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Centene Corporation (NYSE:CNC)
Q3 2018 Earnings Conference Call
October 23, 2018, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, ladies and gentlemen. And welcome to the Centene Corporation third quarter 2018 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the * key followed by 0. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press * then 1 on your telephone keypad. To withdraw your question, please press * then 2. Please note, this event is being recorded. At this time, I would like to turn the conference over to Mr. Ed Kroll, Senior Vice President of Finance and Investor Relations. Please go ahead, sir.

Edmund Kroll -- Senior Vice President, Finance & Investor Relations

Thank you, Denise. And good morning, everyone. Thank you for joining us on our 2018 third quarter earnings results conference call. Michael Neidorff, Chairman and Chief Executive Officer of Centene and Jeff Schwaneke, Executive Vice President and Chief Financial Officer of Centene will host this morning's call which can 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 US and Canada, or in other countries by dialing 412-317-0088. The playback code number for both dial-ins is 10123967.

Any remarks that Centene may make 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 today, October 23rd, 2018 and our Form 10-K, dated February 20th, 2018 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. The call will also refer to certain non-GAAP measures. A reconciliation of these measures with the most directly comparable GAAP measures can be found in our third quarter 2018 press release which is available on our website at centene.com under the Investors section. Finally, a reminder that our next investor day will be held on Friday, December 14th in New York City. With that, I'd like to turn the call over to our Chairman and CEO, Michael Neidorff. Michael?

Michael Neidorff -- Chairman & Chief Executive Officer

Thank you, Ed. Good morning, everyone. And thank you for joining Centene's third quarter 2018 earnings call. During the course of this call, we will discuss third quarter finance results and provide update on Centene's markets and products. We will also bring you up to date on the integration of Fidelis. Let me begin with Fidelis. The third quarter was our first full quarter with Fidelis operating as your New York State health plan. The integration is going very well, progressing as expected. We will further enhance the quality of care and current capabilities of Fidelis as we add case management and clinical programs and incorporate our data analytics tools. We are on track to achieve the synergy and accretion targets. On a run rate basis, we expect Fidelis to add approximately $11.5 billion in revenue and over $500 million in adjusted EBITDA, including net synergies. Now, on to the third quarter financial results. We are pleased to report another solid quarter marked by significant top and adjusted bottom-line growth.

It is important to clarify that the operating metrics in the quarter were strong, as this may have been obscured by three offsetting adjustments booked in the quarter. Two of the adjustments related to contracts that have expired. These were a $140 million benefit related to California IHSS program reconciliation and $110 million charge related to the expiration of our Veterans Affairs contract. The third adjustment related to a $30 million contribution to our charitable foundation. Membership at quarter-end was 14.4 million recipients. This represents an increase of approximately 2.1 million beneficiaries over the third quarter of 2017. This growth is, in part, the result of the acquisition of Fidelis which closed effective July 1. Third quarter revenues increased 36% year-over-year to $16.2 billion. The HBR decreased 170 basis points year-over-year to 86.3%. This is primarily attributable to the benefit of the IHSS program reconciliation and membership growth in the exchange business.

The adjusted SG&A expense ratio increased 110 points year-over-year to 10%. This was the result of the growth in the exchange business which operates at a higher SG&A expense ratio and one-time costs associated with the expiration of our VA contract. We reported adjusted third quarter diluted earnings per share of $1.79, compared to $1.35 in the same period last year. This represents growth of 33%. Consistent with our expectations, adjusted net earnings have developed in a quarterly pattern similar to last year. Please note, we reiterate our comments regarding visibility into $69 billion plus in total revenue for 2019. As in our practice, we will provide full details and updates of 2019 guidance at our December 14 investor day. We are still finalizing our annual planning process. But based on reviews to date, the current adjusted earnings per share consensus for 2019 would be within our guidance range. Jeff will provide further financial details, including updated 2018 guidance in his prepared remarks.

A quick comment on medical cost trends. We continue to see as well as anticipate overall stable medical cost trends. This is consistent with our expectations in the low-single-digits. I would also like to make a comment on pharmaceutical costs and the evolution of the PBM model. There have been some recent media articles regarding this topic and our Ohio Medicaid health plan, Buckeye Community Health. To clarify, Buckeye is not charging the state more than any other MCO per script. Health plans were paid a flat per member rate and cannot charge the state a penny more, even if that member has more prescriptions. As you know, CBS has rescinded their original comment on this matter. And there are no duplicate services by CBS and Envolve. In fact, Buckeye's per member spend on pharmacy services of $83.79 per month is below the all-plan average in Ohio of $87.96 according to the NAIC findings for 2017.

We support a shift toward a more transparent PBM model that is sustainable with higher quality and lower costs for consumers. Our recent investment in RxAdvance is the latest evidence of our approach. As a matter of fact, our first state will go liv with RxAdvance before year-end. And we have a national rollout for RxAdvance throughout 2019. We look forward to working with the state of Ohio and others to enhance and evolve the PBM model. Moving on to market and product updates. First, we'll discuss Medicaid activity. Mississippi: In October of 2018, as part of successful reprocurement, we entered into a new agreement to continue proof to provide service to Medicaid recipients enrolled in the Mississippi Medicaid program. Note that the state added a third vendor as part of the reprocurement process. Arizona: In October of 2018, our Arizona subsidiary, Health Net Access began a new contract that integrates physical and behavioral health services through the state's Medicaid program in the central and south regions.

We now have over 180,000 integrated lives in this program, representing an increase of 120,000. North Carolina: In early August of 2018, North Carolina released an RFP for the state's first time transition of Medicaid members out of paid for service into managed fare. We have been planning for this RFP for several years. In January of 2017, we established a joint venture with the North Carolina State Medical Society to collaborate on a statewide member-focused approach to Medicaid managed fare. The joint venture, Carolina Complete Health, was established as a physician-led health plan to provide Medicaid managed fare services in the state. Carolina Complete Health submitted its RFP response this past Friday. We feel we are well positioned due to our joint venture which is consistent with our local approach. Furthermore, our participation in North Carolina marketplace will be recognized in the Medicaid RFP story. The state expects to announce winners in early February of 2019.

Next, Centurion. In August, Centurion announced that the Volusia County, Florida Council voted to award Centurion a contract. Centurion will provide comprehensive healthcare services to an average of 14,025 detainees of the county's detention facilities located near Daytona, Florida. The contract is expected to commence January 1 of 2019. Additionally, Centurion was awarded a contract to provide comprehensive healthcare services to detainees of the Metropolitan Detention Center in Albuquerque, New Mexico. The average detainee population for this service area is 15,050. This contract is expected to commence in February of 2019. Note, these two recent correctional contract wins offer further evidence that we have gained traction in growing this relatively new product line. Now, onto Medicare. We remain focused on building a successful Medicare business. At quarter-end, we served over 417,000 Medicare and MMP beneficiaries.

This represents a year-over-year increase of more than 86,000 recipients in 2016. Consistent with our Medicare growth strategy, we have expanded our geographic footprint and expect to be in 21 states in 2019. The annual enrollment for the 2019 plan year began on October 15. We continue to take a targeted approach to growing our Medicare advantage group. In markets that we are focused on, we are pleased in a competitive position of the overall products. Further, we are encouraged by CMS recently released data suggesting we will return to a four-star MA parent league for the 2020 plan year. We expect this will have a positive impact on multiple new plans, including the joint venture recently established with Ascension Healthcare. Please note, we expect to have 68% of our MA members, including Fidelis in four-star plans in 2020. With Fidelis, it'll be 53%. Next, health insurance marketplace. At September 30, we served one 1,530,000 exchange beneficiaries.

