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 I, Item 1A."Risk Factors" of this Form 10-K.

                                    OVERVIEW

Our financial performance for 2012 is summarized as follows:

•         Year-end at-risk managed care membership of 2,560,300, an increase of
          744,300 members, or 41.0% year over year.


•         Premium and service revenues of $8.2 billion, representing 59.0% growth
          year over year.

• Health Benefits Ratio of 91.6%, compared to 85.2% in 2011.

• General and Administrative expense ratio of 8.6%, compared to 11.3% in 2011.

• Total operating cash flows of $278.7 million.

• Diluted net earnings per share of $0.03.

Included in the year ended December 31, 2012, results are the following significant items: (1) a $142.2 million pre-tax operating loss in our Kentucky health plan, including a $41.5 million pre-tax premium deficiency reserve for our Kentucky health plan contract covering the period from January 1, 2013 through July 5, 2013; (2) a pre-tax impairment loss of $28.0 million for the write down of goodwill and intangible assets in the Celtic reporting unit; (3) a $19.4 million pre-tax gain on the sale of investments; and (4) a $5.8 million state income tax benefit. These items are discussed in further detail below.

The following items contributed to our revenue and membership growth over the last two years:

•         Arizona. In October 2011, Bridgeway Health Solutions began operating
          under an expanded contract to deliver LTC services in three geographic
          service areas of Arizona.



•         Illinois. In May 2011, our subsidiary, IlliniCare Health Plan, began
          providing managed care services for older adults and adults with
          disabilities under the Integrated Care Program in six counties.



•         Kentucky. In November 2011, our subsidiary, Kentucky Spirit Health
          Plan, began providing managed care services under a contract with the
          Kentucky Finance and Administration Cabinet to serve Medicaid
          beneficiaries.



•         Louisiana. In February 2012, our joint venture subsidiary, Louisiana
          Healthcare Connections (LHC), began operating under a new contract in
          Louisiana to provide healthcare services to Medicaid enrollees
          participating in the Bayou Health program. LHC completed its
          three-phase membership roll-out for the three geographical service
          areas during the second quarter of 2012. In November 2012, the covered
          services provided by LHC expanded to include pharmacy benefits. During
          the fourth quarter of 2012, we acquired the ownership interest of our
          joint venture partner, bringing our ownership to 100%.



•         Mississippi. In December 2012, our subsidiary, Magnolia Health Plan,
          began operating under an expanded contract to provide managed care
          services statewide to Medicaid members as well as providing behavioral
          health services.



•         Missouri. In July 2012, our joint venture subsidiary, Home State Health
          Plan, began operating under a new contract with the Office of
          Administration for Missouri to serve Medicaid beneficiaries in the
          Eastern, Central, and Western Managed Care Regions of the state.



•         Ohio. In October 2011, Buckeye Community Health Plan, or Buckeye, began
          operating under an amended contract with the Ohio Department of Job and
          Family Services which included the management of the pharmacy benefits
          for Buckeye's members.

•         Texas. In February 2011, we began operating under an additional
          STAR+PLUS ABD contract in the Dallas service area and in September
          2011, we added additional membership through the contiguous county
          expansion. In March 2012, the Company began operating under contracts
          in Texas that expanded its operations through new service areas
          including the 10 county Hidalgo Service Area and the Medicaid Rural
          Service Areas of West Texas, Central Texas and North-East Texas, as
          well as the addition of STAR+PLUS in the Lubbock Service Area. The
          expansion also added the management of outpatient pharmacy benefits in
          all service areas and products, as well as inpatient facility services
          for the STAR+PLUS program.



•         Washington. In July 2012, we began operating under a new contract with
          the Washington Health Care Authority to serve Medicaid beneficiaries in
          the state, operating as Coordinated Care.

We expect the following items to contribute to our future growth potential:

•         We expect to realize the full year benefit in 2013 of business
          commenced during 2012 in Louisiana, Mississippi, Missouri, Texas and
          Washington as discussed above.



