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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ("MD&A")
FORWARD-LOOKING STATEMENTS
This quarterly report on Form 10-Q contains forward-looking statements regarding
our business, financial condition, and results of operations within the meaning
of Section 27A of the Securities Act of 1933, or Securities Act, and Section 21E
of the Securities Exchange Act of 1934, or Securities Exchange Act. Many of the
forward-looking statements are located under the heading "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Forward-looking statements provide current expectations of future events based
on certain assumptions and include any statement that does not directly relate
to any historical or current fact. Forward-looking statements can also be
identified by words such as "guidance," "future," "anticipates," "believes,"
"estimates," "expects," "growth," "intends," "plans," "predicts," "projects,"
"will," "would," "could," "can," "may," and similar terms. Readers are cautioned
not to place undue reliance on any forward-looking statements, as
forward-looking statements are not guarantees of future performance and the
Company's actual results may differ significantly due to numerous known and
unknown risks and uncertainties. Those known risks and uncertainties include,
but are not limited to, the risk factors identified in the section titled "Risk
Factors" in our 2021 Annual Report on Form 10-K, including without limitation
the following:
•the impact of the COVID-19 pandemic and its associated or indirect effects on
our business, operations, and financial results, including without limitation
the duration of the Public Health Emergency Declaration ("PHE") and associated
suspension in redeterminations, and the potential impact on our workforce or
contractors of federal or state vaccine mandates;
•significant budget pressures on state governments from diminished tax revenues
incidental to the COVID-19 pandemic and their efforts to reduce rates or limit
rate increases, to impose profit caps or risk corridors, or to recoup previously
paid premium amounts on a retroactive basis;
•the numerous political, judicial, and market-based uncertainties associated
with the Affordable Care Act (the "ACA");
•the market dynamics surrounding the ACA Marketplaces, including issues
impacting enrollment, risk adjustment estimates and results, the potential for
disproportionate enrollment of higher acuity members, and the discontinuation of
premium tax credits;
•the outcome of the legal proceedings in Kentucky with regard to the Medicaid
contract award to our Kentucky health plan and our acquisition of certain assets
of Passport;
•the success of our efforts to retain existing or awarded government contracts,
and the success of any bid submissions in response to requests for proposal,
including our contracts in California and Texas ;
•subsequent adjustments to reported premium revenue based upon subsequent
developments or new information, including changes to estimated amounts payable
or receivable related to Marketplace risk adjustment;
•our ability to consummate, integrate, and realize benefits from acquisitions,
including the completed acquisitions of Magellan Complete Care, Passport,
Affinity, and the Medicaid assets of Cigna in Texas , and the announced
acquisitions of AgeWell New York and My Choice Wisconsin;
•effective management of our medical costs;
•our ability to predict with a reasonable degree of accuracy utilization rates,
including utilization rates associated with COVID-19;
•cyber-attacks, ransomware attacks, or other privacy or data security incidents
resulting in an inadvertent unauthorized disclosure of protected information;
•the ability to manage our operations, including maintaining and creating
adequate internal systems and controls relating to authorizations, approvals,
provider payments, and the overall success of our care management initiatives;
•our receipt of adequate premium rates to support increasing pharmacy costs,
including costs associated with specialty drugs and costs resulting from
formulary changes that allow the option of higher-priced non-generic drugs;
•our ability to operate profitably in an environment where the trend in premium
rate increases lags behind the trend in increasing medical costs;
•the interpretation and implementation of federal or state medical cost
expenditure floors, administrative cost and profit ceilings, premium
stabilization programs, profit-sharing arrangements, and risk adjustment
provisions and requirements;
•our estimates of amounts owed for such cost expenditure floors, administrative
cost and profit ceilings, premium stabilization programs, profit-sharing
arrangements, and risk adjustment provisions and requirements;
Molina Healthcare, Inc. June 30, 2022 Form 10-Q | 20
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•the Medicaid expansion medical cost corridor, and any other retroactive
adjustment to revenue where methodologies and procedures are subject to
interpretation or dependent upon information about the health status of
participants other than Molina members;
•the interpretation and implementation of at-risk premium rules and state
contract performance requirements regarding the achievement of certain quality
measures, and our ability to recognize revenue amounts associated therewith;
•the success and renewal of our duals demonstration programs in California ,
Illinois , Michigan , Ohio , South Carolina , and Texas ;
•the accurate estimation of incurred but not reported or paid medical costs
across our health plans;
•efforts by states to recoup previously paid and recognized premium amounts;
•changes in our annual effective tax rate, due to federal and/or state
legislation, or changes in our mix of earnings and other factors;
•complications, member confusion, eligibility redeterminations, or enrollment
backlogs related to the renewal of Medicaid coverage;
•fraud, waste and abuse matters, government audits or reviews, comment letters,
or potential investigations, and any fine, sanction, enrollment freeze,
corrective action plan, monitoring program, or premium recovery that may result
therefrom;
•our exit from Puerto Rico , including the payment in full of our outstanding
accounts receivable, the effective run-out of claims, the return of our capital,
and the outcome of the claims filed against our Puerto Rico health plan and us
by the Puerto Rico Health Insurance Administration , or ASES;
•changes with respect to our provider contracts and the loss of providers;
•approval by state regulators of dividends and distributions by our health plan
subsidiaries;
•changes in funding under our contracts as a result of regulatory changes,
programmatic adjustments, or other reforms;
•high dollar claims related to catastrophic illness;
•the resolution, favorable or unfavorable, of litigation, arbitration, or
administrative proceedings;
•the relatively small number of states in which we operate health plans,
including the greater scale and revenues of our California , Ohio , Texas , and
Washington health plans;
•the failure to comply with the financial or other covenants in our credit
agreement or the indentures governing our outstanding notes;
•the availability of adequate financing on acceptable terms to fund and
capitalize our expansion and growth, repay our outstanding indebtedness at
maturity, and meet our general liquidity needs;
•the sufficiency of funds on hand to pay the amounts due upon maturity of our
outstanding notes;
•the failure of a state in which we operate to renew its federal Medicaid
waiver;
•changes generally affecting the managed care industry;
•increases in government surcharges, taxes, and assessments;
•the unexpected loss of the leadership of one or more of our senior executives;
and
•increasing competition and consolidation in the Medicaid industry.
