GuruFocus -
- Adjusted Earnings Per Share (EPS): $6.01 for the third quarter.
- Premium Revenue: $9.7 billion for the third quarter.
- Consolidated Medical Care Ratio (MCR): 89.2% for the third quarter.
- Medicaid MCR: 90.5% for the third quarter, including a retroactive premium rate reduction in California.
- Medicare MCR: 89.6% for the third quarter.
- Marketplace MCR: 73% for the third quarter.
- Adjusted G&A Ratio: 6.4% for the third quarter.
- Full Year Premium Revenue Guidance: Approximately $38 billion.
- Full Year Adjusted EPS Guidance: At least $23.50.
- Medicaid Membership: 4.9 million at the end of the third quarter.
- Operating Cash Flow: $868 million for the first nine months of 2024.
- Debt to Capital Ratio: Approximately 35% at the end of the third quarter.
- Days in Claims Payable: 48 days at the end of the third quarter.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Molina Healthcare Inc (NYSE:MOH) reported adjusted earnings per share of $6.01, aligning with expectations.
- The company reaffirmed its full-year 2024 guidance with $38 billion in premium revenue and at least $23.50 in earnings per share.
- Molina Healthcare Inc (NYSE:MOH) achieved significant contract wins, including a major dual eligible integrated product business in Michigan, expected to add $1 billion in incremental premium revenue by 2027.
- The Marketplace segment performed better than expected with a third-quarter MCR of 73%, benefiting from higher special enrollment period membership.
- The company is well-positioned for long-term growth, targeting $46 billion in premium revenue by 2026 through organic growth, new state contracts, and M&A activities.
- The consolidated Medical Care Ratio (MCR) was higher than expected at 89.2%, reflecting medical cost pressures in Medicaid and Medicare segments.
- A retroactive premium rate reduction in California negatively impacted the Medicaid MCR, increasing it by 50 basis points.
- Higher than expected medical costs were observed in the Medicaid segment, particularly in LTSS, pharmacy, and behavioral health services.
- The Medicare segment also experienced higher medical costs, with an MCR of 89.6%, driven by elevated LTSS and pharmacy costs.
- The company anticipates headwinds from declining interest rates affecting net investment income in 2025.
A: Joseph Zubretsky, CEO: This is the second consecutive year of outperformance in the marketplace. We invested excess margin in our base to grow the business, and we plan to continue this strategy. We're targeting mid-single-digit pretax margins, and the business is well-positioned for growth in the coming years. Regarding rebates, the 80% minimum MLR is equivalent to a 75% GAAP equivalent, and we are tracking to a 74% in our guidance this year.
Q: Can you elaborate on the Medicaid MLR running higher than expected and the specific pressures from LTSS, behavioral health, and pharmacy?
A: Joseph Zubretsky, CEO: We initially expected a 3% trend in Medicaid, but it's landing at about 6%. This is due to a blend of factors, including redetermination impacts and higher utilization among continuing members, particularly in LTSS, pharmacy, and behavioral health services. Mark Keim, CFO, added that the trend is about 300 basis points higher than initially expected, split between acuity shifts and higher utilization in certain areas.
Q: What are your expectations for Medicaid rate updates to normalize profitability, and how do they compare to your peers?
A: Joseph Zubretsky, CEO: We are encouraged by the rate updates received in the second half of the year, which averaged 4.5% in the third quarter and nearly 9% in the fourth quarter. We have seen draft rates for 2025 that are promising, but the final impact will depend on how medical cost trends progress in the fourth quarter. Mark Keim, CFO, noted that while there is a lag between trend recognition and rate adjustments, the risk corridors help buffer this until new rates are implemented.
Q: How are you managing the utilization trends in Medicaid and Medicare, and are there opportunities for medical management to mitigate these trends?
A: Joseph Zubretsky, CEO: We have a proven track record of managing medical costs effectively, which is why we have historically been deep into risk corridors. We plan to continue operating below state benchmarks and leverage our expertise in medical management and care management. Mark Keim, CFO, added that the reported trends are net of all medical cost management efforts.
Q: Can you provide more details on the impact of risk corridors and how they are factored into your guidance?
A: Mark Keim, CFO: We started the year with about 200 basis points of corridor protection, which has been used throughout the year. We expect to end the year with about 100 basis points of corridor expense within our MLR. The new rate cycle will determine how much of this corridor is replenished. Joseph Zubretsky, CEO, emphasized that while corridors provide a financial buffer, they are not a perfect hedge as they depend on where medical costs arise.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.