Molina Healthcare's Medicaid business improved in the third quarter after a rocky start to the year, but worse-than-expected results from the Affordable Care Act individual and small-group marketplaces weighed down the insurer's profit.
However, Molina will maintain and expand its presence in the new ACA markets in 2017 and expects to break even on those plans this year.
Earlier in the year, the Long Beach, Calif.-based Medicaid managed-care insurer reported dismal first-quarter results that caused its stock price to plummet. The ACA's Medicaid expansion drove rapid growth in the insurer's membership, but premium payments weren't enough to offset high medical costs from Medicaid members in Texas, Ohio and Puerto Rico.
Though the turnaround in Puerto Rico “will take some time,” steps taken this year at health plans in Texas and Ohio “have yielded significant operational improvements,” Molina CEO Dr. J. Mario Molina said Thursday on a call with investors.
Molina's third-quarter results showed marked improvement over the second quarter as enrollment and revenue grew. Chief Financial Officer John C. Molina said medical spending is slowing down among its Medicaid members, and the company is benefiting from lower administrative costs. Molina ended the quarter with 4.25 million members, up 22.4% year over year. Membership in exchange plans declined by 29,000 from the second quarter to 568,000 members at the end of the third quarter.
Excluding the impact from the exchange business and other adjustments, Molina's medical-loss ratio—the amount of premium dollars spent on healthcare services—held steady at 89.6% in the third quarter. Molina's revenue soared 26% year over year to $4.5 billion in the third quarter.
Even so, net income fell by 8.7% to $42 million in third quarter compared with the year-ago period.
Molina's earnings continue to be dampened by tough exchange markets, and the insurer said results in the ACA business were lower-than-expected due to membership attrition, higher costs for members who enrolled outside of open enrollment and higher spending by members who are getting to know the network.
The medical-loss ratio related to the ACA marketplace plans increased heavily, from 79.7% in the second quarter to 89% in the third quarter.
Molina also said it continues to rack up “substantial liabilities” under the ACA's permanent risk-adjustment program, which transfers money from more profitable health insurers to those saddled with higher medical claims.
The company estimated payments under the ACA's risk-adjustment program reduced marketplace premium revenue by about 25% over the first three quarters of 2016. Those payments totaled $254 million in 2015. So far, the Molina has accrued $372 million to be paid into the program for 2016.
“As a result of this flawed risk-transfer methodology, we may be forced to curtail our marketing in certain marketplace states,” Molina said. He added, though, that Molina plans to break even on the exchange plans in 2016 and is remaining in the same marketplace states next year. Molina is expanding into new counties in Washington, Florida and California.
