Drew Asher
Chief Financial Officer at Centene
Thank you, Sarah. This was a very good quarter as you can see in the press release. Adjusted EPS of $2.11 was ahead of our expectations and a good start to the year. Let me hit a few key items for Q1 and then spend most of my time on the remainder of 2023 and 2024.
Premium and service revenue at $35 billion was strong in Q1. The HBR was on-track at 87%, and adjusted SG&A at 8.5% was consistent with our updated mix of business. DCP was 54 days consistent with Q4 and up one day from Q1 last year.
During the quarter, the Medicaid HBR of 90.0% was on track as well and reflects two items. One, a delay in a 2022 rate increase from one of our largest states which we expect to favorably impact our Q2 2023 Medicaid HBR; and two, Senate Bill 510 in California dealing with prior-period COVID claims. Those two items pushed up the Medicaid HBR over 40 basis points in the quarter.
The Medicare HBR 85.2% was a little better than expectations. Marketplace revenue was stronger than expected while the commercial HBR at 76.3% was in line with our internal forecast. Q1 cash flow from operations was strong, even when excluding a few out-of-period items such as early Medicare premiums. Overall, this was another good quarter with sound fundamentals.
In the last month and a half, we've gone through a rigorous process, not just to refine the forecast for the remainder of 2023 in our typical three-plus-nine process, but we also accelerated what we could to develop a more detailed forecast for 2024. Let's tackle 2023 and then get to 2024.
For the full year of 2023, premium and service revenue was coming in stronger than our last midpoint of $132.5 billion, driven by Medicaid and Marketplace. Medicaid revenue improvement is largely due to the refinement of timing of redeterminations in 2023 versus 2024. As an example, as we entered April, one of our largest states provided updated clarity around foster care redeterminations, moving the start date from April 1st to September 1st. And they also clarified the timing of other populations, resulting in the start date one month later than we had planned, resulting in more Medicaid member months in 2023.
In Marketplace, we are very pleased to be leveraging our number-one market position to not only seize market growth but also increase market share. We finished the open enrollment period strong and that carried into the Special Enrollment Period or SEP with 3.1 million members at quarter-end. We expect to continue to grow the rest of the year.
To draw a distinction, the 2021 SEP during COVID was wide-open for all eligibles and had pent-up demand with a different acuity profile than the SCP enrollees in 2022 or today. Though we have found that partial-year SCP members' profitability is below that of open enrollment members largely due to risk adjustment mechanics, the ability to renew those same members on 1/1/24 will set us up well for 2024.
Consistent with what we shared on the Q4 earnings call, the demographic data, including subsidy eligibility and product mix continues to look encouraging. Product positioning and distribution execution are also strong. The overall individual market has grown more than expected this year, and this macro growth is a positive factor when considering risk pools. Overall, we are able to absorb this additional growth in 2023, and this should provide an earnings tailwind for 2024 to help offset other areas of headwind. We are lifting the 2023 consolidated premium and service revenue another $3.7 billion to a midpoint of approximately $136 billion, driven by Medicaid and Marketplace.
Our revised 2023 HBR reflects an overall 10 basis point improvement to a range of 87.1% to 87.7%. This is driven by a few net items. First of all, there is a slight shift in mix due to growth in Marketplace, which has a structurally lower HBR. And as we'll talk about in a minute, we now expect a 10 basis point improvement in Medicaid in 2023 versus previous guidance. Our revised HBR also reflects a specific nuance for Medicare.
I mentioned on the February earnings call that we expect to lose money in Medicare Advantage in 2024. Based upon our latest underwriting estimates, we have reflected in 2023 guidance in approximate $200 million premium deficiency reserve or PDR, which we would expect to record in the fourth quarter of 2023. Other than that, our fundamental HBR is good in Q1 and on track for 2023. This PDR will be refined as we finalize bids and get further into 2023. To be clear, we are absorbing this premium -- this Medicare premium deficiency reserve into our revised 2023 HBR and adjusted EPS guidance demonstrating the current strength of the business.
