Molina Healthcare's profit growth rate slowed in the third quarter as utilization rebounded to more normal levels seen prior to the COVID-19 pandemic.
Insurers reaped record profits in the second quarter as fewer people sought healthcare amid the pandemic, even as many companies lowered or eliminated patients' costs for in-network COVID-19 tests as well as for some treatment, while some waived cost-sharing for primary care and offered premium "credits" to plan members.
But as utilization normalized, Molina reported an operating income of $289 million on revenue of $5 billion in the third quarter, up from $257 million of operating income on $4.2 billion of revenue in the third quarter of 2019. Its net operating income was $424 million in the second quarter.
The Long Beach, Calif.-based managed care company's net income was $185 million on the quarter, up from $175 million the same point a year before. Its medical loss ratio, which illustrates the percentage of premium revenue that insurers spend on medical care, was 85.9% compared to 86.3% in the same prior-year period.
Overall, the net effect of all COVID-related impacts, including the reduced demand for some medical services, the cost of COVID-related care and premium refunds was negligible to slightly positive to Molina's quarterly earnings, CEO Joseph Zubretsky said.
Seven states where Molina offers Medicaid plans enacted temporary retroactive rate refunds to claw back funds not spent on medical care, reducing premium revenue by $88 million in the third quarter. It's unclear whether there will be more, executives said.
"We do not intend nor do we want to keep state Medicaid money that was intended to be spent on medical benefits but was not due to utilization curtailment caused by COVID-19," Zubretsky said during an earnings call Thursday morning.
Molina added around 300,000 Medicaid beneficiaries during the quarter, although their acuity was lower on average, which also reduced costs. It spent about $35 million on care for COVID-19 patients as cases spiked in some states including Texas and California, incurring about $7 million in related administrative costs.
Still, net medical costs dropped between $95 million to $105 million. That was down from a $190 million to $240 million reduction in net medical costs in the second quarter.
"There remains a level of uncertainty about COVID itself and the related medical cost increase or decrease that could occur," Tom Tran, Molina's chief financial officer, said on the call.
Adding to the uncertainty, Molina executives said they are unclear how states will move beneficiaries off Medicaid when the public health emergency ends.
Medicaid beneficiaries, who would otherwise be ineligible for the program, are still covered as the federal government suspended "redetermination" during the pandemic. It is unclear whether states will incrementally phase that transition or implement it all at once when the national emergency ends.
"We have begun conversations with many of our state customers about the prospects of moving members who are no longer eligible for Medicaid but are on it due to the redetermination pause and how they will move them off," Zubretsky said. "And not for revenue reasons—we are not suggesting they do it in a staged process for revenue-generating reasons, but for the lack of tumult and lack of churn and the disruption it will create for members who are on Medicaid and are suddenly taken off."
Molina has continued to acquire small Medicaid plans that it aims to turn around. The most recent of which was its acquisition of Passport Health Plan's Medicaid business serving 315,000 beneficiaries in Kentucky.
On Oct. 23, a court ordered the addition of a sixth health plan to the Kentucky Medicaid program for 2021. That ruling did not rescind Molina's Medicaid contract award, nor did it impact the earlier novation of the Passport Medicaid contract, the company noted in its third quarter report. That order was appealed on Oct. 27, and the outcome is inherently unpredictable, according to the report.
Looking ahead at the legal proceedings challenging the Affordable Care Act, Zubretsky expects that even if the zeroed-out tax penalty of the individual mandate were to be found unconstitutional, it should be severable from the balance of the law, "both as a matter of logic and based on the clear intent of the 2017 Congress."
"It is also clear as a factual matter that the (Molina) Marketplace business can function effectively without any penalty for a failure to purchase health insurance," he said. "Regardless of the Supreme Court's ruling, we believe there is a high likelihood of a legislative fix to the law before any final legal opinion would go into effect."
