Medicaid contract turbulence is shaking up Molina.
The payer — which brings in the majority of its revenue from contracting with states in the safety-net insurance program — said new contract starts drove up its medical spending in the first quarter. Meanwhile, the potential loss of two other state contracts is stopping Molina from increasing its earnings expectations for this year, executives told investors on a Thursday morning call.
“We had mixed success in the quarter” in terms of Medicaid growth, CEO Joe Zubretsky said.
Along with releasing its first-quarter results on Wednesday, Molina reiterated its guidance for 2024 of approximately $38 billion in premium revenue and at least $23.50 in adjusted earnings per share.
Earnings could be higher, but the California-based insurer is leaving its guidance unchanged to account for a potential earnings headwind from losing contracts in Florida and Virginia.
In March, Molina learned that Virginia does not intend to award the payer a Medicaid managed care contract that it’s held for the past eight years. One month later, Florida also issued intended Medicaid contract awards cutting Molina out of the state.
Molina plans to challenge the states’ decisions, Zubretsky said.
“We’re not making a prediction on how the process will unfold [but] historical precedence would suggest this is not the end,” Zubretsky said.
In Florida, for example, there have been “extended conversations” following the state’s past two contract procurements, and there are regions where the state still hasn’t granted the maximum awards, according to Zubretsky.
Molina remains “confident” in its ability to win new contracts as it stares down a number of opportunities, including contracts totaling $60 billion in premiums coming up for bid in the next three years, Zubretsky said.
Molina beat Wall Street expectations on earnings and revenue in the first quarter, with a topline of $9.9 billion, up 22% year over year. That was despite new contract starts in California, Nebraska and Iowa, along with Molina’s acquisition of a plan in Wisconsin, increasing its medical spending.
Overall, Molina added over half a million members from the contract expansions, driving its membership to 5.7 million people — and bumping its medical loss ratio, a marker of spending on patient care, above analyst expectations. Typically, insurers see an initial surge in medical costs when they bring on new members.
Molina’s first-quarter MLR rose to 88.5%, compared to 87.1% same time last year.
Higher utilization in Medicare Advantage also drove spending. Insurers have scrambled to get a handle on rising medical costs among the privately covered Medicare seniors that started last year. For Molina, those higher costs are reflected in long-term care and pharmacy spend, according to executives.
Along with elevated utilization, regulatory changes in MA have pressured earnings for insurers in the lucrative government program. Those include payment rates for 2025 the CMS published earlier this month that payers have slammed as a cut.
However, Molina — which has a relatively small presence in MA — said it will be less affected by the rates than some of its peers because it focuses on individuals dually eligible for both Medicare and Medicaid.
“Factors such as rate setting, bidding and revenue drivers do matter, but to a lesser extent,” Zubretsky said.
Molina also noted the worst is over from Medicaid redeterminations, the process in which states recheck Medicaid members’ eligibility for the program following a pause during the coronavirus pandemic. Molina has lost 550,000 members to date from redeterminations and expects to lose another 50,000 in the second quarter — the last quarter of the process.
In addition to slowing losses, acuity appears to have stabilized in most of its markets. And, states have mostly offset shifting acuity with rate changes, which remain actuarially sound, Zubretsky said. To date, 19 states representing 95% of Molina’s revenue have provided acuity-related rate adjustments this year.
Molina also said it has been largely unaffected by the network outage at Change Healthcare following the cyberattack against the massive claims clearinghouse earlier this year. Along with severely constricting provider payments, the attack has muddied up claims visibility for payers, leading them to hold more money in reserves to cover any delayed claims as a result.
Molina’s claims were 20% lower than normal in February, but were restored to normal in March after the insurer moved away from Change to alternative clearinghouses, according to CFO Mark Keim.
“We have been appropriately prudent” in reserving for the impact of any delayed claims, Keim said.
Overall, Molina reported net income of $301 million in the quarter, down slightly from $321 million notched last year.
