Medicaid, exchange costs ding Molina Healthcare

Rising costs in Medicaid and the health insurance exchanges depressed Molina Healthcare's first-quarter performance, the company reported Thursday.

Molina Healthcare, which depends on Medicaid for nearly 80% of its revenue, secured increases in Medicaid managed care payments for this year that slightly outpaced their expectations, President and CEO Joseph Zubretsky said during a call with investment. Yet the company projects it won't be enough to offset higher expenses and raised its Medicaid cost trend guidance by one percentage point to 5%.

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Zubretsky identified long-term support and behavioral health services and glucagon-like peptide-1 agonist, or GLP-1, prescriptions as cost drivers in Medicaid.

The insurer spent $40 million more than projected on its exchange members, Chief Financial Officer Mark Keim said during the call. Expenses associated with its acquisition of ConnectiCare in February contributed to excess expenditures, he said.

Molina Healthcare's exchange business also suffered from lower-than-anticipated risk-adjustment payments and the aftermath of fraudulent enrollments that the Centers for Medicare and Medicaid Services has been unwinding and that the Justice Department is prosecuting.

CMS clawed back $13.2 million in money improperly sent to Molina Healthcare as a result of the what the government alleges were unlawful actions by insurance brokers. The company expects stricter enforcement will hamper phony enrollments. “The good news is, with all the program integrity stuff going on, you’ll see a lot less of that going forward,” Keim said.

Higher spending on Medicaid enrollees and exchange members inflated Molina Healthcare's medical loss ratio, which is the share of premiums spent on care, to 89.2%, compared with 88.5% a year before. Membership held steady at 5.8 million.

Molina Healthcare saw net income slip less than 1% to $298 million as revenue grew 12.2% to $11.1 billion in the first quarter. The company reaffirmed its guidance of adjusted earnings per share of at least $24.50 this year.

Zubretsky said a congressional Republican plan to cut $880 billion from Medicaid does not change the company's outlook in the near term and has not led states to reconsider Medicaid managed care payments and contracts. “The dialogue in Washington is not causing any state to either rethink their Medicaid rate development process or when to re-procure the program,” he said.

Molina Healthcare shares closed at $313.81 on the New York Stock Exchange on Thursday, down 5.8% from the previous day's closing price.