•         In January 2013, our Kansas subsidiary, Sunflower State Health Plan,
          began operating under a statewide contract to serve members in the
          state's KanCare program, which includes TANF, ABD (dual and non-dual),
          foster care, LTC and CHIP beneficiaries.



•         In January 2013, our Florida subsidiary, Sunshine State Health Plan,
          was notified by the Florida Agency for Health Care Administration it
          has been recommended for a contract award in 10 of 11 regions of the
          Medicaid Managed Care Long Term Care program. Upon execution of a
          contract and regulatory approval, enrollment will be implemented by
          region, beginning in August 2013 and continuing through March 2014.



•         In January 2013, we signed a definitive agreement to acquire
          AcariaHealth, a comprehensive specialty pharmacy company, for $152.0
          million. The transaction consideration is anticipated to be financed
          through a combination of Centene common stock, cash on hand and
          existing credit facilities. The acquisition is expected to close in the
          first quarter of 2013, subject to regulatory approval and other
          customary conditions.



•         In November 2012, our Illinois subsidiary, IlliniCare Health Plan, was
          selected to serve dual-eligible members in Cook, DuPage, Lake, Kane,
          Kankakee and Will counties (Greater Chicago region) as part of the
          Illinois Medicare-Medicaid Alignment Initiative. Enrollment is expected
          to begin in late 2013.



•         In August 2012, we were notified by the Ohio Department of Job and
          Family Services (ODJFS) that Buckeye Community Health Plan (Buckeye),
          our Ohio subsidiary, was selected to serve Medicaid members in a
          dual-eligible demonstration program in three of Ohio's pre-determined
          seven regions: Northeast (Cleveland), Northwest (Toledo) and West
          Central (Dayton). This three-year program, which is part of the state
          of Ohio's Integrated Care Delivery System (ICDS) expansion, will serve
          those who have both Medicare and Medicaid eligibility. Enrollment is
          expected to begin in the second half of 2013.



•         In June 2012, we were notified by the ODJFS that Buckeye was selected
          to be awarded a new and expanded contract to serve Medicaid members in
          Ohio. Under the new state contract, Buckeye will operate statewide
          through Ohio's three newly aligned regions (West, Central/Southeast,
          and Northeast). Enrollment is expected to begin in July 2013.



•         In May 2012, we announced that the Governor and Executive Council of
          New Hampshire had given approval for the Department of Health and Human
          Services to contract with our subsidiary, Granite State Health Plan, to
          serve Medicaid beneficiaries in New Hampshire. Operations are currently
          expected to commence in the second half of 2013.

In October 2012, we announced that our subsidiary, Kentucky Spirit Health Plan (Kentucky Spirit), notified the Cabinet for Health and Family Services that it is exercising a contractual right that it believes allows Kentucky Spirit to terminate its Medicaid managed care contract with the Commonwealth of Kentucky effective July 5, 2013. Kentucky Spirit has also filed a formal dispute with the Cabinet for damages incurred under the contract. That dispute is currently on appeal to the Finance and Administration Cabinet. In addition, we have filed a lawsuit in Franklin Circuit Court against the Commonwealth of Kentucky seeking declaratory relief as a result of the Commonwealth's failure to completely and accurately disclose material information. On January 23, 2013, the Franklin Circuit Court denied the Commonwealth's Motion to Dismiss and retained jurisdiction of the lawsuit, but stayed the proceedings pending a formal, written determination by the Finance and Administration Cabinet.

                                   MEMBERSHIP

From December 31, 2010 to December 31, 2012, we increased our at-risk managed
care membership by 1,026,800, or 67.0%. The following table sets forth our
membership by state for our managed care organizations:
                                     December 31,
                            2012         2011         2010
Arizona                     23,500       23,700       22,400
Florida                    214,000      198,300      194,900
Georgia                    313,700      298,200      305,800
Illinois                    18,000       16,300            -
Indiana                    204,000      206,900      215,800
Kentucky                   135,800      180,700            -
Louisiana                  165,600            -            -
Massachusetts               21,500       35,700       36,200
Mississippi                 77,200       31,600            -
Missouri                    59,600            -            -
Ohio                       157,800      159,900      160,100
South Carolina              90,100       82,900       90,300
Texas                      949,900      503,800      433,100
Washington                  57,200            -            -
Wisconsin                   72,400       78,000       74,900

