpractice claims, claims by members alleging failure to pay for or provide healthcare, claims related to non-payment or insufficient payments for out-of-network services, claims alleging bad faith, investigations regarding our submission of risk adjuster claims, putative securities class actions, protests and appeals related to Medicaid procurement awards, employment-related disputes, including wage and hour claims, submissions to state agencies related to payments or state false claims acts and claims related to the imposition of new taxes, including but not limited to claims that may have retroactive application. Due to the inherent uncertainties of litigation and regulatory proceedings, we cannot accurately predict the ultimate outcome of any such proceedings. An unfavorable outcome could have a material adverse impact on our business and financial position, results of operations and/or cash flows and may affect our reputation. 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 harm our business and financial position, results of operations or cash flows.

An impairment charge with respect to our recorded goodwill and intangible assets could have a material impact on our results of operations.

We periodically evaluate our goodwill and other intangible assets to determine whether all or a portion of their carrying values may be impaired, in which case a charge to earnings may be necessary. Changes in business strategy, government regulations or economic or market conditions have resulted and may result in impairments of our goodwill and other intangible assets at any time in the future. Our judgments regarding the existence of impairment indicators are based on, among other things, legal factors, market conditions, and operational performance. For example, the non-renewal of our health plan contracts with the state in which they operate may be an indicator of impairment. 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 in the period in which the impairment occurs.

If we fail to comply with applicable privacy, security, and data laws, regulations and standards, including with respect to third-party service providers that utilize sensitive personal information on our behalf, our business, reputation, results of operations, financial position and cash flows could be materially and adversely affected.

As part of our normal operations, we collect, process and retain confidential member information. We are subject to various federal state and international laws and rules regarding the use and disclosure of confidential member information, including the Health Insurance Portability and Accountability Act of 1996 (HIPAA), the Health Information Technology for Economic and Clinical Health (HITECH) Act of 2009, the Gramm-Leach-Bliley Act, and the ~~General Data Protection Regulation (GDPR),~~EU's GDPR, which require us to protect the privacy of medical records and safeguard personal health information we maintain and use. 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. Despite our best attempts to maintain adherence to information privacy and security best practices, as well as compliance with applicable laws, rules and contractual requirements, our facilities and systems, and those of our third-party service providers, may be vulnerable to privacy or security breaches, acts of vandalism or theft, malware or other forms of cyber-attack, misplaced or lost data including paper or electronic media, programming and/or human errors or other similar events. In the past, we have had data breaches resulting in disclosure of confidential or protected health information that have not resulted in any material financial loss or penalty to date. However, future data breaches could require us to expend significant resources to remediate any damage, interrupt our operations and damage our reputation, subject us to state or federal agency review and could also result in enforcement actions, material fines and penalties, litigation or other actions which could have a material adverse effect on our business, reputation and results of operations, financial position and cash flows.

In addition, HIPAA broadened the scope of fraud, waste and abuse laws applicable to healthcare companies. HIPAA established new enforcement mechanisms to combat fraud, waste and abuse, including civil and, in some instances, criminal penalties for failure to comply with specific standards relating to the privacy, security and electronic transmission of protected health information. The HITECH Act expanded the scope of these provisions by mandating individual notification in instances of breaches of protected health information, providing enhanced penalties for HIPAA violations, and granting enforcement authority to states’ Attorneys General in addition to the HHS Office for Civil Rights. The HHS Office for Civil Rights received $28.7 million from enforcement actions in 2018, surpassing the previous record of $23.5 million from 2016 by 22 percent. It is possible that Congress may enact additional legislation in the future to increase the amount or application of penalties and to create a private right of action under HIPAA, which could entitle patients to seek monetary damages for violations of the privacy rules.

If we fail to comply with the extensive federal and state fraud, waste and abuse laws, our business, reputation, results of operations, financial position and cash flows could be materially and adversely affected.

We, along with ~~all~~ other companies involved in public healthcare programs, are the subject of federal and state fraud, waste and abuse ~~investigations from time to time.~~investigations. The regulations and contractual requirements applicable to participants in these public sector programs are complex and subject to change. Violations of fraud, waste and abuse laws applicable to us could result in civil monetary penalties, criminal fines and imprisonment, and/or exclusion from participation in Medicaid, Medicare, TRICARE, VA and other federal healthcare programs and federally funded state health programs. Fraud, waste and abuse prohibitions encompass a wide range of activities, including kickbacks for referral of members, incorrect and unsubstantiated billing or billing for unnecessary medical services, improper marketing and violations of patient privacy rights. These fraud, waste and abuse laws include the federal False Claims Act, which prohibits the known filing of a false claim or the known use of false statements to obtain payment from the federal government and the federal anti-kickback statute, which prohibits the payment or receipt of remuneration to induce referrals or recommendations of healthcare items or services. Many states have fraud, waste and abuse laws, including false claim act and anti-kickback statutes that closely resemble the federal False Claims Act and the federal anti-kickback statute. In addition, the Deficit Reduction Act of 2005 encouraged states to enact state-versions of the federal False Claims Act that establish liability to the state for false and fraudulent Medicaid claims and that provide for, among other things, claims to be filed by qui tam ~~relators.~~relators (private parties acting on the government's behalf). Federal and state governments have made investigating and prosecuting healthcare fraud, waste and abuse a priority. In the event we fail to comply with the extensive federal and state fraud, waste and abuse laws, our business, reputation, results of operations, financial position and cash flows could be materially and adversely affected.

