CENTENE CORPORATION
The following discussion of our financial condition and results of operations
should be read in conjunction with our consolidated financial statements and the
related notes included elsewhere in this filing. The discussion contains
forward-looking statements that involve known and unknown risks and
uncertainties, including those set forth under Part II, Item 1A. "Risk Factors"
of this Form 10-Q.
EXECUTIVE OVERVIEW
General
We are a leading multi-national healthcare enterprise that is committed to helping people live healthier lives. We take a local approach - with local brands and local teams - to provide fully integrated, high-quality, and cost-effective services to government-sponsored and commercial healthcare programs, focusing on under-insured and uninsured individuals.
Results of operations depend on our ability to manage expenses associated with health benefits (including estimated costs incurred) and selling, general and administrative (SG&A) costs. We measure operating performance based upon two key ratios. The health benefits ratio (HBR) represents medical costs as a percentage of premium revenues, excluding premium tax and health insurer fee revenues that are separately billed, and reflects the direct relationship between the premiums received and the medical services provided. The SG&A expense ratio represents SG&A costs as a percentage of premium and service revenues, excluding premium tax and health insurer fee revenues that are separately billed. Prior to 2021, when the Affordable Care Act (ACA) health insurer fee (HIF) repeal was effected, our insurance subsidiaries were subject to the HIF. We recognized revenue for reimbursement of the HIF, including the "gross-up" to reflect the non-deductibility of the HIF. Collectively, this revenue was recorded as premium tax and health insurer fee revenue in the Consolidated Statements of Operations. For certain products, premium taxes, state assessments and the HIF were not pass-through payments and were recorded as premium revenue and premium tax expense or health insurer fee expense in the Consolidated Statements of Operations. Due to the size of the health insurer fee, one of the primary drivers of the year-over-year variances discussed throughout this section is related to the repeal of the HIF in 2021.
WellCare Acquisition
OnJanuary 23, 2020 , we acquired all of the issued and outstanding shares ofWellCare Health Plans, Inc. (WellCare) (the WellCare Acquisition). The transaction was valued at$19.6 billion , including the assumption of$1.95 billion of outstanding debt. The WellCare Acquisition brought a high-quality Medicare platform and further extended our robust Medicaid offerings. The combination enables us to provide access to more comprehensive and differentiated solutions across more markets with a continued focus on affordable, high-quality, culturally-sensitive healthcare services. Due to the size of the acquisition, one of the primary drivers of the year-over-year variances discussed throughout this section is related to a full quarter of WellCare in our 2021 results.
Magellan Acquisition
InJanuary 2021 , we announced that we entered into a definitive merger agreement to acquire Magellan Health for$95.00 per share in cash for a total enterprise value of approximately$2.2 billion . We expect the transaction to broaden and deepen our whole health capabilities and establish a leading behavioral health platform. The transaction is subject to the receipt of required state regulatory approvals and other customary closing conditions. The transaction is not contingent upon financing. We intend to fund the acquisition primarily through debt financing. The transaction is expected to close in the second half of 2021.