This represents a sequential increase of over 26,000 individuals. The addition of Fidelis offsets the sequential loss of members of normal attrition. On a year-over-year basis, membership grew 49%. Our exchange business has continued to perform well in the third quarter. We expect 2019 to be another strong year for Ambetter. In addition to expanding our footprint in six existing markets next year, Florida, Georgia, Indiana, Kansas, Missouri, and Texas, we are adding four new states, Pennsylvania, North Carolina, South Carolina, and Tennessee. In 2019, we will be offering exchange products in 20 states. Our strategy remains consistent, focusing on low-income subsidized populations. We do not see a significant change in the competitive dynamics of our markets. And pricing appears to be appropriate. I would like to speak to the elimination of the individual mandate in 2019. We do not expect this to have a meaningful impact on the overall performance of our marketplace product.

Open enrollment starts November 1. Our guidance includes incremental marketing and other outreach efforts to offset the federal government's continued reduced efforts. Shifting gears to our radar, we continue to expect a positive Medicaid adjustment of an increase of approximately 1% for 2018. In conclusion, third quarter results offer further evidence of Centene's financial strength and operating capabilities. Centene's pipeline of further growth opportunities remains robust. We continue to explore new growth in the grossification prospects while maintaining our focus on margins. We are optimistic about our future and the meaty role Centene will continue to play in the evolving healthcare industry. As a reminder, our next investor day is on December 14th in New York City. We look forward to seeing you there. We thank you for your continued interest in Centene. Jeff will now provide you with further details on our third quarter financial results. Jeff?

Jeffrey Schwaneke -- Executive Vice President & Chief Financial Officer

Thank you, Michael. And good morning. This morning, we reported strong third quarter results with total revenues of $16.2 billion, an increase of 36% over 2017 and adjusted diluted earnings per share of $1.79, an increase of 33% over last year. Earnings for the quarter were driven by the completion of the Fidelis acquisition and the continued strong performance of the marketplace business. Additionally, the third quarter results include the following items which, in aggregate, had no effect on diluted earnings per share. First, during the third quarter, we received cost reconciliation information from the state of California associated with the IHSS program which ended last year. The information allowed us to estimate the effect of the reconciliation. And we recorded a pre-tax benefit of $140 million during the quarter. Second, the veteran affairs contract expired this quarter. In connection with the conclusion of the contract, we recorded a pre-tax charge of $110 million for negotiated settlements and severance costs.

Lastly, as an offset to the first two items, we recorded a pre-tax charge of $30 million, associated with the contribution commitment to the company's charitable foundation to continue to support the communities that we serve. Let me provide some more details for the quarter. Total revenues grew by approximately $4.3 billion year-over-year, primarily as a result of the acquisition of Fidelis Care; growth in the health insurance marketplace business; expansion in new programs in many of our states, including the Illinois contract expansion and the Pennsylvania LTSS program; other acquisitions, including MHM, CMG, and Foundation care; and the return of the health insurer fee in 2018.

This growth was partially offset by lower revenues in California associated with the removal of the IHSS program from managed care which took effect January 2018 and lower membership and revenue in the Medicaid business due to eligibility redeterminations in many of our states as a result of the strengthening economy and lower unemployment. Additionally, the IHSS adjustment this quarter lowered premium revenues by a little over $100 million. Moving on to HBR, our health benefits ratio was 86.3% in the third quarter this year compared to 88% in last year's third quarter and 85.7% in the second quarter of 2018. The decrease year-over-year is primarily driven by the benefit of the recognition of the IHSS program reconciliation which reduced the HBR by approximately 100 basis points. Additionally, the year-over-year membership growth in the health insurance marketplace business and the reinstatement of the health insurer fee in 2018 also decreased the HBR.

These decreases were partially offset by the acquisition of Fidelis which operates at a higher HBR. Sequentially, the 60-basis point increase in HBR from the second quarter of 2018 is primarily attributable to normal seasonality in the commercial business and the acquisition of Fidelis Care. These increases were partially offset by the IHSS program reconciliation I previously mentioned. Now, onto SG&A. Our adjusted selling general and administrative expense ratio was 10% in the third quarter this year compared to 8.9% last year and 9.6% in the second quarter of 2018. The year-over-year increase was primarily due to growth in the health insurance marketplace business which operates at a higher SG&A expense ratio. The SG&A expense ratio was also negatively impacted by approximately 70 basis points related to the costs associated with the conclusion of our contract with the US Department of Veterans Affairs and the contribution commitment to our charitable foundation.

These increases were partially offset by the acquisition of Fidelis Care. The sequential increase is primarily due to costs associated with the VA contract expiration and the charitable contribution previously mentioned. These increases were partially offset by the acquisition of Fidelis Care which operates at a lower SG&A expense ratio. Additionally, we spent $0.06 per diluted share on business expansion costs during the third quarter compared to $0.12 per diluted share last year. Investment income was $80 million during the third quarter, compared to $51 million last year and $65 million last quarter. The increase year-over-year is due to higher investment balances mainly associated with the Fidelis acquisition as well as higher interest rates on short-term investments. Sequentially, investment income increased due to the acquisition of Fidelis.

We expect interest income to be lower in the fourth quarter due to lower investable balances associated with the payment of the health insurer fee, risk adjustment, and the California rate overpayments mentioned in the second quarter. Interest expense was $97 million for the third quarter 2018 compared to $65 million last year and $80 million for the second quarter of 2018. The increase year-over-year was driven by the additional debt to fund the Fidelis acquisition and higher interest rates on our debt associated with our interest rate swaps. The increase sequentially is driven by a full quarter of the senior notes issued to fund the Fidelis acquisition. Our effective tax rate for the third quarter was 33.3% compared to 38.3% in the third quarter of 2017. The lower tax rate was driven by the effective income tax reform in 2018 partially offset by the return of the health insurer fee. Now, onto the balance sheet.

Cash investments and restricted deposits totaled $14.3 billion at quarter-end, including approximately $500 million held by unregulated subsidiaries. Our risk-based capital percentage for NAIC filers continues to be in excess of 350% of the authorized control levels. Debt at quarter-end was $6.4 billion which includes $100 million of borrowings on a revolving credit facility. Our debt to capital ratio was 36.9%, excluding our non-recourse debt compared to 41.2% at the third quarter last year and 36.7% at the second quarter of 2018. We continue to target a debt-to-capital ratio in the mid- to upper-30% range. Our medical claims liability totaled $7 billion at quarter-end and represents 51 days in claims payable compared to 44 days for the second quarter of 2018. The increase in DCP is a result of the addition of the Fidelis business which accounts for four days, timing and acclaims payments and business expansions which accounts for two days, and the impact of the IHSS program reconciliation for one day.

Several of the items influencing the DCP increase this quarter are timing related and are expected to reverse. We expect the DCP to be in the mid-40 range on a run rate basis with the inclusion of Fidelis. Cash flow provided by operations was $548 million in the third quarter. Cash flow was positively impacted by approximately $350 million due to the timing of Fidelis Care claims payments and $175 million due to increases in experienced rebate payables primarily related to the performance of the health insurance marketplace business and the previously mentioned IHSS program reconciliation. Before we discuss the changes to our 2018 annual guidance, let me spend a few minutes to update you on the Fidelis acquisition and the effect on the third quarter 2018 results. On July 1st, 2018, we acquired substantially all the assets of Fidelis Care for approximately $3.5 billion in cash consideration net of the preliminary working capital adjustment.

