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February 11, 2020 10:58 AM

Molina Healthcare expects slashed ACA exchange margins in 2020

Shelby Livingston
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    Sipa USA via AP

    Molina Healthcare expects to bring in about half as much income from its exchange plans this year as it did in 2019, the Long Beach, Calif.-based health insurer said Tuesday.

    That's despite Molina's efforts to lower its premiums for the 2020 open enrollment period and position its plans as the lowest or near-lowest price options in many of its locations. The insurer dropped premiums an average 4% in 2020, and it was the cheapest or second-cheapest priced silver-level plan in half of its geographies.

    In 75% of its locations, Molina sold either the lowest cost bronze plan or offered a $0 premium option, CEO Joseph Zubretsky told investment analysts during an earnings call Tuesday that was dominated by discussion of the insurer's exchange business.

    Molina's efforts to attract customers didn't work as well as planned. "We didn't get the volume that we expected to get for the 4% average price decreases we put into the market," Zubretsky explained, meaning fewer people enrolled than expected.

    Zubretsky said that previously, while many health insurers were raising their ACA marketplace premiums, low-income members would switch plans if they could save $10 to $20. But now that average ACA exchange premiums have stabilized or even decreased in many places, customers have chosen to stick with the plans they have. That makes it harder to attract new members.

    The ACA marketplace has also become more competitive. The CMS said 20 more insurers sold plans in 2020 than in 2019 in states that use the HealthCare.gov federal exchange.

    Molina is now projecting that its 2020 ACA exchange after-tax margins will reach 4.9% at most, compared with 10.3% in 2019. That translates to about $75 million in net earnings from that business, down from about $150 million.

    Analysts had expected margins to come down, but not by that much. In May 2019, Molina told investors it expected long-term exchange margins to hover between 8.5% and 9.5%.

    For 2021, Zubretsky said the insurer will look at whether its broker relationships and commissions are competitive enough. It will also examine its plan designs and prices. He said he still believes Molina can reach its long-term margin projections, but it may take longer to get there.

    "We still have very high hopes for this business," Zubretsky said.

    Despite the lower margin projection, Molina said it does expect to grow ACA exchange membership to 310,000 in 2020. The insurer ended 2019 with 274,000 exchange members, down 24.3% from 2018.

    Molina's primary business line is Medicaid managed care. It served 3 million Medicaid members at the end of 2019, a decrease of 12% from 2018, as contract losses in Florida and New Mexico squeezed membership. The insurer reported revenue of $4.3 billion, a decrease of 8.4% year over year, and net income of $168 million, down 16.4%, in the fourth quarter of 2019 ended Dec. 31. For the full year, Molina reported revenue of $16.8 billion, down 10.9%, and net income of $737 million, an increase of 4.2%.

    Despite the sliding financial results, Molina's stock price was up about 7% in mid-morning trading.

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