The following table sets forth our membership by line of business:

                                    December 31,
                            2012        2011         2010
Medicaid                 1,977,200    1,336,800   1,177,100
CHIP & Foster Care         237,700      213,900     210,500
ABD & Medicare             307,800      218,000     104,600
Hybrid Programs             29,100       40,500      36,200
LTC                          8,500        6,800       5,100

The following table identifies the Company's dual eligible membership by line of business. The membership tables above include these members.

          2012      2011     2010
ABD      72,800    45,400   22,200
LTC       7,700     6,200    4,600
Medicare  5,100     3,200    2,700
Total    85,600    54,800   29,500

The following table provides supplemental information of other membership categories:

                                                     December 31,
                                       2012              2011              2010
Cenpatico Behavioral Health:
Arizona                                 157,900             168,900           174,600
Kansas (1)                               49,800              46,200            39,200

(1) Effective January 1, 2013, Cenpatico Behavioral Health's contract in Kansas was discontinued and members began receiving benefits under the statewide KanCare program.

From December 31, 2011 to December 31, 2012 our membership increased as a result of:
• operations commenced in Louisiana, Missouri and Washington

• contract awards and geographic expansion in Texas

From December 31, 2010 to December 31, 2011 our membership increased as a result of:
• operations commenced in Illinois, Kentucky and Mississippi

• contract awards and geographic expansion in Texas

• expanded contract awards in Arizona

The following discussion and analysis is based on our consolidated statements of operations, which reflect our results of operations for the years ended December 31, 2012, 2011 and 2010, prepared in accordance with generally accepted accounting principles in the United States.

Summarized comparative financial data for the years ended December 31, 2012, 2011 and 2010 is as follows ($ in millions):

                                                                              % Change         % Change
                                    2012          2011          2010         2011-2012        2010-2011
Premium                          $ 8,126.2     $ 5,077.2     $ 4,192.2         60.1  %          21.1  %
Service                              112.7         103.8          91.6          8.7  %          13.2  %
Premium and service revenues       8,238.9       5,181.0       4,283.8         59.0  %          20.9  %
Premium tax                          428.7         159.6         164.5        168.6  %          (3.0 )%
Total revenues                     8,667.6       5,340.6       4,448.3         62.3  %          20.1  %
Medical costs                      7,446.0       4,324.8       3,584.5         72.2  %          20.7  %
Cost of services                      87.7          78.1          63.9         12.3  %          22.2  %
General and administrative
expenses                             704.6         587.0         477.7         20.0  %          22.9  %
Premium tax expense                  428.4         160.4         165.1        167.1  %          (2.9 )%
Impairment loss                       28.0             -             -            -  %             -  %
Earnings (loss) from operations      (27.1 )       190.3         157.1       (114.2 )%          21.2  %
Investment and other income, net      15.5         (15.4 )        (2.8 )     (200.4 )%         454.0  %
Earnings (loss) from continuing
operations, before income tax
expense                              (11.6 )       174.9         154.3       (106.6 )%          13.4  %
Income tax expense (benefit)          (0.3 )        66.5          59.9       (100.5 )%          11.1  %
Earnings (loss) from continuing
operations, net of income tax        (11.3 )       108.4          94.4       (110.4 )%          14.8  %
Discontinued operations, net of
income tax expense of $0, $0,
and $4.4 respectively                    -             -           3.9            -  %        (100.0 )%
Net earnings (loss)                  (11.3 )       108.4          98.3       (110.4 )%          10.3  %
Noncontrolling interest              (13.2 )        (2.8 )         3.5        360.7  %        (183.1 )%
Net earnings attributable to
Centene Corporation              $     1.9     $   111.2     $    94.8        (98.3 )%          17.3  %

