Good morning, and welcome to the Centene 2018 Fourth Quarter and Year-end Financial Results Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note this event is being recorded. I'd now like to turn the conference over to Ed Kroll, Senior Vice President of Finance and Investor Relations. Mr. Kroll, please go ahead.

Thank you, Anita, and good morning, everyone. Thank you for joining us on our 2018 fourth quarter and full-year earnings results conference call. Michael Neidorff, Chairman and Chief Executive Officer; and Jeff Schwaneke, Executive Vice President and Chief Financial Officer of Centene will host this morning's call, which can also be accessed through our Web site at centene.com. A replay will be available shortly after the call's completion also at centene.com or by dialing (877) 344-7529 in the U.S. and Canada, or in other countries by dialing (412) 317-0088. The playback code for both of those dial-ins is 10127647. Any remarks that Centene may make about future expectations, plans, and prospects constitute forward-looking statements for purposes of the Safe Harbor Provision under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those discussed in Centene's most recently filed Form 10-Q which is dated October 23, 2018, Form 10-K dated February 20, 2018, and other public SEC filings. Centene anticipates that subsequent events and developments will cause its estimates to change. While the Company may elect to update these forward-looking statements at some point in the future, we specifically disclaim any obligation to do so. The call will also refer to certain non-GAAP, that’s Generally Accepted Accounting Principles. A reconciliation of these measures with the most directly comparable GAAP measures can be found in our fourth quarter 2018 press release, which is also available on the Company's Web site at centene.com under the Investors section. Finally, a reminder that our next Investor Day will be on Friday, June 14, in New York City. With that, I'd like to turn the call over to our Chairman and CEO, Michael Neidorff. Michael?

Thank you, Ed. Good morning, everyone, and thank you for joining Centene's fourth quarter and full-year 2018 earnings call. During the course of this morning's call, we will discuss our fourth-quarter and full-year 2018 financial results and provide updates on Centene's markets and products. We will also bring you up-to-date on the integration of Fidelis and the regulatory and legislative environment. First, let me provide commentary on healthcare legislation, legal and regulatory environment. We're hopeful that the divided government leads to a greater constructive dialogue from both parties when it comes to healthcare policy. It is clear Medicaid and the services we provide are needed more than ever. Clearly, numerous governors from both parties strongly supported Medicaid managed care during the repeal and replace debate. We also have seen Utah, Nebraska and Idaho, by ballot initiative recently passing Medicaid expansion. It also appears from the most recent marketplace enrollment figures there continues to be consistent demand for affordable, high quality healthcare coverage. As stated in the 2020 proposed payment notice, we support CMS's goal of maintaining a stable regulatory environment allowing for greater product predictability. The payment notices CMS is annual regulatory and financial guidance for the marketplace. Importantly, we support the administration's continued efforts to give states greater flexibility by a 13.32, 11.15 waivers. This works well with our local operating model where we have strong relationships with providers and regulators. We look forward to working with the states who are on the frontlines in making sure all of their citizens have access to affordable high-quality healthcare. Next, I'd like to recap Centene's highlights of 2018. 2018 was another year of strong growth and accomplishment for Centene, capped off by the robust fourth-quarter results we reported this morning. In 2018, we added 1.8 million members, surpassing the 14 million…

Thank you, Michael, and good morning. This morning we reported strong fourth-quarter and full-year 2018 results. Fourth quarter revenues were $16.6 billion, an increase of 29% over the fourth quarter of 2017, and adjusted diluted earnings per share was $1.38 this quarter compared to $0.97 last year. Both the fourth quarter and full-year results include additional costs associated with the marketplace open enrollment period. During the fourth quarter, we invested an additional $0.04 per diluted share into growth related initiatives, including member outreach efforts associated with the marketplace business. This was above our forecast and previous business expansion costs guidance range. The strong fourth-quarter caps off a very successful year for the company. Total revenues grew 24% in 2018 to $60.1 billion, driven by the acquisition of Fidelis Care, continued growth in the health insurance marketplace business, product and market expansions, and the return of the health insurer fee in 2018. This growth led to record adjusted earnings in 2018 with adjusted diluted earnings per share of $7.08, an increase of 41% over 2017. The growth and earnings year-over-year was driven by the Fidelis acquisition and the growth in the marketplace business. Before I get into the details, I want to remind everyone of the upcoming stock split. The split was declared by the Board of Directors on December 12, 2018 to be distributed on February 6, 2019 to stockholders of record as of December 24, 2018. The split is not reflected in this morning's earnings release unless otherwise noted. Now let me provide some more details for the fourth quarter. Total revenues grew by approximately $3.8 billion year-over-year, primarily as a result of the acquisition of Fidelis Care, growth in the health insurance marketplace business, the expansions and new programs in many of our states in 2018, including the…

Thank you. [Operator Instructions] The first question today comes from Kevin Fischbeck with Bank Of America Merrill Lynch. Please go ahead.

