Edmund E. Kroll - Senior Vice President of Finance & Investor Relations Michael F. Neidorff - Chairman, Chief Executive Officer and President William N. Scheffel - Chief Financial Officer, Executive Vice President and Treasurer K. Rone Baldwin - Executive Vice President of Insurance Group Business Unit Mary V. Mason - Chief Medical Officer and Senior Vice President Jesse N. Hunter - Chief Business Development Officer and Executive Vice President

Joshua R. Raskin - Barclays Capital, Research Division Ana Gupte - Leerink Swann LLC, Research Division Sarah James - Wedbush Securities Inc., Research Division Christian Rigg - Susquehanna Financial Group, LLLP, Research Division David H. Windley - Jefferies LLC, Research Division Andrew Schenker - Morgan Stanley, Research Division Michael A. Newshel - JP Morgan Chase & Co, Research Division Peter Heinz Costa - Wells Fargo Securities, LLC, Research Division Scott J. Fidel - Deutsche Bank AG, Research Division Matthew Borsch - Goldman Sachs Group Inc., Research Division Brian Wright - Monness, Crespi, Hardt & Co., Inc., Research Division Steven P. Halper - FBR Capital Markets & Co., Research Division Carl R. McDonald - Citigroup Inc, Research Division

Good morning, and welcome to the Centene Corporation Fourth Quarter 2013 and Year-End Financial Results Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Ed Kroll. Please go ahead.

Thank you, operator. Good morning, everyone. I'm Ed Kroll, Senior Vice President of Investor Relations for Centene. Thank you for joining us on our fourth quarter earnings call. Michael Neidorff, Chairman and Chief Executive Officer; and Bill Scheffel, Executive Vice President and Chief Financial Officer of Centene, will host this morning's call. The call is expected to last about 45 minutes and may also be accessed through our website 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 calls is 10039178. Any remarks that Centene makes 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 dated October 22, 2013, 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. As a reminder, our next Investor Day is Friday, June 13, 2014, in New York City. Please mark your calendars. 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 2013 Earnings Call. During the course of today's call, we will discuss our solid fourth quarter and full year 2013 results, market and product updates, future growth opportunities and a brief update on the ACA, including the insurer fee. I will begin with highlights of our fourth quarter financial results. Fourth quarter membership increased 12% year-over-year to 2.7 million covered lives. Premium and Service revenues grew 31% year-over-year to $2.9 billion. The faster premium growth, relative to membership growth, was driven by the continued mixed shift toward higher acuity beneficiaries. For example, long-term care membership increased 345% year-over-year. The HBR improved 260 basis points year-over-year to 88.1%, reflecting rate increases and effective medical cost management. We are experiencing a normal flu season thus far. The most recent CDC data suggests that flu season has peaked, which is consistent with Centene's data. Our Fluvention program continues to stress flu vaccination and early treatment, as required. Last year, we experienced a more intense and prolonged flu season. Aside from flu, we see 2014 medical cost trends as consistent with those of 2013. Now on to market and product updates. First, we'll discuss recent Medicaid activity. Florida, the long-term care program is proceeding as planned. At the end -- at year-end, 5 of our 10 regions have been phased in. During the fourth quarter, we added 6,200 additional lives due to this expansion. Separately, we were successful in 9 out of 11 regions in the state's new and expanded MMA program. We expect the state to begin phasing in regions during the second quarter of 2014. California. In November 2013, we commenced operations in California under 2 separate contracts. Both contracts are ramping in line with…

Thank you, Michael, and good morning. I would like to begin my comments this morning by noting that we are presenting our fourth quarter and year-end results with the Kentucky operations now classified as a discontinued operation. Accordingly, we are presenting our financial results focusing on continuing operations with separate disclosure of discontinued operations for Kentucky. At a summary level, both 2013 and the fourth quarter performed well and increased significantly over 2012 results. Fourth quarter Premium and Service revenues were $2.9 billion, a 31% increase year-over-year. Our Premium and Service revenues for the full year were over $10.5 billion, a 37% increase over 2012. For the fourth quarter, our diluted earnings per share from continuing operations was $0.84. For the full year, earnings per share was $2.87, and this would be $2.95 if we add back the $0.08 of a carrier health transaction cost. Our actual results are at the high end of our original guidance range given in December 2012 of $2.60 to $2.90 a share. I will now give a more detailed discussion of our performance. Our Premium and Service revenues increased by over $2.8 billion in 2013. The increase is a result of several items: The addition of new or expanded operations in the last 2 years in Texas, Florida, Mississippi, Louisiana, Kansas, Missouri and Washington; the April 1 acquisition of AcariaHealth; the startup of our Centurion joint venture contracts in Tennessee and Massachusetts; and rate increases across our markets between years; and during the fourth quarter, we began health plan operations in California and New Hampshire. Our health benefits ratio was 88.1% for the fourth quarter, which was an increase of 30 basis points sequentially from the third quarter. This increase is due to normal seasonality and startup of new operations in California and New…