COVID-19 Trends and Uncertainties
The COVID-19 outbreak has created unique and unprecedented challenges. To support our members, providers, employees and the communities we serve, we have taken several actions and made numerous investments related to the COVID-19 crisis. We have extended coverage of COVID-19 screening, testing and treatment services for Medicaid, Medicare andHealth Insurance Marketplace members and are waiving all associated member cost share amounts for these services. We are delivering new critical support to Safety Net providers, including Federally Qualified Healthcare Centers, behavioral health providers, and long-term service and support organizations. We continue to address social determinants of health for vulnerable populations during the COVID-19 crisis with a commitment to research and investment in non-medical barriers to achieving quality health outcomes. We developed initiatives designed to support the disability community affected by the pandemic. We created a 17 -------------------------------------------------------------------------------- Table of Con tents provider support program to assist our network providers who are seeking benefits from theSmall Business Administration (SBA) through the CARES Act. We established a Medical Reserve Leave policy to support clinical employees who want to join a medical reserve force and serve their communities during the COVID-19 pandemic. We are providing additional employee benefits including waiving cost-sharing for COVID-19 related treatment, emergency paid sick leave, and one-time payments to employees in a small number of critical office functions. We have taken significant steps to support our employees to protect their health and safety, while also ensuring that our business can continue to operate and that services continue without disruption. We have implemented our business continuity plans and have taken actions to support our workforce. We have transitioned the vast majority of our employees to work from home, allowingCentene to continue to operate at close to full capacity, while continuing to maintain our internal control framework. As a result, we have experienced and expect continued incremental costs due to investments and actions we have already taken and continued efforts to protect our members, employees and communities we serve. The impact on our business in both the short-term and long-term is uncertain and difficult to predict with certainty. The outlook for 2021 depends on future developments, including but not limited to: the length and severity of the outbreak (including new strains, which may be more contagious, more severe or less responsive to treatment or vaccines), the effectiveness of containment actions, and the timing of vaccinations and achievement of herd immunity. The pandemic and these future developments have impacted and will continue to affect our membership and medical utilization. FromMarch 31, 2020 throughMarch 31, 2021 , our Medicaid membership has increased by 2.0 million members. In addition, the pandemic has and continues to have the potential to impact the administration of state and federal healthcare programs, premium rates and risk sharing mechanisms. We continue to have active dialogues with our state partners. Medical utilization continues to lack consistency and will be influenced by the intensity of additional waves of the pandemic. We have experienced and continue to expect incremental COVID-19 costs as the outbreak continues to develop. In addition, the pandemic has had widespread economic impact, driving interest rate decreases and lowering our investment income.
We are confident we have the team, systems, expertise and financial strength to continue to effectively navigate this challenging pandemic landscape.
Regulatory Trends and Uncertainties
The United States government, politicians, and healthcare experts continue to discuss and debate various elements ofthe United States healthcare model. We remain focused on the promise of delivering access to high-quality, affordable healthcare to all of our members and believe we are well positioned to meet the needs of the changing healthcare landscape. We have more than three decades of experience, spanning seven presidents from both sides of the aisle, in delivering high-quality healthcare services on behalf of states and the federal government to under-insured and uninsured families, commercial organizations and military families. This expertise has allowed us to deliver cost effective services to our government sponsors and our members. While healthcare experts maintain focus on personalized healthcare technology, we continue to make strategic decisions to accelerate development of new software platforms and analytical capabilities. We continue to believe we have both the capacity and capability to successfully navigate industry changes to the benefit of our members, customers and shareholders.
For additional information regarding regulatory trends and uncertainties, see Part II, Item 1A, "Risk Factors."
First Quarter 2021 Highlights
Our financial performance for the first quarter of 2021 is summarized as follows: •Managed care membership of 25.1 million, an increase of 1.3 million members, or 5% year-over-year. •Total revenues of$30.0 billion , representing 15% growth year-over-year. •HBR of 86.8%, compared to 88.0% for the first quarter of 2020. •SG&A expense ratio of 8.4%, compared to 9.9% for the first quarter of 2020. •Adjusted SG&A expense ratio of 8.1%, compared to 8.6% for the first quarter of 2020. •Operating cash flows of$43 million , reflecting a$910 million delay in premium payments from one of our states. •Diluted earnings per share (EPS) of$1.19 , compared to$0.08 for the first quarter of 2020. 18 -------------------------------------------------------------------------------- Table of Con tents •Adjusted Diluted EPS of$1.63 , compared to$0.86 for the first quarter of 2020. A reconciliation from GAAP Diluted EPS to Adjusted Diluted EPS is highlighted below, and additional detail is provided above under the heading "Non-GAAP Financial Presentation": Three Months Ended March 31, 2021 2020 GAAP Diluted EPS, attributable to Centene $ 1.19$ 0.08 Amortization of acquired intangible assets 0.25
0.23
Acquisition related expenses 0.06 0.49 Other adjustments (1) 0.13 0.06 Adjusted Diluted EPS $ 1.63$ 0.86 (1) Other adjustments include the following items for the three months endedMarch 31, 2021 : (a) debt extinguishment costs of$46 million , or$0.06 per diluted share, net of an income tax benefit of$0.02 ; and (b) severance costs due to a restructuring of$56 million , or$0.07 per diluted share, net of an income tax benefit of$0.02 . Other adjustments include the following items for the three months endedMarch 31, 2020 : (a) gain related to the divestiture of certain products of ourIllinois health plan of$93 million or$0.10 per diluted share, net of an income tax expense of$0.07 ; (b) non-cash impairment of our third-party care management software business of$72 million or$0.10 per diluted share, net of an income tax benefit of$0.03 ; and (c) debt extinguishment costs of$44 million or$0.06 per diluted share, net of an income tax benefit of$0.02 .