The integration is in process, and we expect to achieve the previously communicated synergy targets. In connection with the completion of the acquisition, during the third quarter, we incurred approximately $401 million or $1.46 per diluted share of transaction costs including investment banking fees, legal costs, and $324 million representing the present value of the contribution to the state of New York as part of the undertakings associated with regulatory approval. Now, onto our annual guidance. We have increased our 2018 annual adjusted diluted earnings per share guidance by $0.02 at the midpoint to reflect the performance in the third quarter and narrowed the ranges of several other guidance metrics. In summary, our updated full-year 2018 guidance is as follows.

Total revenues of $59.8 to $60.3 billion, GAAP diluted earnings per share of $4.34 to $4.50, adjusted diluted earnings per share of $6.90 to $7.10, an HBR of 85.95 to 86.3%, SG&A ratio of 10.5% to 10.9%, adjusted SG&A ratio of 9.7% to 10.1%, an effective tax rate at 34% to 36%, and diluted shares outstanding of 198.8 to 199.8 million shares. Additionally, we are increasing our full-year 2018 business expansion costs from $0.28 to $0.032 per diluted share to $0.30 to $0.34 per diluted share. In summary, we were pleased with the strong performance in the third quarter and the completion of the Fidelis acquisition that we expect to continue to drive long-term growth and margin expansion. That concludes my remarks. And Operator, you may now open the line for questions.

Questions and Answers:

Operator

Thank you, sir. Ladies and gentlemen, we will now begin the question and answer session. To ask a question, you may press * then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If your question has been addressed, you may withdraw from the queue by pressing * then 2. And your first question will be from Kevin Fishbeck of Bank of America Merrill Lynch. Please go ahead.

Kevin Fischbeck -- Bank of America Merrill Lynch -- Analyst

Great. Thanks. Wanted to ask about the exchanges and how you thought about 2019. You mentioned that the competitive landscape hasn't really changed that much. But it does seem that there's a number of counties that last year, only had one option and this year, at least have two. And you guys often stepped in there to be that one option. I think initially, the market was concerned that being the only one there was gonna be a bad thing. You guys have really outperformed. Wondering now if there's potential risk on the other side. If a new competitor comes in, does that potentially change the risk pool for you in that market?

Michael Neidorff -- Chairman & Chief Executive Officer

Let me respond, Kevin. I don't see a change in the risk pool. So, we have had the last two, three years, 80% reenrollment of our membership. So, we expect that to continue. There's a great deal of satisfaction with it. And we continue to focus on the subsidized market. And some of the others are coming in at higher levels than that. So, I don't really see any material changes within the marketplace.

Kevin Fischbeck -- Bank of America Merrill Lynch -- Analyst

Okay. And then a question on the MA side. It looks like you guys expect now to have the parent rating back for 2020. How did you think about the 2019 pricing for STARs, particularly on some of the new contracts? You have this issue where you fell off on the star ratings for 2019, but you expected to show improvement going forward. Did you think about it in price to the actual star rating you had in 2019? Or did you take the longer-term view that it's better to grow the business and we may see some margin impact in 2019 but then getting back --

Michael Neidorff -- Chairman & Chief Executive Officer

Right. I'm gonna ask Kevin to join in. But last year, I said we are committed to growing the business. But I'll let Kevin pick that up.

Kevin Counihan -- Senior Vice President, Product

Yeah. Hi, Kevin. I just would reinstate what Michael had said. Our position has been to take the longer-term view, I think when you look at both our expansion strategies, the states we've focused on, the potential Ascension alliance, I think it all reflects that.

Kevin Fischbeck -- Bank of America Merrill Lynch -- Analyst

Okay. Great. Thank you.

Operator

The next question will be from Josh Raskin of Nephron Research. Please go ahead.

Joshua Raskin -- Nephron Research -- Analyst

Hi. Thanks. Good morning, guys. Good morning, Michael. First question, just on the exchanges and just how you guys think about the bidding process and resetting your plans. We've talked about a margin above 5% this year. As you think about '19, is there a reset to your bid margin? Or do you think where you are is sustainable? And again, you've been a sole operator in a lot of counties. So, my guess is there's no need to make majorizations there. But how are you thinking about long-term margins? And is there any reset we should expect for 2019?

Michael Neidorff -- Chairman & Chief Executive Officer

Yeah. I'll let Jeff and some others comment. But as I said in the previous answer, we see our position in the marketplace not changing. But all up to the -- Jeff --

[Crosstalk]

Jeffrey Schwaneke -- Executive Vice President & Chief Financial Officer

Yeah. Not to get into too much details about '19, but we are certainly not planning for a margin reset in 2019. That's certainly not our view.

Joshua Raskin -- Nephron Research -- Analyst

Okay. That's perfect. And then just on North Carolina, as they released the set of bidders, I was actually a little surprised there were only eight plans that were listed. And so, I don't know how to think about that. Is that, "Hey, there's a little bit of fear around the ability to earn a reasonable return on that contract, and it's a big contract, so there's risk"? Or is it, "Nope. It's just such a large contract that there's only a few plans that could realistically win this"? I guess I'm just curious on your perspective from a competitive landscape in North Carolina.

Kevin Counihan -- Senior Vice President, Products

Yeah. Hi. It's Kevin. I think one potential contributing factor to what you've just said is that, as you probably know, it was a complicated bid. And one looks at the requirements on an MCO, the respect to care management requirements, networks and such, the mix between how provider organizations would be implemented as well as outside MCOs. It is a complicated bid. So, again, we're very excited about our bid. We believe we have a strong one. But that may be a contributing factor.

Michael Neidorff -- Chairman & Chief Executive Officer

I would just add to it. I think when you look at the scale, the size, the expectations, the technology required to do it, a lot of people who initially get excited about it sit back and say, "I think maybe I'm gonna have to sit this one out." And so, we're comfortable with our position, our partnership I think and expect to do well with it.

Joshua Raskin -- Nephron Research -- Analyst

Okay. And just to clarify, there was nothing in the bid or the RSP that came out that changed your view on your ability to earn a reasonable return? Nothing around rates or continuity of care, or anything like that that's gonna make it onerous in the early periods?

Michael Neidorff -- Chairman & Chief Executive Officer

No. I don't think so. I think you always look at how bifurcated it is, how many plans they have in a particular region. But I think when you look at it in total, I think it's gonna be fine. You always have your first year where you're educating people. And we have planned for that accordingly. And we've always said new plans. You wanna go through three, four quarters so then that same matrix applies. And we're planning accordingly

Joshua Raskin -- Nephron Research -- Analyst

Perfect. All right. Thanks, guys.

Operator

The next question will be from Stephen Valiquette of Barclays. Please go ahead.

Stephen Valiquette -- Barclays -- Analyst

Thanks. Good morning, everybody. Just quickly for the California IHSS payment. I think you guys mentioned this at your analyst meeting back in June. So, it seems like it was included in guidance. But just to clarify, that $140 million, is it still subject to any material adjustments depending on minimum MLR calculations in California for those prior periods? And also, these California risk corridors, are they all finalized now? Just wanna get more clarity around all that. Thanks.

