Dive Brief:
Medicaid payment rates have yet to catch up with rising costs in the safety-net insurance program. However, conservative planning — along with business growth — yielded a surprisingly positive third quarter for health insurer Molina, according to analysts.
Molina beat Wall Street expectations for earnings and revenue with a topline of $10.3 billion in the quarter, up 21% year over year, thanks in part to higher premiums. Profit of $326 million was up 33% year over year.
Molina appears to be “beating the odds again” in Medicaid, Jefferies analyst David Windley said in a note on the payer’s results.
Dive Insight:
Insurers that contract with states to manage Medicaid beneficiaries’ care have been struggling with a continued timing mismatch between the health of those members and states updating their rates.
States normally use historic care activity data to set payment levels, which works when members’ health needs stay relatively stable. However, Medicaid rolls have undergone significant turmoil since states began rechecking members’ eligibility for the program last spring. Millions of Americans have been kicked off the coverage since.
As a result, insurers have lost members, changing the makeup of their risk pools. The members remaining on Medicaid are more likely to be sick and use more medical care. Though many states have worked to increase their rates, those adjustments haven’t kept pace with increasing costs, according to insurer executives.
“The short-term disparity between rates and medical cost trend may have reached its widest point in the third quarter,” Molina CEO Joe Zubretsky told investors on a Thursday morning call.
However, Molina seems less affected by the mismatch than some of its peers, according to analysts. Elevance lowered its full-year earnings guidance after the third quarter, citing increased costs in Medicaid not covered by state payment rates. The insurer’s Medicaid cost trend is currently running at three to five times the historical average, according to its chief executive.
UnitedHealth also called out the trend as an ongoing cost pressure.
Molina’s Medicaid utilization trend is running higher, at roughly 6%, compared to the insurer’s original guidance of 3%, Zubretsky said.
The higher utilization drove Molina’s Medicaid medical loss ratio up to 90.5% in the quarter, up from 88.5% same time last year, and was particularly evident in behavioral healthcare, long-term services and supports, and demand for specialty drugs like GLP-1s, executives said.
Molina has heavy exposure to problems in Medicaid, given the business accounts for 80% of the insurer’s premium revenue and 70% of its medical margin. However, executives said they were able to keep the mismatch from trickling down to Molina’s bottom line due to risk corridors that absorb the worst of unexpected cost trends.
Molina is also “cautiously optimistic” about states upping their rates after seeing several positive off-cycle adjustments in the third quarter, along with early draft rates for next year, Zubretsky said.
Yet, “looking forward to 2025, the progression of rates and medical cost trend is not entirely clear,” the CEO added.
Molina’s Medicaid MLR was also driven higher by California retroactively lowering the insurer’s payment rates for the entire calendar year, according to CFO Mark Keim.
“We are still working with the state to understand the rationale for this rate adjustment. It’s highly unusual for a state to retroactively reduce rates,” Keim said. “All of our other known and expected rate actions are positive.”
Overall, Molina reported an MLR of 89.2%, up from 88.7% same time last year. Along with Medicaid pressures, Molina attributed the higher MLR to elevated utilization in Medicare Advantage plans for seniors. However, Molina spent notably less on members in Affordable Care Act plans — a small but growing segment of the insurer’s business — which brought down the MLR.
The insurer is also continuing to focus on member expansion among people dually eligible for both Medicare and Medicaid, an area that can be quite lucrative for payers.
Starting next year, Molina will no longer offer Medicare Advantage prescription drug plans in 13 states, Zubretsky said. The adjustment is meant to help the insurer “strategically focus” on its dual-eligible populations — where Molina increased its county footprint by 23% for 2025.
It’s a significant growth opportunity thanks to a new CMS rule finalized in April meant to streamline continuity of care for dual-eligible individuals, many of whom currently receive Medicare and Medicaid benefits from two different insurers.
The rule essentially will move those unaligned members to the Dual Special Needs Plan (D-SNP) plan run by their Medicaid insurer, benefiting insurers with broad Medicaid footprints like Molina.
“Recall the new CMS final rule on integration positions us well as a major Medicaid player,” Zubretsky said.
Molina also filed “competitive” MA bids for 2025, with the goal of growing in underpenetrated markets, according to the CEO. Molina could be looking to capitalize on rollbacks from major MA insurers like UnitedHealthcare, Humana and Aetna, which have struggled to right-size their MA businesses as government reimbursement falls and medical costs rise.
Molina ended the quarter with more than 4.9 million members in Medicaid, 247,000 in Medicare and 410,000 in ACA plans.
The California-based payer reaffirmed its full-year guidance following the results.
