Exhibit 99.1
NEWS RELEASE | ![]() |
Contact:
Karey L. Witty
Chief Financial Officer
(314) 725-4477
Lisa M. Wilson
Senior Vice President, Investor Relations
(212) 759-3929
FOR IMMEDIATE RELEASE
CENTENE CORPORATION REPORTS FOURTH QUARTER
AND YEAR-END RESULTS
- Company achieves $1.5 billion in full year revenue -
ST. LOUIS, MISSOURI (February 7, 2006) — Centene Corporation (NYSE: CNC) today announced its financial results for the fourth quarter and year ended December 31, 2005.
Fourth Quarter Highlights | Full Year Highlights | |
• Revenues increased 46.9% to $423.2 million | • Revenues increased 50.4% to $1.5 billion | |
• Earnings from operations increased 17.0% to $20.4 million | • Earnings from operations increased 22.7% to $79.2 million | |
• EPS increased 14.8% to $0.31 | • EPS increased 21.6% to $1.24 | |
• Operating cash flows of $29.1 million | • Operating cash flows of $74.0 million |
Additional Highlights
• | Acquired US Script, Inc., a pharmacy benefits manager. |
• | Membership growth of 12.8% over the fourth quarter of 2004; organic membership growth of 7.8% over the same prior year period. |
• | Days in claims payable of 45.4. |
• | Authorized stock repurchase program of up to 4 million shares of Centene’s common stock. |
• | Announced key management appointments to support stated goal of building a multi-line healthcare enterprise. |
• | Named to The Forbes Platinum 400, a list of America’s Best Big Companies. |
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Michael F. Neidorff, Centene’s Chairman and Chief Executive Officer, stated, “We are pleased with our 2005 results, given some market specific challenges that we faced during the year. The strength of our information systems, disciplined contracting methodology and growing business diversification give us ongoing visibility and confidence in the stability and predictability of our business model.
“During the quarter, growth in our Kansas, Indiana and New Jersey markets was strong. Specifically, Indiana completed the conversion of its remaining counties to mandatory status. We are pleased that, despite intense competition for these recipients, we achieved this significant growth in Indiana while remaining disciplined in contracting and in our approach to gaining membership. The primary challenge in converting recipients into a managed care setting is educating them on how best to access the healthcare system, which takes time and temporarily increases our medical costs. We saw this occur in the Indiana expansion and expect a similar impact as we roll out Georgia later this year. We are well-positioned for growth in Kansas and the State has plans to extend its existing Medicaid contract through the end of 2006.
“In Texas, there were a number of factors that affected our membership results during the fourth quarter, including the State’s conversion to both a new enrollment broker and a new eligibility system. We achieved increased penetration in our existing service areas, while the overall market contracted. We believe that this market condition could continue to cause enrollment issues similar to those that were experienced in this fourth quarter. However, we still anticipate the service area expansion awards to be effective September 1, 2006.
“Regarding Georgia, our newest state, we anticipate that membership operations will commence on April 1; we are fully prepared to meet that schedule, and are working with the State to minimize further delays.
“We are pleased with our recent acquisition of US Script, Inc., a pharmacy benefits manager, which adds another important service component to our specialty company business and will help us to contain and manage the most significant cost driver in healthcare—prescription drug costs.
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“We are looking forward to the opportunities in 2006, and are confident that we are well positioned with strong operating systems, growing depth of management and financial resources to meet them,” concluded Neidorff.