Jeffrey Schwaneke -- Executive Vice President & Chief Financial Officer

Yeah. A couple things. This was not in guidance. It's never been in guidance. But the real issue here is they're reconciling the program from the beginning, its inception, all the way back to 2014. And this is really the first quarter that we had cost and, I would day, member eligibility information from the state in order to perform the reconciliations. So, the state has the data, not the MCO. So, obviously, this is the first time we had a look at it. It is not done. I think in the press release, you'll find that it says that we expect the'14 through '16 information to potentially get reconciled late this year or early next year. And then there's still the 2017 year which would come later, maybe in 2019. So, what I will tell you is that it could get adjusted. And if it does, we would disclose it accordingly.

Stephen Valiquette -- Barclays -- Analyst

As far as the breakdown, the $140 million, how much of it relates to 2014 to 2016 versus 2017? Is there any rough breakdown of it that way, just to help us get a sense of the magnitude for how much it could be adjusted?

Jeffrey Schwaneke -- Executive Vice President & Chief Financial Officer

I think there were rate changes in the program in the later years. So, I think a significant piece of that relates to '14-'15 time periods with a little bit less in 2017. So, I would say it probably starts larger at the beginning and gets smaller as the years go on.

Stephen Valiquette -- Barclays -- Analyst

Okay. All right. That's helpful. Thanks.

Operator

The next question will be from Ralph Jacoby of Citi. Please go ahead.

Ralph Jacoby -- Citi -- Analyst

Thanks. Good morning. Obviously, a lot of moving parts in MML and SG&A. Any reason why you wouldn't exclude some of those one-time items from the adjusted figures?

Jeffrey Schwaneke -- Executive Vice President & Chief Financial Officer

Well, we've never historically done a, if you will, an adjusted HBR and adjusted SG&A ratio. But I think our preference in general is to disclose and not have an adjustment section that's very long in the filing. I think that makes it confusing. And so, I think our view was this was a much more easier way to just disclose the information.

Michael Neidorff -- Chairman & Chief Executive Officer

I just wanted to add to that. I think what's really important is, as we change lenses to a $60 billion company versus what a lot of people remember us as historically, you're gonna have a lot of adjustments that come through in a given quarter. That's just the nature of the business. And what we did this time, we wanted to ensure that we had the offsets. And to ensure that there was no income taken into it, we took the $30 million and put it in the foundation because we wanted to really even it out. And so, I agree with Jeff, obviously.

We decided to keep the adjustments simple, so people understand it. And we believe that most people, when we say, "Here's a one-time change one way or the other," tend to discount. I'm used to an environment where they say, "That's to be expected in a business this size." At any given quarter, any given time, there's gonna be adjustments that are good and bad. But you have to treat them just as one-time events and not part of the ongoing. What I'm pleased with in this quarter is the ongoing business is performing well and consistent with our expectations.

Ralph Jacoby -- Citi -- Analyst

Okay. All right. Fair enough. And then just a follow-up. The administration was out yesterday with more flexibility to states around waivers and the like. Any initial thoughts around that and maybe implications of that and whether it's even a consideration for '19 as opposed to maybe '20? Thanks.

Michael Neidorff -- Chairman & Chief Executive Officer

Kevin?

Kevin Counihan -- Senior Vice President, Products

Yeah. It's a good question. I just finished reading the guidance last night. Clearly, we support the ability for states to have additional flexibility. I think it plays well into both our business model and also, our strategy. With respect to some of the nuances in the guidance, I think we're all still studying that.

Ralph Jacoby -- Citi -- Analyst

Okay. Thank you.

Operator

The next question will be from Steve Tanal of Godman Sachs. Please go ahead.

Stephen Tanal -- Goldman Sachs -- Analyst

Good morning, guys. Thanks for the question. Wanted to just follow up on a couple of the ratios. Specifically, first, the HBR. At 87.3%, just looking at typical -- and that's ex the IHSS item -- the typical seasonality and thinking through the impact of Fidelis, really trying to understand -- I guess the question would be what was the impact of Fidelis if you could spike that out because I think this HBR looked pretty decent exit.

Michael Neidorff -- Chairman & Chief Executive Officer

Yeah. I wanna comment, but as we go forward, we've always had the policy -- we look at it consolidated basis versus bifurcating it because it gets too confusing next quarter. What about this or that? So, we wanna look at it in totality. But you can give him some kind of directional --

Jeffrey Schwaneke -- Executive Vice President & Chief Financial Officer

Yeah. I think you're exactly right. Obviously, you have two things. One's been here the whole year, the HIF, the health insurer fee pulls down the HBR if you're comparing to last year because last year, there was no health insurer fee. And then you have the IHSS adjustment. So, those two I would put in a separate category. And then you're correct. You do have an increase for the Fidelis business because it does run a higher HBR. And that was predominantly offset by the marketplace because a lot of the organic growth this year has been in the marketplace business. So, the increased volume of that business as a percentage of that total company pulls down the HBR.

Stephen Tanal -- Goldman Sachs -- Analyst

Okay. So, not quantifying Fidelis. And I guess just on the SG&A side, came in a bit higher than we were thinking. And one thing that I heard on the call so far was just the increased business expansion costs. And that's stepped up about $0.02 or so. Was that in the third quarter? Is that to come in the fourth quarter? And just step back on that. Should we think about that $0.32 number as a run rate number at this point?

Jeffrey Schwaneke -- Executive Vice President & Chief Financial Officer

Some of that is in the third quarter, related to our -- as Michael mentioned in his script -- related to the open enrollment period. And so, what you have to remember is in order -- what we do is the business expansion costs are incremental. So, incremental to the prior year when you look at, for example, the marketplace business. So, I would say it's a pretty good run rate. But it can be lumpy from time to time, depending on Medicaid RFPs because a lot of times -- for example, if we had a 1/1 start date, we would have a lot of start-up costs in fourth quarter for that. So, I would say it's a pretty good run rate. I think that's where we've been in that range for the last several years. But obviously, depending on the number of awards and how many awards are in a specific year, it could change.

Stephen Tanal -- Goldman Sachs -- Analyst

Got it. Okay. Thank you.

Operator

The next question will be from Sarah James of Piper Jaffray. Please go ahead.

Sarah James -- Piper Jaffray -- Analyst

Thank you. I was hoping that you could walk us through capital deployment priorities. As you think about the business model going forward, are there certain areas that would make sense for expecting to add assets or expand your exposure?

Jeffrey Schwaneke -- Executive Vice President & Chief Financial Officer

Yeah. Obviously, you've seen a lot of the capital that we continue to deploy and have deployed over a long period of time is really related to growth and adding capabilities. And I think you've seen some of that this year with the addition of CMG, our investment in RxAdvance, Interpreta. So, we've continued to add capabilities to the business as well as grow the business. So, every new market requires statutory capital. That's capital deployment increasing the marketplace growth in that business. So, I think it's a consistent strategy going forward. We're looking for ways to add capabilities that, in the long-term will continue to grow the business successfully.

Sarah James -- Piper Jaffray -- Analyst

Okay. Can you talk about the rate outlook in a little bit more detail? So, you mentioned reiterating the 1% for 2018. But we've had a couple of updates recently that were higher than that. So, I'm just wondering as you're looking for the rest of '18, focusing on 4Q or rolling out of the year, are you still thinking that 1% is accurate for 4Q? Or could the recent updates provide some upside to that?