The following items contributed to our growth over the last year:
•Apixio. InDecember 2020 , we acquiredApixio Inc. , a healthcare analytics company offering artificial intelligence technology solutions. With this transaction, we intend to continue to digitize the administration of healthcare and accelerate innovation. •Correctional. InJuly 2020 , Centurion commenced a two-year contract with theKansas Department of Administration to provide healthcare services in theDepartment of Corrections' facilities. InApril 2020 , Centurion began providing medical services, behavioral healthcare, and substance abuse treatment within four prisons and six community corrections centers across the state ofDelaware . •Health Insurance Marketplace. InJanuary 2021 , we expanded our offerings in theHealth Insurance Marketplace . We expanded our Marketplace product, branded Ambetter, in nearly 400 new counties across 13 existing states. In addition,Ambetter-branded Marketplace products are now offered in two new states,New Mexico andMichigan . •Illinois. InJuly 2020 ,Meridian Health Plan of Illinois, Inc. (Meridian) began serving Medicaid members inCook County, Illinois , as a result of a member transfer agreement under which Meridian was assigned 100% ofNextLevel Health Partners, Inc.'s approximately 54,000 members who access benefits from theIllinois Department of Healthcare and Family Services' HealthChoice Illinois Program . InFebruary 2020 , we began operating inIllinois under the first phase of an expanded contract for the Medicaid Managed Care Program. The expanded contract includes children who are in need through theDepartment of Children and Family Services/Youth Care byIllinois Department of Healthcare and Family Services andFoster Care .
•PANTHERx. In
•TRICARE. InJanuary 2021 , we began administering the Buckley Prime Service Area Pilot in theDenver, Colorado area, which is a TRICARE pilot program for value-based payment arrangements not currently an option in the fee-for-service T2017 reimbursement model. •WellCare. OnJanuary 23, 2020 , we completed the WellCare Acquisition. The WellCare Acquisition brings a high-quality Medicare platform and further extends our robust Medicaid offerings. The WellCare Acquisition is a key part of our growth as we become one of the nation's largest sponsors of government health coverage. •In addition, revenue and membership growth was significantly driven by the suspension of Medicaid eligibility redeterminations and increased unemployment levels as a result of the COVID-19 pandemic. 19 -------------------------------------------------------------------------------- Table of Con tents The growth items listed above were partially offset by the following items:
•Effective
•Effective
•InOctober 2020 ,Centers for Medicare and Medicaid Services (CMS) published updatedMedicare Star quality ratings for the 2021 rating year. Approximately 30% of our Medicare members are in a 4 star or above plan for the 2022 bonus year, compared to 46% for the 2021 bonus year and 86% for the 2020 bonus year. •InSeptember 2020 , ourOregon subsidiary, Trillium Community Health Plan, began operating under an expanded contract serving as a coordinated care organization for six counties in the state; however, an additional competitor was added toLane County . As a result, our membership decreased.
•Starting in
•Effective
•In
•We experienced a decrease in our marketplace membership driven primarily by a reduction of members in the state ofFlorida , resulting from price competition in three highly populated counties.
•Beginning in the second quarter of 2020, Medicaid state premium rate reductions and risk corridor actions as a result of the COVID-19 pandemic.
We expect the following items to contribute to our revenue or future growth potential:
•We expect to realize the benefit in 2021 of acquisitions, investments, and business commenced during 2020 and 2021, as discussed above.