The following table depicts Medicaid Managed Care membership by state at December 31, 2005 and 2004:
2005 | 2004 | |||||
Indiana | 193,300 | 150,600 | ||||
Kansas | 113,300 | 94,200 | ||||
Missouri | 36,000 | 41,200 | ||||
New Jersey | 56,500 | 52,800 | ||||
Ohio | 58,700 | 23,800 | ||||
Texas | 242,000 | 244,300 | ||||
Wisconsin | 172,100 | 165,800 | ||||
TOTAL | 871,900 | 772,700 | ||||
2005 | 2004 | |||||
Medicaid | 681,100 | 580,200 | ||||
SCHIP | 175,900 | 182,100 | ||||
SSI | 14,900 | (a) | 10,400 | (b) | ||
TOTAL | 871,900 | 772,700 | ||||
(a) | 8,100 at-risk; 6,800 ASO |
(b) | 4,600 at-risk; 5,800 ASO |
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The following table depicts Specialty Services membership (1) by state at December 31, 2005 and 2004:
2005 | 2004 | |||
Arizona | 94,700 | — | ||
Kansas | 38,800 | — | ||
TOTAL | 133,500 | — | ||
(1) | Includes behavioral health contracts only. |
Statement of Earnings Highlights
• | For the fourth quarter of 2005, revenues increased 46.9% to $423.2 million from $288.1 million in the fourth quarter of 2004. |
• | For the fourth quarter of 2005, the health benefits ratio (HBR) for Centene’s Medicaid and SCHIP populations was 82.1%, within the guided range of 81.5% to 83.5%, which primarily reflected increased costs associated with transitioning Indiana membership from an unmanaged setting into Medicaid managed care. Centene’s HBR for the SSI population was 105.4% during the quarter, primarily due to growth in its Wisconsin market. One of the factors which affected the SSI HBR is a sixty-day continuity of care requirement in Wisconsin. The continuity of care requirement limits our ability to implement generic drug substitution or formulary utilization, appropriately manage inpatient utilization and monitor excessive durable medical equipment utilization. As Centene begins to manage these specific cost drivers, it expects the SSI HBR to fall into the target range of 84% to 86%. For the Specialty Services segment, the HBR was 85.0%, reflecting the receipt of an anticipated positive settlement associated with the Kansas behavioral health contract. |
• | The table below depicts Centene’s HBR by member category: |
Three Months Ended December 31, | ||||||
2005 | 2004 | |||||
Medicaid and SCHIP | 82.1 | % | 80.2 | % | ||
SSI | 105.4 | 84.7 | ||||
Specialty Services | 85.0 | — |
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• | Our Medicaid Managed Care general and administrative (G&A) expenses as a percent of revenues was 10.3% in the fourth quarter of 2005 compared to 11.4% in the fourth quarter of 2004. This reduction reflected lower compensation costs related to Centene’s year-end performance bonuses, which in part is driven by stock performance. |
• | Earnings from operations increased 17.0% to $20.4 million in the fourth quarter of 2005 from $17.4 million in the fourth quarter of 2004. |
• | Net earnings were $13.9 million, or $0.31 per diluted share, for the fourth quarter of 2005 compared to $12.0 million, or $0.27 per diluted share, for the fourth quarter of 2004. |
• | For the year ended December 31, 2005, revenues increased 50.4% to $1.5 billion from $1.0 billion in 2004. The HBR for the Medicaid and SCHIP population was 81.7% in 2005 compared to 80.4% in 2004. The increase is comprised of 0.3% of Aurora litigation settlement costs and 0.3% for medical costs experience in the new Indiana service areas. The remaining balance is normal variations. Earnings from operations increased 22.7% to $79.2 million in 2005 from $64.5 million in 2004. Net earnings improved to $55.6 million, or $1.24 per diluted share, in 2005 compared to $44.3 million, or $1.02 per diluted share, in 2004. |
Balance Sheet Highlights
At December 31, 2005, the Company had cash and investments of $350.3 million, of which $322.6 million was held by Centene’s regulated entities. Medical claims liabilities totaled $170.5 million, representing 45.4 days in claims payable. A reconciliation of the Company’s change in days in claims payable from the immediately preceding quarter is presented below:
Days in claims payable, September 30, 2005 | 41.4 | ||
Increase in claims inventory | 4.3 | ||
Payment of quarterly provider settlements | (0.3 | ) | |
Days in claims payable, December 31, 2005 | 45.4 | ||
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Outlook
Karey L. Witty, Centene’s Chief Financial Officer, commented, “Our first quarter 2006 revenue guidance is in the range of $444 million to $449 million, and we anticipate net earnings of $0.17 to $0.21 per diluted share. For full year 2006, we anticipate revenue in the range of $2.15 billion to $2.25 billion, and net earnings per diluted share of $1.61 to $1.78.” Guidance for 2006 includes the effect of new accounting rules requiring the expensing of stock options. The Financial Accounting Standards Board (FASB) has issued FASB Statement No. 123R, “Share-Based Payment,” which covers a range of share-based compensation arrangements, including stock options. Centene began expensing stock options effective January 1, 2006, in accordance with the requirements of FASB Statement No. 123R, the effect of which is expected to reduce diluted earnings per share by approximately $0.04 per share in the first quarter of 2006 and $0.15 per share for the full year.