Great. Thanks. I wanted to focus on the exchanges. I guess, the first question there is you mentioned retention similar and the demographic is similar. Any markets in particular that you would highlight as kind of faster growing than average?

I think we have a very balanced approach to our markets. It's good. Different markets have different sizes, so different penetration. But it's very balanced across our markets. And the demographics across markets are the same. The middle tiers, everything about it, Kevin, is just consistent with what we have historically seen.

Okay.

Do you want to add to that?

No.

I was going to ask also, Jeff, your comment there where you said, at the very end you said the growth in the marketplace business provides tailwinds for 2019 and you expect to drive long-term growth and margin expansion. I wasn’t sure of you were saying that you expect additional margin expansion in the exchanges or whether that was a broader comment about the overall business in margin expansion?

No, that was an overall broader comment. I mean, I think the tailwinds comment is evidenced by obviously -- we haven't even closed the books for January and we’re raising guidance, right? So membership came in higher than we expected and we have obviously the new win in Centurion, in Arizona and the acquisition and we're updating guidance for those items.

Okay, great. Thank you.

The next question comes from Josh Raskin with Nephron. Please go ahead.

Hi. Thanks. Good morning. I want to stick with …

Good morning.

… the exchanges as well. Good morning, Michael. Two questions, I guess, related to the exchanges. One is can we get an updated revenue contribution, in terms of your total top on to [indiscernible] that 70 billion-ish or so. How much of that is actually exchanges? And then, is there any assumed margin reset? It doesn’t sound like there's any reason to think that. I know you talked about conservatism in the past and certain year, so curious on that. And then, just on new competition, I don’t know are you seeing any traction from the Oscars or even new competitors in any of your markets? Sorry for a bunch of questions on exchanges, but that's it.

Go ahead, Jeff.

Yes. So, Josh, a couple of things. I think you could probably bridge our Investor Day slide to get there. But for 2019, I would say around the $10 billion mark would be for the exchange product. As far as margins, I think what we mentioned in our Investor Day, in December, was kind of the -- what we're projecting margins for 2019 to be similar to '17, '16, '15, which was between the 5% and 10% range. And I think that's exactly what we're expecting for 2019.

And from a competitor standpoint, we are not seeing activity that in any way affects us.

Okay. You’re not seeing any pockets of growth from some new entrants or anything like that in any of the specific markets?

No. If anything, I mean, we would like to see more people out there because it creates more noise and more activity and in a competitive environment, we tend to do very well.

Got you. And then, just one last one. Just wanted to ask on North Carolina. Could you size sort of the startup in development cost? I know you guys have been in the stage, you guys were one of the earliest in there. I know you’ve entered the exchanges well. Any way to size what that total cost of kind of market entry was in North Carolina?

We recognize that we just got the information yesterday. Our license suggests that we delay that comment to the next quarter -- to the first quarter call, if I may, Josh. I mean, we’ve some ballpark numbers, but we would like to -- on something like that, we want to be very specific. We are talking about an appeal on this. So I don't want to put anything out there that can, in anyway mislead. Do you agree, Jeff?

That’s fair.

Yes. I would agree on the specific number. I would say that included in our guidance that we gave today are our costs. We are refining those estimates obviously based on what we learn yesterday.

Got you. That’s fair. Thank you.

Thank you.

The next question comes some Scott Fidel with Stephens. Please go ahead.

Hi. Thanks. Good morning.

Good morning.

I just wanted to follow-up on North Carolina and just as you continue to do the postmortem today on the results yesterday. Just interested in as you evaluate the awards, what do you think were the key reasons, why the state didn’t award Centene, a statewide contract? And then, Michael, as you mentioned, you’re considering the appeal. Maybe help us think about some of the key sort of substantive points that you think that Centene can raise around the appeal?

