CNC

MKT CAP $34.7BP/E —DIV YIELD —FCF YIELD 25.80%REV TTM $202.9B +13.9%NET INCOME −$5.1B −348.3%NET CASH $6.7B52W 31.80 – 70.81SEC XBRL · TTM TO Invalid Date

How CNC rewrote its risk factors

10-K ITEM 1A · FY2024 → FY2025

Text kept

66%

of sentences unchanged

Added

new sentences

Dropped

sentences removed

Length

+1,043

words, now 15,999

New in FY2025

Risks Relating to Our Business Failure to timely and effectively identify and mitigate medical cost trends and receive adequate rate adjustments to account for increased acuity could have a material adverse effect on our results of operations, financial condition and cash flows.
Our profitability depends to a significant degree on our ability to accurately estimate and effectively manage expenses related to health benefits through, among other things, our ability to contract favorably with hospitals, physicians and other healthcare providers, as well as related administrative costs.
If our actual medical expenses exceed our estimates for any reason, our health benefits ratio (HBR), or our expenses related to medical services as a percentage of premium revenues, would increase and our profits would decline.
For example, late in the second quarter of 2025, data from an independent actuarial firm suggested a materially higher implied aggregate morbidity of the Marketplace membership as a whole than anticipated, resulting in a significant reduction of our expected net risk adjustment revenue for 2025.
In addition, during 2025, our Medicaid membership had higher than expected medical costs, including due to unanticipated increased costs in behavioral health, home health and high-cost drugs.
Changes in healthcare regulations and practices, including due to the OBBBA, the level of utilization of healthcare services, including due to eligibility changes, benefit design, provider or consumer behavior changes, out-of-network utilization and pricing, medical claim submission patterns, including due to the use of artificial intelligence, hospital and pharmaceutical costs, including new high-cost specialty drugs, unexpected events, such as natural disasters, the effects of climate change, acts of war or aggression, geopolitical instability, major epidemics, pandemics and their resurgence, or newly emergent diseases, new medical technologies, increases in provider fraud, tariffs, unexpected increases in taxes and fees, including provider taxes, and other external factors, including general economic conditions such as interest rates, inflation and unemployment levels, are generally beyond our control and could reduce our ability to accurately predict and effectively control the costs of providing health benefits.
Also, member and provider behavior could continue to be influenced by the uncertainty surrounding the availability, affordability, funding and access to health insurance, whether under Medicaid programs or the Affordable Care Act (ACA) or the OBBBA, including due to the expiration of the Enhanced Advance Premium Tax Credits (APTCs) and additional program integrity initiatives for Marketplace products.
In addition, as a result of the expiration of the public health emergency (PHE) due to the COVID-19 pandemic, and the resulting Medicaid redeterminations process, as well as changes in state benefit designs, we have continued to experience a higher HBR related to the remaining members, due to the acuity profile of this membership, as well as the gaps in eligibility for certain members who have rejoined the Medicaid plans.
In particular, as part of the Medicaid rate setting process, state actuaries determine actuarial soundness of rates based on historical data.
The delay in time between making claims payments and receiving rate adjustments when we experience an increased rate of change in medical expenses, whether due to the increased acuity profile of the membership or the increased utilization of health care services, such as behavioral health, home health and high-cost drugs, may cause the profitability of our Medicaid plans to be reduced.
While we continue to work with our state partners to match rates to acuity to reflect more recent experience, such rate adjustments may be delayed or insufficient to offset the increased acuity.
Our medical expenses include claims reported but not paid, estimates for claims incurred but not reported, and estimates for the costs necessary to process unpaid claims at the end of each period.
Assumptions and estimates are utilized in establishing premium deficiency reserves, when necessary.
In the instance a premium deficiency reserve is necessary, if our assumptions are inaccurate, we may be required to increase our premium deficiency reserves which could have a material adverse effect on our results of operations and financial condition.
Additionally, when we commence operations in a new state or region or launch a new product, we have limited information with which to estimate our medical claims liability and continuity of care requirements, which can affect our ability to accurately predict medical claims.
In addition, we have limited ability to manage the utilization of services until continuity of care requirements expire.
For example, in 2025, we had higher utilization than we expected in several applied behavioral health services programs.