Each of the terms "Molina Healthcare, Inc. " "Molina Healthcare ," "Company,"
"we," "our," and "us," as used herein, refers collectively to Molina Healthcare,
Inc. and its wholly owned subsidiaries, unless otherwise stated. The Company
assumes no obligation to revise or update any forward-looking statements for any
reason, except as required by law.
Readers should refer to the section entitled "Risk Factors" in our 2021 Annual
Report on Form 10-K, for a discussion of certain risk factors that could
materially affect our business, financial condition, cash flows, or results of
operations. Given these risks and uncertainties, we can give no assurance that
any results or events projected or contemplated by our forward-looking
statements will in fact occur.
This Quarterly Report on Form 10-Q and the following discussion of our financial
condition and results of operations should be read in conjunction with the
accompanying consolidated financial statements and the notes to those statements
appearing elsewhere in this report, and the audited financial statements and
Management's Discussion and Analysis appearing in our 2021 Annual Report on Form
10-K.
Molina Healthcare, Inc. June 30, 2022 Form 10-Q | 21
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OVERVIEW
managed healthcare services under the Medicaid and Medicare programs, and
through the state insurance marketplaces (the "Marketplace"). We served
approximately 5.1 million members as of
SECOND QUARTER 2022 HIGHLIGHTS
We reported net income of
second quarter of 2022, which reflected the following:
•Membership increase of 422,000, or 9%, compared withJune 30, 2021 , and a 33,000 sequential increase compared toMarch 31, 2022 ; •Premium revenue of$7.8 billion increased 18% compared with the second quarter of 2021, reflecting the impact of acquisitions, increased organic membership in Medicaid and Medicare, and state directed payments in our Texas Medicaid plan, partially offset by the expected attrition in Marketplace membership; •Consolidated medical care ratio ("MCR") was 88.1%, compared with 88.4% for the second quarter of 2021; •General and administrative expense ("G&A") ratio of 6.8%, which compared with 7.1% in the second quarter of 2021, reflecting the benefits of scale produced by our increase in revenue and disciplined cost management; and •After-tax margin of 3.1%, which was in line with our expectations.
We note the following factors impacting the 2022 second quarter financial
results:
•The net effect of COVID decreased net income by approximately$0.68 per diluted share and increased the MCR by 60 basis points in the second quarter of 2022. The net effect of COVID decreased net income by approximately$1.00 per diluted share and increased the MCR by 110 basis points in the second quarter of 2021; •An increase in the 2021 Marketplace risk adjustment payable decreased net income by approximately$0.44 per diluted share; and •Higher net investment income that was mainly driven by recentFederal Reserve interest rate increases.Molina Healthcare, Inc. June 30, 2022 Form 10-Q | 22
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CONSOLIDATED FINANCIAL SUMMARY
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
(In millions, except per-share amounts)
Premium revenue $ 7,799 $ 6,583 $ 15,330 $ 12,889
Less: medical care costs 6,872 5,819 13,435 11,293
Medical margin 927 764 1,895 1,596
MCR (1) 88.1 % 88.4 % 87.6 % 87.6 %
Other revenues:
Premium tax revenue 215 185 423 372
Investment income 22 10 33 19
Other revenue 18 22 38 42
General and administrative expenses 551 484 1,122 957
G&A ratio (2) 6.8 % 7.1 % 7.1 % 7.2 %
Premium tax expenses 215 185 423 372
Depreciation and amortization 44 31 84 64
Other 11 8 27 28
Operating income 361 273 733 608
Interest expense 27 30 55 60
Income before income tax expense 334 243 678 548
Income tax expense 86 58 172 135
Net income $ 248 $ 185 $ 506 $ 413
Net income per share - Diluted $ 4.25 $ 3.16 $ 8.63 $ 7.05
Diluted weighted average shares outstanding 58.4 58.4 58.6 58.5
Other Key Statistics
Ending membership 5.1 4.7 5.1 4.7
Effective income tax rate 25.8 % 24.2 % 25.4 % 24.7 %
After-tax margin (3) 3.1 % 2.7 % 3.2 % 3.1 %
________________________
(1) MCR represents medical care costs as a percentage of premium revenue. (2) G&A ratio represents general and administrative expenses as a percentage of total revenue. (3) After-tax margin represents net income as a percentage of total revenue. CONSOLIDATED RESULTS
NET INCOME AND OPERATING INCOME
Net income in the second quarter of 2022 amounted to$248 million , or$4.25 per diluted share, compared with$185 million , or$3.16 per diluted share, in the second quarter of 2021. The 34% increase in net income is consistent with the improvement in operating income, which increased to$361 million in the second quarter of 2022, compared with$273 million in the second quarter of 2021. Net income in the six months endedJune 30, 2022 amounted to$506 million , or$8.63 per diluted share, compared with$413 million , or$7.05 per diluted share, in the six months endedJune 30, 2021 . The 23% increase in net income is consistent with the improvement in operating income of$733 million in the six months endedJune 30, 2022 , compared with$608 million in the six months endedJune 30, 2021 .
The improvement in operating income for both periods was mainly due to
membership growth and higher premium revenues, and a decrease in MCR for the
second quarter of 2022 compared to the prior year period.
