Release Date: July 25, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Molina Healthcare Inc (MOH, Financial) reported adjusted earnings per share of $5.86, in line 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.
- Medicare segment outperformed with an MCR of 84.9%, driven by favorable risk adjustment results and benefit adjustments.
- Marketplace segment performed better than expected with an MCR of 71.6%, benefiting from higher special enrollment period membership gains.
- The acquisition of ConnectiCare is expected to provide earnings accretion of $1 per share, adding to Molina's embedded earnings.
Negative Points
- Medicaid segment experienced higher medical cost pressure with an MCR of 90.8%, above the long-term target range.
- The second quarter included a one-time prior-year retroactive premium adjustment in California, negatively impacting results.
- Ongoing acuity shift due to Medicaid redeterminations led to slightly higher than expected medical costs in the legacy Medicaid portfolio.
- Operating cash flow for the first six months of 2024 was lower than the prior year due to the timing of corridor payments, CMS receipts, and taxes.
- The full-year consolidated MCR guidance increased slightly to 88.4%, driven by second-quarter performance in Medicaid.
Q & A Highlights
Q: Can you clarify the impact of risk-adjustment true-ups on your public exchanges and Medicare Advantage?
A: (Mark Keim, CFO) In the Marketplace, we recognized about $20 million of additional risk adjustment benefit from the prior year between the first and second quarters. For Medicare, the favorable risk adjustment results were primarily due to better performance across all our Medicare products.
Q: Have you seen higher utilization in your legacy Medicaid population beyond redetermination impacts?
A: (Joseph Zubretsky, CEO) We have observed some pockets of increased utilization in areas like skilled nursing facilities and pharmacy trends, but nothing out of the ordinary. Our risk corridor positions help absorb these trends, and we expect rates to adjust accordingly.
Q: When did the core Medicaid pressure start to materialize this year?
A: (Mark Keim, CFO) We saw a little more pressure in the second quarter compared to the first quarter, driven by higher membership losses due to redetermination. The first quarter was slightly higher than normal but not worse than expected.
Q: Are you seeing a pull-through effect in Medicaid utilization before members lose coverage?
A: (Joseph Zubretsky, CEO) We have not experienced this. Our leavers are leaving at the same MCR from the beginning to the end of the redetermination process, with no indication of increased service usage before losing coverage.
Q: Can you provide details on the Medicaid margins for Q1 versus Q2 and what's embedded in guidance for the second half?
A: (Mark Keim, CFO) The first-quarter Medicaid MCR was 89.7%, and for the first half, it averaged 90.2%. We are tracking to an 89.3% full-year guidance, with a slight increase due to a one-time California item and some second-quarter pressure.
Q: How are you thinking about potential rebates in the commercial MLR and strategy for 2025?
A: (Joseph Zubretsky, CEO) We are running at 72% for the first half and predicting 78% for the back half. We could be more aggressive on growth next year, aiming to sustain mid-single-digit margins.
Q: Can you explain the impact of prior-year development (PYD) on MLR and its distribution across segments?
A: (Mark Keim, CFO) Most of the PYD benefit was in Medicaid and Medicare, with a smaller portion in Marketplace. It was largely picked up by prior-year corridors.
Q: What is your view on the potential impact of the expiration of enhanced subsidies on the exchange population?
A: (Joseph Zubretsky, CEO) Industry estimates suggest 10-20% of membership could be affected. However, some members might shift to lower-priced bronze products, mitigating the impact.
Q: Can you provide more details on the operating cash flow (OCF) for the first half of the year and expectations for the second half?
A: (Mark Keim, CFO) The first half was impacted by timing of risk corridor payments, CMS receipts, and taxes. We expect a more normalized relationship between OCF and net income in the second half.
Q: What are the key drivers of the $1 of embedded earnings from the ConnectiCare acquisition?
A: (Joseph Zubretsky, CEO) The business performs okay but not at Molina target margins. We plan to improve MCRs in both Marketplace and Medicare, and rationalize G&A spend to achieve the $1 of earnings accretion.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