On the flip side, growth in Marketplace, with more than 2.5 times the SG&A rate of Medicaid, due in part to distribution costs and exchange fees changes the mix for SG&A. When coupled with investments in quality and other key areas Sarah mentioned, our adjusted SG&A guidance for 2023 is up to a midpoint of 8.9%.
Let me demonstrate the impact of mix. Someone recently asked, why our SG&A rate is in the low 7s. Actually, if you pro forma our 2023 revenue mix, as if we were 80% Medicaid, we would be in the low-7s. Of course, in addition to our number-one position in Medicaid, we like having the number-one Marketplace franchise, the number-two PDP franchise, and a Medicare Advantage business with over a million members across 36 states.
Investment and other income was strong in Q1 and we expect that to continue for the remainder of the year at a midpoint of $975 million. We have bought back $577 million of shares since the beginning of the year, including $300 million post the Q4 call toward our approximate $1.5 billion goal for 2023. We expect to continue the majority of our health-plan dividends to come late in the year.
As of today, we have an approximate diluted share count of 550 million in shares. As we generate cash at the parent, we plan to deploy it to buy back our shares. For instance, in April, we were able to monetize the stock consideration we received at the closing of our sale of Magellan Specialty. We seized this opportunity so that we can deploy to share buyback. Overall for 2023, inclusive of the items we just covered, we are lifting our 2023 adjusted EPS guidance to at least $6.40, the top of our original guidance range.
Let's move to 2024. On 2024, while we were previously targeting $7.15 of adjusted EPS, we are reducing that to greater than $6.60 based upon more visibility on key 2024 drivers. While we are determined to do better than $6.60, based upon what we know today, we believe this is a prudent target for our 2024 earnings, and we believe this is the right jump-off point to apply our long-term growth algorithm CAGR of 12% to 15% for the back-half of the decade, consistent with what we shared with you at December Investor Day.
Let me outline our approach in key assumptions to this revised 2024 target, starting with Medicaid. The first redeterminations just started April 1st, but what has transpired over the past month and a half has enabled us to gain more clarity on each stage process in terms of timing and approach to the sequencing of populations.
As Sarah mentioned, we have also been able to refine acuity projections state-by-state, sub-population by sub-population, as well as the anticipated degree and timing of projected rate actions. Acuity projections in many cases are based upon specific data from the state and their actuaries. For instance, a number of our states shared files with us for those they expect to re-determine in April-May and/or June, and we are using this information to calculate the acuity of stairs versus levers.
On the other side of acuity, the rate change projections are state-by-state, sub-population by sub-population, and they are often based upon direct conversations with the Medicaid departments and their actuaries, including many verbal acknowledgments of the potential need for rate actions as redeterminations unfold.
We've had very constructive discussions with our state partners about redeterminations, not just in terms of process, but also the rates implications. We have also thought about the RFP cycle as we forecast the timing of future rate actions. While we are still early in the re-determination cycle, which we expect will last into Q2 of 2024, we have developed more confidence in our estimates of the net impact on 2023 and 2024 with the benefit of the claimed [Phonetic] One more relevant fact, for 2022, we were approximately $2 billion in payback -- payable back to certain states for risk corridors or minimum MBR profit-sharing mechanisms, that's important to factor in relative to any expected acuity shifts in those specific states.
Finally, with each state putting a stake in the ground with respect to timing and approach, we are better able to refine our forecasted premium revenue for both 2023 and 2024. Ultimately, we expect the rates provided by our states to match the acuity of the population as has historically been the case, though this is expected to ebb and flow through the redetermination process. In other words, if there is a mismatch between acuity in rates, we expect it to be temporary.
Now, let's get to some numbers. To provide some of our assumptions embedded in our updated 2024 target, we expect approximately $77 billion of Medicaid premium revenue in 2024 relative to approximately $84 billion in 2023. The premium revenue drop in 2024 is largely driven by redeterminations continuing and annualizing into 2024. There are also some other puts and takes in the revenue, including market-share shifts as we have previously discussed, the California contract renewal and the projected potential county shifts in Texas STAR+PLUS, as well as the added North Carolina expansion population.