•In
•In
•InFebruary 2021 , we announced ourHawaii subsidiary, 'Ohana Health Plan, was selected to continue administering services through the Community Care Services program in partnership with theHawaii Department of Human Services' Med-QUEST Division . The new three-year, statewide contract is anticipated to beginJuly 1, 2021 . •InJanuary 2021 , we announced that we entered into a definitive merger agreement to acquire Magellan Health for$95.00 per share in cash for a total enterprise value of approximately$2.2 billion . The transaction is subject to the receipt of required state regulatory approvals and other customary closing conditions. The transaction is expected to close in the second half of 2021. •InJanuary 2021 , ourOklahoma subsidiary,Oklahoma Complete Health , was selected by theOklahoma Health Care Authority (OHCA) for statewide contracts to provide managed care for the SoonerSelect and, on a sole source basis, SoonerSelect Specialty Children's Plan (SCP) (foster care) programs. The state expects to commence the SoonerSelect and SoonerSelect SCP Programs onOctober 1, 2021 . •InOctober 2019 , ourNorth Carolina joint venture,Carolina Complete Health , was awarded an additional service area to provide Medicaid managed care services in Region 4. With the addition of this new Region,Carolina Complete Health will provide Medicaid managed care services in three contiguous regions: Region 3, 4 and 5. InFebruary 2019 , WellCare was awarded a statewide contract to administer the state's Medicaid Prepaid Health Plans. The new contracts 20 -------------------------------------------------------------------------------- Table of Con tents are expected to commence onJuly 1, 2021 .
The future growth items listed above may be partially offset by the following items:
•We expect Medicaid eligibility redeterminations to begin on
•The carve out of
•Medicaid state rate actions and risk corridor mechanisms as a result of the COVID-19 pandemic.
MEMBERSHIP
From March 31, 2020 to March 31, 2021 , we increased our managed care membership
by 1.3 million, or 5%. The following table sets forth our membership by line of
business:
March 31, December 31, March 31,
2021 2020 2020
Traditional Medicaid (1) 12,307,400 12,055,400 10,397,900
High Acuity Medicaid (2) 1,529,000 1,554,700 1,488,200
Total Medicaid 13,836,400 13,610,100 11,886,100
Medicare PDP 4,109,700 4,469,400 4,416,500
Commercial 2,384,300 2,633,600 2,728,200
Medicare (3) 1,138,500 955,400 918,400
International 597,400 597,700 599,900
Correctional 144,900 147,200 172,000
Total at-risk membership 22,211,200 22,413,400 20,721,100
TRICARE eligibles 2,881,400 2,877,900 2,864,800
Non-risk membership 4,400 231,600 216,200
Total 25,097,000 25,522,900 23,802,100
(1) Membership includes TANF, Medicaid Expansion, CHIP,
The following table sets forth additional membership statistics, which are
included in the table above:
March 31, December 31, March 31,
2021 2020 2020
Dual-eligible (4) 1,086,300 1,066,800 879,000
Health Insurance Marketplace 1,900,900 2,131,600 2,199,300
Medicaid Expansion 2,267,400 2,181,400 1,764,600
(4) Membership includes dual-eligible ABD & LTSS and dual-eligible Medicare.
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Table of Con tents
RESULTS OF OPERATIONS
The following discussion and analysis is based on our Consolidated Statements of
Operations, which reflect our results of operations for the three months ended
March 31, 2021 and 2020, prepared in accordance with generally accepted
accounting principles in the United States .
Summarized comparative financial data for the three months ended
Three Months Ended
2021 2020 % Change
Premium $ 26,933 $ 23,214 16 %
Service 1,181 958 23 %
Premium and service revenues 28,114 24,172 16 %
Premium tax and health insurer fee 1,869 1,853 1 %
Total revenues 29,983 26,025 15 %
Medical costs 23,391 20,420 15 %
Cost of services 1,048 825 27 %
Selling, general and administrative expenses 2,367 2,384 (1) %
Amortization of acquired intangible assets 195 166 17 %
Premium tax expense 1,928 1,625 19 %
Health insurer fee expense - 345 n.m.
Impairment - 72 n.m.
Earnings from operations 1,054 188 461 %
Investment and other income 103 167 (38) %
Debt extinguishment costs (46) (44) (5) %
Interest expense (170) (180) (6) %
Earnings before income tax expense 941 131 618 %
Income tax expense 244 85 187 %
Net earnings 697 46 n.m.
Loss attributable to noncontrolling interests 2 - n.m.
Net earnings attributable to Centene Corporation $ 699 $ 46 n.m.