[Operator Instructions] Our first question comes from Josh Raskin of Barclays.

Question, I guess, just on the fee, just in terms of -- and I think, Bill, you were starting to address this on the revenue recognition. I'm just curious, what is your policy as to the timing of that revenue recognition? Do you need a signed agreement for the state? And then what is your anticipation around how many of these states will have signed agreements by the end of the first quarter? I guess, I'm just trying to look at, is it possible we see whatever breakeven first quarter or something like that with a real back-end loaded 2014 EPS results?

I think our policy will be generally consistent with what I think you heard others say. We will need some sort of signed agreement with respect to the way the state is going to reimburse us for the fee. And we are working with each of the states right now with respect to that documentation. We're in early February, right now, it's a little hard to predict exactly what we're going to have in hand by the time we get up to March 31. At this point in time, it would be probably overly optimistic to think we would have it all done by March 31, but I think we are working with all of our states. And we don't really have a number right now as to the specific percentage we'll have at the end of the first quarter.

It's moving along very well, Josh. I mean, the documentation with states takes time. Because each one is a little bit different, their approach to it, so it's not like you have a boiler plate document you can give them and mark up.

Okay. That's fair. Would you say you guys are optimistic you'll have at least half of your revenues by state signed up to reimburse for the fee by the end of the first quarter?

I think, at this point, we're not ready to present a specific number or range, as what we'll have at the end of the first quarter. We still have almost 2 months to go to and complete these, and we'll give you an update.

And the difficulty is we're working with every state, Josh. And when you get 2 or 3 of the big ones, and you're there. You get 6 of the 8 of the smaller ones, and you're still trying to get to that 50% number. So we see nothing that is a barrier or comments have been made that this will not be resolved to our satisfaction.

Okay. That's fine. And then the second question, I think you made a comment that the Medicaid expansion was going to have a minimal impact. And I understand a majority of your states that you happen to be in are not expanding, at least not for '14. But...

I think it's 3 out of 19 or something is expanding, a small number.

But we continue to hear about the sort of woodwork effect, and there are states that are talking about potentially even double-digit increases in Medicaid enrollment, even in states that are not expanding. So I'm just curious, have you gotten any January enrollment rolls and have you seen any pickup in some of your states? It's been a while since we've seen real organic Medicaid growth, so I'm just curious what you're seeing in your states.

Rone, do you want to make a comment?

Yes. We have yet to see any real visible significant signs of the woodwork effect in the states that we're operating in. Certainly, in some of the states where there's been large outreach associated with Medicare, Medicaid expansion, we're seeing some signs based on the state's statistics. But overall, it's not something that is emerging yet in terms of the enrollments we've seen early in 2014.

Okay. That's fine. And then just a last one, hep C cost, I'm just curious there's some nervousness around, specifically, the Medicaid population and treatments there. Have you guys started to see, I mean, was there any sort of backlog of patients or anything like that that's starting to come through in January? I know you guys have rate...

Yes. I'll have -- I'll ask Mary.

Josh, as I would with any new drugs, we're always focused on rigorous review of the request, making sure they meet FDA guidelines. I can tell you since the approval of Savaldi [ph], as well as the [indiscernible] in the beginning of December, we've had 22 approved requests. And we're focusing on those patients, getting them into case management and making sure they have compliance so they have the best outcome.

Okay. So you have 22 total out of your 2.7 million lives or so?

That have been approved requests, yes.

Our next question comes from Ana Gupte at Leerink Partners.

