The Molina Healthcare Second Quarter 2024 Earnings Conference Call has begun, with the operator welcoming participants and explaining the format of the call. The company's President and CEO, Joe Zubretsky, and CFO, Mark Keim, are present to discuss the recently released earnings report. Non-GAAP measures will be referenced and a reconciliation with GAAP measures can be found in the earnings release. Forward-looking statements will be made, but listeners are cautioned that these are subject to risks and uncertainties.

In the second quarter, the company reported earnings per share of $5.86 and $9.4 billion of premium revenue. They also reaffirmed their full year 2024 guidance of $38 billion in premium revenue and at least $23.50 in earnings per share. The company's consolidated MCR was 88.6%, which reflects disciplined medical cost management. Their Medicaid business had a higher MCR due to a one-time prior year retroactive premium item and new store additions. The company's focus on managing medical costs has led to results in line with their expectations.

The article discusses the reasons for slightly higher medical costs in the legacy Medicaid portfolio, but expects them to improve in the second half of the year due to known rate adjustments and other factors. The company's Medicare products performed better than expected in the second quarter, and the newly acquired Bright business is meeting expectations. The company's strategy of serving high-acuity, low-income Medicare beneficiaries is working well, and the Marketplace MCR was 71.6% in the second quarter.

The business exceeded expectations and saw increased membership gains. The company remains confident in delivering their full year earnings guidance and expects improvements in the second half of the year. The company also announced an acquisition of ConnectiCare, a government-sponsored healthcare provider. This aligns with their strategy of expanding core product lines in their existing Medicaid footprint.

The company is discussing their plans for growth through acquisitions and winning new business contracts in the Medicaid and Medicare markets. They have recently been awarded contracts in Florida and Wisconsin and are confident in their prospects in Georgia. They also mention upcoming bidding opportunities, including the Texas STAR Kids RFP. In Medicare, they are focused on serving low-income and high-acuity populations.

The company is well-positioned to attract dual-eligible members through their integrated Medicare and Medicaid products. They are also focused on growing organically in underpenetrated markets and expect to meet their target of $46 billion in premium revenue by 2026. The company remains committed to delivering on their long-term earnings per share growth targets and their financial performance has been strong, with the Medicare and Marketplace businesses outperforming and improvements expected in Medicaid. Challenges have been successfully navigated during the 24-month redetermination process.

The paragraph discusses the financial performance of Molina Healthcare during the second quarter, highlighting their strong revenue and adjusted EPS. The company's MCR was slightly above expectations, but still on track to meet their full year guidance. The Medicaid MCR was impacted by a one-time retroactive premium adjustment in California, but adjusting for this, the reported MCR falls to 90.1%. The company also mentions an upcoming Investor Day event where they will provide details on their growth targets and 2025 EPS outlook.

The company's new store additions are running at a higher MCR but are expected to decline in the coming quarters. The legacy Medicaid MCR was slightly above the target range due to redetermination related acuity shifts. The company has been paying into minimum MLRs and corridors, which has helped to offset the temporary difference between rates and medical cost trend. The company expects the second half Medicaid MCR to be lower due to several factors, including a retro rate item.

In the second half of the year, new store additions will continue to improve and approach target margins. The rate cycle of state mix will also return rates in line with trends for the remainder of 2024 and into 2025. States determine rates based on hard data rather than speculation, and higher trends in the first and second quarters will benefit the rate setting process. This, combined with off-cycle adjustments and known rate adjustments, is expected to drive a 70 basis point improvement in the second half Medicaid MCR. As a result, the full-year Medicaid guidance has been increased to 89.3%. Additionally, there will be a few comments on membership in Medicaid.

In the second quarter, the company estimates a net loss of 100,000 Medicaid members through redetermination, bringing the total to 650,000. However, the outlook for the ultimate net loss of 600,000 members remains unchanged. The company's full-year membership guidance remains at 5.1 million members. In Medicare, the company's reported MCR was 84.9%, driven by favorable risk adjustments and benefit adjustments. In Marketplace, the reported MCR was 71.6%, better than expected. The company's adjusted G&A ratio for the quarter was 6.9%, reflecting operating discipline and fixed-cost leverage. The company's capital foundation remains strong, with a low-leverage position and ample cash and capital capacity for growth and investment.

The company's days in claims payable at the end of the quarter were consistent with prior quarters, indicating confidence in their reserves. Their operating cash flow for the first six months of 2024 was lower than the previous year due to various factors. The company reaffirms their full-year guidance for premium revenue and EPS, with an increase in expected investment income and contract extensions offset by one-time adjustments and Medicaid performance. The MCR for Medicaid is expected to increase slightly, while Medicare and Marketplace remain unchanged. The company is prepared for continued growth in the Marketplace and has taken it into consideration in their 2025 bids.

The company has increased their guidance on new store embedded earnings to $5 per share, with $1 coming from the ConnectiCare acquisition. They expect over half of these earnings to emerge in 2025 and the remainder in 2026. The company also sees a clear path to achieve their EPS growth target for 2025, with factors such as embedded earnings, organic growth, and strategic initiatives. They have also benefited from a risk adjustment true-up in both the public exchanges and Medicare Advantage, but the exact impact on their guidance is not specified. In terms of Medicaid, the company has not seen any increase in utilization beyond what is expected from redetermination.

The speaker discusses the additional risk adjustment benefit recognized in the Marketplace and the impact it had on first half revenue. They also mention that there was a similar benefit in the previous year. In response to a question, they explain that there are some pockets of utilization increases in certain areas and categories, but nothing out of the ordinary. The speaker also clarifies that there was pressure in the same-store portfolio in the first quarter, but it may have worsened since then.

