My name is Patrick and I will be your conference operator today. At this time, I would like to welcome everyone to the Centene Corporation, Q3, 2008 conference call. All lines have placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. (Operator Instructions). Thank you. I would now like to turn the call over to Ed Kroll.

Thank you, Patrick. I am Ed Kroll, Senior Vice President, Finance and Investor Relations at Centene Corporation. Thank you for joining our earnings call this morning. You should have a copy of the press release we issued this morning. If you’ve not received it, please call Libby Abelt at 212-759-5665 and a copy will be sent to you immediately. Michael Neidorff, Chairman and Chief Executive Officer and Eric Slusser, Executive Vice President and Chief Financial Officer of Centene Corporation will host this morning's call. The call is expected to last approximately 45 minutes and may also be accessed through our website at www.centene.com. A replay will be available shortly after the call's completion, also on www.centene.com or by dialing 800-642-1687 in the United States and Canada or 706-645-9291 from abroad. The access code is 6347-1844. Any remarks that Centene may make about future expectations, plans and prospect, 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 Form 10-Q dated October 28th, 2008, today 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. With that, I would like to turn the call over to our Chairman and CEO, Michael Neidorff.

Thank you, Ed. Thank you for joining this morning’s call. The start time of our earnings call today is back to our usual time of 8.30 am Eastern Time. Our reporting date will remain in our historic pattern of the fourth Tuesday of the month, following the end of the quarter, except for the year-end call. We have posted these future Centene reporting dates on our website for your convenience and to avoid future conflicts. Before I comment on what we believe was a very solid quarter, I would like to offer some perspective on the US economy, financial system and state budgets. And how Centene's business model and long-term financial prospects will be affected by both. These are certainly extraordinary times that our nation is going through. Financial markets have been roiled to a degree unheard of for almost 80 years. The bursting of the housing bubble that has caused disruptions in our financial system, now seems to be pushing out our entire economy into a recession. State budgets have already been feeling the pressure of lower tax revenues in tougher times. What does this mean for a Medicaid-focused health plan company like Centene? In times like these, we can add the most value to our state partners by managing benefits and services effectively and efficiently. It means that our state customers need us more than ever to help stretch their budget dollars further. We are a lifeline, a safety net to insure the disadvantaged people and there will be more of these in a recession. Also entails access to quality healthcare services in the most efficient cost-effective manner. This is especially true in hard times. Our team is dedicated to providing better health outcomes at lower costs. This is not just a slogan. It is our mission statement.…

Thank you, Michael.. In summary, we're pleased with this quarter's financial performance largely driven by continued company-wide discipline, new business and HBR improvement. While we still have work to do to get our consolidated profit margin firmly within our 4% to 6% target range, we believe that we're starting to gain traction on achieving our margin goals. The groundwork we've laid in terms of better controls, new management additions and greater efficiencies are giving us confidence that we will achieve our margin goals and produce a more predictable profit stream going forward. Revenue, net of premium taxes, grew to $873.5 million, which represents 19.8% growth compared to the third quarter of 2007. This increase was driven by several factors. First, 2008 includes revenues from the April 1, 2008 startup of our Texas Foster Care contract; second, premium rate increases received in our health plans; third, membership growth in our Texas and Indiana markets; and finally, the recent acquisition and inclusion of Celtic in our financial statements. Celtic, which closed on July 1, 2008, is included in our Specialty Services segment. Revenue for the 2008 third quarter also benefited from a September 1 rate increase in Texas. Centene received a gross rate increase in Texas of approximately 4.85%. However, the majority of the rate increase was for State Fee Schedule changes. Centene's effective annual rate increase after State Fee Schedule changes was less than 1% across all products. Revenue for the 2008 third quarter does not include the effects of a planned Georgia rate increase that we had expected to be effective July 1st. The July 1st Georgia rate increase was approved subsequent to September 30 and, therefore, the associated revenue for the 2008 third and fourth quarters will be recorded in the fourth quarter of 2008. The amount of the…

(Operator Instructions). Your first question comes from the line of Josh Raskin from Barclays Capital. Your line is open.

Hi, thanks. Good morning.

Good morning.

I am sorry, Michael. Good morning. Eric, you mentioned the Georgia retro rate increase, so you are going to get two quarters of revenue in the fourth quarter. Obviously, that all pertains to this year. So, I would consider that run rate for the year, but what is the expected impact in terms of revenues and EPS for the fourth quarter?

I think on a gross basis, the per quarter revenue is around $3 million a quarter on a gross and remember in my discussion, I gave you the net impact. That equates to around $0.02 per quarter EPS.

Okay, perfect. I will figure out the math later. In terms of the Celtic acquisition, is there anyway to quantify some of the impact in the quarter in terms of maybe a revenue number? Obviously, an MLR would be great, even a pretax contribution and if it was accretive.