I just want to follow-up on -- and I know WellPoint and the contrast between how you're guiding for '14 relative to how they're guiding. And I get it that they're blue and diversified and very different from you, but still I think the differences are quite stark, if you will. So the first one is that they're guiding in the baseline to not getting any gross-up on the fee, and they generally sounded pessimistic about it, I'd say, on the call, whereas you and others are sounding very optimistic. So I'm just trying to get a sense for that. And then secondly, on the other end of it and on exchanges they're guiding towards a 3% to 5% pretax margin, and you're guiding breakeven. I get it that your positioning may be different, but is that related to your pricing and the member experience that you're guiding to breakeven and do you expect that to expand in terms of margins and growth in '15 and beyond?

Bill, you want to talk about...

Well, I think it's hard for us to speak about other companies' earnings calls and guidance, I mean, we do -- have looked of those things. I think, in general, the company's that have come before us have had a similar discussion with regard to confidence on the ACA insurer fee being reimbursed on a grossed-up basis, and that it'll take a little bit of time for that to happen and the right documentation has to occur. So I think, as near as we could tell, everybody's pretty much on the same page on that. And then with respect to exchanges, we've -- as we said in December, I think we have and we've lowered our membership number, and we have expected to have a breakeven to a small loss in that book of business. It doesn't mean we priced it that way. We've just put that into our guidance to reflect the potential for higher acuity levels than maybe originally anticipated.

Yes. I think, if I may just add to it without -- I can't comment on what they're seeing, I can only comment on certain differences. And we have a very -- we've had a very small level of individual participation outside of Medicaid. They've always had some of the larger carriers -- commercial carriers have had a large individual book, so the law of larger numbers will apply. I think we're going to do very well with our churn approach, cleaning those that we want. And the fact that 80% are getting subsidized, so the strategy is on track. And we prefer to be cautious and say it's breakeven and create a lot of expectations as we work through it. Rone, something you would add to that?

Yes. We have priced the product and we do believe that it can generate 3% to 5% pretax margins over time. We have taken a cautious approach for planning and guidance for 2014. We've also assumed that we're not going to be able to accrue for any kind of risk adjustment in 2014, so that also has had an impact on our specific outlook for this year since we think that our risk adjustment accrual is probably going to require waiting for the data to come in and be able to be booked in 2015 for the 2014 experience here.

And I can be firm enough to say that my involvement would be with CMS or other levels within the company. And the industry, I see nothing that says, "We're not going to see these rates grossed up." If I did, I would say so. But all conversations to date tend to show that the rates -- the federal law says they have to be actuarially sound. And the federal government, the states, all recognize that. But that's not been an issue in our discussion.

That's very helpful. Just to follow-up on your risk adjusted comment. Do you think that the risk corridors would be trued up for '14, despite the timing issue on the risk adjusted, at least on an estimated basis?

I think that what we're saying is that our calculations would assume that the risk quarter is in place for 2014, and the reinsurance aspect is in place for 2014. Risk adjustment, while it's in place, is not going to be reasonably estimable in 2014, it will be 2015 before we would have any estimate to whether that would have a significant impact to us.

Our next question comes from Sarah James at Wedbush.

Just one quick follow-up on the industry fee. I know you belabored the point...

Sorry, could you speak up. Sarah, we can't hear you.

I know you've belabored the point of the industry fee, but I just wanted to make sure I have the right count of anyone that you have gotten a signed agreement for yet. So can you tell us which states have actually signed the agreement so far?

I think, at this point, we have some, but we really haven't gotten into the list at which where we are in each state, because we still have ongoing discussions with most states. And I think, at this point, we're just working with all of them. We have like 3 or 4 that we have already signed some agreements, but...

I guess -- all right, they're at various stages, Sarah. We have 3 or 4 that are signed. We have some where the language, whether it be a contract amendment or a specific letter of understanding, have been discussed, negotiated and agreed to, waiting for signature and counter signatures. So it's moving from day-to-day, but it's all moving in the right direction. There is no one who has said, "You're wrong." They've all engaged with us on this discussion. Three, 4 -- in the tank, so to speak already, and others, moving along.

Got it. And then, you've talked about...

And by the way, I might just add -- I might add, when you get 1 or 2 or 3 or 4 states recognizing it, that also is very supportive that the CMS and everybody else that's worked with those improving their rates for that, it's precedent setting.

