Molina cost-cutting offsets first-quarter premium revenue dip
Molina Healthcare's aggressive restructuring might be paying off: The insurer reported modest earnings in the first quarter of 2018 following a tough close to 2017.
The Long Beach, Calif.-based company reported first-quarter net income of $107 million, compared with $77 million for 2017's first quarter. The company said that's partly due to lowered medical and administrative costs, in addition to scaled-back restructuring expenses.
"The financial results that we announced today reflect the progress we are making towards our goal of sustainable margin recovery," Molina CEO Joe Zubretsky said on a conference call Monday.
Premium revenue dropped 7% in the first quarter of 2018 year-over-year, which Zubretsky said was the direct result of a nearly 60% average price hike across its Affordable Care Act policies. Despite that premium increase, Zubretsky said Molina's marketplace policies remain competitive; the company still has more than 450,000 marketplace members, a number that exceeds its own forecasts. More members are choosing bronze plans over silver ones, which Zubretsky said is a margin-neutral change.
Cost-cutting efforts spurred a modest drop in Molina's general and administrative expense ratio, to 7.6% in the first quarter of 2018 from 8.9% at the same time in 2017. The company's medical-care ratio fell to 86.1% in that time, down from 88.4% in the first quarter of 2017.
Overall expenses dropped 8.2% in the first quarter of 2018 to $4.4 billion, down from $4.8 billion in the first quarter of 2017.
Molina recently eliminated about 100 positions, a move it expects will save more than $10 million per year, Zubretsky said.
"We will continue to restructure inefficient processes and find opportunities for head count reductions, as doing so has a very short payback," he said.
About a year ago, Molina laid off 10% of its workforce, or about 1,500 employees.
Molina took on $25 million in restructuring costs in the first quarter, far lower than in previous quarters.
The company's total revenue was down 5.2%, ending the quarter at $4.6 billion, compared with $4.9 billion in the first quarter of 2017.
Medicare and Medicaid revenue were essentially flat during the quarter.
Molina failed to secure Medicaid contracts in Florida this year, and Zubretsky said the insurer plans to challenge that decision.
"While we are somewhat disappointed with this outcome, it does not alter our course," he said. "We will continue to pursue a major entrenchment in Florida."
Molina has also submitted Medicaid bids in Texas, Washington and Puerto Rico. Puerto Rico is overhauling its Medicaid model to an island-wide plan instead of multiple plans that compete, a change that will feature minimum medical loss ratios.
"These changes require intense scrutiny on our part," Zubretsky said.
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