Jeffrey Schwaneke -- Executive Vice President & Chief Financial Officer

Yeah. I think we've been -- and I may get this a little bit off, but I think we've been close to 1% for the last three years. And just to give you the idea about what we're giving you as far as what the 1% is, it's the annualized effect of rate adjustments in this year. So, it's not just as they occur. It's the annualized effect of those. And the other thing is that it's a net rate adjustment, meaning if the state changes the fee schedule and provides a premium adjustment for that, we've excluded those. We've netted those together because typically, those are a one to one. So, we're still comfortable with the 1%. We've been in the 1% range for the last several years. And I think I wouldn't see anything differently going forward at this point in time.

Michael Neidorff -- Chairman & Chief Executive Officer

And I think what is important, Sarah, is what Jeff said. It's easy to say we've got a 5% increase or something. But if they raised other fees comparable to that, then that's a mislead. So, I think we want, in the interest of clarity, report the net number.

Sarah James -- Piper Jaffray -- Analyst

Great. Thank you.

Operator

The next question will be from Matt Corsch of BMO Capital Markets. Please go ahead.

Matthew Borsch -- BMO Capital Markets -- Analyst

Hi. Good morning. Thank you. Can I just ask about the tax rate? The rate looked quite low in this quarter. And I think you're maintaining your tax rate guidance for the full year. Is that implying something pretty high for the fourth quarter? I'm just wondering if you can talk to what's going on there. And apologies if I missed something you already said.

Jeffrey Schwaneke -- Executive Vice President & Chief Financial Officer

Yeah. No, Matt. That's a good question. I think what's driving the tax rate obviously for the quarter is the significance of the adjustments related to the closing of the -- it's really the transaction costs associated with the Fidelis transaction. Those are deductible at a statutory tax rate that's roughly around 24%. So, we've known about these costs for some time. And our guidance has always included those. So, again, that's why you didn't see a revision to the tax rate range is for the full year, on a GAAP basis, we're gonna get back to in between our guidance ranges that we provided today.

Matthew Borsch -- BMO Capital Markets -- Analyst

Okay. Got it. And if I --

Michael Neidorff -- Chairman & Chief Executive Officer

And that's also, Matt, a good example of what I said earlier in terms of in any given quarter you can have a particular effect that impacts it.

Jeffrey Schwaneke -- Executive Vice President & Chief Financial Officer

Yeah. Just to give you a little more detail, Matt, we've always had, I would say, a lower back half tax rate because of the addition of Fidelis because Fidelis is not subject to the health insurer fee this year. And so, their tax rate's much, much lower. Yeah. But for the full-year, we're comfortable with our guidance range.

Matthew Borsch -- BMO Capital Markets -- Analyst

Got it. And could I just ask a question on -- if you look at the organic growth going into 2019 and above $69 billion, am I correct that implies a high-single-digit range for organic growth if you broadside of the barn adjust out for Fidelis?

Michael Neidorff -- Chairman & Chief Executive Officer

Well, once again, for consistency, when there's a partial year on something, we always have to adjust for it the next year. So, if you go year-over-year, that's consistent. We look for consistency in how we do this. But any way you look at it, it's a lot of significant growth for that. And then that reflects what the visibility we had last June. And we'll update it in more detail and give you more detail in December.

Matthew Borsch -- BMO Capital Markets -- Analyst

Okay. Thank you.

Operator

The next question will be from Peter Costa of Wells Fargo Securities. Please go ahead. Mr. Costa, your line is open. You may be muted on your side.

Peter Costa -- Wells Fargo Securities -- Analyst

Hi. Good morning. Sorry about that. Will any of the guidance change or the metrics changing due to the performance at Fidelis being different than you expected? And what things have you seen at Fidelis that's been different from your expectations, either positive or negative?

Michael Neidorff -- Chairman & Chief Executive Officer

I think it's been very consistent with our expectations. And the reaffirmation of the revenue and the EBITDA I think reflects that. It's a well-run company. And we're very pleased with it. We were able to impact our -- you talk about integration. Day one, they were on our general ledger. So, this is a company that had their act together. And it's everything we could have expected.

Peter Costa -- Wells Fargo Securities -- Analyst

And just as a follow-up, why was Fidelis Care view of the individual mandate going away which caused them to initially seek much higher rates in the exchange business so different from your view of the individual mandate going away? Is New York somehow different? And are you seeing what they initially saw now that you're seeing what's going on in New York?

Jeffrey Schwaneke -- Executive Vice President & Chief Financial Officer

Okay. So, you're right. New York is different. New York has a basic health plan, which I think you're probably aware of. It's one of two states, that and Minnesota that have that. So, just by definition, they're gonna have different underwriting issues and risk-management issues and selection issues than states without the BHB.

Peter Costa -- Wells Fargo Securities -- Analyst

So, that's what caused them to seek these much higher rates in New York than you were seeking, rate increases for next year?

Jeffrey Schwaneke -- Executive Vice President & Chief Financial Officer

Yeah. If you're a state with a basic health plan like those two, there're definitely different underwriting issues that one has versus a state without that.

Peter Costa -- Wells Fargo Securities -- Analyst

Okay. Thank you.

Michael Neidorff -- Chairman & Chief Executive Officer

And we, of course, could not get involved in any discussions on their rate adjustments until after closing. That would have been inappropriate.

Peter Costa -- Wells Fargo Securities -- Analyst

Understood.

Operator

The next question will be from Michael Newshel of Evercore ISI. Please go ahead.

Michael Newshel -- Evercore ISI -- Analyst

Thanks. Good morning. So, when we're looking at the RFP pipeline, is there any update on expected timing of the STAR, CHIP and STAR+PLUS contracts in Texas after the cancellation and repost of the RFP a few weeks ago?

Michael Neidorff -- Chairman & Chief Executive Officer

Oh, I think it's a movable piece. But Chris, what's the best --

Chris Koster -- Senior Vice President--Corporate Services

I'll give you my best shot, Michael. Right now, it looks like the -- well, as you know, both of the RFPs have been reissued and are due in mid-November. We expect that the awards are gonna come Q2-Q3 of 2019. And right now, the projected start dates for both of these are -- STAR+PLUS will be 6/1 of 2020. And the CHIP and STAR RFP will be 9/1 of 2020.

Michael Newshel -- Evercore ISI -- Analyst

Okay. Great. And also, what's the latest on Pennsylvania, whether the health choices contract will go to another bidding process after courts vacated that?

Michael Neidorff -- Chairman & Chief Executive Officer

Yeah. I haven't heard anything. It's been very silent. So, we'll continue to focus on a long-term chair. Doing a great job there. The east, getting ready to bring that up. And that's going well. But I've decided that's something I'm just gonna wait for them to call and say it's time to try a third time because we've done well twice. So, we'll see what happens this time.

Michael Newshel -- Evercore ISI -- Analyst

Got it. And the existing vendors will just continue in the meantime?

Michael Neidorff -- Chairman & Chief Executive Officer

Oh, yeah. I'm sure. They need the help. They want it. And well, there's a -- you have an election coming up. The new governor will be in place potentially. We'll just wait and see what happens there. And I'm not forecasting the election. Don't misread it. So, there's a lot of variables. So, we have so much going on now that if they wanna wait a little bit, that's OK. We have a full plate.

Michael Newshel -- Evercore ISI -- Analyst

Got it. Thank you.

Operator

The next question will be from Lance Wilkes of Sanford Bernstein. Please go ahead.

Lance Wilkes -- Sanford Bernstein -- Analyst

Yeah. Good morning. Just a quick question on the days and claims payable and the timing issue, more predominantly on the non-Fidelis. Was that related to any particular products? Or if you could just give a little more color on that, that'd be helpful.