Yes, I think -- one, I want to back off. I mean, we are not unhappy. When you win the largest service region and the third largest, it's meaningful numbers and I have it in here somewhere I could quote, so it's not a -- I don't see this as a loss, I see it as a win. I think as I said in my comments that the state did not fully understand the innovative approach we had working with providers who have previously done it before. And I think as they understand that and this was something that was in the legislation that they wanted. And we've worked very hard and we do believe that the partnership when they understand, it with the FQAC, the Medical Society and others, will prove to be a very successful model in North Carolina when you look at the history of what their models have looked like. So I think we are going to be a strong provider in those two regions. We are going to take them through what happened, and we are going to understand their decision-making, because you win two, you say if it works there, this model. Maybe they're trying to standard it more and they don’t want to go too far with it until they do. I can see lots of reasons, but -- so we will work with them, we will appeal it and -- but regardless of what happens, we believe in being a strong partner with states and work with them. And I think it's going to have a short and longer-term very positive outlook for quality and cost-effectiveness in the state.

Got it. If I could just ask a related follow-up to just on -- I know you’re not ready to size the revenue impact from North Carolina, but I think from all of our end we are trying to sort of sort out just what the margin profile of the North Carolina business can look like, because you've got some different dynamics in terms of the JV with providers and the minimum MLRs in North Carolina and some other factors. Just sort of, I guess conceptually, how do you guys think about sort of the margin profile of North Carolina more broadly relative to, let's say, sort of the more broader normalized margins that you target in the Medicaid book?

I expect our margin over time, because as you know, we have always taken conservatism and said that for the first 3, 4 quarters as an investment period. In the MLR we booked high until we see that the system is understanding what's involved in the managed care profile and system that we use. And so, I mean, I don’t expect great, great margins in the first 3, 4 quarters. But I do believe that these margins will be consistent to better. And I think working with the providers effectively and just to give you a model we have some pretty good systems with Interpreta and Casenet and other things that will help make these providers particularly successful. And so, I see an opportunity for in '20, because, I mean, we are not going to start immediately. I do see over as the year unfolds, some opportunity for some upside on it. So I think we are going to be putting together a model here that others will when they emulate over time.

Okay. Thanks.

The next question comes from Michael Newshel with Evercore ISI. Please go ahead.

Thanks. Michael, can you address the contract extension disclosed last night? And it means for succession planning? And did the Board asked you to stay longer or did the impetus come from you?

I would say, once succession planning continues as originally planned with the Board, we continue to work through that. And we were -- as we were talking about succession planning, the Board asked me if I will be willing to extend it. And I said that I would, I mean, we’re having fun, we are having success. I don't want to jinx it, but we are blessed with good health. And so -- and we have a great team here that it's fun to lead. Its taking on more and more of the load. So I can continue what I’m doing and maybe we can add a couple rounds of golf.

So succession planning is still like you want to continue in the meantime or [indiscernible]?

No, the succession planning -- one, succession planning can be a point in time, but it can also be a process that could be implemented anytime one feels it's appropriate to do so. So, I’d rather take that approach. And it's business as usual and they -- it was their idea to extend it, so -- because I have a lot of questions about it and to give a sense to all of you and everyone and the people in the company there's -- there will be continuity and will continue down the line.

Got it. I mean, if I can just squeeze one more. Can you just also confirm whether you're buying the QualChoice Health plan in Arkansas from CHI, and what the financial impact and timing would be?

Yes, we have the terms decided. We've not closed on it yet. And now we have to close, Jeff what, later this month, next month?

Yes, so we have executed the contract on that, Mike, so we'd expect to close in the second quarter. And I would just say, I mean, this is an end market transaction, so we tend to like those and look for those. So not material in the macro scheme. but certainly Arkansas has been good market, and we're excited to expand our presence there.

Great. Thank you very much.

The next question comes from Peter Costa with Wells Fargo Securities. Please go ahead.

Thanks and congratulations on the quarter.

Thanks, Peter.

I wanted to ask about going forward, first off in North Carolina, what do you expect the startup costs will be in 2019 and 2020? And then -- because your business doesn’t start until 2020. And then, also on 2020, can you talk about what’s going to happen with silver overloading and the cost-sharing subsidies and what might change there?