With respect to the Medicaid HBR, as you will recall, we were originally expecting to be around 89.9% in 2023. Our latest forecast is slightly better than that at approximately 89.8%. For 2024, based upon the process I just described, we have now built-in 50 basis points of HBR increase to be prudent for redeterminations and the potential temporary mismatch of timing between acuity change in rate. That would put us at approximately 90.3%. Then we expect approximately 20 basis points of benefit from the new PBM contract and other initiatives to yield an estimated 2024 Medicaid HBR of approximately 90.1%.
In Medicare and Marketplace, we are still refining our bids that are due this summer, so we're going to be a little guarded with getting too granular with bid assumptions for each of those lines of business. In Marketplace, our first quarter results were on track, and while one quarter doesn't make the year, we are so far pleased with the Marketplace positioning, not just for 2023, but also the longer-term benefit from strengthening our number one market position. We look forward to getting more insight into 2023 Marketplace performance as the year unfolds, including when we get the first view of the Wakely risk adjustment data in late June, early July.
Suffice to say we're bullish about growth and margin potential in our Marketplace positioning and business for 2023, 2024, and beyond. And more importantly, the chassis for seizing individual market opportunities ahead.
In Medicare, we received the final 2024 rates and risk model clarity on March 31st. The 2024 final rate was less negative for us by approximately 1.25% relative to the advanced notice, but still an inadequate rate relative to trend. Some of the final rate change will accrue to our provider partners and some we will work into our bids. We continue to forecast a pre-tax loss in 2024, which is embedded in our revised 2024 target, inclusive of the 2024 amortization of the PDR we expect to record in 2023.
As we indicated on the Q4 2022 call, underperformance in Medicare growth and earnings is a temporary dynamic, which we will -- while we balance the preservation of a base of membership with trough 2024 Star's revenue and expectations of improvement in stars scores now geared towards our low-income and dual strategy Sarah described.
While it's widely known that moving from 3.5 stars to 4 stars comes with on average 5% more revenue, there's also a meaningful economic benefit of moving from 3 stars to 3.5 stars that averages the equivalent of 3% to 6% depending on the contract. Given that we have approximately 80% of our current membership in contracts below 3.5 stars from last October scoring, our focus now is to first maximize 3.5 stars, especially as our membership will be shifting and tilting more towards low-income and D-SNP in 2024 and beyond. So while you might consider our Medicare business as temporarily under construction for 2024, we believe Medicare Advantage will be a margin expansion and growth driver for the back half of the decade.
Once again, we haven't yet submitted bids for these products, so for external consumption, we're going to combine the Medicare and commercial 2024 forecasted revenue for this discussion. Together, we expect approximately $46 billion of premium revenue from Medicare and commercial segments in 2023, and $45 billion in 2024. Directionally, we expect to grow Marketplace throughout the rest of '23 and into 2024. On the other hand, we expect to rationalize certain Medicare plan benefit packages or PBPs in 2024, which will result in lower Medicare membership, but membership composition will be more consistent with the strategy Sarah outlined.
When we add our other businesses, which represent approximately $6 billion in premium and service revenue, subject to additional divestitures, we expect total premium and service revenue midpoints of approximately $128 billion in 2024, compared to about $136 billion in 2023.
We will issue formal 2024 guidance with the full table of details later in the year, but we thought it would be helpful to review some of the underlying assumptions that we believe support in adjusted EPS target of greater than $6.60. By powering through 2024 Medicare challenges and getting to the other side of determinations, this Company will be stronger to seize the opportunities in the back half of the decade.
Finally, while we are disappointed that we are lowering our outlook, this revised 2024 target reflects our updated view informed by an accelerated 2024 forecast process and recent insights in Medicaid, Marketplace and Medicare. And it is a target we have confidence in delivering. This perspective also gives us the flexibility to make the right decisions for 2025 and beyond. We will do our best to exceed $6.60 in 2024 without sacrificing anything for 2025 and beyond.
Operator, let's go to Q&A.
