The paragraph introduces Molina Healthcare's First Quarter 2025 Earnings Conference Call. It mentions that the call is in a listen-only mode and is being recorded. Jeffrey Geyer welcomes participants and notes the presence of CEO Joe Zubretsky and CFO Mark Keim. A press release detailing the earnings was issued and is available on their investor relations website. A replay of the call will be accessible for 30 days. The remarks are current as of April 24, 2025, and will not be updated. The call includes discussions of non-GAAP measures, forward-looking statements about 2025 guidance, earnings, Medicaid rate adjustments, growth strategies, acquisitions, and potential risks and uncertainties that could impact actual results.

In the second paragraph of the article, a company's quarterly financial performance and future guidance are discussed by Joe Zubretsky, the CEO. The company reported adjusted earnings per share of $6.08 on $10.6 billion in premium revenue for the first quarter, with strong operating metrics and an 89.2% consolidated Medical Cost Ratio (MCR). Medicaid and Medicare businesses performed in line with expectations, with MCRs of 90.3% and 88.3%, respectively, reflecting effective cost management. The company's strategy to leverage its existing Medicaid footprint to serve high-acuity, low-income Medicare beneficiaries is successful. However, the Marketplace MCR was higher than expected at 81.7%. The company reaffirmed its full-year 2025 guidance, projecting $42 billion in premium revenue and at least $24.50 in earnings per share.

The paragraph discusses recent financial and strategic developments for a company. It highlights a normalized medical care ratio (MCR) of 77.7% after adjusting for specific prior items. The company achieved growth by securing contracts, including Medicaid services in Nevada and a dual eligible Medicare plan in Illinois, projecting $800 million in annual premium revenue from the latter. This supports their goal of reaching $46 billion in premium revenue by 2026 and at least $52 billion by 2027. Their acquisition pipeline remains strong, contributing to an increase in embedded earnings from $7.75 to $8.65 per share. The company maintains its 2025 premium revenue guidance at $42 billion and adjusted earnings per share at $24.50.

The paragraph discusses the company's financial projections and outlook for Medicaid and Medicare. It notes an increased expectation for 2025 Medicaid rates due to cost trends, alongside a more conservative cost trend outlook. The company believes any legislative changes to Medicaid will have a marginal impact on membership and will not disrupt earnings. While Congress works on reconciling legislative bills, the company expects no increase in uninsured individuals or reduction in government-supported benefits. Additionally, they are optimistic about the integration of Medicaid and Medicare and positive about the CMS final rate notice for Medicare Advantage.

The paragraph outlines the company's confidence in its marketplace stability and future business outlook, despite potential impacts from program integrity initiatives and decisions regarding enhanced subsidies affecting 2026 enrollment. The company has accounted for any membership impacts in its guidance and revenue outlook, with states allowing rate updates for 2026 to mitigate pricing risks. First-quarter results and 2025 guidance reflect effective medical cost management and consistent revenue and margin growth. Medicaid rates require a 200-300 basis point increase for equilibrium, which would help maintain performance. The business has shown resilience amid uncertainties, with solid 2025 earnings and growth projections supporting a 13-15% long-term EPS growth target.

In the sixth paragraph, Mark Keim discusses the financial performance for the first quarter, highlighting the company's total revenue of approximately $11 billion and a premium revenue of $10.6 billion, with an adjusted EPS of $6.08. The consolidated medical cost ratio (MCR) was 89.2%, indicating effective medical cost management. For Medicaid, the MCR was 90.3%, consistent with expectations despite moderately increased medical costs due to LTSS, high-cost drugs, and behavioral health services. Medicare's MCR was 88.3%, benefiting from exiting MAPD in 13 states. The Marketplace MCR was 81.7%, higher than expected due to non-recurring items, but when normalized, it was approximately 77.7%, aligning with expectations. The adjusted G&A ratio was 6.8% due to operating discipline and leverage benefits, and the capital foundation remains strong.