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Net income per share in the second quarter and six months endedJune 30, 2022 was favorably impacted by the reduction in common shares outstanding as a result of our share repurchases during the second quarter of 2022. See further discussion in "Liquidity and Financial Condition," below.
PREMIUM REVENUE
Premium revenue increased$1.2 billion , or 18%, in the second quarter of 2022, when compared with the second quarter of 2021, and increased$2.4 billion , or 19%, in the six months endedJune 30, 2022 , when compared with the six months endedJune 30, 2021 . The higher premium revenue reflects the impact of acquisitions, increased organic membership in the Medicaid and Medicare segments, and state directed payments in our Texas Medicaid health plan, partially offset by a decline in the Marketplace segment.
MEDICAL CARE RATIO
The consolidated MCR in the second quarter of 2022 was 88.1%, compared with 88.4% in the second quarter of 2021. The net effect of COVID impacted all of our segments and increased the consolidated MCR by approximately 60 basis points in the second quarter of 2022, and approximately 110 basis points in the second quarter of 2021. The year-over-year comparative impact mainly reflects higher COVID-related utilization curtailment, partially offset by higher COVID inpatient costs. The combined impact of state directed payments in ourTexas Medicaid health plan and an increase in the 2021 Marketplace risk adjustment payable increased the consolidated MCR by 90 basis points. The consolidated MCR in the six months endedJune 30, 2022 was 87.6%, and is consistent with the 87.6% MCR for the six months endedJune 30, 2021 . Similar to the quarter-to-date consolidated MCR, net effect of COVID impacted each period; however, the results were varied by segment. See further explanation in "Segment Financial Performance," below. The prior year reserve development in the second quarter and six months endedJune 30, 2022 was favorable, and its impact on earnings was partially absorbed by the COVID-related risk corridors.
PREMIUM TAX REVENUE AND EXPENSES
The premium tax ratio (premium tax expense as a percentage of premium revenue plus premium tax revenue) was 2.7% for both the second quarter of 2022 and 2021, and 2.7% and 2.8% for the six months endedJune 30, 2022 and 2021, respectively. The current year ratio decrease was mainly due to changes in business mix.
INVESTMENT INCOME
Investment income increased to$22 million in the second quarter of 2022, compared with$10 million in the second quarter of 2021, and increased to$33 million in the six months endedJune 30, 2022 , compared with$19 million in the six months endedJune 30 , 2021.The improvement in both periods was driven by recentFederal Reserve interest rate increases and higher invested assets. Additionally, investment yields were lower in the first half of 2021 due to a temporary allocation in shorter-term invested assets due to the COVID-19 pandemic, which was rescinded in the second quarter of 2021.
OTHER REVENUE
Other revenue decreased to$18 million in the second quarter of 2022, compared with$22 million in the second quarter of 2021, and decreased to$38 million in the six months endedJune 30, 2022 , compared with$42 million in the six months endedJune 30, 2021 . Other revenue mainly includes service revenue associated with long-term services and supports consultative services we provide inWisconsin .
G&A EXPENSES
The G&A expense ratio decreased to 6.8% in the second quarter of 2022, compared with 7.1% in the second quarter of 2021. The G&A expense ratio was 7.1% in the six months endedJune 30, 2022 , compared with 7.2% with the six months endedJune 30, 2021 , mainly reflecting the benefits of scale produced by our increase in revenue and disciplined cost management. We expect our full year 2022 G&A ratio to be consistent with our long term targets.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization increased to$44 million in the second quarter of 2022, compared with$31 million in the second quarter of 2021, and increased to$84 million in the six months endedJune 30, 2022 , compared with$64 million in the six months endedJune 30, 2021 . The increases in both periods were due primarily to amortization associated with acquisitions completed in the fourth quarter of 2021 and the first quarter of 2022.Molina Healthcare, Inc. June 30, 2022 Form 10-Q | 24 --------------------------------------------------------------------------------
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OTHER OPERATING EXPENSES
Other operating expenses increased to$11 million in the second quarter of 2022, compared with$8 million in the second quarter of 2021, and decreased to$27 million in the six months endedJune 30, 2022 , compared with$28 million in the six months endedJune 30, 2021 . Other operating expenses mainly includes service costs associated with long-term services and supports consultative services we provide inWisconsin , as noted above.
INTEREST EXPENSE
Interest expense decreased to$27 million in the second quarter of 2022, compared with$30 million in the second quarter of 2021, and to$55 million in the six months endedJune 30, 2022 , compared with$60 million in the six months endedJune 30, 2021 . The decrease resulted from our early redemption of$700 million aggregate principal amount of our 5.375% senior notes due 2022 in the fourth quarter of 2021, partially offset by interest related to the private offering of the 3.875% Notes due 2032 in the same period.
INCOME TAXES
Income tax expense amounted to$86 million in the second quarter of 2022, or 25.8% of pretax income, compared with income tax expense of$58 million , or 24.2% of pretax income in the second quarter of 2021. Income tax expense amounted to$172 million in the six months endedJune 30, 2022 , or 25.4% of pretax income, compared with income tax expense of$135 million , or 24.7% of pretax income in the six months endedJune 30, 2021 . The difference in the effective tax rate is primarily due to the impact of certain discrete tax benefits recognized in the second quarter and the six months endedJune 30, 2021 . TRENDS AND UNCERTAINTIES COVID-19 PANDEMIC
As the COVID-19 pandemic continues to evolve, its ongoing impact to our
business, results of operations, financial condition, and cash flows is
uncertain and difficult to predict. Specific trends and uncertainties related to
our Medicaid, Medicare, and Marketplace segments follow.