The addition of new categories of eligible individuals, as well as evolving Health Insurance Marketplace plans and eligibility changes, may pose difficulty in estimating our medical claims liability.
From time to time in the past, our actual results have varied from our estimates, particularly in times of significant changes in the number and acuity profile of our members.
Any failure to adequately and timely price or anticipate demand for products offered, anticipate changes to the competitive landscape or any reduction in products offered for Medicare and in the Health Insurance Marketplace may have a material adverse effect on our results of operations, financial condition and cash flows.
In the Health Insurance Marketplace, we may be adversely impacted if we have not accurately and timely predicted the health needs of our members, including individuals exiting or entering the market, causing the morbidity of the risk pool to rise without a proportionate change to risk adjustment.
The premium rates we charge are typically determined in the summer prior to the next plan year, and delays in receiving data upon which the assumptions our based may impact our ability to timely adjust and receive state approval for these rates.
For example, late in the second quarter of 2025, we made a significant negative adjustment to our expected net risk adjustment revenue attributable to the 2025 Marketplace plan year.
Further, changes in the competitive market for both Health Insurance Marketplace and the Medicare products over time, unanticipated changes to member eligibility requirements or verification processes in the program design, including due to changes to the expiration of the Enhanced APTCs and the timing of those changes, additional program integrity initiatives that have the effect of reducing membership or causing the morbidity of the risk pool to rise, changes in consumer or provider behavior, or changes in the financial incentives of individuals, brokers and competitors to participate in such products may make pricing difficult to predict.
Any significant variation from our expectations regarding acuity of our members, the Marketplace membership as a whole, enrollment levels, adverse selection, out-of-network costs or other increased costs, including due to tariffs or other assumptions utilized in setting adequate premium rates could have a material adverse effect on our results of operations, financial condition and cash flows for both our Health Insurance Marketplace and Medicare products.
While we have received approvals in the vast majority of states for our 2026 refiled Marketplace rates reflecting the increased medical expenses we experienced in 2025 and adjusted our benefit design and strategy, these actions may not be sufficient to maintain or increase the profitability of these products, which may unfavorably impact our results of operations and financial condition and may be material.
In addition, we may be unable to accurately predict demand for both our Health Insurance Marketplace and Medicare products, as demand depends on factors outside of our control such as the competitiveness of our bids, the broker distribution channels, additional program integrity initiatives that have the effect of reducing membership and the entry and exit of other competitors in the markets.
As of December 2025, approximately 60% of our Medicare Advantage membership was associated with contracts rated 3.5 stars or better.
While we continue to focus on Star rating improvement, we may not be able to improve or maintain our Star ratings.
For calendar year 2026, CMS again applied a negative rate adjustment for risk model revisions and fee for service normalization.
On January 26, 2026, CMS released its draft 2027 Medicare rate announcement.
We believe these rates are insufficient to reflect the increases in continuing medical cost trend.
In addition, CMS' risk model may not account for the full severity of several chronic conditions, which could also disproportionately affect the dual-eligible population which is more medically complex and faces additional socio-economic barriers to health compared to others.
Additionally in 2025, CMS announced the intent to accelerate the timing and expand the scope of risk adjustment data validation audits.
We anticipate that CMS will continue to conduct audits of our Medicare contracts and contract years on an on-going basis with increased focus.
For example, we are currently protesting the Texas and Georgia Medicaid reprocurements in which we were not a successful bidder.
In addition, as part of the normal course of business, our Medicaid contracts are routinely up for reprocurement.
Competitors may be more aggressive in the descriptions of their capabilities and the assumptions utilized in their bids or more willing to accept the financial and other terms offered by the states.
The results of our bids and the design of the risk-sharing program could have a material adverse effect on our results of operations, financial condition and cash flows.
Our 2026 PDP bids were below the benchmarks for all 34 CMS regions, compared to our 2025 PDP bids, which resulted in 33 of 34 CMS regions for which we were below the benchmarks and one region for which we were above the benchmark.