That's helpful. And you've talked about USMM saving in 2 sample cases in the range of 8% to 14% on existing business, and that there's a current overlap of about 150,000 members on your high-acuity book. So is it feasible to see this level of savings that were pointed out in those examples on your high-acuity overlap? And how long does it typically take to ramp-up to that level of savings?

Sarah, let me help you. We had, this past Friday, all our CEOs in the plans met with USMM. I mean, it's not been quite a month that we've closed this. A lot of our preplanning has gone into it. Different states have different products. You're going to see different savings across duals, across long-term care, across SSI, across [indiscernible]. And to try and put a fixed number on it, we have -- we have our internal numbers that we're measuring and working against, that gave us the ability to give you some accretion. But to try and take that and apply it to some percentage of our 2.7 million growing membership, I think that would be -- if I did it, you should worry that I did it.

So just a little bit more on USMM. We obviously are estimating savings in 2014 sufficient to cover the additional shares that we issued with respect to the acquisition and the debt cost. I think that there are -- we gave some accretion numbers early on, I think, when we announced the acquisition. And that was excluding transaction cost. So in our 2014 guidance, what we have absorbed in effect, which is we retained the original $3.50 to $3.80 per share, is that we have $0.06 of transaction costs, plus the accretion that we think we will get during the course of the year, which effectively absorbs all of the shares that we're issuing. So we did not adjust our guidance downward as a result of the net of those 2 things, rather we've absorbed that within our range, the $0.30 range in our EPS guidance.

Our next question comes from Chris Rigg at Susquehanna International.

I just wanted to come back to the HBR guidance for the year. It's not a big increase, but it's about 20 basis points. I was hoping you could walk us through the change there.

I think the biggest change from what we gave in December to today is that we have a lower membership number for the Health Insurance Marketplace. And overall, the Health Insurance Marketplace has a lower HBR than the average for the company. So by having less of that, we have a slight increase in our HBR from that mix change, let's say. So it's really nothing in terms of an acuity difference or anything that we're seeing. It's really the folding in of less membership from the Health Insurance Marketplace that causes it.

Okay. And then just one follow-up on Josh's question earlier about the woodwork effect. Just to be crystal clear here, if that "woodwork effect" were occurring, you would already have a pretty good idea if you were seeing a bump in the rolls for January?

Well, I think that the thing that I would say on woodwork is, the states control the enrollment process and so each state has their own way to determine eligibility. And when they get assigned to Medicaid and how it works through an auto assignment process, so -- and that's something we don't necessarily have a lot of visibility in each state all the time in terms of what their backlog might be in that regard. So we may see increases over the course of the next 6 months, but at this point in time, through January and February, we've not seen any appreciable change that we would attribute to being so-called woodwork effect.

The next question comes from Dave Windley at Jefferies.

A follow-up on the HBR. Is it -- in thinking about your buckets of existing and new, is it right to think about the existing being about flat year-over-year or consistent with what you've been seeing maybe down a little, and the new moving up into the high-90s? Is that how we should think about those buckets moving?

I think that, that's generally, okay, consistent. I think our existing also is impacted by the acuity level. So for example, we're going to put on a lot of long-term care business in Florida, which has a higher HBR than our average, typically. So you end up, now, having that rolling into the new bucket. So that will continue to be in the mid- or upper-90s. And then on the existing -- Kansas we'll roll into existing starting January 1 of '14, so we'll have that impact in 2014.

Okay. And on G&A, you obviously continue to get very nice leverage there. I'm wondering, with all the new business that you have been bringing on and will continue to bring on, are there any step function cost that we should be anticipating, be it in care management-type resources or IT investments, data centers, things like that, that we should be aware of that might affect the progression of your SG&A overhead levels?

Yes. I think some of you who have been out here and have seen our data center. It's been really -- the new one we built has been structured that it can triple our size by adding servers and it's -- I mean, it's very modularly, has not built on a lot of overhead. It was done in a way -- I think, those who saw it, made a lot of sense. So we anticipate that. There's always a little incremental addition of people when you add a new product, you add a long-term care to Florida or something. Your basic infrastructures, you have your presidents, your CEOs, your medical management people, because you're adding some nurses and case managers, our systems, our case managers and other things that we've added over the years, allow us to incrementally add people, really, are very supportive of taking on additional business and being able to leverage it through the system. So I think it's going to be a mix. Now are we going to an entirely new state, as we've shown you in the past, there's additional costs associated with that. But if there is an additional cost, it tends to be very transitory until we bring the plan up and get it running. Now the -- in the past, historically, costs have seem to go up from the G&A standpoint, new plans, where you are opening up a new state, new staff to be ready for a given date, and the state delays it.