A failure in or breach of our operational or security systems or infrastructure, or those of third parties with which we do business, including as a result of cyber-attacks, could have an adverse effect on our business.

Information security risks have significantly increased in recent years in part because of the proliferation of new technologies, the use of the internet and telecommunications technologies to conduct our operations, and the increased sophistication and activities of organized crime, hackers, terrorists and other external parties, including foreign state agents. Our operations rely on the secure processing, transmission and storage of confidential, proprietary and other information in our computer systems and networks.

Security breaches may arise from external or internal threats. External breaches include hacking personal information for financial gain, attempting to cause harm or interruption to our operations, or intending to obtain competitive information. We experience attempted external hacking or malicious attacks on a regular basis. We maintain a rigorous system of ~~preventive~~prevention and ~~detective~~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. Internal breaches may result from inappropriate security access to confidential information by rogue employees, consultants or third party service providers. Any security breach involving the misappropriation, loss or other unauthorized disclosure or use of confidential member information, financial data, competitively sensitive information, or other proprietary data, whether by us or a third party, could have a material adverse effect on our business reputation, financial condition, cash flows, or results of operations.

The market price of our common stock may decline as a result of significant acquisitions.

The market price of our common stock is generally subject to volatility, and there can be no assurances regarding the level or stability of our share price at any time. The market price of our common stock may decline as a result of acquisitions if, among other things, we are unable to achieve the expected growth in earnings, or if the operational cost savings estimates in connection with the integration of acquired businesses with ours are not realized, or if the transaction costs related to the acquisitions and integrations are greater than expected or if any financing related to the acquisitions is on unfavorable terms. The market price also may decline if we do not achieve the perceived benefits of the acquisitions as rapidly or to the extent anticipated by financial or industry analysts or if the effect of the acquisitions on our financial position, results of operations or cash flows is not consistent with the expectations of financial or industry analysts.

We may be unable to successfully integrate our existing business with ~~the assets~~ acquired ~~in the Fidelis Care Acquisition,~~businesses, and realize the anticipated benefits of ~~the Fidelis Care Acquisition.~~such acquisitions.

~~We completed the Fidelis Care Acquisition on July 1, 2018.~~ The success of ~~the Fidelis Care Acquisition~~acquisitions we make will depend, in part, on our ability to successfully combine the ~~businesses~~existing business of Centene ~~and Fidelis Care~~with such acquired businesses and realize the anticipated benefits, including synergies, cost savings, growth in earnings, innovation and operational efficiencies, from the combinations. If we are unable to achieve these objectives within the anticipated time frame, or at all, the anticipated benefits may not be realized fully or at all, or may take longer to realize than expected and the value of our common stock may be harmed.

The integration of ~~Fidelis Care's business~~acquired businesses with our existing business is a complex, costly and time-consuming process. The integration may result in material challenges, including, without limitation:

the diversion of management’s attention from ongoing business concerns and performance shortfalls as a result of the devotion of management’s attention to the integration;

managing a larger ~~combined~~ company;

maintaining employee morale and retaining key management and other employees;

the possibility of faulty assumptions underlying expectations regarding the integration process;

retaining existing business and operational relationships and attracting new business and operational relationships;

consolidating corporate and administrative infrastructures and eliminating duplicative operations;

coordinating geographically separate organizations;

unanticipated issues in integrating information technology, communications and other systems;

unanticipated changes in federal or state laws or regulations, including the ACA and any regulations enacted thereunder;

unforeseen expenses or delays associated with the acquisition and/or integration; and

decreases in premiums paid under government sponsored healthcare programs by any state in which we operate.

Many of these factors will be outside of our control and any one of them could result in delays, increased costs, decreases in the amount of expected revenues and diversion of management’s time and energy, which could materially affect our financial position, results of operations and cash flows.

Our ~~future results may be adversely impacted if we do not effectively manage our expanded operations as a result of the Fidelis Care Acquisition.~~

~~As a result of the Fidelis Care Acquisition, the size of our business is significantly larger. Our~~ ability to successfully manage the expanded business following any given acquisition will depend, in part, upon management’s ability to design and implement strategic initiatives that address the increased scale and scope of the combined business with its associated increased costs and complexity. There can be no assurances that we will be successful in managing our expanded operations as a result of ~~the Fidelis Care Acquisition~~acquisitions or that we will realize the expected growth in earnings, operating efficiencies, cost savings and other benefits.

