Second-quarter earnings at Molina Healthcare, a managed-care insurer almost exclusively focused on Medicaid populations, were five times higher than the same period last year.
The surge in Molina's bottom line pushed the Long Beach, Calif.-based company's stock up more than 11% during Friday morning trading. Investors and analysts are optimistic in Molina's ability to add Medicaid beneficiaries through natural enrollment and small acquisitions.
A vast majority of Molina's members are on Medicaid. Others have bought health insurance through the Affordable Care Act's exchanges or are dually eligible for Medicare and Medicaid. Molina's profits and revenue have grown considerably over the past couple of years as states expand Medicaid under the ACA and as more state Medicaid agencies turn to private managed-care companies.
Molina's net profit jumped from $7.8 million in the second quarter of 2014 to $38.9 million this year. Revenue soared more than 34% to $3.5 billion in the quarter.
Beyond adding more Medicaid and exchange members, Molina was able to keep medical claims costs down. The company's medical-care ratio was 88.7%, lower than last year's 89.3%.
The onslaught of merger activity in the health insurance industry has raised questions of what will happen to the remaining smaller insurers. A potential “big three” of Aetna, Anthem and UnitedHealth Group would be much larger than Molina. Centene Corp., a direct competitor to Molina, is also getting larger with its acquisition of Health Net.
But Molina dismissed the concerns. “While speculation and mega deals among the commercial players have been grabbing all the headlines, we have remained focused on growing our core business, and we have been involved in several key acquisitions of our own,” Molina Healthcare CEO Dr. J. Mario Molina said during an earnings call Thursday.
Molina said those three acquisitions will add 180,000 Medicaid members and $570 million in annual revenue. The company likely isn't done acquiring either. “The acquisition pipeline remains robust,” he said.
David Windley, an analyst at investment bank Jefferies, said in a research note that while “Medicaid makes the most sense” for Molina's acquisition strategy, the insurer may be looking at Medicare Advantage. It's possible Aetna and Anthem will have to divest Medicare plans to receive federal antitrust approval, which could clear the way for Molina and other government-focused insurers to swoop in.