But overall, there's nothing in our pipeline that would say we would have a drastic change in our G&A cost or anything new that we'll be bringing on line would have that impact. It's all incremental and I think we will continue to enjoy the benefits of scale as we continue to grow.

Okay. Bill, you had expected -- the last one for me. You had expected $0.60 to $0.65 in startup costs in '13. Did the number fall out at that level and where will that go in '14?

Dave, I think what I said was $0.57 for 2013 is where we ended up. And one of the reasons we ended up there is because we consciously pulled back on some of our costs for the Health Insurance Marketplace given the membership issues. We thought that marketing and other costs might roll out earlier, and it didn't. So we ended up a little lower than what we originally anticipated. And then, I think one of my last comments was that we estimate to be $0.50 to $0.55 for 2014, which includes $0.06 for the transaction cost for USMM. So I think, right now, we tend to be in the, let's say, $0.45 to $0.55 range the last several years in terms of business expansion cost, I expect that to continue over time. But as we grow, that probably gets to be less of the percentage of the total.

The next question comes from Kevin Fischbeck at Bank of America.

This is Steve, on for Kevin. I wanted to come back to your guidance, particularly for G&A. I would have thought that, including the industry fee now, would have raised G&A by maybe like 90 basis points, instead it's only coming up 20. And I also would have thought that including that would have lowered your MLR, rather than raised it. So I was hoping to understand that a little bit better.

Sure. I mean, that's a good question. Right now, we are expecting to treat the ACA insurer fee similar to the way we're treating premium taxes. In other words, we'll break that out as a separate component, either as part of premium taxes or separate but -- excluding it. We tend to talk about Premium and Service revenues as our revenue number, excluding premium taxes, we would expect to probably continue to do that and excluding the ACA insurer fee reimbursement from our revenues as our discussion of -- when we talk about our growth. Similarly, the actual expense, we would expect to be treated like premium taxes are in our G&A ratio -- in our G&A cost. And our G&A ratio does not include premium taxes. So therefore, when we fold in the ACA insurer fee in our updated guidance numbers, there's really -- we're not changing our premium service revenues because it's considered premium tax. We're not changing our G&A expenses ratio because we're considering that to be outside G&A expenses. We are changing our tax rate, that changed from roughly 40% to 50% because of the fact that the fee is nondeductible, and you have to factor that in. But those are the main impacts on the change in the guidance from adding in the fee.

Okay. That's definitely helpful. And then just to switch back to the exchanges for a second. You said your enrollment assumption now is closer to the bottom end your original range of 70,000. I was wondering whether you've seen anything in January that makes you confident you'll be able to kind of ramp-up from the 21k that you reported. And then, also, you have the same outlook for margins, breakeven, the slight loss, despite your overall lower level of G&A this year. I guess, pull back in spending give you confidence you'll be able to achieve that still?

Yes. We're -- we did see -- as the market saw some pickup in the rate of enrollments towards the end of December, and we've continued to see steady rates of enrollment through January, we think that's going to continue. And potentially, again, have another surge period before the end of -- end of the open enrollment period. So we're -- so everything is fairly steadily proceeding since the end of December, and we'll see where we end in the open enrollment period. We do think that we should be able to get some additional enrollment outside of the open enrollment period, given the small number of people in the exchange and the number of people that are turning off of Medicaid and other insurance plans, looking for exchange eligibility throughout the rest of 2014 also.

Drew Schenker at Morgan Stanley.

It's Andrew Schenker. So just a couple of quick questions. On the duals, just could you update us on how the discussions are going with the states? And CMS, are there any thoughts you have on timing as these conversations are progressing? Do you think we're going to hold to that current expected timelines for the states?

Jesse?

Yes. Drew, so we have, obviously, state-specific discussions and kind of the broader discussions with CMS. And there continues to be some movement on the timelines, but we're working with each of the states on an individual basis to see how those things progress. There has been momentum, I would say, over the last quarter or so on moving those things forward. So as we get closer into some of the states, Illinois, as an example, we have a lot more visibility on how some of those things are progressing. Ohio, I think, would be kind of next in line, if you will. Some of the other states that are kind of further down the pipe, we've talked about South Carolina and Michigan via our investment in Fidelis. Those are just earlier stage right now, so there is little less visibility on where we'll end up from a timing standpoint.

