The Molina Healthcare Third Quarter 2023 Earnings Call has begun, with the operator welcoming participants and providing instructions. The call will feature Molina's President and CEO, Joe Zubretsky, and CFO, Mark Keim. A press release with third quarter earnings was distributed yesterday and a replay will be available for 30 days. Non-GAAP measures will be discussed and caution is advised for forward-looking statements.

In the third quarter of 2023, the company reported strong financial results, with 16% year-over-year growth in adjusted earnings and a 88.7% consolidated MCR. The CEO discussed updates on various topics, including full year guidance, Medicaid redeterminations, growth initiatives, and strategy for sustaining profitable growth. The company's Medicaid business performed as expected, while Medicare results were below expectations due to higher utilization of certain services. The marketplace segment continued to perform well.

The company's medical cost trends are in line with their pricing assumptions, and their risk adjustment performance has improved. They have reaffirmed their full year 2023 earnings per share guidance and are expecting 16% growth year-over-year. Despite the redetermination activity in their Medicaid states, their membership was nearly unchanged due to growth from new contracts and acquisitions. However, they have lowered their retention assumption from 50% to 40%. The company will provide more information on redeterminations and their impact on revenue. The company also discusses their growth initiatives and strategy for sustaining profitable growth, including recent state wins.

The company's new California contract and Texas STAR+ program are on track to significantly increase membership and annual premium revenue. The launch of their Iowa health plan was successful, and their Nebraska implementation is expected to contribute $600 million in annual premium. They will also begin serving Medicaid beneficiaries in New Mexico in mid-2024, adding $500 million in annual premium. However, they did not meet readiness requirements for a Medicaid contract in Indiana, but this does not affect their overall growth agenda. The company also recently closed the acquisition of My Choice Wisconsin, adding 40,000 members and $1 billion in annual premium revenue.

The regulatory approval process for the Bright Medicare acquisition is going according to plan and the company expects to close the acquisition in the first quarter of 2024. They are confident in their revenue growth for 2024 and are committed to their long-term financial targets. The company has made changes to their management team to support their growth and Marc Russo will be leaving the company.

The success of the company is attributed to the hard work and dedication of all employees, with a special mention to the 18,000 associates who provide access to high quality healthcare. The third quarter results show strong performance and growth, with a focus on maintaining a favorable margin profile. The MCR for Medicaid and Medicare were slightly elevated due to redetermination acuity shifts and a provisional retroactive rate adjustment. The company is confident in their 2024 bids and expects to meet target margins next year.

Marketplace reported a strong MCR of 78.9%, exceeding their mid-single-digit target margins. However, they also recorded a non-recurring charge due to financial difficulties of a program participant in Texas. This charge has been excluded from adjusted earnings and the adjusted G&A ratio for the quarter was 7.1. The company's balance sheet remains strong with a low debt-to-cap ratio and ample cash and capital for growth. Their reserve approach remains consistent and they are confident in their reserve position, with days in claims payable at 51 due to the inclusion of new plans in Wisconsin and Iowa.

The company's reported DCP for the third quarter was impacted by temporary factors, but would have been consistent with previous quarters. The company is affirming its earnings per share guidance for 2023 and expects new store embedded earnings to remain unchanged. The company has been closely monitoring redeterminations and has seen a significant number of members being reconnected after being termed. However, the company expects reconnects to continue decreasing due to state and CMS interventions.

The company is seeing an increase in former Medicaid members enrolling in their Marketplace products. They are also working with state partners to adjust rates to reflect the impact of redeterminations. The company expects to see a 19% growth in premium revenue in 2024, with organic growth and new state contracts contributing to this increase. However, there will also be a decrease in revenue due to redeterminations and pharmacy carve-outs.

The company has revised their retention assumption and lowered their 2024 premium revenue by $300 million, but they expect gains in the marketplace to offset this. They also expect positive earnings in 2024 due to a solid 2023 baseline, unchanged embedded earnings, strong investment income, and improved Medicare performance. However, there are still some unknown variables, such as redetermination activity and unknown rates for 60% of their Medicaid revenue. The first year earnings contribution from the Bright acquisition is also still under review. Overall, the company is pleased with their third quarter performance and is focused on achieving their growth targets.

The speaker responds to a question about the company's growth in the exchange market from a research analyst. They state that they have seen an increase in special enrollment due to the redetermination process, with an average of 12,000 new members per month. They also mention that they are gaining members from both their own book of business and from competitors, and are pleased with the results. The speaker's colleague adds that they gained 40,000 members through SEP in the quarter, compared to a net loss of 200,000 in Medicaid.

The company reports a good conversion rate for Medicaid members and is seeing a high reconnect rate for those who have lost eligibility. They expect to lose 480,000 members gained during the pandemic, but the Marketplace pickup is likely to increase. In the Medicaid business, the MLR is in line with expectations, but there is pressure without the offset of risk corridors. The MA business had a worse Q3, but the company was able to catch it in time for their bid.