Diluted earnings per common share attributable to Centene
Corporation $ 1.19 $ 0.08 n.m.
n.m.: not meaningful
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Table of Con tents
Three Months Ended
Total Revenues
The following table sets forth supplemental revenue information for the three
months ended
2021 2020 % Change
Medicaid $ 20,191 $ 17,401 16 %
Commercial 3,898 4,119 (5) %
Medicare (1) 3,757 2,656 41 %
Medicare PDP 582 600 (3) %
Other 1,555 1,249 24 %
Total Revenues $ 29,983 $ 26,025 15 %
(1) Medicare includes Medicare Advantage, Medicare Supplement, Special Needs Plans, and MMP.
Total revenues increased 15% in the three months endedMarch 31, 2021 over the corresponding period in 2020, due to a full quarter of WellCare and the ongoing suspension of Medicaid eligibility redeterminations, which was partially offset by an overall decrease in Marketplace membership, state premium rate adjustments and risk sharing mechanisms, and the repeal of the health insurer fee. During the three months endedMarch 31, 2021 , we received premium rate adjustments, which yielded a net 1% composite change across all of our markets.
Operating Expenses
Medical Costs
Results of operations depend on our ability to manage expenses associated with health benefits and to accurately estimate costs incurred. The health benefits ratio, or HBR, represents medical costs as a percentage of premium revenues (excluding premium tax and health insurer fee revenues that are separately billed) and reflects the direct relationship between the premium received and the medical services provided. The HBR for the three months endedMarch 31, 2021 , was 86.8%, compared to 88.0% in the same period in 2020. The decrease was attributable to lower medical utilization trends due to the COVID-19 pandemic and lower costs associated with the flu. The decrease was partially offset by higher testing and treatment costs associated with COVID-19, state premium rate adjustments and risk sharing mechanisms, and higher COVID-19 and traditional utilization in the Marketplace business. Cost of Services Cost of services increased by$223 million in the three months endedMarch 31, 2021 , compared to the corresponding period in 2020, primarily attributable to newly acquired businesses, partially offset by the expiration of the pharmacy contract with our previously divestedIllinois health plan. The cost of service ratio for the three months endedMarch 31, 2021 , was 88.7%, compared to 86.1% in the same period in 2020. The increase in the cost of service ratio was driven by newly acquired businesses.
Selling, General & Administrative Expenses
Selling, general and administrative expenses, or SG&A, decreased by$17 million in the three months endedMarch 31, 2021 , compared to the corresponding period in 2020, due to lower acquisition related expenses, partially offset by a full quarter of WellCare's results. The SG&A expense ratio was 8.4% for the first quarter of 2021, compared to 9.9% in the first quarter of 2020. The decrease was due to lower acquisition related expenses, the ongoing suspension of Medicaid eligibility redeterminations, and the leveraging of expenses over higher revenues as a result of recent acquisitions. The adjusted SG&A expense ratio was 8.1% for the first quarter of 2021, compared to 8.6% in the first quarter of 2020. The adjusted SG&A expense ratio benefited from the ongoing suspension of Medicaid eligibility redeterminations, the leveraging of 23 -------------------------------------------------------------------------------- Table of Con tents expenses over higher revenues due to recent acquisitions, and decreased ongoing compensation costs due to restructuring activities.
Health Insurer Fee Expense
As a result of the repeal of the HIF, we did not have HIF expense for the three
months ended
Impairment
During the first quarter of 2020, we recorded
Other Income (Expense)
The following table summarizes the components of other income (expense) for the
three months ended
2021 2020
Investment and other income $ 103 $ 167
Debt extinguishment costs (46) (44)
Interest expense (170) (180)
Other income (expense), net $ (113) $ (57)
Investment and other income. Investment and other income decreased by $64
million in the three months ended March 31, 2021 compared to the corresponding
period in 2020, driven by a $93 million gain in the three months ended March 31,
2020 related to the divestiture of certain products of our Illinois health plan
associated with the WellCare Acquisition. Excluding the Illinois divestiture
gain, investment and other income increased compared to the three months ended
March 31, 2020 due to higher investment balances.