A review of the results for the fourth quarter and additional details on management’s outlook for 2006 will take place during the Company’s scheduled fourth quarter earnings call.
2006 | ||||||||||||||||
Q1 | Year | |||||||||||||||
Low | High | Low | High | |||||||||||||
Revenue (in millions) | $ | 444 | $ | 449 | $ | 2,150 | $ | 2,250 | ||||||||
Earnings per share | $ | 0.34 | $ | 0.35 | $ | 1.72 | $ | 1.87 | ||||||||
Georgia implementation costs | (0.11 | ) | (0.09 | ) | * | * | ||||||||||
SFAS No. 123R | (0.04 | ) | (0.04 | ) | (0.15 | ) | (0.15 | ) | ||||||||
US Script | (0.02 | ) | (0.01 | ) | 0.04 | 0.06 | ||||||||||
Adjusted earnings per share | $ | 0.17 | $ | 0.21 | $ | 1.61 | $ | 1.78 | ||||||||
* | Georgia effective April 1, 2006 |
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Conference Call
As previously announced, the Company will host a conference call today, February 7, 2006, at 8:30 a.m. (Eastern Time) to review the financial results for the quarter and year ended December 31, 2005, and to discuss its business outlook. Michael F. Neidorff and Karey L. Witty will host the conference call. Investors are invited to participate in the conference call by dialing 800-273-1254 in the U.S. and Canada, 706-679-8592 from abroad, or via a live Internet broadcast on the Company’s website atwww.centene.com, under the Investor Relations section. A replay will be available for on demand listening shortly after the completion of the call until 11:59 p.m. (Eastern Time) on February 21, 2006 at the aforementioned URL, or by dialing 800-642-1687 in the U.S. and Canada, or 706-645-9291 from abroad, and entering access code 3978030.
About Centene Corporation
Centene Corporation provides multi-line managed care programs and related services to individuals receiving benefits under Medicaid, including Supplemental Security Income (SSI), and the State Children’s Health Insurance Program (SCHIP). The Company operates health plans in Indiana, Kansas, Missouri, New Jersey, Ohio, Texas and Wisconsin. In addition, the Company contracts with other healthcare organizations to provide Specialty Services including behavioral health, disease management, nurse triage, pharmacy benefit management and treatment compliance. Information regarding Centene is available via the Internet atwww.centene.com.
The information provided in the second, third and fourth paragraphs immediately following the bulleted listings under “Additional Highlights,” the second bulleted listing under “Statement of Earnings Highlights,” and the paragraphs under “Outlook” above contain forward-looking statements that relate to future events and future financial performance of Centene. These forward-looking statements represent the Company’s estimates as of February 7, 2006. Subsequent events and developments may cause the Company’s estimates to change. The Company disclaims any obligation to update this forward-looking financial information in the future. Readers are cautioned that matters subject to forward-looking statements involve known and unknown risks and uncertainties, including economic, regulatory, competitive and other factors that may cause Centene’s or its industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance
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or achievements expressed or implied by these forward-looking statements. Actual results may differ from projections or estimates due to a variety of important factors, including Centene’s ability to accurately predict and effectively manage health benefits and other operating expenses, competition, changes in healthcare practices, changes in federal or state laws or regulations, inflation, provider contract changes, new technologies, reduction in provider payments by governmental payors, major epidemics, disasters and numerous other factors affecting the delivery and cost of healthcare. The expiration, cancellation or suspension of Centene’s Medicaid managed care contracts by state governments would also negatively affect Centene. In addition, the actual effect of SFAS 123R on Centene’s earnings per share may vary significantly due to changes in its future stock-based compensation strategy, stock price volatility, forfeitures and employee stock option exercise behavior.