Federal Economic Stabilization and Other Programs
EffectiveApril 17, 2022 , theBiden Administration extended the COVID-19 related PHE, which, among other things, continued the suspension in state Medicaid eligibility redeterminations for 90 days untilJuly 15, 2022 . EffectiveJuly 15, 2022 , theBiden Administration extended the PHE for another 90 days and it will remain in effect untilOctober 13, 2022 , unless extended. Due to the uncertainty as to the duration and breadth of the pandemic, we are unable to reasonably estimate the ultimate impact of the economic stabilization and other programs to our business, financial condition, and operating results.
Operations
Enrollment and Premium Revenue
Excluding acquisitions and our exit fromPuerto Rico , we added over 750,000 new Medicaid members sinceMarch 31, 2020 , when we first began to report on the impacts of the pandemic. We believe this membership increase was mainly due to the suspension of redeterminations for Medicaid eligibility. We expect Medicaid enrollment to continue to benefit from the extension of the PHE period, and the associated pause on membership redeterminations, at least throughmid-October 2022 . Beginning in 2020, various states enacted temporary risk corridors in response to the reduced demand for medical services stemming from COVID-19, which have resulted in a reduction of our medical margin. The current rate environment is stable and rational. We continue to believe that the risk-sharing corridors previously introduced are related to the declared PHE and will likely be eliminated as the COVID pandemic subsides. However, the risk corridors continue to contribute an added level of variability to our results of operations. In the three and six months endedJune 30, 2022 , we recognized approximately$94 million and$122 million , respectively, for the impact of these risk corridors, compared to$56 million and$166 million , respectively, recognized in the three and six months endedJune 30, 2021 . The decrease in 2022 is due to the elimination of several of the COVID-19 risk corridors. It is possible that certain states could change the structure of existing risk corridors, implement new risk corridors in the future or discontinue existing risk corridors. Due to these uncertainties, the ultimate outcomes could differMolina Healthcare, Inc. June 30, 2022 Form 10-Q | 25 --------------------------------------------------------------------------------
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materially from our estimates as a result of changes in facts or further
developments, which could have an adverse effect on our consolidated financial
position, results of operations, or cash flows.
Medical Care Costs
We expect continued uncertainty regarding utilization trends as the pandemic continues. The speed and extent to which utilization rebounds will be greatly impacted by the economy and consumer behavior, provider capacity, and the potential resurgence of COVID-19 infection rates. We believe that some portion of the utilization curtailment experienced in the six months endedJune 30, 2022 is likely the result of service deferrals, and so these services will likely be provided to members over the remainder of the year.
Capital and Financial Resources
We continue to monitor and assess the estimated operating and financial impact of the COVID-19 pandemic on our business and, as it evolves, we continue to process, assemble, and assess member utilization information. We believe that our cash resources, borrowing capacity available under the Credit Agreement, and cash flow generated from operations will be sufficient to withstand the financial impact of the pandemic, and will enable us to continue to support our operations, regulatory requirements, debt repayment obligations, and capital expenditures for the foreseeable future. Refer to "Liquidity and Financial Condition" below for further discussion of our capital and financial resources.
OTHER RECENT DEVELOPMENTS
Wisconsin Acquisition - Medicaid and Medicare. OnJuly 13, 2022 , we announced a definitive agreement to acquire substantially all the assets of My ChoiceWisconsin ("MCW"). As ofMay 2022 , MCW served over 44,000 managed long-term services and supports and core Medicaid members throughoutWisconsin , delivering approximately$1 billion in premium revenue for the 12 months endedMarch 31, 2022 . The purchase price for the transaction is approximately$150 million , net of expected tax benefits and required regulatory capital, which we intend to fund with cash on hand. The transaction is subject to receipt of applicable federal and state regulatory approvals, and the satisfaction of other customary closing conditions. We currently expect the transaction to close in 2022. Texas Acquisition-Medicaid and Medicare. OnJanuary 1, 2022 , we closed on our acquisition of Cigna Corporation's Texas Medicaid and Medicare-Medicaid Plan ("MMP") contracts, along with certain operating assets. New York Acquisition-Medicaid. OnOctober 7, 2021 , we announced a definitive agreement to acquire the Medicaid Managed Long Term Care business of AgeWell New York. The purchase price for the transaction is approximately$106 million , net of certain tax benefits and target allocation of required regulatory capital, which we intend to fund with cash on hand. The transaction is subject to applicable federal and state regulatory approvals and the satisfaction of other customary closing conditions. We currently expect the transaction to close in the fourth quarter of 2022. California Procurement-Medicaid. InApril 2022 , we submitted our RFP response. We expect the award to be announced in earlyAugust 2022 , with an effective date ofJanuary 2024 . Texas Procurement-Medicaid. InMarch 2022 , theTexas Health and Human Services Commission posted the ABD program (known inTexas as STAR+PLUS) RFP, with awards estimated to be announced in the first quarter of 2023, and start of operations inFebruary 2024 .
Nevada Procurement-Medicaid. Our new contract in
commenced on
Medicaid Expansion beneficiaries. The four year contract with a possible
two-year extension was ratified in
Marketplace Enrollment. We now expect to end 2022 with approximately 315,000
members, reflecting normal attrition over the remainder of the year and limited
special enrollment period growth based on revised eligibility rules and our
product design and distribution strategy. This represents an increase compared
to our previous estimate of 270,000 members by the end of 2022, resulting from
stronger final enrollment and grace period membership.
Pharmacy. We have entered into an early renewal of our long-standing pharmacy
benefit management ("PBM") agreement with CVS Caremark ("Caremark"). Under the
renewal, Caremark will continue to be the exclusive PBM provider to us and our
health plan subsidiaries through December 31, 2026 . The renewal includes
improvements to network rates and administrative costs as well as improved terms
around performance standards. Caremark's services to Molina include, among other
things, pharmacy network management, mail order, specialty pharmacy, pharmacy
claims processing, and pharmaceutical rebate management.