We have substantial indebtedness outstanding and may incur additional indebtedness in the future. Such indebtedness could reduce our agility and may adversely affect our financial condition.

As of ~~June 30, 2019,~~March 31, 2020, we had consolidated indebtedness of ~~approximately $7,134 million. We~~$17,279 million, and we may further increase our indebtedness in the future.

In connection with the WellCare Acquisition, we issued $7,000 million of new senior notes and also completed an exchange offer for 5.25% Senior Notes due 2025 and 5.375% Senior Notes due 2026 (collectively, the WellCare Notes) issued by WellCare and issued $1,146 million aggregate principal amount of 5.25% Senior Notes due 2025 and $747 million aggregate principal amount of 5.375% Senior Notes due 2026. Additionally, our wholly-owned subsidiary, Wellington Merger Sub II, Inc. assumed the remaining WellCare Notes. This increased indebtedness and any resulting higher debt-to-equity ratio will have the effect, among other things, of reducing our flexibility to respond to changing business and economic conditions and increasing borrowing costs.

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. Our ~~revolving credit facility~~Company Credit Facility also requires us to comply with a maximum debt-to-EBITDA ratio and a minimum fixed charge coverage ratio. These restrictive covenants could limit our ability to pursue our business strategies. In addition, any failure by us to comply with these restrictive covenants could result in an event of default under the ~~revolving credit facility~~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.

Changes in the method pursuant to which the LIBOR rates are determined and potential phasing out of LIBOR after 2021 may affect the value of the financial obligations to be held or issued by us that are linked to LIBOR or our results of operations or financial condition.

As of ~~June 30, 2019, we held $2.7 billion notional amount of interest rate swaps that use the London interbank offered rate (LIBOR) as a reference rate and~~March 31, 2020, borrowings under our ~~revolving credit agreement~~Company Credit Facility bear interest based upon various reference rates, including LIBOR. On July 27, 2017, the Financial Conduct Authority (the authority that regulates LIBOR) announced that it intends to stop compelling banks to submit rates for the calculation of LIBOR after 2021. It is unclear whether new methods of calculating LIBOR will be established such that it continues to exist after 2021. The U.S. Federal Reserve, in conjunction with the Alternative Reference Rates Committee, a steering committee comprised of large U.S. financial institutions, announced replacement of U.S. dollar LIBOR with a new index calculated by short-term repurchase agreements, backed by U.S. Treasury securities called the Secured Overnight Financing Rate (“SOFR”). The first publication of SOFR was released in April 2018. Whether or not SOFR attains market traction as a LIBOR replacement tool remains in question and the future of LIBOR at this time is uncertain. As a result, it is not possible to predict the effect of any changes, establishment of alternative references rates or other reforms to LIBOR that may be enacted in the U.K. or elsewhere. The elimination of LIBOR or any other changes or reforms to the determination or supervision of LIBOR could have an adverse impact on the market for or value of any LIBOR-linked securities, loans, ~~derivatives~~ and other financial obligations or extensions of credit held by or due to us or on our overall financial condition or results of operations.

~~We incurred substantial expenses related to the completion of the Fidelis Care Acquisition and expect to incur substantial expenses related to the integration of our business with Fidelis Care.~~

We incurred substantial expenses in connection with the completion of the Fidelis Care Acquisition and expect to incur substantial expense related to the integration of our business with the acquired assets of Fidelis Care. There are a large number of processes, policies, procedures, operations, technologies and systems that must be integrated, including purchasing, accounting and finance, sales, payroll, pricing, revenue management, marketing and benefits. In addition, our businesses and Fidelis Care will continue to maintain a presence in St. Louis, Missouri and New York, New York, respectively. The substantial majority of these costs will be non-recurring expenses related to the Fidelis Care Acquisition (including the financing of the Fidelis Care Acquisition), and facilities and systems consolidation costs. We may incur additional costs to maintain employee morale and to retain key employees. We will also incur transaction fees and costs related to formulating integration plans for the combined business, and the execution of these plans may lead to additional unanticipated costs. These incremental transaction and acquisition related costs may exceed the savings we expect to achieve from the elimination of duplicative costs and the realization of other efficiencies related to the integration of the businesses, particularly in the near term and in the event there are material unanticipated costs.

Future issuances and sales of additional shares of preferred or common stock could reduce the market price of our shares of common stock.