Okay. And then changing gears here. Just thinking about acquisition investment pipeline, obviously, you guys have been active, Fidelis being the most recent ones. Any changes or thoughts now that we've got the initial rollout of the exchanges and Medicaid ramping up on your acquisition strategy?

Yes. We still have an aggressive program looking at opportunities and -- within our guidelines on IRR and accretion, et cetera. And so when the right one is there, you'll hear about it. I can't talk about the specifics because it'll just make it very expensive.

The next question comes from Justin Lake at JPMorgan. Michael A. Newshel - JP Morgan Chase & Co, Research Division: This is Mike Newshel, in for Justin. A question on hep C. You said the guidance includes -- are you able to give us a dollar estimate in terms of what's included in the guidance?

I think that -- as every year, there's going to be new drugs that come out. And so we have -- we knew this hep C drug was coming out, so we have adjusted our estimates accordingly, but we're not going to get into specifics of how much I think that we would have the cost in our health plans of members utilizing the drug, and we have the benefits from AcariaHealth, which is a supplier of the drugs also. So we have a little bit of offset.

And I mean, we reported there's 22 cases so far since its come out. And I think trying to get anymore granular than that could be misleading. Michael A. Newshel - JP Morgan Chase & Co, Research Division: Right. And of those 22 approved request, can you say how many total requests you have in term -- both how many may have been rejected because they don't meet guidelines or how many still might be pending?

It's just -- there's a reasonable number, but I don't have that in front of me.

The next question comes from Peter Costa at Wells Fargo.

The G&A was probably lower this quarter than you would have expected, given that you delayed some of the spending on the exchanges, probably by at least $0.03 of earnings impact. Can you tell us where did that -- what's the offset to that, that caused your earnings to be about in line? Did your -- according to my model, your MRR is a little bit higher. Was there a higher medical expense in the fourth quarter than you otherwise would have anticipated and what caused that?

Well, I think that there's a combination of things in the G&A. We were lower on our spending for the business expansion cost, which includes the rollout for the Health Insurance Marketplace. But we didn't have other activities that we were investing in during the quarter, which wouldn't qualify as "business expansion costs". And so some of that's -- so it's nothing in particular, but I would say our medical costs were in line as we talked about 30 basis points increase, I think, quarter-over-quarter. And so I think it's really just other G&A items and -- that we were spending money on.

Okay. And then can you talk a little bit about -- have you seen anything from any of the states regarding eligibility tightening? Is that creating somewhat of an offset in terms of the membership that you're enrolling in Medicaid?

Well, again, the states control that process, and each state is a little different. And each state uses a different enrollment broker at times, and they can be in different stages of annual recertification, things like that, how long it takes to get reenrolled. And so there really isn't any general comments you can make other than it's a state-by-state case. And it's not unusual for us to see fluctuations in membership in any state as a result of eligibility changes or enrollment, broker activity, et cetera. And what we have seen so far, we would say is normal.

Yes. I was going to say there's nothing in -- to answer your question, there's nothing that's abnormal about it. It's a normal course of business. And we have 20 states and there'll be variations across them.

That's helpful. And the last question. Can you talk about your $138 billion in pipeline out there? Can you break that down by sort of core Medicaid, dual-eligibles, exchange membership?

Jesse?

Yes. So we've talked in kind of broad strokes over the last year or so at our various investor conferences around the split. And if you think about kind of the core Medicaid piece, it represents the, I would say, the majority of the opportunity of that pipeline so it'd be either existing Medicaid or products on the Medicaid side within our existing markets. So you think about ABD, long-term care expansion, things along those lines. And then, it's like the next biggest category would be on the dual-eligible opportunities, again, focused on our existing markets and then further expansion on the marketplace front.

Just a follow-up to the other question too, just in general. One of the things on the G&A front, we did increase in the fourth quarter some of our performance-based compensation amounts. And because that's based on earnings, as earnings did well in the fourth quarter and for all of 2013, there was an increase there, too.

Okay. That's helpful. And regarding the $138 billion, was there any change in terms of the relative pieces of that?