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Real Estate. We intend to move permanently to a remote work environment, a model we have been working under successfully for nearly two years. As a result, we expect to formalize a reduction of our real estate footprint by the end of the year, which will yield substantial and sustainable G&A expense savings.
For a discussion of additional segment trends, uncertainties and other
developments, refer to our 2021 Annual Report on Form 10-K, "Item 1.
Business-Our Business," and "-Legislative and Political Environment."
REPORTABLE SEGMENTS
As ofJune 30, 2022 , we served approximately 5.1 million members eligible for Medicaid, Medicare, and other government-sponsored healthcare programs for low-income families and individuals, including Marketplace members, most of whom receive government premium subsidies.
We currently have four reportable segments consisting of: 1) Medicaid;
2) Medicare; 3) Marketplace; and 4) Other.
The Medicaid, Medicare, and Marketplace segments represent the government-funded or sponsored programs under which we offer managed healthcare services. The Other segment, which is insignificant to our consolidated results of operations, includes certain corporate amounts not associated with or allocated to the Medicaid, Medicare, or Marketplace segments. Additionally, the Other segment includes service revenues and service costs associated with the long-term services and supports consultative services we provide inWisconsin .
HOW WE ASSESS PERFORMANCE
We derive our revenues primarily from health insurance premiums. Our primary
customers are state Medicaid agencies and the federal government.
The key metrics used to assess the performance of our Medicaid, Medicare, and
Marketplace segments are premium revenue, medical margin and medical care ratio
("MCR"). MCR represents the amount of medical care costs as a percentage of
premium revenue. Therefore, the underlying medical margin, or the amount earned
by the Medicaid, Medicare, and Marketplace segments after medical costs are
deducted from premium revenue, represents the most important measure of earnings
reviewed by management, and is used by our chief executive officer to review
results, assess performance, and allocate resources. The key metric used to
assess the performance of our Other segment is service margin. The service
margin is equal to service revenue minus cost of service revenue.
Management's discussion and analysis of the change in medical margin is
discussed below under "Segment Financial Performance." For more information, see
Notes to Consolidated Financial Statements, Note 10, "Segments."
SEGMENT MEMBERSHIP
The following table sets forth our membership by segment as of the dates
indicated:
June 30, December 31, June 30,
2022 2021 2021
Medicaid 4,610,000 4,329,000 3,928,000
Medicare 151,000 142,000 130,000
Marketplace 357,000 728,000 638,000
Total 5,118,000 5,199,000 4,696,000
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SEGMENT FINANCIAL PERFORMANCE
The following tables summarize premium revenue, medical margin, and MCR by
segment for the periods indicated (dollars in millions):
Three Months Ended June 30,
2022 2021
Premium Medical Premium Medical
Revenue Margin MCR Revenue Margin MCR
Medicaid $ 6,301 $ 755 88.0 % $ 5,034 $ 551 89.0 %
Medicare 957 124 86.9 814 101 87.6
Marketplace 541 48 91.2 735 112 84.8
Total $ 7,799 $ 927 88.1 % $ 6,583 $ 764 88.4 %
Six Months Ended June 30,
2022 2021
Premium Medical Premium Medical
Revenue Margin MCR Revenue Margin MCR
Medicaid $ 12,281 $ 1,465 88.1 % $ 9,874 $ 1,155 88.3 %
Medicare 1,900 252 86.7 1,613 178 89.0
Marketplace 1,149 178 84.5 1,402 263 81.2
Total $ 15,330 $ 1,895 87.6 % $ 12,889 $ 1,596 87.6 %
Medicaid
Medicaid premium revenue increased $1.3 billion , or 25% in the second quarter of
2022, when compared with the second quarter of 2021. Medicaid premium revenue
increased $2.4 billion , or 24% in the six months ended June 30, 2022 , when
compared with the six months ended June 30, 2021 . The increases in both periods
were mainly due to organic membership growth, including Nevada , the impact from
the Affinity and Cigna acquisitions that closed in the fourth quarter of 2021
and in January 2022 , respectively, and state directed payments in our Texas
health plan. Excluding the acquisitions, the membership growth was across
several states and was mainly driven by the extension of the PHE period and the
associated suspension of membership redeterminations due to COVID-19.
As described above in "Trends and Uncertainties," we recognized approximately
$94 million and $122 million in the second quarter and six months ended June 30,
2022 , respectively, for the impact of risk corridors enacted in several states
since the second quarter of 2020, in response to the lower utilization of
medical services resulting from COVID-19. We recognized approximately $56
million and $166 million , respectively, for the impact of such risk corridors in
the second quarter and six months ended June 30, 2021 . The decrease was due to
the elimination of most of the COVID-19 risk corridors.
The medical margin in our Medicaid program increased $204 million , or 37%, in
the second quarter of 2022 when compared with the second quarter of 2021, and
increased $310 million , or 27%, in the six months ended June 30, 2022 when
compared with the six months ended June 30, 2021 . The increase in margin in both
periods was driven by the increased membership growth and premium revenues
discussed above and the MCR decrease discussed below.
The Medicaid MCR decreased to 88.0% in the second quarter of 2022, from 89.0% in
the second quarter of 2021, and decreased to 88.1% in the six months ended June
30, 2022 , from 88.3% in the six months ended June 30, 2021 . The decrease for
both periods is mainly attributable to improved operations, including medical
cost management, lower utilization and the year-over-year change in the net
effect of COVID, partially offset by the impact of state directed payments in
our Texas health plan. The year-over-year change in the net effect of COVID for
the second quarter of 2022 reflects an increase in COVID-related utilization
curtailment, partially offset by an increase in COVID-related inpatient costs.
The 2022 Medicaid MCR is consistent with our long-term target despite the net
effect of COVID and other impacts.