In the quarter, the company harvested $110 million in subsidiary dividends, ending with a cash balance of $190 million and an operating cash flow of $190 million for the first quarter. They repurchased 1.7 million shares for $500 million, and debt stood at 2 times the trailing 12-month EBITDA with a debt-to-cap ratio of 47%. Despite a lower than normal 46% in claims payable days due to an extra payment cycle, the company remains confident in its reserves. Looking ahead to 2025, they expect full-year premium revenue of approximately $42 billion, despite the mid-year loss of their Virginia contract, with higher growth in marketplace and Medicaid segments expected. The consolidated MCR guidance is stable at 88.8%, with Medicaid at 89.9% and Medicare at 89%, as rate increases align with updated actuarial data while being offset by slightly higher projected trends. Confidence remains high in their Medicare duals and integrated product business.

The company has increased its full-year Medical Care Ratio (MCR) guidance from 79% to 80% due to unfavorable non-recurring impacts. Despite this, the company's marketplace MCR trajectory remains largely consistent, and it expects mid single-digit pre-tax margins. The membership outlook has risen to approximately 620,000 due to strong enrollment, while the full-year General & Administrative (G&A) ratio has improved to 6.9%. The company maintains its EPS guidance of at least $24.50 per share, with positive impacts from share repurchases, higher volumes, and a better G&A ratio offsetting negative impacts from higher MCR and a contract termination in Virginia. Earnings are expected to be evenly distributed throughout the year. Embedded earnings per share have increased to $8.65, attributed to a duals contract win in Illinois and adjustments for the Virginia contract loss.

The paragraph discusses the company's positive outlook on marketplace exchanges, noting a 400 basis point increase in the Medical Care Ratio (MCR) in the first quarter due to non-recurring factors. These factors include membership reconciliations, where unauthorized members were removed by CMS, and a true-up for 2024 risk adjustment. Joe Zubretsky emphasizes that these are one-time occurrences. Additionally, for the acquisition of ConnectiCare, the company's MCR will initially operate at the inherited rate, which is in the mid to high 80s. Despite these non-recurring items, the company is maintaining its positive growth projections and ready for questions from analysts.

The paragraph discusses a company's financial targets and adjustments for the year. They are on track to achieve their goal of $1 in earnings accretion, ending the year with 620,000 members and mid single-digit margins. Mark Keim elaborates on a breakdown of the 400 basis points, highlighting three key areas: final prior year risk adjustment, member reconciliation, and new store impacts. The risk adjustment was slightly less favorable than anticipated, while member reconciliation issues arise around tax filing times, revealing policies unknown to some members. Integrity improvements are expected to reduce these issues in the future. Additionally, ConnectiCare’s initial impact was higher than expected, but adjustments are underway. These factors contribute to the reported metrics discussed.

In the paragraph, Andrew Mok from Barclays questions the updates in assumptions for rates and cost trends related to Medicaid and ACA. Joe Zubretsky explains that rate updates led to a $150 million increase, impacting the year's second, third, and fourth quarters. The company didn't alter its Medicaid MCR forecast early in the year due to uncertainty, instead implementing a topside adjustment to the medical cost trend. Mark Keim confirms the unchanged full-year Medicaid guidance at 89.9% MCR but notes that rate and trend assumptions have been adjusted to 5% from previous figures, based on known future rates. Mok confirms his understanding of the unchanged forward expectations on rates.

In the discussion, Mark Keim mentions that their forward rates have improved, leading to an increase in full-year guidance from 4.5% to 5%. Joe Zubretsky explains that they initially knew rates for 75% of their revenue, but now have visibility on 85%, with modest estimates for September and October rate adjustments. This 5% annual rate increase includes these known rates. Andrew Mok acknowledges this and inquires about the impact of seasonal illnesses, specifically pointing to flu. Zubretsky mentions using the ILI definition and notes they exceeded normal estimates by $10-$15 million, but this was anticipated in their guidance. Josh Raskin from Nephron Research asks about the integration of marketplace exchanges into their long-term strategy and queries about synergies beyond gross margin contribution. He also notes that medical margin dollars increased by 20% in the first quarter and inquires if there's a strategy to address volatility.