No. I think the $138 billion was the number that we used in our December conference, and that's something, obviously, we continue to monitor. And I think we'll have a revised view of that when we talk again in June.

The next question comes from Scott Fidel at Deutsche Bank.

First question. Just any help you can give us on the breakdown of what you expect in terms of the percentage of earnings between the first half and the second half? Looks like, in 2013, you trended around 60% in the back half. And given the impact to the industry, if you have any thoughts on how it might like in 2014?

. I think it's difficult right now to peel out the impact of the ACA insurer fee on the first or second quarter depending on the level of progress that is made on the documentation side. I think that, excluding that, I would expect that our progression of earnings would be similar to some prior years. And that the little -- seasonally, you're lower in the first quarter, and third and fourth quarter picks up. So I think that's still the case. And then, I think you always have to look at with and without the ACA insurer fee for purposes in making those estimates now.

Okay. Then I had a second question. Just interested if you're seeing any impact on the expected timing of the rollout of the Florida MMA due to the contract dispute and some of the litigation around the prestige provider service network. It doesn't sound like that from the prepared comments, where you talked about it going live in 2Q, but -- just interested if there's any effect from that?

Jesse?

Yes. So Scott, I think, probably, the best thing to say is that we're working very closely with the state to make sure that we do our best to keep things on track from a timing perspective.

Everybody is interested to see that, from their budgetary and ours as well.

Okay. And then just last question. Just interested in your thoughts on how -- what type of impact you're maybe seeing in the first quarter just around some of this extreme weather that we're seeing in a number of areas in the country. I would assume for you guys that might be most relevant just on the Midwest markets, and whether you think that's going to be more of a positive or negative on utilization?

Mary?

I would say this is a normal -- what would you would normally expect in January, normal flu season, normal for RSD, really nothing unusual.

I think that utilization numbers are still to be determined from all the weather, and the weather that gets -- some things may be deferred, but then picked up later so...

Somebody misses their appointment on January 31, they may pick it up on February 5. But the point is, there'll be some swings but over the quarter, we see nothing really meaningful.

Your next question comes from Matthew Borsch at Goldman Sachs.

Just maybe back on the industry fee one more time. And I just want to understand, are you talking to the states about onetime recruitment mechanisms or is it something they're going to blend into the rate? And I guess, I was interested in that question, I assumed that they're not making or aren't planning on making a rate change that would apply to everyone in the market because then they would be overcompensating those not-for-profit plans, assuming there are some in the market that are exempt.

You hit the issue. Some states, depending on the number of not-for-profits they have said, "Well, we'll wait to the end of the fiscal year, and we will just reimburse you. Gross up and reimburse you what is owed." And then once that's signed, Bill and Jeff and the team can start to accrue it as appropriate. That's the issue. There's no boiler plate. Each state is taking a little different approach in how they look at it and go about it. And some are grossing up the fees, some are building it into the fees. But I see nothing onetime. This is an ongoing issue that will have to -- because as the business grows, fee -- the fee will grow and it has to be compensated.

A few states, particularly some that don't have any not-for-profits and managed care, are building into the rates, but that's probably the small minority. I think most of them are probably going to do it through a reconciliation and true-up process in the September time frame, for purposes of actually making the payment. Again, the documentation, we would try to get right now, which will allow us to accrue for that over the course of the year.

Got it. And just on a different topic, one more, which is you mentioned the hep C new drug patient load being very, very small. What reason would you -- I mean, given the efficacy of the drug, and I'm obviously not an expert on it, but I would have expected a much bigger number there. I'm just curious if you can elaborate on that.

It's a very good question. And right now, genotype 2 and 3, which is a much smaller percentage of the -- genotype 1 is the most common, which is about 80% of cases. Really, only for genotype 2 and 3 is there an all-oral interferon-free treatment. So that's really probably why you're seeing it.

Our next question comes from Brian Wright at Monness, Crespi, Hardt. Brian Wright - Monness, Crespi, Hardt & Co., Inc., Research Division: Last quarter, you had showed the DCPs have 42.9 days and the -- it looks like there may be a reclass this quarter because now you're showing the September ending quarter at 40.6 days. So if you could just help us out with that.

