Dive Brief:
Molina lowered its 2025 earnings guidance for the second time in two weeks, after posting second-quarter results that were dinged by across-the-board medical cost pressures.
Molina said the drop was primarily due to higher spending on members in its Affordable Care Act plans — the main culprit also identified by other insurers struggling with a dogged increase in costs, including Elevance and Centene.
All told, Molina’s earnings outlook is now 22% lower than it was at the outset of the year.
Dive Insight:
Molina offers health insurance for 5.7 million people in Medicaid, Medicare and the Affordable Care Act exchanges — tricky businesses to be in right now, given pernicious cost pressures hitting government programs. The insurer grew its membership through acquisitions, contract wins and organic growth coming into 2025 despite early signs of higher spending, a decision that may be coming back to bite it.
On Wednesday, Molina reduced its 2025 adjusted earnings per share guidance to “no less than” $19 from the previous midpoint of $22, which was already down from Molina’s original $24.50 target.
Molina first slashed its guidance earlier this month following a similar move from rival Centene.
“We were skeptical that the [earnings per share] cut to $22 was enough; that view is validated,” Jefferies analyst David Windley wrote in a Wednesday note on Molina’s results.
Molina’s revenue guidance was unchanged. But the California-based insurer’s expectations for its full-year medical loss ratio — an important marker of how much it’s spending on patient care, versus retaining in profits — rose across all three lines of business.
The hike in predicted costs was highest in the ACA exchanges, a business line that’s stayed relatively steady coming out of the coronavirus pandemic despite flagging margins in other government programs. But the marketplaces are a rising concern, especially due to Molina’s recent growth in ACA members. Molina ended the second quarter with 690,000 marketplace enrollees, up 71% from the end of 2024.
More members isn’t necessarily good if those members come with higher costs — and these have, executives said during a Thursday morning call with investors. The problem isn’t unique to Molina but seems to reflect a market-wide increase in enrollees’ health needs, a trend that’s outpacing checks and balances against spiking costs in the ACA risk pools.
“While risk adjustment might normally offset higher observed trend, our market indicators clearly detect that the overall market risk pool is also significantly elevated, reducing the value of the natural hedging effect of risk adjustment,” CFO Mark Keim said on the call.
Data that Molina received from actuarial firm Wakely in late June confirms that “national market risk pools are trending higher,” Keim said.
“[Molina’s] outcome reinforces a deteriorating market morbidity,” Windley wrote. “No [exchange] plan is safe, basically.”
The safety-net Medicaid program is also an ongoing source of cost pressure, due to a mismatch between the health of its members and states updating their rates to keep up.
Medicaid beneficiaries are using more behavioral health services, primary and follow-up specialty care and high-cost drugs, executives said. More members are also being admitted to the hospital for complex health episodes, according to CEO Joe Zubretsky.
“This is the fourth consecutive quarter we have observed some combination of these trends. The magnitude and persistence of these medical cost increases are unprecedented,” Zubretsky said.
Molina is generally able to keep its Medicaid spending from spiking due to risk-sharing arrangements it has in place called risk corridors. But “risk corridor protection at this point is very limited and isolated,” the CEO said.
Overall in the second quarter, Molina reported revenue of $11.4 billion, up 16% year over year and above analyst expectations.
The payer’s net income of $255 million was down 15% compared to the prior-year quarter.
Molina plans to raise prices for its ACA plans next year to recapture margins. As for Medicaid, the payer is hopeful that states will continue raising their payment rates to account for elevated trend.
But Molina’s path forward is complicated by policy changes out of Washington that will cause significant volatility for Medicaid and ACA plans starting next year, leading Zubretsky to call the current moment a “season of great uncertainty.”
Millions of Americans are expected to lose coverage from Republicans’ recently passed tax and policy law overhauling federal healthcare programs. The so-called “Big Beautiful Bill” includes the largest cut to Medicaid in the program’s history and a significant rollback of the ACA that are expected to decimate U.S. insurance coverage gains and cut into payers’ earnings.
During the call, Zubretsky attempted to soothe investors that changes to Medicaid, including the imposition of work requirements, should be “modest and gradual,” allowing plans the opportunity to adjust.
Coverage losses from work requirements shouldn’t be dramatic, as two-thirds of Molina’s 1.3 million Medicaid expansion members already work in some capacity, while many others qualify for exclusions, the CEO said.
It’s trickier, however, to predict how states will respond to policies cutting federal Medicaid funding.
“States could limit eligibility, reduce benefits or keep their programs intact by funding it with additional state revenues. We anticipate that whatever a state elects to do will follow prevailing state-specific political tendencies,” Zubretsky said.
As for the ACA, Molina continues to expect that Congress will allow more generous subsidies for marketplace plans to expire, which will cause enrollment to drop in 2026. New program integrity measures are also expected to cull membership.
But at the end of the day, Molina is less worried about membership than it is about margins, according to executives.
“We can prioritize margin and let membership fall where it may,” Keim said.