Yes. So, Pete, this is Jeff. I will handle the first question on the cost. I think what we said was we have some cost in for our 2019 guidance, but since we just got this information yesterday, it's a little early and we are reevaluating those costs. And I guess this is what I would say. So early for us to give a pinpoint number on that, given the information that came out yesterday. And on the second, I mean, we're not talking about 2020 guidance here today. So I don’t know if [multiple speakers]

Curious if you want to talk about [technical difficulty] might happen in Washington this year regarding the cost-sharing subsidies and way silver loading works. And if that may change for 2020 relative to -- HHS is allowing it for 2019, but it seems to be more up in the air for 2020.

Hey, Peter, it's Kevin. Yes, you’re right. If you look at the '19 payment notice, they make illusion to that. I think, again, it's premature to think about what that might actually look like into 2020. We are going to be prepared to pivot irrespective of what the policy decides. And again as you know, within CMS a year is a long time. So we'll see what happens.

Yes, I think also we do have two sides to the government now looking at these issues and our feeling is that can be positive and if we get some good constructive discussion going. And so -- and try -- we are going to play every part we can to move it to policy versus politics. There may be some real opportunities there for you.

Okay. Thank you.

The next question comes from Sarah James with Piper Jaffray. Please go ahead.

Thank you.

Thank you.

In North Carolina did Centene submit a bid as a health plan also or only a PLE? And I’m wondering since the provider led entities could be awarded regions and health plan statewide. Can you speak a little bit to the strategy around deciding to submit a bid as a PLE?

Well, we actually did submit both sides of it, but we emphasize the PLE. You have to go back and look at the historic programs they’ve had in the state and the role providers have had. And I think working with the State Medical Society and they were -- they've been great constructive partners and they really want to deliver high-quality care, they understand the cost issues, and they wanted to work with us because of our systems and how we can support them doing a better job and everybody doing well. We decided that's a good place to be and I still believe that, Sarah. And I think over time it's going to prove to be a very effective model in markets like North Carolina with the history we had. So this was one of those things that I think time will prove to be on our side. And so it's going to be business as usual. We did do both, but we found a real need to emphasize this side of it. And I think the state just -- I think they understood some value and that's why they did give us the largest and third largest regions as opposed to, say, we are going to do any of these provider led organizations, but we are going to go back and talk to them and see if that can be expanded some through the appeal process. If not, well, it will still be a program no matter how it comes out with. So it's going to be a sizable business, it was full size for you on the Q1 call.

Got it. That makes a lot of sense. And one more question, if I can. If I look back at 2018, there where points of 2Q were consensus didn't really get seasonality right on a couple of different lines and that caused some confusion. So I'm wondering if there's any commentary you can offer around 2019 seasonality or cadence and how you see that different from 2018?

I’m going to make an opening comment and let, Jeff, take that. Of course, we are not -- we don’t look at consensus. We look at the business and how it's developing. But Jeff, do you want to talk about seasonality?

Yes, yes. I think what we said in our December Investor Day. we kind of gave -- we've been trying to give more insight I guess to the seasonality of the business, giving a first half, second half view as far as how earnings progression goes. And I would say that the comment we made there, I think were consistent. So over 60% in the first half of the year. And again, as we continue to grow the marketplace business that shift continues to happen. I mean, the real driver of our change in seasonality is really the product mix. It's the diversification of the product mix. And so to the extent you have a higher mix of exchange, then you will pull more earnings forward to the first half of the year, because of the: number one, that's when we have the highest level of membership. And number two, that's when we have the lowest HBR as a result of deductibles.

Okay. So even though you guys are doing much better on exchange growth that you thought at Investor Day, you still think the 60-40 net is a appropriate way to think about the year?

Yes, yes. I would think that's a good place to start.

Thank you.

Thank you.

The next question comes from A. J. Rice with Credit Suisse. Please go ahead.

Thanks. Hi, everyone.

Hi.

First of all, just to ask about Fidelis a little more. It sounds like, generally, on a broad sense, everything is tracking. Are there any pockets as you drill down where you see new opportunities, now that you have it for a while or are there any areas where you’re seeing challenges or that weren't anticipated?