Debt extinguishment costs. In February 2021 , we tendered or redeemed all of our
outstanding $2.2 billion 4.75% Senior Notes, due 2025 and recognized a pre-tax
loss on extinguishment of approximately $46 million . The loss includes the call
premium, the write-off of unamortized debt issuance costs and expenses related
to the redemption. In February 2020 , we redeemed all of our outstanding $1.0
billion 6.125% Senior Notes, due February 15, 2024 (the 2024 Notes) and
recognized a pre-tax loss on extinguishment of approximately $44 million . The
loss includes the call premium, the write-off of unamortized debt issuance costs
and the loss on the termination of the $1.0 billion interest rate swap
associated with the 2024 Notes.
Interest expense. Interest expense decreased by $10 million in the three months
ended March 31, 2021 compared to the corresponding period in 2020. The decrease
was driven by lower borrowings on the revolving credit facility and our
strategic refinancing actions.
Income Tax Expense
For the three months endedMarch 31, 2021 , we recorded income tax expense of$244 million on pre-tax earnings of$941 million , or an effective tax rate of 25.9%. The effective tax rate for the first quarter of 2021 reflects the repeal of the health insurer fee beginning in 2021. For the three months endedMarch 31, 2020 , we recorded income tax expense of$85 million on pre-tax earnings of$131 million , or an effective tax rate of 64.9%, driven by the reinstatement of the health insurer fee in 2020, the non-deductibility of certain acquisition related expenses, and the tax impact associated with theIllinois divestiture. 24 -------------------------------------------------------------------------------- Table of Con tents Segment Results
The following table summarizes our consolidated operating results by segment for
the three months ended
2021 2020 % Change
Total Revenues
Managed Care $ 28,603 $ 24,937 15 %
Specialty Services 4,267 3,626 18 %
Eliminations (2,887) (2,538) (14) %
Consolidated Total $ 29,983 $ 26,025 15 %
Earnings from Operations
Managed Care $ 956 $ 217 341 %
Specialty Services 98 (29) 438 %
Consolidated Total $ 1,054 $ 188 461 %
Managed Care
Total revenues increased 15% in the three months ended March 31, 2021 , compared
to the corresponding period in 2020, due to a full quarter of WellCare and the
ongoing suspension of Medicaid eligibility redeterminations, which was partially
offset by an overall decrease in Marketplace membership, state premium rate
adjustments and risk sharing mechanisms, and the repeal of the health insurer
fee. Earnings from operations increased $739 million between years, primarily
due to lower acquisition related expenses, a full quarter of WellCare, lower
medical utilization due to the COVID-19 pandemic, and lower costs associated
with the flu. This was partially offset by higher testing and treatment costs
associated with COVID-19, state premium rate adjustments and risk sharing
mechanisms, and higher COVID-19 and traditional utilization in the Marketplace
business.
Specialty Services
Total revenues increased 18% in the three months ended March 31, 2021 , compared
to the corresponding period in 2020, resulting primarily from newly acquired
businesses, partially offset by the expiration of the pharmacy contract with our
previously divested Illinois health plan. Earnings from operations increased
$127 million in the three months ended March 31, 2021 , compared to the
corresponding period in 2020. Earnings from operations in 2020 was negatively
impacted by the previously discussed $72 million impairment related to our
third-party care management software business.
LIQUIDITY AND CAPITAL RESOURCESShown below is a condensed schedule of cash flows used in the discussion of liquidity and capital resources ($ in millions).
Three
Months Ended
2021 2020
Net cash provided by (used in) operating activities $ 43 $ (240)
Net cash used in investing activities (607) (3,272)
Net cash provided by (used in) financing activities (73) 839
Effect of exchange rate changes on cash and cash equivalents (16) (1)
Net decrease in cash, cash equivalents, and restricted cash and
cash equivalents $ (653) $ (2,674) Cash Flows Provided by (Used in) Operating Activities
Normal operations are funded primarily through operating cash flows and borrowings under our revolving credit facility. Operating activities provided cash of$43 million in the three months endedMarch 31, 2021 compared to using cash of$240 million in the comparable period in 2020. Operating cash flow provided by operations in 2021 was driven by net earnings, timing of subsidy payments from CMS related to our Medicare PDP business, and an increase in medical claims liabilities, almost entirely offset by a delay in premium payments from the state ofNew York of approximately$910 million and an increase in risk adjustment receivable. 25 -------------------------------------------------------------------------------- Table of Con tents Cash flows used by operations in 2020 was negatively affected by a delay in premium payments from the state ofNew York of approximately$700 million and growth in our Medicare PDP business, which used working capital. Cash flows from operations in each year can be impacted by the timing of payments we receive from our states. As we have seen historically, states may prepay the following month premium payment, which we record as unearned revenue, or they may delay our premium payment, which we record as a receivable. We typically receive capitation payments monthly; however, the states in which we operate may decide to adjust their payment schedules, which could positively or negatively impact our reported cash flows from operating activities in any given period.
