Molina’s Medicaid Growth Offsets Worst Of Redeterminations Pressures In Q2

Dive Brief:

• Investors came into second-quarter earnings for Molina concerned about how challenges in its core Medicaid business might affect the insurer. However, Molina exceeded Wall Street’s expectations for earnings and revenue in finances released aftermarket Wednesday.
• Molina reported revenue of $9.9 billion, up almost 19% year over year thanks to the insurer winning new Medicaid contracts and growing its existing businesses. Net income of $301 million was down slightly year over year due to an increase in spending on Medicaid beneficiaries, but still better than analyst forecasts.
• Medicaid pressures should ameliorate over the back half of the year, Molina executives told investors on a Thursday morning call. Molina is also open to additional M&A, despite coming off two recent acquisitions, and plans to stand up a new business to oversee its growth strategy in dual-eligible Medicare and Medicaid plans.

Dive Insight:

Molina provides insurance through government programs: Medicaid, Medicare and the Affordable Care Act exchanges. However, the large majority of its 5.6 million members are in Medicaid, which also accounts for the bulk of Molina’s premiums.

As such, investors expected the worst coming into the second quarter, after health insurance peers including UnitedHealth, Elevance and Centene reported a mismatch between the rates their Medicaid businesses are paid by states and actual patient utilization.

Rates keeping pace with shifting patient acuity have been an ongoing concern for insurers as states continue to recheck peoples’ eligibility for Medicaid. That process, called redeterminations, has led to millions of low-income Americans being removed from the safety-net insurance. People losing Medicaid are more likely to be young and healthy, leaving insurers with risk pools skewing sicker — and though states are required to keep payment rates actuarially sound, updates can lag risk pool changes.

The trend did affect Molina, but not nearly as badly as expected. As a result, stock in the California-based insurer was up almost 19% in morning trade Thursday.

Molina’s medical loss ratio — a marker of spending on patient care — rose to 88.6% in the second quarter, up from 87.5% the same time last year.

The jump was in part due to California retroactively lowering its premiums — a one-time decision Molina CFO Mark Keim called “unusual” on a Thursday morning call with investors — and higher costs from onboarding members in new Medicaid contracts.

Yet without those impacts, Molina’s Medicaid costs would still have been higher than expected because of redeterminations-driven acuity shifts, the insurer said.

Molina didn’t see higher utilization from people about to lose Medicaid, a trend that’s been flagged by some of its insurer peers. Instead, higher spending was mostly due to rates not keeping pace with acuity, though Molina did see a second-quarter utilization uptick in some areas, like nursing facility spending, hours in home-based care and GLP-1 prescriptions, Molina CEO Joe Zubretsky said on the Thursday call.

States adjusting rates should mostly offset the higher trend, according to management. A little more than one-third of Molina’s premium revenue renews in the second half of 2024. Meanwhile, four of Molina’s 18 Medicaid states bumped the payer’s rates off-cycle.

“We expect our Medicaid results to improve in the second half of the year,” Zubretsky said.

Two of Molina’s Medicaid states are still undergoing redeterminations. The payer still expects to lose 600,000 of its Medicaid members once unwinding is complete.

Higher investment income along with Molina reprocuring Medicaid contracts in Virginia and Florida should also help offset Medicaid pressure in the second half of the year, management said.

Molina successfully challenged contract losses in those two states earlier this year. Florida is an especially important win, accounting for estimated annual premium revenue of $500 million.

Zubretsky noted Molina is still very interested in M&A, despite pursuing two large acquisitions this year. Earlier this week, the payer said it was buying Medicare and Affordable Care Act insurer ConnectiCare from EmblemHealth for $350 million. The acquisition brings Molina into the state of Connecticut for the first time, while adding 140,000 members and $1.4 billion in annual premium revenue.

Molina also closed its buy of Bright Health’s Medicare Advantage plans in California for about $425 million in January.

Those two acquisitions built out Molina’s Medicare and ACA businesses, but the payer continues to be open to additional Medicaid buys as well, according to Zubretsky.

“Our M&A pipeline remains full of many actionable opportunities,” the CEO said, adding later in the call: “You’ll hopefully see Medicaid transactions here over the next 12 to 18 months. We’re still very active in that space.”

Molina continues to focus on capturing members dually eligible for both Medicare and Medicaid. 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.

Molina plans to establish a new subsidiary to lead its duals products “soon,” Zubretsky said.