I will start off and others can add as they feel it. I think it's incredibly well run company. We are pleased with what we’ve had and will continue to work with us in social responsibility. For some obvious legal reasons it was important that he appoints a new CEO, that we get him. Great continuity there. The whole teams in place. But he commented to me the other -- not too long when he was in it, the turnover rate since we announced the acquisition has been the lowest they've seen historically. So people are very pleased with it. I think the opportunities -- there are opportunities to continue to grow. There's opportunities to help them with the medical loss ratio using our systems. So it's -- but it's -- they’re hitting all the numbers. They’re functioning on all 8 of 12 cylinders, depending how many you have in your automobile. And so, I think from every aspect of it we're -- I made the comment one day that if we could find more businesses like that, I want to do one in the morning and one in the afternoon. They’re really a well run company.

Okay. I was going to also ask about Mississippi in the press release you highlight that you completed the implementation of the new PBM model. Can you update us on your thought about rolling it out to other markets and will you wait for sort of proof-of-concept? In Mississippi, you play out for a little while or how should we think about that?

No, it's -- we are actively rolling it out now and I'd like to roll it as best we can. But once again I want to make sure it's well -- proof-of-concept is make sure there. It is working incredibly well in Mississippi. And we are confident and we’re going to roll it out into additional markets. We are right now as we speak. And by the end of 2020, we will be in all the markets and if I can [indiscernible] we will, but once again I’m not going to overload it. And -- but it's a great system, it's going to prove to be, I think where pharmacy benefit should be headed.

Okay. What’s this most significant economic benefit of making that transition that you’re seeing in Mississippi?

Well, there is administrative expenses, its cloud-based. We can reduce the admin cost significantly. And we are working with -- I mean, I mean, John Sculley, Ravi and the people there are really innovative creative. And I'm working with them now that, because I have a commitment to speak about is there some way to move to net pricing as opposed to rebate. And I think they have the system, skills and capabilities that we can start talking about those kind. We are talking about those kinds of things with them. It's not going to be instant. But -- so there is a lot of significance to what you’re doing. It's very innovative and as we are able to demonstrate more and more that you will see it.

Okay. All right. Thanks a lot.

The next question comes from Lance Wilkes with Sanford Bernstein. Please go ahead.

Yes. Good morning. Could you talk a little bit about in the Medicaid book, medical cost trend and management, in particular, if could just kind of hit up on some color on what's doing better-than-expected, what’s doing worse? How important the original restrictive networks are, and what's going on with risk profile at the state level with some of the reenrollment efforts that are taking place at those levels?

Jeff, you want to comment on that?

Yes, yes. Couple of things. We did see the Medicaid improvement over the third quarter, really it's a combination of many things. Combination of the med management network initiatives, premium -- premium rate adjustments combined with I think what we saw was stable cost trends in the fourth quarter. So your comment about risk profile, I mean you really have to go on a state -- state-by-state basis. So if you aggregate the business, I mean, that’s one of the benefits of diversification. If you aggregate the business, I would say that the risk profile has remained relatively consistent.

I would like to add that if you look at the scale and size we have in most, I mean, albeit in the newest markets, it's 65,000 in Mexico and global [ph], but when you have the size we do, you get a balanced book of business. And we were expecting to have some that are [indiscernible] and some that are healthier, and we look across the whole book, and we’re seeing that. And that’s really the large numbers as much with anything else coming into play. So thus far the benefit of our size, being the largest Medicaid provider. But also as, Jeff highlighted, you have 31 states. It puts you in a strong position, because as I tell investors, there's no different in their portfolio. At any given time they might have one stock that’s not performing well or two. Well, we are going to have -- we are going to have a market that has a couple of issues, but we’ve others doing well and they offset, while we correct the one has an issue. So it's a balance that gives us certain comfort.

And can you just talk to the or just clarify on the behavioral membership for the quarter? What was the decrease in that? Does it go into an integrated medical offering?

Yes, it's moving and we're moving more and more to the integrated medical. And I want to do that as quickly as we can. I really believe that's an important place to be. I have to use publicly the example that someone is diagnosed a new -- as a new diabetic, I sure want them to talk to a behavioral person as quickly as they can because it gives you more control of the total medical condition.

Yes, the membership decreased. We previewed this at our Investor Day. It was really a behavioral health only program in Arizona that was integrated with the traditional Medicaid program. And so while the membership decreased quite a bit, the revenues are up on a consolidated basis. So lower membership, higher revenue because it's been integrated with the physical health.