Amounts attributable to Centene Corporation common shareholders:
Earnings from continuing
operations, net of income tax
expense $ 1.9 $ 111.2 $ 90.9 (98.3 )% 22.3 % Discontinued operations, net of
income tax expense - - 3.9 - (100.0 )% Net earnings $ 1.9 $ 111.2 $ 94.8 (98.3 )% 17.3 %

Diluted earnings per common share attributable to Centene Corporation:
Continuing operations $ 0.03 $ 2.12 $ 1.80 (98.6 )% 17.8 % Discontinued operations - - 0.08 - % (100.0 )% Total diluted earnings per
common share $ 0.03 $ 2.12 $ 1.88 (98.6 )% 12.8 %

Revenues and Revenue Recognition

Our health plans generate revenues primarily from premiums we receive from the states in which we operate. We generally receive a fixed premium per member per month pursuant to our state contracts. We generally receive premium payments and recognize premium revenue during the month in which we are obligated to provide services to our members. In some instances, our base premiums are subject to an adjustment, or risk score, based on the acuity of our membership. Generally, the risk score is determined by the state analyzing submissions of processed claims data to determine the acuity of our membership relative to the entire state's membership. Some contracts allow for additional premiums associated with certain supplemental services provided such as maternity deliveries. For performance-based contracts, we do not recognize revenue subject to refund until data is sufficient to measure performance.

Revenues are recorded based on membership and eligibility data provided by the states, which is adjusted on a monthly basis by the states for retroactive additions or deletions to membership data. These eligibility adjustments are estimated monthly and subsequently adjusted in the period known. We continuously review and update those estimates as new information becomes available. It is possible that new information could require us to make additional adjustments, which could be significant, to these estimates.

Our specialty services generate revenues under contracts with state programs, healthcare organizations, and other commercial organizations, as well as from our own subsidiaries. Revenues are recognized when the related services are provided or as ratably earned over the covered period of services.

Premium and service revenues collected in advance are recorded as unearned revenue. Premium and service revenues due to us are recorded as premium and related receivables and are recorded net of an allowance based on historical trends and our management's judgment on the collectibility of these accounts. As we generally receive payments during the month in which services are provided, the allowance is typically not significant in comparison to total revenues and does not have a material impact on the presentation of our financial condition or results of operations.

Some states enact premium taxes, similar assessments and provider and hospital pass-through payments, collectively, premium taxes, and these taxes are recorded as a component of revenues as well as operating expenses. We exclude premium taxes from our key ratios as we believe the premium tax is a pass-through of costs and not indicative of our operating performance.

The Centers for Medicare and Medicaid Services (CMS) deploys a risk adjustment model that retroactively apportions Medicare premiums paid according to health severity and certain demographic factors. The model pays more for members whose medical history indicates they have certain medical conditions. Under this risk adjustment methodology, CMS calculates the risk adjusted premium payment using diagnosis data from hospital inpatient, hospital outpatient, physician treatment settings as well as prescription drug events. The Company estimates the amount of risk adjustment based upon the diagnosis and pharmacy data submitted and expected to be submitted to CMS and records revenues on a risk adjusted basis.

Operating Expenses

Medical Costs

Medical costs include payments to physicians, hospitals, and other providers for healthcare and specialty services claims. Medical costs also include estimates of medical expenses incurred but not yet reported, or IBNR, and estimates of the cost to process unpaid claims. We use our judgment to determine the assumptions to be used in the calculation of the required IBNR estimate. The assumptions we consider include, without limitation, claims receipt and payment experience (and variations in that experience), changes in membership, provider billing practices, healthcare service utilization trends, cost trends, product mix, seasonality, prior authorization of medical services, benefit changes, known outbreaks of disease or increased incidence of illness such as influenza, provider contract changes, changes to Medicaid fee schedules, and the incidence of high dollar or catastrophic claims.

Our development of the IBNR estimate is a continuous process which we monitor and refine on a monthly basis as claims receipts and payment information becomes available. As more complete information becomes available, we adjust the amount of the estimate, and include the changes in estimates in medical expense in the period in which the changes are identified.