Jeffrey Schwaneke -- Executive Vice President & Chief Financial Officer

Yeah. No. Nothing specific. When you look at the days and claims payable, some of this depends on which day of the month the actual quarter ends on and when our check runs are schedules. Obviously, we're fairly large. So, we're making a lot of payments every single day. So, it just depends on that. That's what most of the timing items are related to. And I think I was pretty clear in my script that long-term, we think in the mid-40s is a good proxy for where we're gonna be with the addition of Fidelis.

Lance Wilkes -- Sanford Bernstein -- Analyst

Okay. And then on RxAdvance, I saw you made additional investments in convertible preferred. And you talked a little bit about the rollout in 2019. If you could talk a little more about both how you're thinking about rolling out the capability, how it replaces existing capabilities, and what would be the impact to a state's pricing model as a result of this? Do you frequently have separate capitation rates related to pharmacy and this is gonna transfer it to more transparent pricing? Or maybe just some more color around that.

Michael Neidorff -- Chairman & Chief Executive Officer

Yeah. What I'm gonna do is -- Jesse's been leading that. And so, I'm gonna ask him to bring us up to speed on it.

Jesse N. Hunter -- Chief Strategy Officer, Executive Vice President, Mergers & Acquisition

Yeah, Lance. Good combination of questions there related to RxAdvance. I think as Michael referenced in his comments, I think the important starting point here is we're really investing in the future, a more transparent version of the PBM model. So, that includes making investments in the technology platform which is really where RxAdvance is today. So, we're rolling that out on a market by market basis as we reference that rollout. Has been in process since the initial investments and will initiate in the end of 2018 and continue to occur market by market through 2019. In conjunction with the new implementation of the platform, we will be moving to a different operating model which is built around transparency and more focused on cost sharing for total cost of care. So, integration of pharmacy costs with the more comprehensive total medical cost. And we do believe that over time, delivering those services more efficiently will provide both higher quality and lower cost for all of our customers, including states.

Michael Neidorff -- Chairman & Chief Executive Officer

Yeah. I think it's gonna be a gamechanger.

Lance Wilkes -- Sanford Bernstein -- Analyst

Got you. Okay. Thanks so much.

Operator

The next question will be from Dave Windley of Jefferies. Please go ahead.

Dave Windley -- Jefferies & Company -- Analyst

Hi. And thanks for taking my question. It looked to us that you added something like 110 counties in Medicare Advantage for 2019. You've got the Ascension JV, the stars that were discussed earlier in the call. Michael, I'm just interested in your longer-term view aspiration for Medicare Advantage and the business mix for Centene.

Michael Neidorff -- Chairman & Chief Executive Officer

Yeah. I think I've said when we talk about growth that I view the Medicare Advantage product as continuing to fuel our growth into the next decade. And we've been using last year, a little bit this year as the learning process and gradually expanding it. And I keep telling people it's not how fast, it's how well. Get the fundamentals right. And that's what we're doing. But I see it as a very important part of what we're doing. And you'll continue to see it. And we've built systems capability for it. And I think that's also very important, whether it be the RxAdvance, the Interpreta, things that help improve outcomes. So, we see it as a very important part going forward.

Dave Windley -- Jefferies & Company -- Analyst

Thank you. And then at the top of the call, you talked about Fidelis and the adding of case management and clinical programs and things like that that I think you've been fairly transparent about targeting their HBR as your synergy target. How quickly can those things happen? And do you think the benefits of those things are fully captured in the synergy targets that you've laid out? Or can those be exceeded over time?

Michael Neidorff -- Chairman & Chief Executive Officer

Well, I think 1) we're implementing them as we speak. And it's something that we got ready for during the extended period before we could close. So, those are the kinds of things we could talk about and did. So, I think it will. And we're very careful from the standpoint of GAAP reporting and how we do things, that from a conservative standpoint, it has to be consistent with appropriate GAAP accounting. I would always hope that we can under-promise and overdeliver a little bit. And so, we wanna keep the expectations real and the timing real. But we're very hopeful on the benefits of all this as they are. And I know they were looking forward to our systems and their capabilities. And there's things we're learning from them. So, it's really great to put two great companies together like that.

Dave Windley -- Jefferies & Company -- Analyst

All right. Great. Thank you for that.

Operator

The next question will be from Zach Sopcak of Morgan Stanley. Please go ahead.

Zack Sopcak -- Morgan Stanley -- Analyst

Hey. Good morning. Thanks for the question. I wanted to ask first about just your turnaround in MA stars and, from your perspective, what really drove the improvement? And were there any incremental investments involved to get you up for 2020?

Michael Neidorff -- Chairman & Chief Executive Officer

Well, I'll ask Kevin to jump in. But I think that's something that's a priority. And we've been focusing on it. And we're not satisfied with where we are. We're gonna keep pushing it to increase it and make it better. And that's just what happened when got involved with it. We made it a priority to make the investments to get there. And then we caught a few breaks along the way as well. So, Kevin, you wanna pitch in?

Kevin Counihan -- Senior Vice President, Products

I think Michael said it. It is clearly, a priority. Michael's made it pretty clear to us what his expectations are. We've got a strong team that's focusing on stars as well as RRA and other quality activities. So, it's about execution.

Zack Sopcak -- Morgan Stanley -- Analyst

Great. Thank you. And then just to clarify on your charitable contribution, so if I look back at your '17 and '16 numbers, you excluded them from adjusted net earnings. But now you are including it in adjusted net earnings. Going forward, should I just consider your charitable contribution to be included into it in adjusted net earnings?

Jeffrey Schwaneke -- Executive Vice President & Chief Financial Officer

Yeah. I think this goes back to what Michael had mentioned earlier was that this is really the offset for the other two items. So, to the extent that you see one like this, I think it would be disclosed similarly to what we did this quarter.

Zack Sopcak -- Morgan Stanley -- Analyst

Okay. Great. Thanks, guys.

Operator

The next question will be from Justin Lake of Wolfe Research. Please go ahead.

Justin Lake -- Wolfe Research -- Analyst

Thanks. Good morning. Just wanted to come back on the tax rate. First of all, you're saying that the one-time costs from Fidelis were deductible in the adjusted number?

Jeffrey Schwaneke -- Executive Vice President & Chief Financial Officer

Well, no. They're deductible on your tax return, right? They're deductible on your tax return at effectively, their statutory rate which is around 23 and change is what I would say. So, those are actual costs that we burden that when we file our tax return, we'll take a deduction for them.

Justin Lake -- Wolfe Research -- Analyst

Right. So, I guess what I'm just a little bit confused by if I'm understanding this correctly is you one-timed the cost of the Fidelis integration, right? Those are not included in the adjusted --

Jeffrey Schwaneke -- Executive Vice President & Chief Financial Officer

In the adjusted earnings. Right. That's exactly right. So, we had the costs that we're effectively backing those out at the applicable tax rate at which they will be on our federal tax return.

Justin Lake -- Wolfe Research -- Analyst

Right. Did you also one-time the tax benefit or the tax shield? Or are you saying you ran --

[Crosstalk]

Jeffrey Schwaneke -- Executive Vice President & Chief Financial Officer

Yeah. If you look at the press release, the tax -- it's actually they're combined. The tax benefit of those deductions is disclosed in the press release. But it's aggregated into one line.