and 54 more.

Gone since FY2024

Risks Relating to Our Business Failure to accurately estimate and price our medical expenses or effectively manage our medical costs or related administrative costs could have a material adverse effect on our results of operations, financial condition and cash flows.
Our profitability depends to a significant degree on our ability to accurately estimate and effectively manage expenses related to health benefits through, among other things, our ability to contract favorably with hospitals, physicians and other healthcare providers.
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.
Changes in healthcare regulations and practices, the level of utilization of healthcare services, out-of-network utilization and pricing, medical claim submission patterns, hospital and pharmaceutical costs, including new high-cost specialty drugs, unexpected events, such as natural disasters, the effects of climate change, acts of war or aggression, geopolitical instability, major epidemics, pandemics and their resurgence, or newly emergent diseases, new medical technologies, increases in provider fraud and other external factors, including general economic conditions such as interest rates, inflation and unemployment levels, are generally beyond our control and could reduce our ability to accurately predict and effectively control the costs of providing health benefits.
Also, member behavior could continue to be influenced by the uncertainty surrounding the ACA, including potential changes in premium subsidies, including due to changes in the eligibility or amount of enhanced advance premium tax credits for Marketplace products.
In addition, as a result of the expiration of the public health emergency (PHE) due to the COVID-19 pandemic, and the resulting Medicaid redeterminations process, we have experienced a higher HBR related to the remaining members, due to the acuity profile of this membership, as well as the gaps in eligibility for certain members who have rejoined the Medicaid plans.
Our medical expenses include claims reported but not paid, estimates for claims incurred but not reported (IBNR), and estimates for the costs necessary to process unpaid claims at the end of each period.
Assumptions and estimates are utilized in establishing premium deficiency reserves.
For example, we have established a premium deficiency reserve in connection with the 2025 Medicare Advantage business as of December 31, 2024.
If our assumptions are inaccurate, we may be required to increase our premium deficiency reserves which could have a material adverse effect on our results of operations and financial condition.
Additionally, when we commence operations in a new state or region or launch a new product, we have limited information with which to estimate our medical claims liability.
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.
Any failure to adequately price or anticipate demand for products offered, anticipate changes to the competitive landscape or any reduction in products offered for Medicare Advantage and in the Health Insurance Marketplace may have a material adverse effect on our results of operations, financial condition and cash flows.
In the Health Insurance Marketplace, we may be adversely impacted if we have not accurately predicted the health needs of our members, including individuals exiting the market causing the morbidity of the risk pool to rise without a proportionate change to risk adjustment.
Further, changes in the competitive market for both Health Insurance Marketplace and the Medicare Advantage products over time, changes to member eligibility in the program design, including due to changes to the eligibility or amount of the enhanced advanced premium tax credits and the timing of those changes, additional program integrity initiatives that have the effect of reducing membership or changes in the financial incentives of individuals, brokers and competitors to participate in such products may make pricing difficult to predict.
Any significant variation from our expectations regarding acuity, enrollment levels, adverse selection, out-of-network costs or other assumptions utilized in setting adequate premium rates could have a material adverse effect on our results of operations, financial condition and cash flows for both our Health Insurance Marketplace and Medicare Advantage products.
In addition, we may be unable to accurately predict demand for both our Health Insurance Marketplace and Medicare Advantage products, as demand depends on factors outside of our control such as the competitiveness of our bids, the broker distribution channels, additional program integrity initiatives that have the effect of reducing membership and the entry and exit of other competitors in the markets.
As of December 2024, approximately 55% of our Medicare Advantage membership was associated with contracts rated 3.5 stars or better.
Our quality improvement goal is to move 85% of our members into contracts with 3.5 stars or better for rating year 2026 (anticipated to be published in October 2025), which may not be achieved.
For calendar year 2025, CMS again applied a negative rate adjustment for risk model revisions and fee for service normalization.
As a result of the Medicare Advantage 2025 rates and our 2025 Medicare Advantage bid design and membership projections, we have established a premium deficiency reserve in connection with the 2025 Medicare Advantage business as of December 31, 2024.
In addition, CMS' new risk model may not account for the full severity of several chronic conditions, which could also disproportionately affect the dual-eligible population which is more medically complex and faces additional socio-economic barriers to health compared to others.
We anticipate that CMS will continue to conduct audits of our Medicare contracts and contract years on an on-going basis.
For example, the Department of Defense did not award the West region TRICARE Managed Care Support Contract commencing in 2025 to Health Net Federal Services, and the contract ended as of December 31, 2024.
In addition, as part of the normal course of business, several of our Medicaid contracts are up for reprocurement in 2025 (for contracts largely commencing in 2026).
Competitors may be more aggressive in the descriptions of their capabilities and the assumptions utilized in their bids.
The results of our bids could have a material adverse effect on our results of operations, financial condition and cash flows.
Our 2025 PDP bids resulted in 33 of the 34 CMS regions for which we were below the benchmarks and one region for which we were above the benchmark.
As of January 1, 2025, we experienced an increase to over 7.5 million PDP members compared to 6.9 million in December 2024, due to our 2025 bid positioning.
The IRA is expected to substantially increase PDP's risk exposure in 2025.
Under the IRA, PDP plan costs will increase significantly due to a reduction in members cost share (close of coverage gap, and the $2,000 cap on member out-of-pocket expenses) and a decrease in federal reinsurance (from 80% to 20%, while a greater portion of the plan drug costs will fall into the catastrophic phase).
In the meantime, Part D risk sharing program thresholds would be applied to the increased Part D plan costs, so the plan cost at risk will be much greater before any risk sharing kicks in.
These changes may lead to heightened underwriting risks and increased market volatility and uncertainty for 2025 bids, which could materially reduce our revenue and profit.
In addition, evolving regulations and state and federal mandates regarding coverage may impact the ability of our health plans to continue to receive existing price discounts on pharmaceutical products for our members.
For example, as part of the normal course of business, several of our Medicaid contracts are up for reprocurement in 2025 (for contracts largely commencing in 2026).
For example, as a result of Medicaid reprocurement process in California, in January 2024 our subsidiary, Health Net of California, began subcontracting a portion of its Medicaid membership in Los Angeles, which reduced our membership compared to December 2023.
We contract with various third-party vendors to perform certain functions and services, including for PBM, medical management and other member-related services.
For example, our wholly owned subsidiary, Health Net Life Insurance Company (HNL), is and may continue to be subject to such disputes with respect to HNL's payment levels in connection with the processing of out-of-network provider reimbursement claims for the provision of certain substance abuse related services.
In the event HNL receives an adverse finding in any related legal proceeding or from a regulator or is otherwise required to reimburse providers for these claims at rates that are higher than expected or for claims HNL otherwise believes are unallowable, our financial condition and results of operations may be materially adversely affected.

and 37 more.

Sentence-level comparison of Item 1A in the two most recent 10-Ks (FY2024 ↗, FY2025 ↗). A reworded sentence counts as one dropped and one added, so heavy edits read as low “kept”. Headings and page furniture are stripped; nothing is summarised by a model.

Watch CNC. Know when insiders buy.

One email the day a filing lands. Free.