Got you. Thanks.

The next question comes from Steve Tanal of Goldman Sachs. Please go ahead.

Good morning, guys. Thanks for the question.

Good morning.

Just one quick one on the marketplace. I missed the minimum MLR accrual number. If you can just give us that once more and then maybe just let us know where 2018 margins ended for the business?

Yes. So, I think 260, approximately $260 million. And as I said, in our December Investor Day, we are not going to give it. It's a competitively priced product, we are not going to give a specific margin number.

Okay. All right. Fair enough. And then the other question I had, we are hearing a little bit more sort of anecdotally around the eligibility redeterminations in Medicaid, potentially affecting risk pools and making for a bit of a short-term blip as some of the MCOs go back to the states for better rates. What are your views on whether or not that's happening? And if it is, maybe it's just part of sort of the uptick in Medicaid rates where you’re looking for 1.5 composite increase in '19 or just one in '18 or how should we think about that if that's not really behind that?

Again, I think you have to go on a state-by-state basis. We have seen where redeterminations have changed the risk pool and states been relatively quick to react. I wouldn't necessarily call that meaningful. It's certainly helpful, but it's not a meaningful driver of the medical cost if you look at the actual volume of redeterminations. But we actually have had states do adjustments, I would say relatively quickly after the redeterminations. And when you look at acuity mix, its different by state. Some of the -- some states have had redeterminations that had no effect on acuity.

Yes. So it's once again -- it's the law of large numbers. Large number of states in the mix.

That’s helpful. And then the acceleration and the rate, is there anything specifically we can sort of think about is driving that?

The acceleration in what rate? The composite.

The composite. Yes, the composite rate, 1.5 versus 1 in '18.

Yes, I mean, I think I mentioned it in our December Investor Day. We do have a state -- certain states, which are performing at the long-term margin. Some of that is rating issues, so we have seen and are projecting some improvement in rates into 2019.

Perfect. Thank you.

The next question comes from Dave Windley with Jefferies. Please go ahead.

Hi. Good morning.

Good morning.

Its Dave Styblo on for Dave Windley. First question I have was just on the Medicaid business. It seems like that’s driving the MLR move into the bottom end of your 2018 guidance range. I would be curious just to get a better sense of where the margins are at this point and we're hearing peers, obviously, talk about net margins getting close to 3% over the next couple of years. Do you think that's something possible for Centene or is there some business mix or other structural considerations that might make it hard for you guys to replicate that type of profile?

Yes, I commented on this in our December Investor Day where we've also grown faster than anybody else in the industry on the Medicaid side. And as Michael mentioned before, when you're starting of these new markets, you have compressed margins versus what you would say is your long-term margin target. So I think from our standpoint we still think 3% to 5% is a good margin target. And just because of the mix and the growth that we've had, it's probably different than our competitors.

And I would add something else. If you look at it, we showed in the net margin of 50 basis points what the -- with what we gave you today. It's easy to say what do you think is going to happen in the future. We prefer to say, we have a continued focus on margin expansion at growing the business. And we tend to deliver against it versus saying, I'm going to get it to X number, because that's easy to do. I used to learn that -- they used to say in [indiscernible] Brazil and others that [indiscernible] that people will accept anything. I’m going to simply say that we're going to continue to grow this business and its dramatic in my opinion. And we're going to work hard at margin expansion using systems and other capabilities, we have to improve outcomes and reduce costs.

Sure. And Jeff, I think I heard you mention that the risk adjustment payables was that $930 million at the fourth quarter. I think that’s up about 37% year-over-year compared to exchange enrollment that’s up a little bit over 50%. Can you just help us understand maybe the delta there why those number look a little bit more comparable in terms of growth?

Yes. I mean, you have to look at number of months I think is one of the first things so in total. But, I mean, it wasn't out of line with our expectations. So -- and I did give you, it's $930 million and the reason I'm giving those is because typically we file -- in the quarters we file the 10-Q and you can pull those from the 10-Q. Obviously, here the annual report comes later. So I’m just giving this to you now.

Sure. Thanks.

The next question comes from Matt Borsch with BMO. Please go ahead.

Thanks for fitting me in.

Thank you.