We may, from time to time, issue additional securities to raise capital or in connection with acquisitions. We often acquire interests in other companies by using a combination of cash and our common stock or just our common stock. Further, shares of preferred stock may be issued from time to time in one or more series as our Board of Directors may from time to time determine each such series to be distinctively designated. The issuance of any such preferred stock could materially adversely affect the rights of holders of our common stock. Any of these events may dilute your ownership interest in our company and have an adverse impact on the price of our common stock.

The WellCare ~~Transaction may not occur, and if it does, it~~Acquisition may not be accretive and may cause dilution to our earnings per share, which may negatively affect the market price of our common stock.

Although we currently anticipate that the WellCare ~~Transaction will occur and~~Acquisition will be accretive to earnings per share (on an adjusted earnings basis that is not pursuant to GAAP) during the second year after the consummation of the WellCare ~~Transaction,~~Acquisition, this expectation is based on assumptions about our and WellCare’s business and preliminary estimates, which may change materially. Certain other amounts to be paid in connection with the WellCare ~~Transaction~~Acquisition may cause dilution to our earnings per share or decrease or delay the expected accretive effect of the WellCare ~~Transaction~~Acquisition and cause a decrease in the market price of our common stock. In addition, ~~the WellCare Transaction may not occur or~~ we could encounter additional transaction-related costs or other factors such as the failure to realize all of the benefits anticipated in the WellCare ~~Transaction,~~Acquisition, including cost and revenue synergies. All of these factors could cause dilution to our earnings per share or decrease or delay the expected accretive effect of the WellCare ~~Transaction~~Acquisition and cause a decrease in the market price of our common stock.

The merger with WellCare is subject to conditions, some or all of which may not be satisfied, or completed on a timely basis, if at all. Failure to complete the merger with WellCare could have material adverse effects on our business.

The completion of the merger is subject to a number of conditions, including, among others, the receipt of U.S. federal antitrust clearance and certain other required state regulatory approvals, which make the completion of the WellCare Transaction and timing thereof uncertain. Also, either the Company or WellCare may terminate the merger agreement (Merger Agreement) if the WellCare Transaction is not consummated by March 26, 2020 (subject to an automatic extension to August 26, 2020 in certain circumstances), except that this right to terminate the Merger Agreement will not be available to any party whose failure to perform any obligation under the Merger Agreement has been the cause of, or the primary factor that resulted in, the failure of the merger to be consummated on or before that date.

If the WellCare Transaction is not completed, our ongoing business may be materially adversely affected and, without realizing any of the benefits that we could have realized had the WellCare Transaction been completed, we will be subject to a number of risks, including the following:

~~the market price of our common stock could decline;~~

~~we could owe substantial termination fees to WellCare under certain circumstances;~~

if the Merger Agreement is terminated and our board of directors (Board) seeks another business combination, our stockholders cannot be certain that we will be able to find a party willing to enter into any transaction on terms equivalent to or more attractive than the terms that we and WellCare have agreed to in the Merger Agreement;

~~time and resources committed by our management to matters relating to the WellCare Transaction could otherwise have been devoted to pursuing other beneficial opportunities;~~

~~we may experience negative reactions from the financial markets or from our customers or employees; and~~

~~we will be required to pay our costs relating to the WellCare Transaction, such as legal, accounting, financial advisory and printing fees, whether or not the WellCare Transaction is completed.~~

In addition, if the WellCare Transaction is not completed, we could be subject to litigation related to any failure to complete the WellCare Transaction or related to any enforcement proceeding commenced against us to perform our obligations under the Merger Agreement. If any such risk materializes, it could adversely impact our ongoing business.

Similarly, delays in the completion of the WellCare Transaction could, among other things, result in additional transaction costs, loss of revenue or other negative effects associated with uncertainty about completion of the WellCare Transaction and cause us not to realize some or all of the benefits that we expect to achieve if the WellCare Transaction is successfully completed within its expected timeframe. We ~~cannot assure you that the conditions to the closing of the WellCare Transaction will be satisfied or waived or that the WellCare Transaction will be consummated.~~

The WellCare Transaction is subject to the expiration or termination of applicable waiting periods and the receipt of approvals, consents or clearances from regulatory authorities that may impose conditions that could have an adverse effect on WellCare, Centene or the combined company or, if not obtained, could prevent completion of the WellCare Transaction.

Before the merger may be completed, any waiting period (or extension thereof) applicable to the merger must have expired or been terminated, and any approvals, consents or clearances required in connection with the merger must have been obtained, in each case, under U.S. federal antitrust law and other applicable law. In deciding whether to grant the required regulatory approval, consent or clearance, the relevant governmental authorities may, among other factors, consider the effect of the merger on competition within their relevant jurisdiction. The terms and conditions of the approvals, consents and clearances that are granted may impose requirements, limitations or costs or place restrictions on the conduct of the combined company’s business. Under the Merger Agreement, the Company and WellCare have agreed to use their reasonable best efforts to obtain such approvals, consents and clearances and therefore may be required to comply with conditions or limitations imposed by governmental authorities, except that we and our subsidiaries are not required to take actions that, individually or in the aggregate, would result in or would reasonably be expected to result in a burdensome condition, as defined in the Merger Agreement.

