Health insurance is a strange business. Usually, losing customers is bad. But for Centene (Centene (CNC)), losing some Medicaid members actually helped the bottom line — at least in the second quarter.

The managed care giant reported second-quarter adjusted earnings of $2.51 per share, absolutely demolishing the consensus estimate of $1.08. Revenue came in at $53.579 billion, also well above the $47.617 billion analysts were looking for. The stock barely budged — down 0.10% to $64.01 — but the numbers tell a story of a company navigating a tricky transition.

Centene's premium and service revenues rose 4% to $44.4 billion, driven by premium yield and membership growth in its prescription drug plan (PDP) business, along with rate increases in Marketplace and Medicaid. But total membership across the portfolio fell to 25.885 million from 28.004 million a year ago, as the post-pandemic Medicaid redeterminations continue to shake out.

“We ended the quarter with just over 12 million members (Medicaid), a slightly larger step down in membership than anticipated,” the company said on its earnings call.

Medical Costs: The Real Story

The key metric for any health insurer is the health benefits ratio (HBR) — the percentage of premiums spent on medical claims. Lower is better, and Centene's HBR improved to 89.6% from 93.0% a year ago. That 3.4 percentage point drop is huge for a company with billions in premium revenue.

What drove the improvement? A lower Marketplace HBR thanks to better pricing and risk transfer that reflects the acuity of that membership. And in Medicaid, rate increases and “continued tangible progress in managing medical costs” did the heavy lifting. In other words, Centene got better at predicting and controlling what it spends on care, even as its member mix shifted.

CEO Sarah London framed it as a milestone: “Our second quarter results and improved full-year outlook represent meaningful milestones on our path to restoring profitability and increasing shareholder value.”

Raising the Bar for 2026

Centene didn't just beat Q2 — it also lifted its full-year guidance significantly. The company now expects 2026 adjusted earnings of more than $4.80 per share, up from prior guidance of more than $3.40 and well above the $3.52 consensus. Revenue guidance was raised to $193.5 billion to $197.5 billion, from $187.5 billion to $191.5 billion previously.

But the membership headwinds aren't over. London noted on the call: “We are now expecting lower year-end membership than our previous outlook, with the increased enrollment and eligibility activity as we move through the back half of the year.”

Still, there's optimism in the Medicare segment. “Overall, we are pleased with the momentum building in our Medicare segment thus far in 2026 and look forward to leveraging that strength as we prepare for 2027,” London said.

The results come a week after rival Molina Healthcare (Molina Healthcare (MOH)) also reported lower premium revenue despite topping earnings and revenue estimates, showing that the industry is grappling with similar dynamics.

For Centene, the message is clear: sometimes you can make more money by serving fewer people — as long as you serve them smarter.