[Tables Follow]
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CENTENE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
December 31, | ||||||||
2005 | 2004 | |||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 147,358 | $ | 84,105 | ||||
Premium and related receivables, net of allowances of $343 and $462, respectively | 44,108 | 31,475 | ||||||
Short-term investments, at fair value (amortized cost $56,863 and $94,442, respectively) | 56,700 | 94,283 | ||||||
Other current assets | 24,439 | 14,429 | ||||||
Total current assets | 272,605 | 224,292 | ||||||
Long-term investments, at fair value (amortized cost $126,039 and $117,177, respectively) | 123,661 | 116,787 | ||||||
Restricted deposits, at fair value (amortized cost $22,821 and $22,295, respectively) | 22,555 | 22,187 | ||||||
Property, software and equipment, net | 67,199 | 43,248 | ||||||
Goodwill | 157,278 | 101,631 | ||||||
Other intangible assets, net | 17,368 | 14,439 | ||||||
Other assets | 7,364 | 5,350 | ||||||
Total assets | $ | 668,030 | $ | 527,934 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Current liabilities: | ||||||||
Medical claims liabilities | $ | 170,514 | $ | 165,980 | ||||
Accounts payable and accrued expenses | 29,790 | 31,737 | ||||||
Unearned revenue | 13,648 | 3,956 | ||||||
Current portion of long-term debt and notes payable | 699 | 486 | ||||||
Total current liabilities | 214,651 | 202,159 | ||||||
Long-term debt | 92,448 | 46,973 | ||||||
Other liabilities | 8,883 | 7,490 | ||||||
Total liabilities | 315,982 | 256,622 | ||||||
Stockholders’ equity: | ||||||||
Common stock, $.001 par value; authorized 100,000,000 shares; issued and outstanding 42,988,230 and 41,316,122 shares, respectively | 43 | 41 | ||||||
Additional paid-in capital | 191,840 | 165,391 | ||||||
Accumulated other comprehensive income: | ||||||||
Unrealized loss on investments, net of tax | (1,754 | ) | (407 | ) | ||||
Retained earnings | 161,919 | 106,287 | ||||||
Total stockholders’ equity | 352,048 | 271,312 | ||||||
Total liabilities and stockholders’ equity | $ | 668,030 | $ | 527,934 | ||||
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CENTENE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except share data)
THREE MONTHS ENDED DECEMBER 31, | YEAR ENDED DECEMBER 31, | |||||||||||||||
2005 | 2004 | 2005 | 2004 | |||||||||||||
(Unaudited) | ||||||||||||||||
Revenues: | ||||||||||||||||
Premium | $ | 416,872 | $ | 286,117 | $ | 1,491,899 | $ | 991,673 | ||||||||
Service | 6,346 | 1,947 | 13,965 | 9,267 | ||||||||||||
Total revenues | 423,218 | 288,064 | 1,505,864 | 1,000,940 | ||||||||||||
Expenses: | ||||||||||||||||
Medical costs | 345,888 | 229,756 | 1,226,909 | 800,476 | ||||||||||||
Cost of services | 2,278 | 1,916 | 5,851 | 8,065 | ||||||||||||
General and administrative expenses | 54,639 | 38,948 | 193,913 | 127,863 | ||||||||||||
Total operating expenses | 402,805 | 270,620 | 1,426,673 | 936,404 | ||||||||||||
Earnings from operations | 20,413 | 17,444 | 79,191 | 64,536 | ||||||||||||
Other income (expense): | ||||||||||||||||
Investment and other income | 3,194 | 1,902 | 10,655 | 6,431 | ||||||||||||
Interest expense | (1,604 | ) | (363 | ) | (3,990 | ) | (680 | ) | ||||||||
Earnings before income taxes | 22,003 | 18,983 | 85,856 | 70,287 | ||||||||||||
Income tax expense | 8,137 | 6,973 | 30,224 | 25,975 | ||||||||||||
Net earnings | $ | 13,866 | $ | 12,010 | $ | 55,632 | $ | 44,312 | ||||||||
Earnings per share: | ||||||||||||||||