In addition, regulators may impose conditions, terms, obligations or restrictions in connection with their approval of or consent to the merger, and such conditions, terms, obligations or restrictions may delay completion of the merger or impose additional material costs on or materially limit the revenues of the combined company following the completion of the merger. There can be no assurance that regulators will choose not to impose such conditions, terms, obligations or restrictions, and, if imposed, such conditions, terms, obligations or restrictions may delay or lead to the abandonment of the merger.

Centene and WellCare are each subject to business uncertainties and contractual restrictions while the WellCare Transaction is pending, which could adversely affect the business and operations of us or the combined company.

In connection with the pendency of the WellCare Transaction, it is possible that some customers, suppliers and other persons with whom we or WellCare has a business relationship may delay or defer certain business decisions or might decide to seek to terminate, change or renegotiate their relationships with us or WellCare, as the case may be, as a result of the WellCare Transaction, which could negatively affect our current or the combined company’s future revenues, earnings and cash flows, as well as the market price of our common stock, regardless of whether the WellCare Transaction is completed.

Under the terms of the Merger Agreement, each of Centene and WellCare are subject to certain restrictions on the conduct of its business prior to completing the merger with WellCare, which may adversely affect its ability to execute certain of its business strategies, including the ability in certain cases to enter into or amend contracts, acquire or dispose of assets, incur indebtedness or incur capital expenditures. Such limitations could adversely affect each party’s businesses and operations prior to the completion of the WellCare Transaction.

~~Each of the risks described above may be exacerbated by delays or other adverse developments with respect to the completion of the WellCare Transaction.~~

Uncertainties associated with the WellCare Transaction may cause a loss of management personnel and other key employees, and we and WellCare may have difficulty attracting and motivating management personnel and other key employees, which could adversely affect the future business and operations of the combined company.

We and WellCare are dependent on the experience and industry knowledge of their respective management personnel and other key employees to execute their business plans. The combined company’s success after the completion of the WellCare Transaction will depend in part upon the ability of us and WellCare to attract, motivate and retain key management personnel and other key employees. Prior to completion of the WellCare Transaction, current and prospective employees of us and WellCare may experience uncertainty about their roles within the combined company following the completion of the WellCare Transaction, which may have an adverse effect on the ability of each of us and WellCare to attract, motivate or retain management personnel and other key employees. In addition, no assurance can be given that the combined company will be able to attract, motivate or retain management personnel and other key employees of us and WellCare to the same extent that we and WellCare have previously been able to attract or retain their own employees.

~~Centene and WellCare may be targets of securities class action and derivative lawsuits that could result in substantial costs and may delay or prevent the WellCare Transaction from being completed.~~

Securities class action lawsuits and derivative lawsuits are often brought against public companies that have entered into merger agreements. Even if the lawsuits are without merit, defending against these claims can result in substantial costs and divert management time and resources. An adverse judgment could result in monetary damages, which could have a negative impact on Centene’s and WellCare’s respective liquidity and financial condition. Additionally, if a plaintiff is successful in obtaining an injunction prohibiting completion of the WellCare Transaction, then that injunction may delay or prevent the WellCare Transaction from being completed, or from being completed within the expected timeframe, which may adversely affect Centene’s business, financial position and results of operation. Currently, Centene is not aware of any securities class action lawsuits or derivative lawsuits having been filed in connection with the WellCare Transaction.

Completion of the WellCare Transaction may trigger change in control or other provisions in certain agreements to which WellCare or its subsidiaries are a party, which may have an adverse impact on the combined company’s business and results of operations.

The completion of the WellCare Transaction may trigger change in control and other provisions in certain agreements to which WellCare or its subsidiaries are a party. If we and WellCare are unable to negotiate waivers of those provisions, the counterparties may exercise their rights and remedies under the agreements, potentially terminating the agreements or seeking monetary damages. Even if we and WellCare are able to negotiate waivers, the counterparties may require a fee for such waivers or seek to renegotiate the agreements on terms less favorable to WellCare or the combined company. Any of the foregoing or similar developments may have an adverse impact on the combined company’s business and results of operations.

~~The combined company~~ may be unable to successfully integrate our business with WellCare and realize the anticipated benefits of the WellCare ~~Transaction.~~Acquisition.