Sure. The reclassification of Kentucky as discontinued results in the medical claims liability account to be adjusted to carve out the Kentucky piece, so we recalculate the DCP. And in the page in press release, I think we show 5 quarters worth of the DCP from continuing operations like every other -- almost every other number in there, and that's really the cause of the changes, just without Kentucky. Brian Wright - Monness, Crespi, Hardt & Co., Inc., Research Division: Okay. And then just one follow-up. Was there any benefit in the quarter from retro rates in Georgia or Florida?

Well, I think that, in both cases, we received the rate amendments in the quarter. So certainly, for the -- that was anticipated for the whole year, and... Brian Wright - Monness, Crespi, Hardt & Co., Inc., Research Division: So it was in the prior guidance...

It's always been in the guidance for the whole year and it came in consistent with that. Brian Wright - Monness, Crespi, Hardt & Co., Inc., Research Division: Is that around $6 million or something like that or more?

Well, I don't think we quantify usually the amount of a rate increase for a particular state, so. It's included in the 2.7%, I think, which is the composite rate increase that Michael gave earlier for 2013.

The next question comes from Steve Halper at FBR. Steven P. Halper - FBR Capital Markets & Co., Research Division: Just 2 questions. The enrollment for the exchange products were coming in lower than your expectations. And what does this mean in terms of how you evaluate that line of business as you consider participation in 2015 because those decisions need to be made in the first half of this year? And then, what were your expectation for 2015 in terms of adding a state or 2 from what you see right now?

Yes. I guess, I'd comment that what we look primarily is the strategy. And we've articulated from the beginning that our focus would be on what we call the churn. Those that gain and lose Medicaid membership and go in and out. And that appears to be the case, Steve. So we'll continue to monitor that. And if it's working in that case, in that basis, we'll continue down the line. We'll look at the overall financial results, all of the things that one looks at this type of thing. Anything you'd add, Rone?

Yes. I think, also, we've consistently said that we -- 2014 we viewed as our major goal to get a smart launch off into the exchanges and that we viewed this as a longer-term opportunity over a series of years. So I think that what we're seeing in 2014 to date doesn't impact our long-term view about the potential that this could be a meaningful opportunity for us. And we'll look at -- we are looking at additional geographic expansion, additional service areas in our existing states, and then additional -- new states. And I'm sure we will do some service area expansion, and the level will depend on how we assess our experience and our success in feeling like we can come out with a competitive product and network in those additional service areas. Steven P. Halper - FBR Capital Markets & Co., Research Division: And just the second question in terms of the visibility and to potentially adding your other states away from the -- not relating to the enrollment, the exchange business.

Right. So we, obviously, we had some -- our intelligence tells us there's some new RFPs being contemplated by the states. We'll monitor those. When they come out, we'll make a determination as we always do, the size, the scale of the opportunity for it, and make that decision once we get the fact book and information. So it's kind of hard to sit here and get too specific, Steve.

Our next question comes from Carl McDonald at Citi.

In the states where you do compete with not-for-profits, do you have a preference for how the state treats the industry fee? Just thinking about from a competitive perspective, and if we use like Texas as an example, if you do $4 billion in Texas revenue and fully implemented the industry fees, maybe something around 4% of premiums, that's $150 million, $160 million a year. So over a 10-year budget window, you're talking about $1.5 billion using the for-profit versus not-for-profit. So maybe you can just walk through maybe there's a matching impact from the federal government or just sort of how states are thinking about that.

What the states are looking at is that they will -- in Texas, most of them say, "We're not going to give you a rate adjustment across-the-board that the not-for-profits benefit from." What we will do is we'll look at an actual reimbursement. I think, Rone said that a little bit earlier that they'll look and see what our costs were. And at the end of their fiscal year, they'll write the check and they'll work with CMS from their side on what federal reimbursement they get.

Right. I'm just thinking about if you're a state and you're looking at a 10-year budget window and you say if I choose a not-for-profit, the cost visibility are $1.5 billion lower than choosing a for-profit, how will they think about that?

I don't think -- I mean, over time, I don't think that's a criteria that they're looking at. They're looking at the overall capabilities of planning the outcomes and what we're delivering, I mean, savings. There are some -- there was one governor, I remember, who made a comment that, "These big not-for-profits are costing me money, and it's the for-profits that are saving me the money."

At this time, we show no further questions. Would you like to make any closing remarks?

No. I just -- we thank you for taking time for this call. We look forward to the first quarter results. Have a good day.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.