Justin Lake -- Wolfe Research -- Analyst

Right. That's what I would have thought.

Jeffrey Schwaneke -- Executive Vice President & Chief Financial Officer

Yeah. It's the amortization and the transaction cost. The tax benefit of both of those are aggregated into one line in the press release. I think it was $110 million I think for the quarter.

Justin Lake -- Wolfe Research -- Analyst

Okay. So, the adjusted tax rate -- when we look at adjusted pre-tax income and then adjusted after-tax income and look at the tax rate, that tax rate doesn't see the benefit. It just looked somewhat lower than expected. And it implies the fourth quarter's gonna be pretty meaningful given you guys didn't change the guidance. So, I'm a little bit confused.

Jeffrey Schwaneke -- Executive Vice President & Chief Financial Officer

Yeah. It's the magnitude to some extent because GAAP net earnings were so low. But we're guiding to a GAAP number. So, if you look at the GAAP number for the quarter, it's roughly 33%. I know it has a small amount of earnings because of the significance of the adjustment, of the transaction costs. But we're guiding to a GAAP range which is -- that's why we didn't actually change the range because we're gonna get to that GAAP range. So, recalculate your math on the GAAP financial statements. And that'll give you what you're looking for.

Justin Lake -- Wolfe Research -- Analyst

Got it. So, maybe if I could just follow up, the adjusted tax rate we should be thinking about for the year? Maybe that's the right way to think about it?

Jeffrey Schwaneke -- Executive Vice President & Chief Financial Officer

Well, we don't really give an adjusted tax rate, right? What I can tell you is those items specifically, on the tax return are deductible at a statutory rate which, by the way, the difference between the statutory rate and the rate that you see on our financials has a large piece of it associated with the health insurer fee, the non-deductibility of the health insurer -- yeah. So, that is playing into the calculation which is why the math is challenging to understand the way you're trying to do it.

Justin Lake -- Wolfe Research -- Analyst

All right. Well, I'll take a harder look. I know there's a lot of moving parts in the quarter. And then just lastly on the services business, when I looked back at the third quarter last year, obviously, it looked like a pretty strong margin in the quarter on the services business in 3Q17. Obviously, it looks like it's normalizing more than anything maybe in third quarter '18. Is there a way to think about this services margin as we go forward? Is this a good run rate, this low 80s cost of services?

Jeffrey Schwaneke -- Executive Vice President & Chief Financial Officer

Yeah. I'll just give you a couple of pieces here, Justin. The services line continues to change, specifically with some of the deals that we've done last year. But the services margin that you see in the financials, it would have been a little bit lower because of the VA adjustments that we took this quarter. So, if you exclude those, it would have been lower and more consistent with last year. And that's because the third quarter has a lower cost of services ratio because that's typically when we get the information on the US and then ACO programs. And we have the reconciliation.

And that reconciliation is favorable to us. And it was favorable to us by a similar amount last year third quarter. So, it's being masked by a couple things: the winddown of the VA program. Work was at full speed until September 30th. It wound down throughout the quarter. And then these VA adjustments that we mentioned also inflated the cost of services ratio a little bit. So, I would say the mix in that line continues to change. But I would say mid- to low-80s is probably a good estimate. And that could fluctuate by quarter, depending on when we have reconciliations in a lot of these programs.

Justin Lake -- Wolfe Research -- Analyst

Thanks. Appreciate it.

Operator

The next question will be from Ana Gupte of Leerink Partners. Please go ahead.

Ana Gupte -- Leerink Partners -- Analyst

Hey. Thanks for taking the question. Couple of questions. The first one was as you think about your margins going forward, do you see any reason you couldn't expand margins? Your mix shifting to exchanges M&A. Looks like trend is weak. You have a better star rating starting 2020 investment. And comp could go up with interest rates. So, what would your normalized margin expectations be?

Michael Neidorff -- Chairman & Chief Executive Officer

Well, I think we'll talk more about margins in '19 in December. But we have clearly stated we're demonstrating our interest in expanding margins. I think that's appropriate. And the scale, the size, the activities we have going, the technology we're applying to improve medical costs over time, all will tend, Ana, to give us the ability to expand margins. And we can get more specific on our December call.

Ana Gupte -- Leerink Partners -- Analyst

Okay. Great. Thanks. Thanks for that. That's what I would have thought. The second was on exchanges for 2019. What are you expecting given on the subsidized book of business overall, just for the exchanges? What types of assumptions are you all making? And is your growth likely to come from secular growth? Or are you thinking of it more from just your geographic expansions and share shifting within your existing markets or a bit of both?

Michael Neidorff -- Chairman & Chief Executive Officer

Well, I'm gonna ask you to stick with us in terms of not getting too granular on '19 until December. That's a pattern that's well-established over a lot of years. I will say that from the standpoint, our focus continues to be on the supplements and that portion that has the premium supplement. And we see that continuing going into '19. So, it's gonna be business as usual for us. And we're comfortable with the attrition we had this year relative to previous years, the reenrollment we had. Everything says it's very much business as usual. I think you heard Jeff comment earlier that, from a margin standpoint of business, we see maintaining that. So, it's a business we understand. And we've developed systems to continue to build it and maintain it.

Ana Gupte -- Leerink Partners -- Analyst

Okay. Great. Thanks. One final one. Any update at all on the Texas RFP? I believe the announcement --

[Crosstalk]

Michael Neidorff -- Chairman & Chief Executive Officer

I think Chris, he just gave a little detail. You wanna repeat that?

Chris Koster -- Senior Vice President--Corporate Services

Sure. I'd be happy to, Michael. Both of the RFPs that were canceled have been reissued and are due in mid-November. The awards will be announced, we believe, in Q2 and Q3 of 2019. Projected start dates for STAR+PLUS will be 6/1 of 2020 and CHIP and STAR RFP start date will be 9/1 of 2020.

Ana Gupte -- Leerink Partners -- Analyst

Very helpful. Thanks for the questions.

Operator

The next question will be from Gary Taylor of JPMorgan. Please go ahead.

Gary Taylor -- JPMorgan Chase & Co. -- Analyst

Hi. Good morning. Just a couple questions. And just sorry to go back to the tax rate again. I think there's a perception that the quarter did benefit materially from a lower tax rate. And I followed your discussion, but the non-deductibility of the HIF actually serves to increase the effective tax rate, right? So, eight over 24 on a GAAP basis is 33. But including non-deductibility of the HIF, eight over a 202 number is a 4% number. So, it does look like there was a tax benefit in the quarter different from what you've seen in the first half. And Fidelis would just be a few hundred basis points I think. So, do you follow where I'm going? And where am I wrong on looking at that?

Jeffrey Schwaneke -- Executive Vice President & Chief Financial Officer

Yeah. I can understand where you're coming from. I guess what I would say is this is nothing different from what we've already had in our guidance from when we had these costs associated with the Fidelis transaction. So, Fidelis lower tax rate not subject to the health insurer fee. You're pulling one item or two items, putting them down below the line, and you're pulling them out at a statutory rate versus the annual effective rate which include the non-deductibility of the health insurer fee. So, I think it's more complicated than that. But we certainly don't view that there was any tax benefit in the quarter. This has been our guidance for -- we're guiding to an adjusted number on a full-year basis. And we don't see any tax benefit to the quarter the way we've seen it since these costs associated with the regulatory undertakings were wore down.