Cash Flows Used in Investing Activities
Investing activities used cash of$607 million in the three months endedMarch 31, 2021 , and$3.3 billion in the comparable period in 2020. Cash flows used in investing activities in 2021 primarily consisted of the net additions to the investment portfolio of our regulated subsidiaries (including transfers from cash and cash equivalents to long-term investments) and capital expenditures. Cash flows used in investing activities in 2020 primarily consisted of our acquisition of WellCare partially offset by divestiture proceeds. Cash flows used in investing activities in 2020 also consisted of net additions to the investment portfolio of our regulated subsidiaries (including transfers from cash and cash equivalents to long-term investments).
We spent
As ofMarch 31, 2021 , our investment portfolio consisted primarily of fixed-income securities with an average duration of 3.6 years. We had unregulated cash and investments of$1.3 billion atMarch 31, 2021 , compared to$1.9 billion atDecember 31, 2020 . Of the$1.3 billion ,$369 million represents cash and cash equivalents held by unregulated entities.
Cash Flows Provided by (Used in) Financing Activities
Financing activities used cash of$73 million in the three months endedMarch 31, 2021 , compared to providing cash of$839 million in the comparable period in 2020. Financing activities in 2021 were driven by costs associated with our debt refinancing, offset by increased borrowings. 2020 net financing activities were due to increased borrowings, partially offset by common stock repurchases.
Liquidity Metrics
InFebruary 2021 , our Board of Directors approved an increase in our Company's existing share repurchase program. With the increase, we are authorized to repurchase up to$1.0 billion worth of shares of our common stock, inclusive of the previously approved stock repurchase program. From time to time, we raise capital through the issuance of debt in the form of senior notes. As ofMarch 31, 2021 , we had an aggregate principal amount of$15.0 billion of senior notes issued and outstanding. The indentures governing our various maturities of senior notes contain restrictive covenants. As ofMarch 31, 2021 , we were in compliance with all covenants. We also have a$200 million non-recourse construction loan to fund the expansion of our corporate headquarters. Refer to Note 6. Debt for further information regarding the issuance and redemption of senior notes as well as detail related to our construction loan. The credit agreement underlying our Company's revolving credit facility and term loan facility contains customary covenants as well as financial covenants including a minimum fixed charge coverage ratio and a maximum debt-to-EBITDA ratio. Our maximum debt-to-EBITDA ratio under the credit agreement may not exceed 4.0 to 1.0. As ofMarch 31, 2021 , we had$152 million of borrowings outstanding under our revolving credit facility,$1.45 billion of borrowings under our term loan facility, and we were in compliance with all covenants. As ofMarch 31, 2021 , there were no limitations on the availability of our revolving credit facility as a result of the debt-to-EBITDA ratio. We had outstanding letters of credit of$128 million as ofMarch 31, 2021 , which were not part of our revolving credit facility. The letters of credit bore weighted interest of 0.6% as ofMarch 31, 2021 . In addition, we had outstanding surety bonds of$1.1 billion as ofMarch 31, 2021 . 26 -------------------------------------------------------------------------------- Table of Con tents AtMarch 31, 2021 , we had working capital, defined as current assets less current liabilities, of$2.2 billion , compared to$1.8 billion atDecember 31, 2020 . We manage our short-term and long-term investments with the goal of ensuring that a sufficient portion is held in investments that are highly liquid and can be sold to fund short-term requirements as needed. AtMarch 31, 2021 , our debt to capital ratio, defined as total debt divided by the sum of total debt and total equity, was 38.8%, compared to 39.3% atDecember 31, 2020 . Excluding$184 million of non-recourse debt, our debt to capital ratio was 38.5% as ofMarch 31, 2021 , compared to 39.0% atDecember 31, 2020 . We utilize the debt to capital ratio as a measure, among others, of our leverage and financial flexibility.