In the second quarter, there was more pressure on the legacy book due to a decrease in membership. The company lost 100,000 members in the second quarter, but expects to gain back 50,000 through reconnects. The pressure was not worse than expected in the first quarter. The pressure is isolated and varies across different healthcare cost categories and individual health plans. The company has been paying into risk corridors for the past four years, giving them a 200 basis point cushion in case of a medical cost inflection.

The speaker talks about how there have been pockets of utilization increases in various categories and plans, mostly due to corridors and rate increases. He also mentions that 35% of revenue renews in the second half of the year. In response to a question about Medicaid, the speaker says they have not seen any over-utilization from people losing coverage, as most of the terminations are due to procedural reasons and not known in advance.

In the paragraph, the speaker discusses the impact of reconnects on utilization and Medicaid margins. They clarify that while there may be a slight increase in utilization for the first month after a reconnect, it quickly resolves to the average. They also mention that the commercial MLR for exchanges was 75% last year and is currently tracking at 78% for this year, but this is due to higher utilization from SEP members and seasonality. The speaker suggests that they may be more aggressive on growth next year to try and grow the business.

In paragraph 17, the speaker discusses the company's solid margin position and their growth rate being determined by their ability to produce mid-single-digit margins. In the next paragraph, another speaker talks about the reported results for the MCR in the first quarter and how it is tracking to an 89.3 for the full year, which is up from the last time they met. The increase is mainly due to a one-time California item and some pressure from the second quarter legacy business, but they are confident in their three building blocks to support this. The following question from an analyst asks for clarification on how the company's view on MLR in Medicaid compares to their peers, and the speaker mentions risk corridors offsetting some of the pressure. The analyst asks for a breakdown of the MLR pressure.

The speaker explains that the company has been paying into the corridors and that this has been acting as a financial buffer. The corridor liability is not currently at 200 basis points, but some of it remains in various geographies. The speaker also mentions that the corridors do not disappear forever and will replenish at the next rate cycle. Additionally, the company has seen a trend for the year of 150 basis points higher than expected.

The paragraph discusses the impact of known rate adjustments and corridor dynamics on the second quarter results. The company is seeing a higher trend of 1.5%, which is offset by rate adjustments and corridors. The PYD benefit to MLR was almost 200 basis points, primarily picked up by prior year corridors. There is also a discussion about the potential impact of the exchange population if enhanced subsidies are not extended at the end of 2025.

The company's payment integrity business has been addressing fraud, waste, and abuse in prior years, mostly in Medicaid and Medicare. This year, there was significant prior year development caught up in prior year corridors. The company has models to estimate the potential impact of expiring enhanced subsidies on their exchange business, with industry estimates ranging from 10% to 20% of membership being affected. The company also has a lower priced bronze product that could potentially recapture some of the affected membership. The company is unable to provide a specific first half number for the corridor expense, but it is comparable to 200 basis points. The percentage of premiums with protection against underlying Medicaid performance is not specified.

Stephen Baxter is asking about the rate update process and if the recent deterioration in the second quarter will affect it. Mark Keim explains that corridors, which track to an ultimate across the full year, are typically embedded in their reported MCR, and that roughly half of the normal rate was used in the first half of the year. Joseph Zubretsky adds that they have detailed models and an accounting system for tracking NIM and MLR and corridors.

The speaker explains that they do not give specific numbers on the amount of premium that is protected because it can be misleading. They have a clear understanding of their protection and potential for growth in different areas. They reiterate their 2026 premium guidance and mention that their projections may be influenced by M&A activity. They clarify that their recent transactions in Medicare and marketplace are still considered core, and they are actively pursuing Medicaid opportunities.

Michael Hall from Baird asks about the lack of cash flow from operations in the first half of the year and requests clarification on the amounts of larger pieces that contribute to this. He also asks about the MA risk adjustment benefit and how it specifically benefited the company's second quarter MA MLR. Mark Keim responds, explaining that government services MCOs have lumpier cash flow due to the timing of large payments such as risk adjustment and corridors.

The speaker discusses the operating cash flow (OCF) of the business, stating that it is expected for OCF to be ahead of net investment income in a growing business. They then explain three unique factors that affected OCF in the first half of the year, including timing of risk corridor payments, CMS payments, and a cash flow benefit from California taxes. These factors account for the majority of the reported OCF deficit, but the speaker reassures that the business is still comfortable with its cash flow.

The company has seen a normalization in the relationship between operating cash flow and net income over a broader period of time. The Medicare risk adjustment has been a benefit from this year's operations, and the company has improved its risk adjustment equation. The operating cash flow is expected to be slightly ahead of net income in the second half of the year, and the Connecticare acquisition is not performing to the company's target margins.

The speaker discusses their plans to improve the MCRs in both the marketplace and Medicare businesses and rationalize the G&A spend. They mention a recent acquisition and how they plan to use their playbook to reach target margins. They also address concerns about states cutting rates and the potential impact on the business. In terms of risk quarter contributions, the speaker is confident in the contributions and notes that there was a decrease in Q2, but does not provide specific numbers.

The company is not expecting any more rate increases for the rest of the year and the known increases will be spread out over the fiscal year. Examples of known rate increases include a high single digit increase in Texas and a mid-year increase in Kentucky due to suspension of UM on outpatient behavioral. Conversations with state regulators and customers have been productive.

The speakers mention that they have a database and are taking reasonable positions regarding program-related or acuity shift issues. George Hill thanks them and the operator concludes the event.

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