Dive Brief:
Molina beat analyst expectations for earnings and revenue in the first quarter, with a topline of $11.1 billion, up 12% year over year, and net income of $298 million, down 1% year over year, according to results released Wednesday.
The California-based insurer said its medical costs increased moderately in the quarter, mostly due to utilization of long-term supports and services, expensive drugs and behavioral health, along with more spending on seasonal illnesses like the flu. However, costs were generally in line with what Molina had predicted, a bright spot after UnitedHealth, the largest private insurer in the U.S., reported an unexpected spike in spending earlier this month.
Molina’s results can be viewed as “good enough,” TD Cowen analyst Ryan Langston wrote in a note on the insurer’s first quarter performance.
Dive Insight:
Molina offers health insurance through Medicaid, Medicare and the Affordable Care Act exchanges, though the lion’s share of its members — 4.8 million out of 5.8 million total — are in Medicaid.
Like other insurers that contract with states to manage the care of their Medicaid population, Molina has struggled with volatility in the safety-net program spurred by states rechecking members’ eligibility for the coverage. That’s created a disparity between beneficiary acuity and state payment rates, which haven’t kept pace with rising costs for members’ care, according to insurers.
However, rates for 2025 are coming in slightly higher than Molina had previously expected — a good sign for margins, though that’s only if Medicaid spending doesn’t spike this year, executives said.
“States are obviously recognizing certain cost pressures and updating rates both on-cycle and off-cycle to compensate for it,” CEO Joe Zubretsky told investors on a Thursday morning call.
Molina did see elevated medical spending in the quarter, reporting a medical loss ratio of 89.2%, slightly above analysts’ expectations. The insurer’s MLR for its members in Affordable Care Act plans was 81.7%, significantly higher than expected. For reference, Molina reported an ACA MLR of 73.3% same time last year.
Executives chalked up the jump in ACA spending up to a few factors. In the first quarter, some members discovered on their tax documents that they’d been unknowingly enrolled in ACA coverage, potentially due to broker fraud, or that they’d received subsidies for which they weren’t eligible. As a result, the government scrubbed members from those plans and clawed back any improper subsidies from Molina, dinging revenue, according to CFO Mark Keim.
Molina’s final risk scores for its ACA plans in 2024 also came in a little lower than expected, resulting in the insurer having to redistribute some funds to plans with higher-risk enrollees. And, new ACA members Molina brought onboard through its acquisition of ConnectiCare, a $350 million deal that closed in Feburary, came in with higher medical costs, Keim said.
Without those factors in the quarter, Molina’s ACA MLR would have been a more normal 77.7%, according to the CFO.
In February, Molina predicted it would end the first quarter with roughly 597,000 ACA members. But Molina actually closed the quarter with 662,000, 10% higher than expected. That was due to strong gains during the open enrollment and special enrollment periods, and due to Molina’s aggressive pricing strategy to make plans more affordable, resulting in more members remaining on the coverage, executives said.
The growth is a good sign, but should be taken with a degree of caution given insurers with high exposure to the ACA exchanges, like Molina, Centene and Oscar Health, have reported risk scores increasing unexpectedly starting at the end of 2024, Jefferies analyst David Windley wrote in a note.
That could lead to higher costs for members’ care that weren’t captured in plan pricing for 2025, Windley said.
Molina reiterated its guidance for 2025, including adjusted earnings per share of at least $24.50, representing 8% growth over 2024.
The insurer expects to bring in $42 billion in premium revenue this year, up about 9% from 2024.
That guidance recognizes potential changes to Medicaid as Republicans in Congress zero in on the safety-net program to reduce federal spending, Zubretsky said. Any cuts to Medicaid would negatively impact revenue for insurers like Molina in managed care arrangements with states.
However, Medicaid’s popularity among voters appears to be insulating the program from the most drastic of proposed cuts, insinuating that any near-term changes will be “marginal,” Zubretsky said.
In addition, states have said they’re willing to allow insurers to adjust the pricing of their ACA plans later in the year if Congress allows more generous subsidies to expire, which also mitigates policy risk, according to the CEO.
Zubretsky also said the insurer remains acquisitive after recent acquisitions of ConnectiCare and Medicare Advantage plans previously owned by Bright Health. Potential targets could even be more open to being acquired due to the uncertainty emanating from Washington, he said.
“Some of these smaller single-state, single-geography companies are struggling … so no, [policy volatility is] not casting a pall and may even be helping,” Zubretsky said.