So the question -- a question about if you look out with your the various providers that you're working with, do you anticipate shortages as you look ahead the next five years or maybe even beyond that? And I will ask a question in the context of a hypothetical that if you had one of the big drug retailers, let's say, with sort of ancillary personnel providing primary care services, would that be something that would be an attractive model for Centene to contract with?

I think, we tend to kind of march our own drum. And we work well with primary care, we work well with specialists. And sometime, when some of you have a chance to come to the office, we will take you through our Casenet and our Intrepreta, we’ve shown some of it in the Investor Day. But there are systems that help physicians become very successful in treating their patients. And given the data and given real time heated [ph] scores and things that they can get on, we are moving to where they can get on their iPhone. And so, I believe that there are effective contracts in equity or you can have equity in contracts is what I’m trying to say.

Yes.

And that’s kind -- that tends to be the direction. If we see -- and I said this in Investor Day, if we saw an area where there is not enough positions for access or work with some governmental agencies, in just that issue while we have CMG now, that has a capability to open up very successful clinics that deal with this population, social determinants, etcetera. And we would ask Luis, who runs it, to move into region x and put together a little multispecialty clinic. So we think we have the capability to meet our members' needs. And once again, I mean, we all know who you are thinking of. That’s a big -- it's a big operation, but they also have a lot of commercial and other membership. And we are very focused in the government services area.

Great. Thank you.

The next question comes from Ana Gupte with SVB Leerink. Please go ahead.

Hi. Thanks. Good morning.

Hi.

Thanks for fitting me in. Just wanted some color as you go into 2020 on a couple of drivers, good drivers. Firstly, on exchanges. Can you talk about what your growth profile might be there as you look at the demand, and then the under penetration, the moves to short-term plans and anything else in the competitive environment as you go into the selling season.

I will start and Jeff, you can pick up. But the short-term plans, I mean, short-term plans who manufacture association have been around forever. The benefits of maturity is less. The majority of our membership has subsidies. So why jump out if something else gives you a lot less benefits to go into it and those things still have to be proven, Ana. And they are just at the short-term. . And I think over time, costs and short plans go up because you have such a turnover that you have different disease states. And they have -- they’ve tried to overcome that by being able to underwrite health risks. And that itself I think is going to long-term be a problem, not for us, but just for health states in general. So I think this is a long way. It's an attempt to be disruptive, but I'm not sure how disruptive we -- our particular model. So I think that it's. So looking forward, I mean, I will just remind Ana, not you, but others has talked about our growth rate as we have got bigger wallets. We are still maintaining a significant growth rate. They talk about the exchanges and all the disruption and how it is and were up 15% this year while the market is declining. So we are just going to continue to business as usual and deal with the facts, as we have now and the fact says it's a good business, it's a strong business and we know how to manage it. We’ve assistance to manage it. Does that help?

Yes, that’s helpful. Yes, thanks, Mike. On the MA side then for 2020, and I think it's really thought leading on the Ascension JV, but you do have the four star contract at this point. Are you planning to do two different products, one that’s cobranded, and then one that’s with Ascension, and then one Centene or how are you thinking about 2020 as an opportunity for growth?

I think that’s going to depend by market. It depends on the size the market really are, our network. We are going to work -- we are going to first work effectively with our partners at Ascension. And they -- we are not doing any help and they work with. So, I mean, it's always -- it will be a mix and depending on the size of market scale, and what makes sense. I mean we’ve some markets we’ve had historically more than one product. So that’s -- it's not a bad thing. I can go back to my consumer packaged goods space. So there was a time in Canada, we had two different soap [indiscernible] and it worked very well.

Makes sense. Yes.

[Indiscernible] healthcare. Pardon me.

No, I think that makes sense. They're not customized just -- I mean, you will be more customized by local market and depending.

Right. I think what the key is -- I think what’s key, Ana, is you have the -- you have to have the systems. And the overall capability to manage that multiplicity of opportunities. And that’s where we are focused and I made comments, we are going to continue invest in technology. And I think we’ve demonstrated that we’ve the wherewithal to do it in a very meaningful way. It goes back to the $500 million we are going to generate internally so as to be able to invest in new technologies, new opportunities. With that effect in margins, and the overall growth of the business.

Yes, truly. That’s a competitive advantage. That makes a lot of sense on the systems.

Thank you.

The next question comes from Steven Valiquette with Barclays. Please go ahead.