The paragraph describes a strategy focused on government-sponsored managed care, highlighting the synergy between various product lines that cater to individuals moving between Medicaid, Medicaid expansion, and marketplace plans. Joe Zubretsky emphasizes the value of retaining members throughout their lifecycle, including when they turn 65 with a D-SNP offering. The business has historically achieved high pre-tax margins, which have been reinvested into membership growth with a target of mid single-digit margins due to the volatility of new memberships without risk adjustments. Mark Keim notes that the market segment is small and subject to economic fluctuations, emphasizing pricing for margin and accepting volume outcomes. The discussion includes mention of potential Medicaid adjustments in the broader political landscape.

In the paragraph, Joe Zubretsky addresses a question about whether the discussions and uncertainties in Washington are impacting state rate updates or Request for Proposal (RFP) processes. He states that these issues do not affect rate discussions, which are focused purely on actuarial data and cost trends, with pressure points identified in specific cost categories like LTSS, behavioral health, and high-cost drugs. The RFP cycle is currently at a low point with not many re-procurements expected in the next two years. Therefore, the Washington debate does not influence state actions regarding rate development or program re-procurement. The segment concludes with a transition to Justin Lake's questions about effectuation rates and Medical Loss Ratio (MLR).

In the paragraph, Joe Zubretsky talks about the success of Molina's open and special enrollment periods, noting they've increased their membership to 660,000 from 400,000 the previous year. The company is seeing good effectuation rates, particularly in about 50% of their market footprint, which is attributed to pricing and customer decisions to stay with or switch to Molina during enrollment periods. Mark Keim adds that while effectuation is strong, it's too early to assess the Medical Loss Ratio (MLR) since a significant portion of their members is new. John Stansel from JP Morgan asks about the company's General and Administrative (G&A) expenses related to IT costs, to which Joe Zubretsky responds positively, indicating the company is managing these costs well.

The paragraph discusses financial strategies and projections for managing medical costs and general and administrative (G&A) expenses. The company has reduced its G&A ratio to the high 6% range and aims to further decrease it to the mid or low 6% range by 2027 through disciplined cost management. This should improve margins or counteract medical cost ratio pressures. Mark Keim mentions a flat G&A trajectory for the year, noting some variations in expenses due to upfront implementation costs and back-end marketing expenses. Sarah James from Cantor Fitzgerald asks about Medicaid cost trends and their impact on the company's business, which Joe Zubretsky confirms was addressed earlier.

The paragraph discusses updates in the Medicaid and Marketplace segments of a healthcare business. The company received a $150 million rate update for Medicaid, raising their full-year rate update from 4.5% to 5%. However, they chose not to immediately adjust their Medical Care Ratio (MCR) guidance by 50 basis points due to early-year conservatism and lack of first-quarter evidence necessitating a trend increase. They plan to reassess after the second quarter. On the Marketplace side, the company experiences a flatter trajectory of Medical Loss Ratio (MLR) due to new memberships from special enrollment periods, improvements in ConnectiCare as new stores typically perform better over time, and a lower bronze mix, which offers less seasonality. The paragraph ends with Joana Gajuk from Bank of America asking about the Medicare Advantage (MA) segment, noting that the Medical Loss Ratio (MLR) there seemed in line with expectations.

The paragraph discusses aspects of a company's Medicare Advantage plans and their market strategies. Mark Keim states that their Medicare Advantage is performing as expected with an 89% guidance and a 2.7% build trend for the year, although rates are slightly lower. Factors like utilization and Part D under the IRA are in line with expectations, although Medicare is a small part of their portfolio. On the M&A front, Joe Zubretsky notes that the pipeline is filled with opportunities despite uncertainties. The company continues to analyze potential acquisitions, particularly of underperforming businesses, and remains active in M&A efforts. Some single-state operators are struggling in the current climate, potentially increasing M&A opportunities, while the company benefits from being diversified across 22 states.