Yes, let me start with revenue. Revenue for the quarter was around $21 million. As we previously disclosed, we did not expect this thing to have a significant earnings impact. However, I will tell you it was profitable in the quarter. The MLR runs at a much different level in the 65% to 66% range in the individual business and as I indicated before, the G&A runs significantly higher primarily because they pay commissions, which are included in G&A.

Okay. Okay.

See, I would say, Josh, it is meeting our expectations.

Okay, so everything is coming in line at this point?

Yes.

Then just one last question on the investment portfolio; was there any unrealized loss position at the end of September, other than, obviously, the realized amount that you got?

Yes. Well, there is actually unrealized loss and we have a net unrealized gain. We actually disclosed this in our Form 10-Q this time in the footnotes given the sensitivity around this area. So, you will find a full disclosure in there.

Got you.

With the unrealized gains, unrealized losses, they net to about $0.5 million positive, unrealized gains.

Well, okay. Okay, that is very helpful. Okay, thanks.

Your next question comes from the line of Brian Wright from Banc of America.

Thanks. Good morning. Could you update us on the number of Celtic members?

Yes, it is right at around 30,000.

Great and then I have just one quick question on the premium taxes in the quarter. Why is it higher in the medical cost side than on the revenue side?

Yes, that actually has to do with Celtic also. Celtic, because they are not funded by a state, they do not have premium tax revenue. However, they do pay a premium tax expense. So, with the inclusion in Celtic in our financials now, you are always going to have a slightly different amount on the expense side.

Okay, great.

Brian, in the interest of transparency with Celtic in these economic times, you will find that the membership is constant and growing, but they are selling less expensive products. So, that is why you will see where the membership can grow, but the revenue will be impacted.

So the PMPMs will probably be coming down then?

Well, I think they have to the level that there will be, but in terms of creating the expectation, its membership is solid, but the product mix changes based on the economic times.

Okay. All right. Thank you.

Your next question comes from the line of Tom Carroll from Stifel Nicolaus. Your line is open.

Hi, good morning. A couple of quick questions. Could you tell us what your starting point in terms of enrollment is in your new Arizona business? Secondly, as we start to think about next year, what is the status of the Texas EPO business that you have had for a couple of years? Do you have a sense of what Texas wants to do with that into next year?

Yes, I will talk about the membership. It is about 14,000 lives is the starting point. The EPO is out, an RFP is required. It will be our business through 2009 and they are talking about an effective date for the new contract, probably Q2 of '10. They are talking about, possibly two participants as opposed to one, but that is still yet to be determined. So we are responding to the RFP. We have a strong history having done well there with providers in the state and we are confident we will continue to be a strong participant, Tom, beyond 2009.

Thank you.

Your next question comes from the line of Greg Nersessian from Credit Suisse.

Hi, good morning.

Morning.

My first question was actually on US Script. The cost of services line this quarter declined sequentially to 71%. I usually look at this as a percentage of the service fees. It was 78% in the prior quarter, but there was a decline in the third quarter last year as well. Just wondering, is there a seasonality to that ratio and on that business, what is an appropriate run rate for maybe pretax contribution from US Script going forward?

Why do not you ask Bill Scheffel on that?

Yes, I do not think we really give numbers on the pretax contributions by subsidiary, but the basic difference in the cost of services between quarters is a slight decrease in the external customer's revenue and there is some seasonality to that, but some of that is just the loss of a few customers.

The actual ratio declined significantly, sequentially. So does that mean you are losing some of the higher cost customers or is that a seasonal effect?

There could be seasonality to what the margins are by quarter and it is the brand and generic splits.

Okay. Then it looks like you have maybe a little under $70 million of debt out on your revolver. It sounds from your press release that maybe you are more inclined to use the excess capital to buy back stock. Could you talk of maybe a little bit of capital deployment and your thought process between buying stock or paying down some of your debt?

Yes. Well first, the comment about the outstanding revolver is approximately $40 million. You have our bonds and our debt portfolio of 175. We have some small real estate loans.

Okay.

Then the revolver is right at $40 million.

Okay.

Deployment of capital in this environment, we talked about how we are deploying capital at our Investor Day and how we are continuing to monitor. As we said there, we believe we have sufficient cash flow to fund all of our internal capital requirements and any small acquisitions that we might make. There has really been no change in that plan. We believe we have access to funds through our revolver as needed and again sufficient cash flow for operating purposes moving forward in this environment.

Okay. Looking at the claims inventory data that you provide, it looks like the average inventory increased significantly on a sequential basis. The period-end inventory actually declined. So, was there a significant paydown of Celtic claims during the quarter and how might that have impacted cash flow?

There has been no significant paydown per se of Celtic claims. It fluctuates quarterly, but really nothing specific. We have had no reduction of claims reserves as we talked about in the days claims payable. Celtic does run a much higher days claims payable, upwards of around 90 which is what drives the impact in the days.