Medicare
Medicare premium revenue increased$143 million , or 18%, in the second quarter of 2022 compared to the second quarter of 2021, and increased$287 million , or 18%, in the six months endedJune 30, 2022 compared to the six months endedJune 30, 2021 . The increase was primarily due to the impact of product expansion and organicMolina Healthcare, Inc. June 30, 2022 Form 10-Q | 28
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membership growth in existing states, partially offset by lower premium revenue
PMPM from the change in business mix.
The medical margin for Medicare increased$23 million in the second quarter of 2022, and increased$74 million in the six months endedJune 30, 2022 , when compared to the same periods in 2021. The year-over-year changes in margin are mainly due to the increase in premium revenues and the improvement in the MCR discussed below. The Medicare MCR decreased to 86.9% in the second quarter of 2022, from 87.6% in the second quarter of 2021, or 70 basis points. The Medicare MCR decreased to 86.7% in the six months endedJune 30, 2022 , compared to 89.0% in the six months endedJune 30, 2021 , or 230 basis points. The improvement in both periods was primarily driven by improved operating performance, including higher risk scores that more closely reflect the acuity of our membership, and strong medical cost management, partially offset by the change in business mix. The 2022 Medicare MCR is lower than our long-term target.
Marketplace
Marketplace premium revenue decreased$194 million in the second quarter of 2022 compared to the second quarter of 2021, and decreased$253 million in the six months endedJune 30, 2022 compared to the six months endedJune 30, 2021 . The decrease was mainly due to expected attrition of membership, partially offset by an increase in premium revenue PMPM. Our Marketplace membership as ofJune 30, 2022 , amounted to 357,000 members, representing a decrease of 281,000 members compared toJune 30, 2021 . The increase in premium revenue PMPM is consistent with the product and pricing strategy, reflecting an increase of members in the silver metal tier and a decrease of members in the bronze metal tier, partially offset by an increase in the 2021 risk adjustment payable that was finalized inJune 2022 . The Marketplace medical margin decreased$64 million in the second quarter of 2022 when compared with the second quarter of 2021, and decreased$85 million in the six months endedJune 30, 2022 when compared with the six months endedJune 30, 2021 . The decrease in both periods is primarily due to the net decrease in membership and premiums, and the increase in the MCR described below. The Marketplace MCR increased to 91.2% in the second quarter of 2022, compared to 84.8% in the second quarter of 2021, or 640 basis points, and increased to 84.5% in the six months endedJune 30, 2022 , compared to 81.2% in the six months endedJune 30, 2021 , or 330 basis points. The increase for both periods resulted mainly from the increase in the 2021 risk adjustment payable discussed above. Results in 2022 also reflect changes in membership mix that includes higher acuity members, partially offset by the year-over-year change in the net effect of COVID. We are incurring less MCR seasonality relative to the prior year, due to the lower deductibles in the silver metal tier product.
Other
The Other segment includes service revenues and costs associated with long-term services and supports consultative services we provide inWisconsin , and also includes certain corporate amounts not allocated to the Medicaid, Medicare, or Marketplace segments. Such amounts were immaterial to our consolidated results of operations for the second quarters of and six months endedJune 30, 2022 and 2021, respectively.
LIQUIDITY AND FINANCIAL CONDITION
LIQUIDITY
We manage our cash, investments, and capital structure to meet the short- and long-term obligations of our business while maintaining liquidity and financial flexibility. We forecast, analyze, and monitor our cash flows to enable prudent investment management and financing within the confines of our financial strategy. We maintain liquidity at two levels: 1) the regulated health plan subsidiaries; and 2) the parent company. Our regulated subsidiaries generate significant cash flows from premium revenue, which is generally received a short time before related healthcare services are paid. Premium revenue is our primary source of liquidity. Thus, any decline in the receipt of premium revenue, and our profitability, could have a negative impact on our liquidity. In the first half of 2022, we did not experience noticeable delays to, or changes in, the timing or level of premium receipts as a result of the COVID-19 pandemic, but there can be no assurances that we will not experience such delays in the future. See further discussion below in "Future Sources and Uses of Liquidity-Future Uses-Potential Impact of COVID-19 Pandemic."
A majority of the assets held by our regulated health plan subsidiaries is in
the form of cash, cash equivalents, and investments. When available and as
permitted by applicable regulations, cash in excess of the capital needs of our
Molina Healthcare, Inc. June 30, 2022 Form 10-Q | 29
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regulated health plan subsidiaries is generally paid in the form of dividends to our parent company to be used for general corporate purposes. In the second quarter and six months endedJune 30, 2022 , the parent company received$165 million and$280 million , respectively, in dividends and return of capital from the regulated health plan subsidiaries. See further discussion of dividends below in "Future Sources and Uses of Liquidity-Future Sources." The parent company may also contribute capital to the regulated health plan subsidiaries to satisfy minimum statutory net worth requirements, including funding for newer health plans. In the second quarter and six months endedJune 30, 2022 , the parent company contributed capital of$10 million and$29 million , respectively, to the regulated health plan subsidiaries.
Cash, cash equivalents and investments at the parent company amounted to
respectively. The decrease as of
repurchase program and the timing of corporate payments and capital
contributions to regulated health plan subsidiaries, partially offset by
dividends received from regulated health plan subsidiaries.
