Dive Brief:
Molina reported mixed fourth-quarter results on Wednesday, beating Wall Street expectations on revenue but missing on earnings. The payer also laid out earnings guidance for 2025 that was lower than analysts had anticipated.
The fourth-quarter earnings miss was due to higher medical spending in Medicaid, with no help from the risk corridors that kept the worst of utilization jumps from hitting Molina’s bottom line earlier in 2024. Meanwhile, the lower earnings forecast for this year is because of implementation costs from recent contract wins in Medicaid and for individuals dually eligible for both the safety-net program and Medicare, according to the insurer.
The results and 2025 outlook are “disappointing at face value,” but accretion from the contract wins could set Molina up well for 2026, J.P. Morgan analyst John Stansel said in a note Wednesday.
Dive Insight:
Molina, which offers health insurance through Medicaid, Medicare and the Affordable Care Act exchanges, ended 2024 with 5.5 million members. The lion’s share of its members — 5 million people — are in Medicaid, in which Molina negotiates deals with states to oversee the care of their eligible beneficiaries.
Molina is one of the smaller major publicly traded insurers overall, but has had notable success over the past few years nabbing new contracts with states to expand its business — including some wins since early November, when Molina last spoke with investors.
In December, Georgia said it intends to award Molina a new Medicaid managed care contract that represents an estimated $2 billion in annual premium revenue, CEO Joe Zubretsky said on a call Thursday morning.
Molina also netted dual-eligible contracts in Ohio, Michigan, Massachusetts and Idaho that jointly account for over $3 billion in revenue, the CEO said.
All told, the new contracts — along with reprocurements in states including Florida and Wisconsin (and despite a loss in Virginia that Molina is still contesting) — should help Molina meet its goal of $46 billion in premiums in 2026, according to executives.
Molina expects its Medicaid membership to increase to 5.1 million people by the end of 2025 as a result of the growth. Meanwhile, acquisitions and strong open enrollment periods should bring the payer’s ACA and Medicare enrollment to 580,000 and 250,000 people, respectively, by the close of this year.
Yet, even as they fuel growth, the Medicaid contracts come with upfront implementation costs that are bringing down the insurer’s earnings forecasts for 2025.
Molina expects to bring in adjusted earnings per share of at least $24.50 this year. That would have been $1 higher if not for the implementation costs, CFO Mark Keim told investors on the call. Keim attempted to reassure investors that the implementation costs are “just $1 of the more than $5 billion in revenue” the contracts should eventually bring in.
Still, Molina’s stock fell more than 5% in Thursday morning trade.
In the fourth quarter, Molina reported a medical loss ratio, a key marker of spending on patient care, of 90.2%. That’s up from 89.1% same time last year and much higher than analysts had expected.
The increase was due in part to higher medical costs in Medicaid, as insurers continue to struggle with payment rates from states they say are insufficient to cover the medical care of their members. That mismatch was particularly acute in the areas of long-term supports and services, behavioral health services and in pharmacy, according to Keim.
Meanwhile, risk-sharing arrangements that Molina has in place called risk corridors didn’t benefit the California-based payer in the quarter.
The corridors are an “imperfect hedge,” Zubretsky said, adding the reason for Molina’s higher costs was “from an accounting perspective very, very clean: Trend outpaced our estimate.”
Molina also chalked its higher MLR up to costs from onboarding and managing the risk of new Medicaid members and California retroactively lowering its rates, a move Keim called “highly unusual” in October.
But Medicaid rates should catch up with trend in 2025, executives said. Molina expects Medicaid trend to be elevated at 4.5% next year, and that its rate adjustments from the states will also be 4.5%.
Still, Medicaid faces significant uncertainty in 2024, as Republicans in Congress work to shape reconciliation bills that are widely expected to include some cuts to the safety-net insurance program. Molina has outsized exposure to reductions in Medicaid funding, given the company brings in about 80% of its revenue from the program.
During the call, Zubretsky projected optimism that Washington won’t gut Medicaid, citing the difficult political calculus of that decision given that (along with its sister insurance program for children) Medicaid covers roughly 80 million Americans — almost one-fourth of the entire U.S. population.
“We continue to believe that any changes to the Medicaid program as we know it today will be marginal,” Zubretsky said. “Neither side of the aisle wants to see an increase in the number of the uninsured, a reduction in benefits for those relying on government assistance or the related impacts to providers.”
Overall, Molina reported revenue of $10.5 billion in the fourth quarter, up 16% year over year. The insurer’s profit of $251 million was also up 16% year over year.
As for the full-year, Molina brought in revenue of $38.6 billion in 2024, up 19% from 2023. Net income of $1.2 billion was up 8% from the prior year.