Okay. Okay. Thank you.

Your next question comes from the line of Carl McDonald from Oppenheimer.

Thank you. First question was just around the capital in terms of what you expect from subsidiary dividends in 2009 and what you think you will actually have to use from a deployment perspective, net of what needs to stay in the sets for the enrollment growth.

Yes, as far as 2009, we have not made any decisions around dividends. In 2008, we had basically two dividends, a $17 million dividend from Wisconsin and then the dividend that Michael referred to from Celtic post-closing of approximately $31 million. Again, we do not necessarily anticipate them at this point for '09, but we will look at activity across the business and make those determinations as necessary next year.

Then second question concerns an update on the systems. I will call it a conversion exactly, but where do we stand there?

Yes and I talked about this at the Investor Day. So, let me set the framework of that. At that time, we talked about really three operating systems projects that we had either started or were getting ready to start. The first of those was a new provider contracting system which was underway and was being essentially implemented at the time in the first market, first one of our business markets. The second system was a new provider data management system, which was really just in the early planning stages at that time. The third is our MSS, what we call upgrade and conversion of multiple versions down to a single version, which at the time was in the very, very early starting phases. Initially, when we looked at these, had talked about a completion somewhere around mid-2009. As we have gotten into this and we have looked at it, especially around the MSS upgrade project and look at how these three big projects intersect with each other, how they impact the business in order to ensure a successful implementation of all of these and minimize the risk on the business. We have pushed the timeline out for the MSS upgrade where some of the smaller markets will now be pushed out to the first half of 2010.

Of those 14 systems that you started with, where are you at this point?

Well, the MSS is still in the planning phase. We started that, the literally the planning which involves a lot of different components of this project and so that was just started at around the Investor. So, we still in the planning and design. There have been no implementations at this point.

It was important, Carl. We learned a long time ago it is not how fast, but how well, and we are going to do it market-by-market as opposed to try and do a full, one-time system. Some of you will remember when some other companies tried that. They threw the switch and the lights dimmed. So, we are being very cautious and being fairly upfront. So, it may take an extra six months, but we are confident it will be done that much better.

Great. Thank you.

Yes.

Your next question comes from the line of Scott Fidel from Deutsche Bank.

Thanks and good morning.

Hi.

First question, it just looks like Indiana enrollment showed a pretty nice spike sequentially, up around 7%. Any particular factors driving the enrollment increase there and have you essentially completed the corrective action plan that you had around some of the provider re-contracting in that market?

I will ask Mark Eggert to respond to that.

Yes, we have made a concerted push for membership growth in Indiana and it is primarily driven by reaching out to additional primary care providers and contracting with them.

Was that in any particular regions of the state or pretty much across the state?

Across the state, a little more in the South, but across the state.

Okay. Then just on the capital position. Eric, do you have the actual absolute numbers in terms of where your total capital stands and then relative to that minimum statutory requirement? Just to clarify; concerning the 335% of minimum RBC; was that at the end of the third quarter or is that your expectation for the end of the year?

No, that was at the end of the third quarter measured at September 30.

Okay. Then any color on the absolute numbers?

The actual numbers were $368 million.

Of total capital or excess?

Statutory capital.

Okay. Okay and then just a question, on '09 you are not giving guidance yet. Do you have any visibility into essentially how many of your member months or your states, at this point have established the rates for 2009?

At this point, as I mentioned in my script, the only ones that we are having early discussion with at this point is Ohio given the circumstances there. Beyond that, we have no visibility into any other '09 rates at this time.

Then, just one last question around Ohio sticking in the Northeast ABD market. Have you had a chance to look at essentially how your membership profile in that market compared to WellPoint and WellCare were both exiting, do you expect any real shifts in the demographics of the members or do you think all three of those books look pretty similar?

I think, let Mark add to this, but as per the remaining plan, they now have fee for service and ourselves right, Mark?

Correct, that is correct.

So, that a lot of that membership probably shifted to the fee-for-service, which is fine.

Okay. Thank you.

Your next question comes from the line of John Rex from JPMorgan.

Good morning. Just thinking about the '08 run rate again. So your comments on Georgia retroactivity, are there any other items that you would spike out in terms of headwinds, tailwinds and thinking about the appropriate run rate for '08. So that has become maybe a drag from Texas or Arizona startup systems integrations. Anything that you would spike out there?

No, everything is assumed in the guidance range that we have revised. I would think if you would look at third quarter, obviously, you have got the $0.07 you are going to add back. I think this one-time tax NOL would come out of a run rate type of calculation. Then obviously, the shifting of the impact of Georgia from Q3 to Q4, you would take that into account. Then finally, then you have got to take in seasonality of the fourth quarter against that run rate number.

Would you pull out any drag from Texas or Arizona startup for '08?