Basic earnings per common share | $ | 0.32 | $ | 0.29 | $ | 1.31 | $ | 1.09 | ||||||||
Diluted earnings per common share | $ | 0.31 | $ | 0.27 | $ | 1.24 | $ | 1.02 | ||||||||
Weighted average number of shares outstanding: | ||||||||||||||||
Basic | 42,885,900 | 41,199,463 | 42,312,522 | 40,820,909 | ||||||||||||
Diluted | 44,812,159 | 44,309,636 | 45,027,633 | 43,616,445 |
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CENTENE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Year Ended December 31, | ||||||||
2005 | 2004 | |||||||
Cash flows from operating activities: | ||||||||
Net earnings | $ | 55,632 | $ | 44,312 | ||||
Adjustments to reconcile net earnings to net cash provided by operating activities— | ||||||||
Depreciation and amortization | 13,069 | 10,014 | ||||||
Tax benefits related to stock options | 6,469 | 3,316 | ||||||
Stock compensation expense | 4,974 | 650 | ||||||
Loss (gain) on sale of investments | 70 | (138 | ) | |||||
Loss on disposal of property and equipment | 454 | — | ||||||
Deferred income taxes | 1,786 | (1,638 | ) | |||||
Changes in assets and liabilities— | ||||||||
Premium and related receivables | (10,305 | ) | (425 | ) | ||||
Other current assets | (6,177 | ) | (786 | ) | ||||
Other assets | (525 | ) | (728 | ) | ||||
Medical claims liabilities | 4,534 | 34,501 | ||||||
Unearned revenue | 8,182 | 283 | ||||||
Accounts payable and accrued expenses | (4,215 | ) | 9,951 | |||||
Other operating activities | 100 | 93 | ||||||
Net cash provided by operating activities | 74,048 | 99,405 | ||||||
Cash flows from investing activities: | ||||||||
Purchase of property, software and equipment | (26,909 | ) | (25,009 | ) | ||||
Purchase of investments | (150,444 | ) | (254,358 | ) | ||||
Sales and maturities of investments | 176,387 | 243,623 | ||||||
Acquisitions, net of cash acquired | (55,485 | ) | (86,739 | ) | ||||
Net cash used in investing activities | (56,451 | ) | (122,483 | ) | ||||
Cash flows from financing activities: | ||||||||
Proceeds from exercise of stock options | 5,621 | 4,066 | ||||||
Proceeds from borrowings | 45,000 | 45,860 | ||||||
Reduction of long-term debt and notes payable | (4,552 | ) | (6,596 | ) | ||||
Other financing activities | (413 | ) | (493 | ) | ||||
Net cash provided by financing activities | 45,656 | 42,837 | ||||||
Net increase in cash and cash equivalents | 63,253 | 19,759 | ||||||
Cash and cash equivalents, beginning of period | 84,105 | 64,346 | ||||||
Cash and cash equivalents, end of period | $ | 147,358 | $ | 84,105 | ||||
Interest paid | $ | 3,291 | $ | 494 | ||||
Income taxes paid | $ | 31,287 | $ | 20,518 | ||||
Supplemental schedule of non-cash investing and financing activities: | ||||||||
Common stock issued for acquisitions | $ | 8,991 | $ | — | ||||
Property acquired under capital leases | $ | 5,026 | $ | — |
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CENTENE CORPORATION
SUPPLEMENTAL FINANCIAL DATA
Q4 2005 | Q3 2005 | Q2 2005 | Q1 2005 | |||||||||||||
MEMBERSHIP | ||||||||||||||||
Medicaid Managed Care: | ||||||||||||||||
Indiana | 193,300 | 176,300 | 152,800 | 149,900 | ||||||||||||
Kansas | 113,300 | 107,600 | 103,000 | 94,900 | ||||||||||||
Missouri | 36,000 | 37,300 | 39,900 | 41,300 | ||||||||||||
New Jersey | 56,500 | 50,900 | 52,900 | 52,700 | ||||||||||||
Ohio | 58,700 | 58,100 | 59,600 | 23,900 | ||||||||||||
Texas | 242,000 | 243,600 | 243,800 | 243,700 | ||||||||||||
Wisconsin | 172,100 | 173,900 | 173,400 | 170,900 | ||||||||||||