Gary Taylor -- JPMorgan Chase & Co. -- Analyst

Sure. Maybe another way just to look at the quarter -- if we look at pre-tax earnings, we're up $262 million in the first quarter, $89 in the second quarter, adjusted pre-tax earnings up about $110 this quarter. But Fidelis, if it ran a 4% margin would have been over $100 million of that. So, it does look like the pre-tax earnings growth from the rest of Centene slowed this quarter. Is that something that you'd acknowledge? Does that make sense?

Jeffrey Schwaneke -- Executive Vice President & Chief Financial Officer

So, you're adding back the -- which pieces are you adding back? The merger costs and the amortization? Or just the merger costs?

Gary Taylor -- JPMorgan Chase & Co. -- Analyst

Yeah. Both. It looks like the adjusted pre-tax would be $490 which is up $110 million versus the prior year which I think was $380.

Jeffrey Schwaneke -- Executive Vice President & Chief Financial Officer

Yeah. I think the piece you may be missing is the exchange business and how the profitability of the exchange business works. Remember, it makes a lot. And the other thing is, remember, the enrollment dates were accelerated this year. So, the exchange business profile is actually a lot different. And it's a more meaningful piece of the business.

Gary Taylor -- JPMorgan Chase & Co. -- Analyst

And it's bigger. That makes some sense. Last question. The specialty operating income was a $51 million loss. It was $102 million year-over-year. You called out the VA termination costs as the major factor there. But it still would have been about $40 million of OI versus $102. And you said other federal contracts and then some carved in of behavioral. Is there any more color you could tell us on just the specialty operating income and where there might be some margin pressure?

Jeffrey Schwaneke -- Executive Vice President & Chief Financial Officer

Yeah. Actually, I think some of this is related to the integration of the physical and behavioral health. So, some of those behavioral health revenues and margin is now embedded within our health plans because we've moved to an integrated approach.

Gary Taylor -- JPMorgan Chase & Co. -- Analyst

Okay. Thank you.

Operator

The next question will be from A J. Rice of Credit Suisse. Please go ahead.

A J. Rice -- Credit Suisse -- Analyst

Hi, everybody. First of all, maybe a numbers question. And then one other broader question. In the MLR, when you ex out for the unusual items, you're up even per 70 basis points year-to-year. And I think in the prepared remarks, you said a lot of that was due to the HIF and the health insurance exchanges. It seemed like you got -- and maybe I'm wrong -- but four major things: your core Medicaid, your Fidelis, your HICS, and then the Hilton impact. Any way to parse out where you're seeing improvement year-to-year and MBR and where, if there is any place, where there's pressure?

Jeffrey Schwaneke -- Executive Vice President & Chief Financial Officer

Yeah. I think those are the items that we mentioned. As we look at the business, I think that the Medicaid business was pretty consistent. That's why we didn't highlight it as a driver of the HBR metrics. That's why we highlighted -- obviously, Fidelis coming in would be an increase to the HBR. And the marketplace besides the business is a decrease on a year-over-year basis. So, we highlighted what I would call the drivers for the quarter --

[Crosstalk]

Jeffrey Schwaneke -- Executive Vice President & Chief Financial Officer

-- year-over-year, by the way. Just making sure --

A J. Rice -- Credit Suisse -- Analyst

Yeah. Right. Yes. Your HICS HBR, was it significantly better this year than last year?

Jeffrey Schwaneke -- Executive Vice President & Chief Financial Officer

No. I think it was in line with our expectations. I think it's the magnitude of the business. Obviously, it's a lot larger.

A J. Rice -- Credit Suisse -- Analyst

Right. Okay. So, it's mainly just the growth as opposed to the actual absolute ratio.

Jeffrey Schwaneke -- Executive Vice President & Chief Financial Officer

Yeah. It's the growth on the business.

A J. Rice -- Credit Suisse -- Analyst

Okay. And then my bigger picture question is obviously, with Fidelis now done, your balance sheet still within the range that you guys historically have targeted I would say. And acquisitions have been a big part of the growth story for the last couple years, even bigger acquisitions. What's the appetite of the company to look at additional deals? Do you need some time where you're settling in with Fidelis? Or you've done a couple of big ones in pretty rapid succession. Are you open to other things?

Michael Neidorff -- Chairman & Chief Executive Officer

Well, I think the Fidelis integration, it's well-done. I'll put it in this context. We know that the closing got delayed which gave us a lot of time to prepare for a very effective integration. So, it's what it needs to be. And it's appropriate. So, if an opportunity came along, there is no reason for us not to do it. We have a strong balance sheet. We have a lot of capability. And we're in a position to do it. But it has to be the right time, the right place, and be first, financially effective and then strategically [audio cuts out] I'm not gonna --

A J. Rice -- Credit Suisse -- Analyst

Would it be reasonable to think that Medicare, given your focus on growing that, is a primary place to look? Or are there other areas you'd highlight?

Michael Neidorff -- Chairman & Chief Executive Officer

Well, we're looking very broadly. You've seen us with a focus on technology. And there's some really effective technology that's going to be providing a lot of significant dividends and already are. Our technology committee meeting yesterday demonstrated that we're moving more and more to a leadership position there. So, there's a lot of very good opportunities there that -- stay tuned.

A J. Rice -- Credit Suisse -- Analyst

Okay. Thanks a lot.

Operator

And ladies and gentlemen, that will conclude our question and answer session. I would like to hand the conference back over to Mr. Neidorff for his closing remarks.

Michael Neidorff -- Chairman & Chief Executive Officer

Well, I wanna thank you for all your questions. I hope it clarifies some of the outstanding issues because we -- I believe we had a strong quarter and the matrix were right. And what people refer to as noise and puts and takes, that's normal cost of business in the company on the side. And what's important to us is that the fundamentals are strong, it's headed the right way. And we're looking forward to the fourth quarter. And we're looking forward to December. We can tell you how strong '19's gonna be. So, we thank you very much for your time, attention, and great questions. Have a good day.

Operator

Thank you, sir. Ladies and gentlemen, the conference has concluded. Thank you for attending today's presentation. At this time, you may disconnect.
Duration: 76 minutes

Call participants:

Edmund Kroll -- Senior Vice President, Finance & Investor Relations

Michael Neidorff -- Chairman & Chief Executive Officer

Jeffrey Schwaneke -- Executive Vice President & Chief Financial Officer

Kevin Counihan -- Senior Vice President, Products

Chris Koster -- Senior Vice President--Corporate Services

Jesse N. Hunter -- Chief Strategy Officer, Executive Vice President, Mergers & Acquisition

Kevin Fischbeck -- Bank of America Merrill Lynch -- Analyst

Joshua Raskin -- Nephron Research -- Analyst

Stephen Valiquette -- Barclays -- Analyst

Ralph Jacoby -- Citi -- Analyst

Stephen Tanal -- Goldman Sachs -- Analyst

Sarah James -- Piper Jaffray -- Analyst

Matthew Borsch -- BMO Capital Markets -- Analyst

Peter Costa -- Wells Fargo Securities -- Analyst

Michael Newshel -- Evercore ISI -- Analyst

Lance Wilkes -- Sanford Bernstein -- Analyst

Dave Windley -- Jefferies & Company -- Analyst

Zack Sopcak -- Morgan Stanley -- Analyst

Justin Lake -- Wolfe Research -- Analyst

Ana Gupte -- Leerink Partners -- Analyst

Gary Taylor -- JPMorgan Chase & Co. -- Analyst

A J. Rice -- Credit Suisse -- Analyst

More CNC analysis

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