Investments
After considering expected cash flows from operating activities, we generally invest cash of regulated subsidiaries that exceeds our expected short-term obligations in longer term, investment-grade, and marketable debt securities to improve our overall investment return. These investments are made pursuant to board-approved investment policies which conform to applicable state laws and regulations. Our investment policies are designed to provide liquidity, preserve capital, and maximize total return on invested assets, all in a manner consistent with state requirements that prescribe the types of instruments in which our subsidiaries may invest. These investment policies require that our investments have final maturities of less than 15 years, or less than 15 years average life for structured securities. Professional portfolio managers operating under documented guidelines manage our investments and a portion of our cash equivalents. Our portfolio managers must obtain our prior approval before selling investments where the loss position of those investments exceeds certain levels. We believe that the risks of the COVID-19 pandemic, as they relate to our investments, are minimal. The overall rating of our portfolio remains strong and is rated A+. Our investment policy has directives in conjunction with state guidelines to minimize risks and exposures in volatile markets. Additionally, our portfolio managers assist us in navigating volatility in the capital markets. Our restricted investments are invested principally in cash, cash equivalents, andU.S. Treasury securities; we have the ability to hold such restricted investments until maturity. All of our unrestricted investments are classified as current assets. Cash Flow Activities
Our cash flows are summarized as follows:
Six Months Ended June 30,
2022 2021 Change
(In millions)
Net cash provided by operating activities $ 731 $ 1,061 $ (330)
Net cash used in investing activities (591) (408) (183)
Net cash used in financing activities (268) (200) (68)
Net (decrease) increase in cash, cash equivalents,
and restricted cash and cash equivalents
$ (128) $ 453 $ (581) Operating Activities We typically receive capitation payments monthly, in advance of payments for medical claims; however, government payors may adjust their payment schedules, positively or negatively impacting our reported cash flows from operating activities in any given period. For example, government payors may delay our premium payments, or they may prepay the following month's premium payment. Net cash provided by operations for the six months endedJune 30, 2022 was$731 million , compared with$1,061 million in the six months endedJune 30, 2021 . The$330 million decrease in cash flow was due to the net impact of timing differences in government receivables and payables and partially offset by an increase in net earnings. Molina Healthcare, Inc. June 30, 2022 Form 10-Q | 30
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Investing Activities
Net cash used in investing activities was$591 million in the six months endedJune 30, 2022 , compared with$408 million used in investing activities in the six months endedJune 30, 2021 , a decrease in cash flow of$183 million . This decrease in cash flow was primarily due to the net activity of proceeds and purchases of investments in the six months endedJune 30, 2022 .
Financing Activities
Net cash used in financing activities was$268 million in the six months endedJune 30, 2022 , compared with$200 million used in the six months endedJune 30, 2021 , a decrease in cash flow of$68 million . In the six months endedJune 30, 2022 , financing cash outflows included common stock purchases of$200 million and$53 million for common stock withheld to settle employee tax obligations. In the six months endedJune 30, 2021 , financing cash outflows included common stock purchases of$128 million and$52 million for common stock withheld to settle employee tax obligations. Additionally, we paid$20 million in each of the six months endedJune 30, 2022 and 2021 to settle contingent consideration liabilities relating to our Kentucky Passport acquisition that closed in 2020.
FINANCIAL CONDITION
We believe that our cash resources, borrowing capacity available under the Credit Agreement as discussed further below in "Future Sources and Uses of Liquidity-Future Sources," and internally generated funds will be sufficient to support our operations, regulatory requirements, debt repayment obligations and capital expenditures for at least the next 12 months. On a consolidated basis, atJune 30, 2022 , our working capital was$3.1 billion , compared with$3.0 billion atDecember 31, 2021 . AtJune 30, 2022 , our cash and investments amounted to$8.1 billion , compared with$7.9 billion atDecember 31, 2021 .
Each of our regulated, wholly owned subsidiaries must maintain a minimum amount of statutory capital determined by statute or regulations. Such statutes, regulations and capital requirements also restrict the timing, payment and amount of dividends and other distributions, loans or advances that may be paid to us as the sole stockholder. To the extent our subsidiaries must comply with these regulations, they may not have the financial flexibility to transfer funds to us. Based upon current statutes and regulations, the minimum capital and surplus requirement for these subsidiaries was estimated to be approximately$2.2 billion atJune 30, 2022 , compared with$2.1 billion atDecember 31, 2021 . The aggregate capital and surplus of our regulated, wholly owned subsidiaries was in excess of these minimum capital requirements as of both dates. Under applicable regulatory requirements, the amount of dividends that may be paid by our regulated, wholly owned subsidiaries without prior approval by regulatory authorities as ofJune 30, 2022 , was approximately$170 million in the aggregate. These subsidiaries may pay dividends over this amount, but only after approval is granted by the regulatory authorities. Based on our cash and investments balances as ofJune 30, 2022 , management believes that our regulated, wholly owned subsidiaries remain well capitalized and exceed their regulatory minimum requirements. We have the ability, and have committed to provide, additional capital to each of our health plans as necessary to ensure compliance with statutory capital and surplus requirements.
Debt Ratings
Each of our senior notes is rated "BB-" by
Moody's Investor Service, Inc. A downgrade in our ratings could adversely affect
our borrowing capacity and increase our future borrowing costs.