The success of the WellCare ~~Transaction~~Acquisition will depend, in part, on ~~the combined company’s~~our ability to successfully combine the businesses of Centene and WellCare ~~which currently operate as independent public companies,~~ and realize the anticipated benefits, including synergies, cost savings, innovation and operational efficiencies, from the combination. If ~~the combined company is~~we are unable to achieve these objectives within the anticipated time frame, or at all, the anticipated benefits may not be realized fully or at all, or may take longer to realize than expected and the value of its common stock may be harmed. Additionally, as a result of the WellCare transaction, rating agencies may take negative actions against the combined company's credit ratings, which may increase the combined company's financing costs, including in connection with the financing of the WellCare Transaction.

The WellCare ~~Transaction~~Acquisition involves the integration of WellCare’s business with our existing business, which is a complex, costly and time-consuming process. We ~~and WellCare~~ have not previously completed ~~a transaction~~an acquisition comparable in size or scope to the WellCare ~~Transaction.~~Acquisition. The integration of the two companies may result in material challenges, including, without limitation:

the diversion of management’s attention from ongoing business concerns and performance shortfalls at one or both of the companies as a result of the devotion of management’s attention to the WellCare ~~Transaction;~~Acquisition;

managing a larger ~~combined~~ company;

maintaining employee morale and attracting and motivating and retaining management personnel and other key employees;

the possibility of faulty assumptions underlying expectations regarding the integration process;

retaining existing business and operational relationships and attracting new business and operational relationships;

consolidating corporate and administrative infrastructures and eliminating duplicative operations;

coordinating geographically separate organizations;

unanticipated issues in integrating information technology, communications and other systems;

unanticipated changes in federal or state laws or regulations, including the ACA and any regulations enacted thereunder; ~~and~~

unforeseen expenses or delays associated with the WellCare ~~Transaction.~~Acquisition; and

achieving actual cost savings of the WellCare Acquisition at the anticipated levels.

Many of these factors will be outside of ~~the combined company’s~~our control and any one of them could result in delays, increased costs, decreases in the amount of expected revenues and diversion of management’s time and energy, which could materially affect ~~the combined company’s~~our financial position, results of operations and cash flows.

We and WellCare have operated, and until completion of the WellCare Transaction will continue to operate, independently. We and WellCare are currently permitted to conduct only limited planning for the integration of the two companies following the WellCare Transaction and have not yet determined the exact nature of how the businesses and operations of the two companies will be combined after the merger. The actual integration may result in additional and unforeseen expenses, and the anticipated benefits of the integration plan may not be realized. These integration matters could have an adverse effect on (i) each of us and WellCare during this transition period and (ii) the combined company for an undetermined period after completion of the WellCare Transaction. In addition, any actual cost savings of the WellCare Transaction could be less than anticipated.

~~The~~Our future results ~~of the combined company~~ may be adversely impacted if ~~the combined company does~~we do not effectively manage ~~its~~our expanded operations following the completion of the WellCare ~~Transaction.~~Acquisition.

~~Following the completion of the WellCare Transaction, the size of the combined company’s business will be significantly larger than the current size of our business. The combined company’s~~Our ability to successfully manage this expanded business following the completion of the WellCare Acquisition will depend, in part, upon management’s ability to design and implement strategic initiatives that address not only the integration of two independent stand-alone companies, but also the increased scale and scope of ~~the combined~~our business with its associated increased costs and complexity. There can be no assurances that ~~the combined company~~we will be successful or that itwe will realize the expected operating efficiencies, cost savings and other benefits currently anticipated from the WellCare ~~Transaction.~~Acquisition.

~~The combined company is~~We are expected to incur substantial expenses related to ~~the completion of the WellCare Transaction and the~~ integration of our business with WellCare.

~~The combined company is expected~~We expect to incur substantial expenses in connection with ~~the completion of the WellCare Transaction and~~ the integration of our business with WellCare. There are a large number of processes, policies, procedures, operations, technologies and systems that must be integrated, including purchasing, accounting and finance, sales, payroll, pricing, revenue management, marketing and benefits. In addition, our and WellCare's businesses will continue to maintain a presence in St. Louis, Missouri and Tampa, Florida, respectively. The substantial majority of these costs will be non-recurring expenses related to the WellCare ~~Transaction~~Acquisition (including financing of the WellCare ~~Transaction)~~Acquisition), facilities and systems consolidation costs. ~~The combined company~~We may incur additional costs ~~to maintain employee morale and~~ to attract, motivate or retain management personnel and other key employees. We have incurred and will ~~also~~continue to incur ~~transaction~~acquisition fees and costs related to formulating integration plans for the combined business, and the execution of these plans may lead to additional unanticipated costs. Additionally, as a result of the WellCare ~~Transaction,~~Acquisition, rating agencies may take negative actions with regard to the ~~combined~~ company’s credit ratings, which may increase the ~~combined company’s~~our financing costs, including in connection with the financing of the WellCare ~~Transaction.~~

~~The combined company will be significantly more leveraged than Centene is currently.~~

Upon completion of the merger, the combined company expects to incur approximately $6.4 billion in additional indebtedness. The combined company will have consolidated indebtedness of approximately $15.3 billion, which is greater than our current indebtedness prior to the WellCare Transaction. The increased indebtedness and higher debt-to-equity ratio of the combined company in comparison to that of Centene on a historical basis will have the effect, among other things, of reducing the flexibility of Centene to respond to changing business and economic conditions and increasing borrowing costs.Acquisition.