2021 Expectations
During the remainder of 2021, we expect to receive net dividends from our insurance subsidiaries of approximately$2.2 billion and spend approximately$700 million in additional capital expenditures primarily associated with system enhancements and market and corporate headquarters expansions. These amounts are expected to be funded by unregulated cash flow generation in 2021 and borrowings on our revolving credit facility and construction loan. However, from time to time we may elect to raise additional funds for these and other purposes, including the Magellan acquisition, either through issuance of debt or equity, the sale of investment securities or otherwise, as appropriate. In addition, we may strategically pursue refinancing or redemption opportunities to extend maturities and/or improve terms of our indebtedness if we believe such opportunities are favorable to us. Based on our operating plan, we expect that our available cash, cash equivalents and investments, cash from our operations and cash available under our revolving credit facility will be sufficient to finance our general operations and capital expenditures for at least 12 months from the date of this filing. While we are currently in a strong liquidity position and believe we have adequate access to capital, we may elect to increase borrowings under our revolving credit facility. 27
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Table of Con tents
REGULATORY CAPITAL AND DIVIDEND RESTRICTIONS
Our operations are conducted through our subsidiaries. As managed care
organizations, most of our subsidiaries are subject to state regulations and
other requirements that, among other things, require the maintenance of minimum
levels of statutory capital, as defined by each state, and restrict the timing,
payment and amount of dividends and other distributions that may be paid to us.
Generally, the amount of dividend distributions that may be paid by a regulated
subsidiary without prior approval by state regulatory authorities is limited
based on the entity's level of statutory net income and statutory capital and
surplus.
Our regulated subsidiaries are required to maintain minimum capital requirements
prescribed by various regulatory authorities in each of the states in which we
operate. During the three months ended March 31, 2021 , we received $88 million
of net dividends from our regulated subsidiaries. For our subsidiaries that file
with the National Association of Insurance Commissioners (NAIC), the aggregate
RBC level as of December 31, 2020 , which was the most recent date for which
reporting was required, was in excess of 350% of the Authorized Control Level.
We intend to continue to maintain an aggregate RBC level in excess of 350% of
the Authorized Control Level during 2021.
Under the California Knox-Keene Health Care Service Plan Act of 1975, as amended
(Knox -Keene ), certain of our California subsidiaries must comply with tangible
net equity (TNE) requirements. Under these Knox-Keene TNE requirements, actual
net worth less unsecured receivables and intangible assets must be more than the
greater of (i) a fixed minimum amount, (ii) a minimum amount based on premiums
or (iii) a minimum amount based on healthcare expenditures, excluding capitated
amounts. In addition, certain of our California subsidiaries have made certain
undertakings to the California Department of Managed Health Care (DMHC) to
restrict dividends and loans to affiliates, to the extent that the payment of
such would reduce such entities' TNE below the required amount as specified in
the undertaking.
Under the New York State Department of Health Codes, Rules and Regulations Title
10, Part 98, our New York subsidiary must comply with contingent reserve
requirements. Under these requirements, net worth based upon admitted assets
must equal or exceed a minimum amount based on annual net premium income.
The NAIC has adopted rules which set minimum risk based capital requirements for
insurance companies, managed care organizations and other entities bearing risk
for healthcare coverage. As of March 31, 2021 , each of our health plans was in
compliance with the risk-based capital requirements enacted in those states.
As a result of the above requirements and other regulatory requirements, certain
of our subsidiaries are subject to restrictions on their ability to make
dividend payments, loans or other transfers of cash to their parent companies.
Such restrictions, unless amended or waived or unless regulatory approval is
granted, limit the use of any cash generated by these subsidiaries to pay our
obligations. The maximum amount of dividends that can be paid by our insurance
company subsidiaries without prior approval of the applicable state insurance
departments is subject to restrictions relating to statutory surplus, statutory
income and unassigned surplus.
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Table of Con tents
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