Yes, Arizona was so insignificant and Texas has been started, so it is just not a significant impact.

Okay. Great.

As we have talked about, John in the past, the smaller opportunities we are building into our planning process and we have heard what people said. So, within our numbers, it is planned and it is there.

I just want to make one other comment. I have seen some of the items this morning and I understand in some of the comments, my revised guidance was $1.87 to $1.92. Given the $0.07 impact people have taken and added $0.07 to that, I understand how they got there. I just want to remind everyone that when we post year-end results, if you keep those upper guidance ranges that have added $0.07 to my number, you will need to add that $0.07 to my annual results to compare to your range.

All right. Okay and so given what you have said and how you have guided for the 4Q, we should be thinking about your run rate for the '08 as around $1.70 or so. Does that sound about right?

That would probably include the $0.07. You have got to take the $0.07 out I think. I guided to $1.87 to $1.92 all in.

Okay and I am pulling out the Georgia retroactivity.

Yes, I understand.

Okay. Okay and then if you think about opportunities for '09 that you are looking at, maybe I would actually appreciate just a little color on some of the things you are seeing for '09. Then in light of the current economic environment, are you still comfortable with your 15% to 20% long-term growth outlook?

I will ask Jesse to respond to that. Jesse?

Yes and I think I will take the second one first. We talked at the Investor Day about our long term view of 15% plus growth and we have continued to spend a good amount of time focusing on that. I think we have talked before about where we are with respect to that target based on the things that we know today. So, we continue to be targeting 15% growth and that is true in '09 and we will continue to target that thereafter. In terms of opportunities, I think Michael alluded to some of this in his opening comments. On the development side, we certainly see this as an opportunity. I think the pain that states our feeling on the economic side today is going to, I think create more demand for our products and services going forward. So, I think some of those things will have a little bit longer time horizon on them. I think we certainly are continuing to pursue discussions with our existing state customers and potential new state customers based on the broad array of products and services that we can provide. We are excited about the prospects that they can provide. Not necessarily how we get there, but I think we are excited about where we could end up.

Okay, thanks.

(Operator Instructions). Your next question comes from the line of Daryn Miller from Goldman Sachs.

Good morning.

Good morning.

Eric, question for you. I know we saw improvement in Ohio. Can you provide a little bit of color just in terms of sequentially how much MCR improvement we saw?

Yes, give me a minute here. I will give you a little bit of color on that. On a HBR percentage, we are down. We saw a fairly significant improvement from Q2, around 300 basis points.

Great. Then, can you provide any updated expectations in terms of enrollment in South Carolina and Florida for year end?

Yes, I think for Florida, we are still in the discussions with the states and not prepared to comment on that given the status of those discussions with respect to year end. South Carolina, we are just under 27,000 at-risk, full-risk lives. In the third quarter, we expect to continue to see modest, consistent growth on that number going forward. I think we have talked before about long-term targets in South Carolina, 10% to 15% of market and I think we continue to be comfortable with those long-term targets.

Would the actual enrollment number be at 10% to 15%?

Well, the total market there is approximately 650,000.

Okay. Jesse, another question just as we look at some of the opportunities you see maybe with existing state customers or new states. Can you spike out some of the more interesting or likely opportunities you see one to two years out?

Not anything that would wet your appetite. I think the one thing that I would continue to say, consistent with what we have talked about at Investor Day, the demand that we see from our state customers is more focused around the higher cost populations. So, I think we continue to see opportunities on the managed ABD and long term care side. That is an opportunity in a number of our existing markets and I think we are seeing that in new potential markets as well.

Do you think we are more likely to see that in your existing states?

I think that is a pretty broad demand that we are seeing at this point.

This will be the last one, operator.

All right, your last question comes from the line of Tom Carroll from Stifel Nicolaus.

Hi, just a quick follow up on Greg's question. I think it was on the claims inventory. If I look back to 2007 and look at the trend from second into third quarter, your average inventory of claims rose sizably last year as well as it did this year. So, could you chat about what seasonally is creating that increase in the average inventory? Is it an average dollar size per claim that maybe hits a certain threshold that causes you to pend it to evaluate them a little further or something like that?

Well, I can speak to this year. Certainly, growth of business and membership drives this, but we did see a spike in pends this quarter. With the implementation of the NPI process, we saw a significant number of providers that had challenges filing claims under the new NPI process that went into effect in the late part of the second quarter. As a result of that, we saw a significant spikes in pends and pend activity. So, that is attributable to the issue here in this quarter along, well like I said with just general increases because of membership increases.

Okay. So, you would not suggest that the average dollar value per claim has gone up by some unusually large percent?

No.

No, we would not.

Okay, thank you.

Thank you, everyone for participating and your interest and we will see you on the first weekend of February on our year end call. First Tuesday. Thank you.

This concludes today's conference call. You may now disconnect.