Great. Thanks. Good morning, everybody.

Good morning.

So there were some moving parts in Medicaid costs throughout 2018 for really Centene and really a lot of companies in the overall MCO sector. But just given on the drivers you mentioned earlier, that led to your sequential improvement in Medicaid cost trend in 4Q '18 and also just exiting the year, I guess when you add it all up, is if there's any extra color you can provide just on your expected Medicaid MLR assumptions for 2019 overall versus 2018 overall just when comparing on an apples to apples basis. Thanks.

Yes, I commented on this sort of Investor Day, I mean, we do expect Medicaid margins to improve in 2019 over 2018. And a lot of that’s driven by a lot of actions that we've taken this year, which will have a full-year run heading into 2019. The we do -- we do anticipate improvement in the Medicaid margins in '19.

Yes, and bottom line is that the trends in 4Q '18, I assume, are very suggestive that you’re on track to achieve that. So that’s, I guess the key takeaway at least from my perspective.

Yes, it was a good quarter.

Yes. Got it. Okay. All right. Thanks, guys.

The next question comes from Gary Taylor with J.P. Morgan. Please go ahead.

Hi. Good morning. Just a couple of questions left. The first is on the 2019 exchange enrollment, have you guys disclosed or be willing to help us with, on the four new states, how much does that contribute to the 250,000 increase at Fidelis?

Jeff?

Yes. I guess, what I would say is, consistent with what we've done historically, it's not the largest driver of membership growth. Typically, when we go into new markets, it's a test and learn approach. And I think we followed that for the new markets this year. So it's not the majority of the driver of the membership growth. It really is coming from existing markets that we’ve had.

Okay. And then my second question is cash from ops for 2018 was weighed by about $1 billion, I think, with some of these California accruals that you ended up paying this year. If you normalize that, free cash flow looks quite good compared to earnings. As we head into 2019, just remind us -- I don’t recall from Investor Day you called out anything, but versus kind of your long-term guidance of 1.5x to 2x cash from ops versus earnings, are there any material variances that for 2019?

No, I mean, I think the 1.5x to 2x would apply. There's always timing issues, right? They can always be a timing of the State payment that you don’t get at the end of the quarter, the end of the end of the year that is subsequently paid within the next few days. And so -- and given our size in some states those can be meaningful. So you always have timing items that come up, but nothing that I can think of similar to what we experienced in the $1 billion of MLR payables in California.

Okay. Thank you very much.

The next question comes from Ralph Giacobbe with Citi. Please go ahead.

Thanks, good morning. So you ended with a 1.46 million fixed numbers. You mentioned the $2 million which I understand is sort of the peak number. And I think you also said, 250,000 year-over-year, so just wanted to clarify that. Sort of year-end membership on the hicks, somewhere in that kind of 1.7 to 1.8, is that the right way to think about it?

We don’t actually provide the year-end. Obviously, there was attrition from the peak membership. So what we’re talking about is if you go back to our Investor Day slides, we would have said 2018 peak was $1.650 million. You are growing $250 million on top of that plus the addition of 80,000 with Fidelis, gets you close to the $2 million. But we don’t -- we are not providing at year-end 2019 number.

Okay. Is there any reason to think that it wouldn’t just be similar to prior years in terms of ending versus peak?

Yes, I would expect to normal attrition rate. That’s certainly what we’ve forecasted.

Okay. That’s helpful. And then, just real quick, effective tax rate, we should use for 2019? It's in the guidance, I provided that in the guidance this morning.

Yes, yes. It's in the press release.

Okay. And one more, if I could. Can you just remind us the level of incremental, maybe strategic investment that you call out and just framing on sort of the ongoing expense or if you see that pace flow. Thanks.

Strategic investment for which year 2018 or '19, what specifically are you [indiscernible]?

Yes. I think we should start what we call business expansion -- business expansion costs. And I think what we said, now this is on a split adjusted basis, obviously, 12 to 14 cents.

Okay. All right. Thank you.

This concludes our question-and-answer session. I would like to turn the conference back over to Michael Neidorff, for any closing remarks.

Well, I just wanted to thank everybody for the questions, the time and we look forward to continuing the record of -- year-after-year. So have a good first quarter. We will talk to you soon.

This company is now concluded. Thank you for attending today’s presentation. You may now disconnect.