The paragraph discusses the company's strategy and progress in mergers and acquisitions (M&A) to achieve its target growth rate. Despite already reaching the lower end of their 2027 revenue estimate of $52 billion, the company is confident about achieving an additional $3 billion through M&A in the next 18 to 24 months. Additionally, the discussion shifts to value-based care (VBC) and contracting, particularly its focus on Medicare Advantage, where most activity has been concentrated. While VBC is gradually being implemented in Medicaid, the company is compliant with regulatory requirements and is working on managing cost structures and risk adjustments effectively through its national networking unit's VBC arm.

The paragraph describes a discussion about value-based care arrangements and regulatory compliance, emphasizing an effort to increase penetration in collaboration with major provider partners. Mark Keim explains that what is referred to as supplemental payments are actually directed payments, which are a routine part of their operations, acting as pass-throughs from the government to providers needing enhanced funding. Joe Zubretsky highlights the discussions around Medicaid budget cuts, which may involve enrollment, benefit, or provider payment reductions. This is a crucial policy debate on whether providers can withstand such cuts, impacting their margins. Michael Ha from Baird is then invited to ask the next question.

The paragraph discusses the ongoing challenges and strategic adjustments related to exchange growth and risk adjustment. Joe Zubretsky highlights the success of Molina Healthcare in securing complex RFP submissions in the integration of Medicare and Medicaid programs in states like Ohio, Illinois, and Michigan. The company is heavily investing in these integrations by providing a unified membership experience. While there is speculation about states allowing more plans in their Medicaid RFPs, the early signs are favorable for Molina due to its extensive Medicaid presence and competitive dual-eligible SNP (D-SNP) offerings. The company remains optimistic about future developments, despite hearing similar industry chatter.

The paragraph discusses the challenges and strategies of a company in a competitive marketplace. The company emphasizes that its growth is not just for expansion's sake, but rather focused on maintaining margins, despite market volatility. Mark Keim highlights potential headwinds like subsidies and changes in the market cycle, stressing the importance of pricing for margin over volume. George Hill from Deutsche Bank then raises a concern about state Medicaid needing significant rate increases amidst widespread state budget deficits. He questions how states can handle projected high single-digit cost increases in Medicaid over the coming years, given financial constraints, and seeks insight into the broader conversation on managing these costs.

In the paragraph, Joe Zubretsky discusses state budget concerns and their impact on rate discussions. He explains that there's little correlation between the strength of rates and whether a state is politically red, blue, or purple, or whether a state has a surplus or deficit budget. Despite potential budget stress, affordable rates remain a focus. Zubretsky expresses confidence that the market's cost structure will lead to operating 200 to 300 basis points better than the broad market. He anticipates a return to program equilibrium, expecting their performance to improve to 89% or better, enabling them to pay into corridors again in the foreseeable future. He acknowledges concerns but is optimistic based on historical actuarial soundness over time. The paragraph ends with the operator introducing a question from Dave Windley from Jefferies.

The paragraph discusses issues with individuals unknowingly enrolled in a subsidized product, possibly due to broker fraud or lack of awareness. When filing taxes in 2024, these individuals may find they owe money because they didn't qualify for the subsidies received. The government will reclaim these subsidies, causing revenue challenges. Approximately $40 million in adjustments were noted, with about a third related to this issue. Although some additional cases might emerge, their impact is expected to be minimal. The paragraph also mentions increased integrity rules for the Open Enrollment Period (OEP) as a way to prevent such issues in the future.

The paragraph discusses the impact of an "agent of record lock" on the market, noting that it reduced the ease of brokers switching clients and decreased market churn. Although these challenges will not disappear completely, new integrity rules are believed to significantly mitigate churn and potential fraudulent activities. Joe Zubretsky clarifies that their organization must service all members as directed by CMS, without questioning their authorization status. The paragraph concludes with the operator ending the conference call.

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