The financing arrangements that ~~the combined company will enter~~we entered into in connection with the WellCare ~~Transaction~~Acquisition may, under certain circumstances, contain restrictions and limitations that could significantly impact the ~~combined company’s~~our ability to operate its business.

We ~~are incurring~~incurred significant new indebtedness in connection with the WellCare ~~Transaction. We expect that the~~Acquisition. The agreements governing the indebtedness that ~~the combined company will incur~~we incurred in connection with the WellCare ~~Transaction will contain~~Acquisition contains covenants that, among other things, may, under certain circumstances, place limitations on the dollar amounts paid or other actions relating to:

payments in respect of, or redemptions or acquisitions of, debt or equity issued by the ~~combined company~~Company or its subsidiaries, including the payment of dividends on our common stock;

incurring additional indebtedness;

incurring guarantee obligations;

paying dividends;

creating liens on assets;

entering into sale and leaseback transactions;

making investments, loans or advances;

entering into hedging transactions;

engaging in mergers, consolidations or sales of all or substantially all of their respective assets; and

engaging in certain transactions with affiliates.

In addition, ~~the combined company will be~~we are required to maintain a minimum amount of excess availability as set forth in these agreements.

~~The combined company’s~~Our ability to maintain minimum excess availability in future periods will depend on ~~its~~our ongoing financial and operating performance, which in turn will be subject to economic conditions and to financial, market and competitive factors, many of which are beyond ~~the combined company’s~~our control. The ability to comply with this covenant in future periods will also depend on ~~the combined company’s~~our ability to successfully implement its overall business strategy and realize the anticipated benefits of the WellCare ~~Transaction,~~Acquisition, including synergies, cost savings, innovation and operational efficiencies.

Various risks, uncertainties and events beyond ~~the combined company’s~~our control could affect ~~its~~our ability to comply with the covenants contained in ~~its~~our financing agreements. Failure to comply with any of the covenants in ~~its~~our existing or future financing agreements could result in a default under those agreements and under other agreements containing cross-default provisions. A default would permit lenders to accelerate the maturity of the debt under these agreements and to foreclose upon any collateral securing the debt. Under these circumstances, ~~the combined company~~we might not have sufficient funds or other resources to satisfy all of its obligations. In addition, the limitations imposed by financing agreements on ~~the combined company’s~~our ability to incur additional debt and to take other actions might significantly impair its ability to obtain other financing.

~~We have obtained commitment letters from potential lenders. However, the definitive loan documents have not been finalized.~~

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Issuer Purchases of Equity Securities
Second Quarter 2019
(shares in thousands)
Period

Total Number of
Shares
Purchased ⁽¹⁾

Average Price
Paid per
Share

Total Number
of Shares
Purchased as
Part of Publicly
Announced Plans
or Programs

Maximum
Number of Shares
that May Yet Be
Purchased Under
the Plans or
Programs⁽²⁾
April 1 - April 30, 2019 15 $ 52.89
—
6,671
May 1 - May 31, 2019 9 54.57
—
6,671
June 1 - June 30, 2019 15 55.43
—
6,671
Total 39 $ 54.24
—
6,671
⁽¹⁾ Shares acquired represent shares relinquished to the Company by certain employees for payment of taxes or option cost upon vesting of restricted stock units or option exercise.
⁽²⁾ Our Board of Directors adopted a stock repurchase program which allows for repurchases of up to a remaining amount of 7 million shares. No duration has been placed on the repurchase program.



Issuer Purchases of Equity Securities First Quarter 2020 (shares in thousands)
Period	Total Number of Shares Purchased ⁽¹⁾	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs⁽²⁾
January 1 - January 31, 2020	8	$	63.83	—	14,160
February 1 - February 29, 2020	616	62.94		559	13,601
March 1 - March 31, 2020	12	53.05		8,113	5,488
Total	636	$	62.77	8,672	5,488
⁽¹⁾ Shares acquired represent shares relinquished to the Company by certain employees for payment of taxes or option cost upon vesting of restricted stock units or option exercise. ⁽²⁾ Our Board of Directors adopted a stock repurchase program which allows for repurchases of up to 14,160 thousand shares. A remaining amount of 5,488 thousand shares available under the program. No duration has been placed on the repurchase program.

ITEM 6. Exhibits.