The speaker is discussing the Medicaid MLR and how it has outperformed industry benchmarks, resulting in a liability for the company. This liability acts as a cushion to absorb any deterioration in performance, such as an acuity shift or trend inflection. The company is still booking corridor expenses, but the liability helps to offset them. This is all part of the planned process and is developing as expected.

Joe Zubretsky and Kevin Fischbeck discussed the company's performance in the current fiscal year and expectations for the new rate cycle. They also addressed concerns about the Medicare MCR, which ran high in the quarter but is expected to improve in the future. Joe mentioned that the company aims for best-in-class margins and is conservative in its pricing, which should help mitigate any potential cost trends. Overall, they anticipate 15% to 18% EPS growth over the next three years, with potential unknown factors that could impact this range.

The company is confident in its $38 billion revenue outlook for next year, with expected growth and best-in-class margins. They believe interest rates will remain high and are waiting to see how redetermination experience and Medicaid rates will develop before giving a specific earnings per share forecast for 2024.

The company is confident in their long-term earnings growth rate and expects a 52-64% increase in earnings per share by 2026. They also reported a 88.8% increase in Medicaid for the quarter, with about 30 bps related to a rate adjustment in New York. There was a higher amount of prior year development in the third quarter, potentially impacting earnings. The company is having conversations with states about rates, and it is unclear if investment income will affect these rates.

The conversation about rates in the insurance industry generally focuses on medical margin and trend assumptions, with some consideration given to G&A load. Investment income is not often discussed. The company has a strong balance sheet and their payment integrity routines (prepay and postpay) are effective in identifying and recovering overpayments from providers. Prior period development is largely offset by corridor liabilities, and the company's current reserving position is strong. The speaker, Mark Keim, feels confident about the company's current reserving position and the strength of their prior year exercise through their payment integrity function. The next question is from a different topic.

The speaker is discussing the impact of members who have not reconnected within the 90 to 120 day window but are still eligible for Medicaid. They mention that it is still too early to tell how these efforts are bearing fruit, but they suspect these members will come back in at the portfolio average. The speaker also explains that there are two categories of reconnects, seamless and with a gap, and they are confident in their ability to recapture those with a gap through their auto-assign process.

The speaker, Joe Zubretsky, is discussing the rates for the company and mentions that they are generally satisfactory, but this is a retroactive rate that the entire industry is advocating for. He also mentions that 40% of the rates impacting 40% of their revenue for 2024 in the Medicaid business have been actuarially sound. Another speaker, Calvin Sternick, thanks him for the information. The next question is about acuity and how the higher level of procedural disenrollments may have impacted it. Zubretsky says that it is running in line with their expectations and that the reconnect population is expected to have similar MLRs as the rest of the stayers. This is based on data and they are seeing the reconnects come back closer to the portfolio average.

The speaker responds to a question about historical benchmarks of data and explains that the MLR of reconnects has been good in the past few years. They also mention the importance of tracking durational acuity and lever stayers and joiners in the business, but notes that the redetermination pause during the PHE has caused a higher rate of people leaving than joining. They caution against extrapolating data points and mention that certain states front-loaded the process, leading to a higher than expected reconnect rate. The next question asks about the performance and bid positioning of the Bright Medicare asset that the company is acquiring.

The speaker discusses the strategic complement of their Medicare business and the recent acquisition of a company in California. They are confident in their earnings per share accretion but do not comment on the acquired company's financial performance. They also mention potential volatility in the exchanges market.

The speaker discusses two questions about membership growth and the MCR. They mention that they have outperformed their MCR expectations in the third quarter and plan to continue growing the marketplace business in a measured and modest way. They also mention that they have achieved high pretax margins and plan to maintain at least mid-single-digit pretax margins in the future. The speaker also emphasizes the importance of being small, stable, and silver in their product.

The speaker discusses the company's rate adjustments and how they have stabilized the risk pool. They are feeling good about their outlook and expect more volume and margins conforming with their discipline. A question is asked about the retrospective rate adjustments and the speaker mentions that they are working on them with a data-driven process. The questioner also asks about the $5.50 of embedded earnings, which the speaker confirms includes a portion from Indiana.

The speaker responds to a question about backfilling and the profitability of Bright in the first year. He confirms that they removed Indiana from embedded earnings but replaced it with New Mexico and an expansion in Texas. He also mentions that they are confident in achieving the $1 earnings per share accretion number, but they are unsure about the first year's earnings per share due to the company's situation. The speaker then clarifies that they cannot comment on the rejoiners' earnings in the two states that did not put in acuity adjustments yet.

The speaker mentions that the rate cycle is difficult to predict due to the redetermination process and introduces the word "yet" to indicate uncertainty. They also clarify that the increase in membership is due to both Medicaid and marketplace reconnects, and that the process is still ongoing in some states. They express confidence in the process and thank the audience for attending.

This summary was generated with AI and may contain some inaccuracies.