Molina Healthcare, Inc. (MOH) 2024 Q2 Earnings Call Summary

Optimistic Highlights

• Strong Q2 Performance: Molina Healthcare reported adjusted earnings per share of $5.86 and $9.4 billion of premium revenue in Q2 2024, with a consolidated MCR of 88.6%.
• Full Year 2024 Guidance Reaffirmed: The company reaffirms its full-year guidance at $38 billion of premium revenue and at least $23.50 in earnings per share.
• Medicare and Marketplace Outperformance: Medicare reported a second-quarter MCR of 84.9%, and Marketplace reported a second-quarter MCR of 71.6%, both performing better than expectations.
• Growth Initiatives: Molina is well-positioned for growth across all segments, with recent acquisitions and contract awards bolstering its outlook.
• ConnectiCare Acquisition: Expected to provide earnings accretion of $1 in earnings per share, adding to Molina's embedded earnings.

Pessimistic Highlights

• Medicaid Challenges: The Medicaid business produced a second-quarter MCR of 90.8%, above the long-term target range, reflecting some modest medical cost pressure.
• One-Time Retroactive Premium Item: A one-time prior year retroactive premium item in California impacted the second-quarter MCR.
• Acuity Shifts Due to Redeterminations: Ongoing acuity shifts from Medicaid redeterminations have contributed to slightly higher than expected medical costs in the legacy Medicaid portfolio.

Company Outlook

• Second Half Improvements Expected: Molina expects Medicaid results to improve in the second half of the year, driven by rate adjustments and new store MCR improvements.
• 2024 Revenue and Earnings Guidance: Molina remains confident in delivering its full-year adjusted earnings per share guidance of at least $23.50, with premium revenue unchanged at approximately $38 billion.
• Long-Term Growth Strategy: Molina is focused on organic growth, winning new state contracts, and executing its M&A strategy, targeting $46 billion of premium revenue in 2026.

Q & A Highlights

• Q: Can you clarify the risk adjustment true-up's impact on public exchanges and Medicare Advantage? (A.J. Rice, UBS)

  A: Marketplace recognized about $20 million of additional risk adjustment benefit from the prior year, impacting less than 20 basis points in MLRs. Medicare's performance was primarily due to favorable risk adjustment results and benefit adjustments for 2024. (Mark Keim)

• Q: Did Q1 also come in worse than expected for Medicaid, and is the pressure across most states or concentrated? (Andrew Mok, Barclays)

  A: A little bit more pressure was seen in the legacy book in Q2 versus Q1, with membership loss contributing to higher legacy impacts. The pressure is isolated in various healthcare cost categories across different plans. (Mark Keim, Joseph Zubretsky)

• Q: Are you seeing over-utilization before Medicaid members lose coverage, and what's the utilization profile for re-enrollees? (Ryan Langston, TD Cowen)

  A: No indication of over-utilization before losing coverage was observed. Re-enrollees might show a bit higher utilization in the first month but quickly resolve to the portfolio average. (Joseph Zubretsky, Mark Keim)

• Q: Can you provide Medicaid margins for 1Q versus 2Q and what's embedded in guidance for the second half? Also, how are you thinking about potential rebates next year for exchanges? (Josh Raskin, Nephron Research)

  A: Medicaid MCR was 89.7% in 1Q and 90.8% in 2Q, with a full-year guidance of 89.3%. For exchanges, considering the potential expiration of enhanced subsidies, a 10%-20% membership impact is estimated, with strategies to possibly grow the business more aggressively next year. (Joseph Zubretsky, Mark Keim)

• Q: How do you reconcile your Medicaid MLR view versus peers, and what's the gross MLR pressure? (Kevin Fischbeck, Bank of America)

  A: The corridor liability, historically contributing 200 basis points to the Medicaid MCR, is being utilized to cushion results, with some remaining in various geographies. The corridors replenish at the next rate cycle. (Joseph Zubretsky)

• Q: Can you share the prior year development (PYD) benefit to MLR and discuss the impact of enhanced subsidies expiration on exchanges? (Justin Lake, Wolfe Research)

  A: Most PYD was picked up by prior year corridors, primarily in Medicaid and Medicare. Regarding exchanges, if enhanced subsidies expire, a 10%-20% membership impact is estimated, with potential recapture in bronze products. (Mark Keim, Joseph Zubretsky)

• Q: Can you provide specifics on the first half number comparable to the typical 200 basis points of corridor expense and update on the percentage of premiums with protection? (Stephen Baxter, Wells Fargo)

  A: About half of the normal 200 basis points was used in the first half, with corridors tracking to an ultimate across the full year. Specific numbers on premium protection are not provided due to variability in where medical cost deterioration occurs. (Mark Keim, Joseph Zubretsky)

• Q: Can you refresh the 2026 premium guidance bridge and discuss the mix between Medicaid and exchange in your M&A pipeline? (Sarah James, Cantor Fitzgerald)

  A: If redoing the projection, it might be more influenced by M&A, with active pursuits in the Medicaid space. The last two transactions were in Medicare and marketplace, but Medicaid remains a core focus. (Joseph Zubretsky)

• Q: Can you break out the larger pieces of the operating cash flow (OCF) to bridge back to normalized CFFO and segment the dollar of embedded earnings expected from ConnectiCare? (Michael Hall, Baird, Scott Fidel, Stephens)

  A: OCF is expected to normalize in the second half of 2024, with specific impacts from risk corridor payments, CMS receipts, and California taxes. ConnectiCare's accretion comes from improving MCRs and rationalizing G&A spend. (Mark Keim, Joseph Zubretsky)

• Q: How confident are you in getting rate adjustments for the percentage of the book going forward, and can you discuss the risk corridor contributions? (George Hill, Deutsche Bank)

  A: Known rate adjustments in the second half are committed, with corridors providing protection. About half of the historical 200 basis points of corridor expense is expected to be used across the full year. (Mark Keim, Joseph Zubretsky)