EXHIBIT NUMBER			DESCRIPTION

~~2.1~~10.1			~~Agreement and~~2019 Incentive Compensation Plan of ~~Merger, dated as of March 26, 2019, by and among Centene Corporation, Wellington Merger Sub I, Inc., Wellington Merger Sub II, Inc. and~~ WellCare Health Plans, Inc.~~, incorporated~~ (incorporated by reference from Appendix A to ~~Exhibit 2.1 to Centene Corporation's Current Report~~WellCare Health Plans, Inc.’s Proxy Statement on Form ~~8-K dated March 27, 2019.~~DEF 14A filed on April 8, 2019)

10.1*10.1a			~~2002 Employee Stock Purchase~~Amendment No. 1 to the 2019 Incentive Compensation Plan ~~As Amended and Restated~~of WellCare Health Plans, Inc., dated as of January 23, 2020 (incorporated by reference to Exhibit 4.4 to the Registrant's Registration Statement on Form S-8 filed on January 23, 2020)

10.2			~~Amendment and Restatement Agreement, dated as~~2013 Incentive Compensation Plan of ~~May 7, 2019,~~WellCare Health Plans, Inc. (incorporated by reference from Appendix A to ~~the Credit Agreement, dated as of March 24, 2016,~~WellCare Health Plans, Inc.’s Proxy Statement on Form DEF 14A filed on April 10, 2013)

10.3			WellCare Health Plans, Inc. Executive Severance Plan, as amended and restated as of December 14, 2017, among Centene Corporation, as borrower, the various financial institutions party thereto, as lenders, the other financial institutions party thereto and Wells Fargo Bank, National Association, as administrative agent.(incorporated by reference to Exhibit 10.3(c) to WellCare Health Plans, Inc.'s Annual Report on Form 10-K filed on February 12, 2019)

31.1			Certification of Chairman, President and Chief Executive Officer pursuant to Rule 13(a)-14(a) under the Securities Exchange Act of 1934, as amended.

31.2			Certification of Executive Vice President and Chief Financial Officer pursuant to Rule 13(a)-14(a) under the Securities Exchange Act of 1934, as amended.

32.1			Certification of Chairman, President and Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2			Certification of Executive Vice President and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101			~~Interactive data files pursuant to Rule 405 of Regulation S-T~~The following materials from the Centene Corporation Quarterly Report on Form 10-Q for the quarter March 31, 2020, formatted in iXBRL (Inline Extensible Business Reporting Language): (i) our Consolidated Balance Sheets as of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018;~~2019; (ii) our Consolidated Statements of Operations for the three ~~and six~~ months ended ~~June 30, 2019~~March 31, 2020 and ~~2018;~~2019; (iii) our Consolidated Statements of Comprehensive Earnings for the three ~~and six~~ months ended ~~June 30, 2019~~March 31, 2020 and ~~2018;~~2019; (iv) our Consolidated Statements of Stockholders’ Equity for the ~~three~~periods ended March 31, 2020 and ~~six months ended June 30, 2019 and 2018;~~2019; (v) our Consolidated Statements of Cash Flows for the ~~six~~three months ended ~~June 30, 2019~~March 31, 2020 and ~~2018;~~2019; and (vi) the notes to our Consolidated Financial Statements.

* Indicates a management contract or compensatory plan or arrangement.104			Cover Page Interactive Data File, formatted in iXBRL and contained in Exhibit 101.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized as of ~~July 23, 2019.~~April 28, 2020.



	CENTENE CORPORATION

	By:	/s/ MICHAEL F. NEIDORFF
		Chairman, President and Chief Executive Officer (principal executive officer)



	By:	/s/ JEFFREY A. SCHWANEKE
		Executive Vice President and Chief Financial Officer (principal financial officer)



	By:	/s/ CHRISTOPHER R. ISAAK
		Senior Vice President, Corporate Controller and Chief Accounting Officer (principal accounting officer)

5552



Assets acquired and liabilities assumed
Cash and cash equivalents	$	2,001
Premium and related receivables	442
Other current assets	32
Restricted deposits	495
Property, software and equipment, net	48
Intangible assets ^(a)	956
Other long-term assets	2
Total assets acquired	3,976

Medical claims liability	1,218
Accounts payable and accrued expenses	238
Return of premium payable	123
Unearned revenue	115
Other long-term liabilities	324
Total liabilities assumed	2,018

Total identifiable net assets	1,958
Goodwill ^(b)	1,663
Total assets acquired and liabilities assumed	$	3,621



	Fair Value		Weighted Average Useful Life (in years)
Customer relationships	$	711	11
Trade name	196		20
Provider contracts	33		15
Developed technologies	16		2
Total intangible assets acquired	$	956	13



	June 30, 2019			December 31, 2018
Risk adjustment	$	(1,405	)	$	(928	)
Minimum MLR	(426		)	(265		)
Cost sharing reductions	60			(50		)