Molina Healthcare missed its profitability target for Medicare Advantage last year because medical costs spiked, executives said during the company’s fourth-quarter earnings call Thursday.
This makes Molina Healthcare the latest insurance carrier to report ballooning Medicare Advantage expenses during the closing months of 2023, following sector leaders UnitedHealth Group and Humana and others such as Aetna parent company CVS Health and Centene. Molina priced for higher spending and expects to achieve “mid-single digit profitability” in its Medicare business this year, CEO Joseph Zubretsky said.
The medical loss ratio for Molina Medicare Advantage plans increased 1.6% to 93.3% during the fourth quarter and 2.5% to 90.7% for the year. Medicare Advantage membership grew 10.3% to 172,000 by year-end.
Despite challenges in Medicare Advantage, Molina Healthcare more than quadrupled its fourth quarter net income to $216 million, or $3.70 per share, as revenue rose 10% to $9 billion. For the year, the company recorded a 37.8% net income increase to $1.1 billion, or $18.77 per share, on 6.6% growth in revenues to $34.1 billion.
Like its peers, Molina Healthcare expects Medicare Advantage medical spending will remain high throughout 2024. Zubretsky identified three areas in which costs outpaced projections last year.
“One was [long-term support services] on the Medicaid side of the [Medicare-Medicaid Plan] business, the second was high-cost drugs and the third was supplemental benefits,” Zubretsky said. “Vision, dental, cash card and [over-the-counter] was a little too richly designed in 2023, to be honest. We pulled back on those benefits in our 2024 design and bids.”
Medicare Advantage insurers are facing down a slight benchmark rate decrease in 2025 under a proposed rule the Centers for Medicare and Medicaid Services published last week.
CMS' plan would sustain the mismatch between Medicare Advantage cost trends and federal financing, but would translate into a 0.5% rate increase for Molina after factoring in risk-adjustment payments, Zubretsky said. The risk-adjustment model CMS introduced last year can be beneficial to Medicare Advantage carriers that cover beneficiaries with multiple chronic conditions, he said.
“We have a low-income, high-acuity population. Our members are using services from the first day of the year to the last day of the year. They’re chronic,” Zubretsky said. “The notion of discretionary utilization means far less to our book of business than it might mean to traditional MA.”
Molina anticipates its $425 million acquisition of Bright Health Group’s Medicare Advantage business will reduce adjusted earnings per share by 50 cents this year, Zubretsky said. The company expects this division will have a positive effect on earnings per share in three years, Zubretsky said.
Molina Healthcare shares opened at $364.99 on the New York Stock Exchange Thursday, up less than 1% from the previous day's close.