Molina records $230 million loss in second quarter

A week after Molina Healthcare announced it would lay off 10% of its workforce, the Medicaid managed care insurer reported a $230 million loss for the second quarter of 2017.

Long Beach, Calif.-based Molina told investors Wednesday that it will restructure the company and exit marketplaces in Utah and Wisconsin to improve its operating performance and return to profitability.

"The results reported today are disappointing and unacceptable," Joseph White, CFO and interim CEO said in a statement. "We must and we will do much better, and we are taking aggressive, urgent and determined actions to improve our financial performance."

Molina, which fired its CEO Mario Molina and his brother CFO John Molina in May, said its poor financial results were driven largely by high medical care costs, particularly in Florida, Illinois, New Mexico and Puerto Rico. Health plans in those states suffered from high inpatient and pharmacy costs in the quarter.

Challenges in the ACA marketplace business also weighed down the bottom line. Molina set aside $78 million in additional funds to pay for future losses from the exchanges, where it insures about 949,000 members. It now expects marketplace performance to "fall substantially short of previous expectations" in the second half of 2017, citing disappointing performance in Florida, Utah, Washington and Wisconsin.

Molina said it will stop selling ACA exchange plans in Utah and Wisconsin in 2018. Marketplace plans in those states recorded a total of $127 million in premium revenue, or 16% of Molina's total marketplace revenue, and a combined medical cost ratio of 128%. Molina will also reduce its exchange footprint in Washington.

In its remaining marketplace plans, Molina said it will hike 2018 premiums by 55%. About 25% of that rate increase is due to uncertainty in the future federal funding of cost-sharing reduction subsidies, which help lower out-of-pocket costs for low-income enrollees.

Molina has had a rough year financially. Interim CEO White explained that the company was not able to keep up with the rapid growth it experienced from the ACA. Instead of building out new capabilities to deal with that sudden growth in enrollment, it spent more money on existing processes and technologies, he said.

"As a result of trying to manage our rapid growth within an infrastructure designed for a much smaller business, we experienced breakdowns in areas like provider payment, utilization management, risk adjustment and information management," White said.

White announced a restructuring plan that began with gradually laying off 10% of its workforce, or about 1,500 staff members.

Molina also said it will renegotiate high-cost contracts and build out cost-effective networks even if that leads to lower enrollment and revenue.

Molina reported $5 billion in revenue during the second quarter, up 14.7% over the same period a year ago. Its medical care costs increased 25% to $4.5 billion, and operating expenses were up 24.3% to $5.3 billion.

The insurer's medical cost ratio was 94.8% compared with 89.2% the same period last year. Membership totaled 4.7 million members, up from 4.2 million a year ago.