TOTAL | 871,900 | 847,700 | 825,400 | 777,300 | ||||||||||||
Medicaid | 681,100 | 657,500 | 637,300 | 588,100 | ||||||||||||
SCHIP | 175,900 | 176,900 | 176,200 | 178,500 | ||||||||||||
SSI | 14,900 | 13,300 | 11,900 | 10,700 | ||||||||||||
TOTAL | 871,900 | 847,700 | 825,400 | 777,300 | ||||||||||||
Specialty Services: | ||||||||||||||||
Arizona | 94,700 | 94,300 | — | — | ||||||||||||
Kansas | 38,800 | 37,500 | 37,100 | 35,400 | ||||||||||||
TOTAL | 133,500 | 131,800 | 37,100 | 35,400 | ||||||||||||
REVENUE PER MEMBER(a) | $ | 152.48 | $ | 147.73 | $ | 143.41 | $ | 142.15 | ||||||||
CLAIMS(a) | ||||||||||||||||
Period-end inventory | 255,000 | 206,900 | 195,500 | 227,700 | ||||||||||||
Average inventory | 153,500 | 148,300 | 170,300 | 191,900 | ||||||||||||
Period-end inventory per member | 0.29 | 0.24 | 0.24 | 0.29 | ||||||||||||
(a) Revenue per member and claims information are presented for the Medicaid Managed Care segment. |
| |||||||||||||||
DAYS IN CLAIMS PAYABLE (b) | 45.4 | 41.4 | 49.5 | 59.7 | ||||||||||||
(b) Days in Claims Payable is a calculation of Medical Claims Liabilities at the end of the period divided by average claims expense per calendar day for such period. |
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CASH AND INVESTMENTS (in millions) | ||||||||||||||||
Regulated | $ | 322.6 | $ | 305.1 | $ | 260.5 | $ | 295.0 | ||||||||
Unregulated | 27.7 | 27.7 | 27.4 | 42.1 | ||||||||||||
TOTAL | $ | 350.3 | $ | 332.8 | $ | 287.9 | $ | 337.1 | ||||||||
ANNUALIZED RETURN ON EQUITY (c) | 16.2 | % | 14.9 | % | 20.0 | % | 20.5 | % |
(c) | Annualized Return on Equity is calculated as follows: (net income for quarter x 4) divided by ((beginning of period equity + end of period equity) divided by 2). |
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HEALTH BENEFITS RATIO BY CATEGORY:
Three Months Ended December 31, | Twelve Months Ended December 31, | |||||||||||
2005 | 2004 | 2005 | 2004 | |||||||||
Medicaid and SCHIP | 82.1 | % | 80.2 | % | 81.7 | % | 80.4 | % | ||||
SSI | 105.4 | 84.7 | 97.5 | 93.8 | ||||||||
Specialty Services | 85.0 | — | 88.1 | — |
GENERAL AND ADMINISTRATIVE EXPENSE RATIO BY BUSINESS SEGMENT:
Three Months Ended December 31, | Twelve Months Ended December 31, | |||||||||||
2005 | 2004 | 2005 | 2004 | |||||||||
Medicaid Managed Care | 10.3 | % | 11.4 | % | 10.5 | % | 10.7 | % | ||||
Specialty Services | 30.3 | 53.7 | 35.4 | 52.3 |
MEDICAL CLAIMS LIABILITIES
(In thousands)
Changes in medical claims liabilities during 2005 are summarized as follows:
Balance, January 1, 2005 | $ | 165,980 | ||
Acquisitions | — | |||
Incurred related to: | ||||
Current period | 1,244,600 | |||
Prior period | (17,691 | ) | ||
Total incurred | 1,226,909 | |||
Paid related to: | ||||
Current period | 1,075,204 | |||
Prior period | 147,171 | |||
Total paid | 1,222,375 | |||
Balance, December 31, 2005 | $ | 170,514 | ||
Centene’s claims reserving process utilizes a consistent actuarial methodology to estimate Centene’s ultimate liability. Any reduction in the “Incurred related to: Prior period” claims may be offset as Centene actuarially determines “Incurred related to: Current period.” As such, only in the absence of a consistent reserving methodology would favorable development of prior period claims liability estimates reduce medical costs. Centene believes it has consistently applied its claims reserving methodology in each of the periods presented.
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