Additionally, we contract with independent actuaries to review our estimates on a quarterly basis. The independent actuaries provide us with a review letter that includes the results of their analysis of our medical claims liability. We do not solely rely on their report to adjust our claims liability. We utilize their calculation of our claims liability only as additional information, together with management's judgment, to determine the assumptions to be used in the calculation of our liability for medical costs.

While we believe our IBNR estimate is appropriate, it is possible future events could require us to make significant adjustments for revisions to these estimates. Accordingly, we cannot assure you that medical costs will not materially differ from our estimates.

Results of operations depend on our ability to manage expenses associated with health benefits and to accurately predict costs incurred. The health benefits ratio, or HBR, represents medical costs as a percentage of premium revenues (excluding premium taxes) and reflects the direct relationship between the premium received and the medical services provided.

Cost of Services

Cost of services expense includes the pharmaceutical costs associated with our pharmacy benefit manager's external revenues and certain direct costs to support the functions responsible for generation of our service revenues. These expenses consist of the salaries and wages of the professionals who provide the services and associated expenses.

General and Administrative Expenses

General and administrative expenses, or G&A, primarily reflect wages and benefits, including stock compensation expense, and other administrative costs associated with our health plans, specialty companies and centralized functions that support all of our business units. Our major centralized functions are finance, information systems and claims processing. G&A expenses also include business expansion costs, such as wages and benefits for administrative personnel, contracting costs, and information technology buildouts, incurred prior to the commencement of a new contract or health plan.

The G&A expense ratio represents G&A expenses as a percentage of premium and service revenues, and reflects the relationship between revenues earned and the costs necessary to earn those revenues.

Other Income (Expense)

Other income (expense) consists principally of investment income from cash and investments, earnings in equity method investments, and interest expense on debt.

Discontinued Operations

In November 2008, we announced our intention to sell certain assets of UHP, our New Jersey health plan. Accordingly, the results of operations for UHP are reported as discontinued operations for all periods presented. We completed the sale in the first quarter of 2010.

Year Ended December 31, 2012 Compared to Year Ended December 31, 2011

Premium and Service Revenues

Premium and service revenues increased 59.0% in the year ended December 31, 2012 over the corresponding period in 2011 as a result of the additional revenue from our Illinois, Kentucky, Louisiana, Mississippi, Missouri and Washington contracts, Texas and Arizona expansions, pharmacy carve-ins in Texas and Ohio, and organic membership growth. During the year ended December 31, 2012, we received premium rate adjustments which yielded a net 2.5% composite increase across all of our markets.

The State of Georgia maintains a reconciliation process associated with membership eligibility and has continued to reconcile membership from previous periods as far back as 2006. The amount of any reduction to revenue related to this review is subject to consideration of rate adequacy calculations, as part of actuarially sound standards, for the appropriate periods. We have estimated the revenue impact related to reconciliation adjustments to the retroactive eligibility reductions due to the state and have adjusted our accrual in our consolidated financial statements. There can be no assurance that future adjustment of amounts related to membership reconciliations will not have a material adverse effect on the Company.

Premium Tax Revenue

Premium tax revenue increased 168.6% in the year ended December 31, 2012 over the corresponding period in 2011 as a result of one of our states paying us approximately $180 million during the year to immediately pass through to specified providers.

Operating Expenses

Medical Costs

The table below depicts the HBR for our membership by member category for the
year ended December 31:

                    2012     2011
Medicaid and CHIP  91.2 %   82.4 %
ABD and Medicare   92.1     89.8

The consolidated HBR for the year ended December 31, 2012, of 91.6% was an increase of 640 basis points over the comparable period in 2011. The increase compared to last year primarily reflects (1) the continued high level of medical costs in Kentucky including a $41.5 million premium deficiency reserve for for the contract period January 1, 2013 through July 5, 2013, (2) a high level of medical costs in the March 1, 2012 expansion areas in Texas, (3) a high level of medical costs in our individual health business, especially for policies issued . . .