Financial Covenants
The Credit Agreement contains customary non-financial and financial covenants, including a net leverage ratio and an interest coverage ratio. Such ratios are computed as defined by the terms of the Credit Agreement. In addition, the indentures governing each of our outstanding senior notes contain cross-default provisions that are triggered upon default by us or any of our subsidiaries on any indebtedness in excess of the amount specified in the applicable indenture. As ofJune 30, 2022 , we were in compliance with all financial and non-financial covenants under the Credit Agreement and senior notes.Molina Healthcare, Inc. June 30, 2022 Form 10-Q | 31 --------------------------------------------------------------------------------
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FUTURE SOURCES AND USES OF LIQUIDITY
Future Sources
Our regulated subsidiaries generate significant cash flows from premium revenue, which is generally received a short time before related healthcare services are paid. Premium revenue is our primary source of liquidity. Thus, any decline in the receipt of premium revenue, and our profitability, could have a negative impact on our liquidity. Potential Impact of COVID-19 Pandemic. Excluding acquisitions and our exit fromPuerto Rico , we added over 750,000 new Medicaid members sinceMarch 31, 2020 , when we first began to report on the impacts of the pandemic. We believe this membership increase was mainly due to the suspension of redeterminations for Medicaid eligibility. We expect Medicaid enrollment to continue to benefit from the extension of the PHE period, and the associated pause on membership redeterminations, at least throughmid-October 2022 . Dividends from Subsidiaries. When available and as permitted by applicable regulations, cash in excess of the capital needs of our regulated health plans is generally paid in the form of dividends to our unregulated parent company to be used for general corporate purposes. As a result of the COVID-19 pandemic, state regulators could further restrict the ability of our regulated health plan subsidiaries to pay dividends to the parent company, which would reduce the liquidity of the parent company. Credit Agreement Borrowing Capacity. As ofJune 30, 2022 , we had available borrowing capacity of$1 billion under the revolving credit facility of our Credit Agreement. In addition, the Credit Agreement provides for a$15 million swingline sub-facility and a$100 million letter of credit sub-facility, as well as incremental term loans available to finance certain acquisitions up to$500 million , plus an unlimited amount of such term loans as long as our consolidated net leverage ratio is not greater than a defined maximum. See further discussion in the Notes to Consolidated Financial Statements, Note 8, "Debt." Future Uses Common Stock Purchases. InSeptember 2021 , our board of directors authorized the purchase of up to$500 million , in the aggregate, of our common stock. This new program, which superseded the stock purchase program approved by our board of directors inSeptember 2020 , is funded with cash on hand and extends throughDecember 31, 2022 . The exact timing and amount of any repurchase is determined by management based on market conditions and share price, in addition to other factors, and subject to the restrictions relating to volume, price, and timing under applicable law. As ofJuly 27, 2022 ,$300 million remained available to purchase our common stock under this program throughDecember 31, 2022 . Acquisitions. OnJuly 13, 2022 , we announced a definitive agreement to acquire substantially all the assets of My Choice Wisconsin ("MCW"). As ofMay 2022 , MCW served over 44,000 managed long-term services and supports and core Medicaid members throughoutWisconsin , delivering approximately$1 billion in premium revenue for the 12 months endedMarch 31, 2022 . The purchase price for the transaction is approximately$150 million , net of expected tax benefits and required regulatory capital, which we intend to fund with cash on hand. The transaction is subject to receipt of applicable federal and state regulatory approvals, and the satisfaction of other customary closing conditions. We currently expect the transaction to close in 2022. OnOctober 7, 2021 , we announced a definitive agreement to acquire the Medicaid Managed Long Term Care business of AgeWell New York. The purchase price for the transaction is approximately$106 million , net of certain tax benefits and target allocation of required regulatory capital, which we intend to fund with cash on hand. The transaction is subject to applicable federal and state regulatory approvals and the satisfaction of other customary closing conditions. We currently expect the transaction to close in the fourth quarter of 2022. Potential Impact of COVID-19 Pandemic. As described above in "Trends and Uncertainties," we have been subject to Medicaid risk corridors as a result of the pandemic. Beginning in 2020, various states enacted temporary risk corridors in response to the reduced demand for medical services stemming from COVID-19, which have resulted in a reduction of our medical margin. In some cases, these risk corridors were retroactive to earlier periods in 2020, or as early as the beginning of the states' fiscal years in 2019. Since the second quarter of 2020, we have recognized risk corridors that we believe to be probable, and where the ultimate premium amount is reasonably estimable. For the three and six months endedJune 30, 2022 , we recognized approximately$94 million and$122 million , respectively, related to such risk corridors, primarily in the Medicaid segment. It is possible that certain states could change the structure of existing risk corridors, implement new risk corridors in the future or discontinue existing risk corridors. Due to these uncertainties, the ultimate outcomes could differ materially from our estimates as a result of changes in facts or further developments, which could have an adverse effect on our consolidated financial position, results of operations, or cash flows.Molina Healthcare, Inc. June 30, 2022 Form 10-Q | 32 --------------------------------------------------------------------------------
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Regulatory Capital Requirements. We have the ability, and have committed to
provide, additional capital to each of our health plans as necessary to ensure
compliance with statutory capital and surplus requirements.
CONTRACTUAL OBLIGATIONS
A summary of future obligations under our various contractual obligations and commitments as ofDecember 31, 2021 , was disclosed in our 2021 Annual Report on Form 10-K. There were no significant changes to our contractual obligations and commitments outside the ordinary course of business during the six months endedJune 30, 2022 .
CRITICAL ACCOUNTING ESTIMATES
When we prepare our consolidated financial statements, we use estimates based on assumptions that may affect reported amounts and disclosures; actual results could differ from these estimates. Our critical accounting estimates relate to: •Medical claims and benefits payable. Refer to Notes to Consolidated Financial Statements, Note 7, "Medical Claims and Benefits Payable," for a table that presents the components of the change in medical claims and benefits payable, and for additional information regarding the factors used to determine our changes in estimates for all periods presented in the accompanying consolidated financial statements. Other than the discussion as noted above, in the six months endedJune 30, 2022 there were no significant changes to our disclosure reported in "Critical Accounting Estimates" in our 2021 Annual Report on Form 10-K.
•Contractual provisions that may adjust or limit revenue or profit. For a
discussion of this topic, including amounts recorded in our consolidated
financial statements, refer to Notes to Consolidated Financial Statements, Note
2, "Significant Accounting Policies."
•Quality incentives. In the six months ended
significant changes to our disclosure reported in "Critical Accounting
Estimates" in our 2021 Annual Report on Form 10-K.
•Business combinations, goodwill, and intangible assets, net. In the six months endedJune 30, 2022 , there were no significant changes to our disclosure reported in "Critical Accounting Estimates" in our 2021 Annual Report on Form 10-K.
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