Molina Healthcare, Inc.

MOH

US60855R1005

Managed Healthcare

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Apr. 25	Barclays Adjusts Molina Healthcare Price Target to $430 From $437	MT
Apr. 25	Transcript : Molina Healthcare, Inc., Q1 2024 Earnings Call, Apr 25, 2024

Molina Healthcare : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ("MD&A")

July 31, 2020 at 10:03 am EDT

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 of our Annual
Report on Form 10-K for the year ended December 31, 2019, our Quarterly Report
on Form 10-Q for the quarter ended March 31, 2020, Current Reports on Form 8-K,
and in this Form 10-Q, titled "Risk Factors," including without limitation the
following:
•the impact of the COVID-19 pandemic on our operations and financial results;
•the numerous political, judicial, and market-based uncertainties associated
with the Affordable Care Act (the "ACA") or "Obamacare," including the ultimate
outcome of the Texas et al. v. U.S. et al. matter now pending before the U.S.
Supreme Court;
•significant budget pressures on state governments from diminished tax revenues
and their efforts to curtail current rates, to implement expected rate
increases, or to maintain existing benefit packages or membership eligibility
thresholds or criteria;
•our expected exit from Puerto Rico, including the successful transfer of our
members to alternative health plans, the effective run-out of claims, and the
return of our capital;
•the market dynamics surrounding the ACA Marketplaces, including but not limited
to uncertainties associated with the elasticity of demand for our products based
on our pricing, risk adjustment estimates and results, the potential for
disproportionate enrollment of higher acuity members, and the discontinuation of
premium tax credits;
•the uncertainties associated with the November 2020 Presidential and
Congressional election;
•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;
•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;
•our ability to consummate, integrate, and realize benefits from acquisitions,
including the announced acquisitions of Magellan Complete Care and of Passport;
•effective management of our medical costs;
•our ability to predict with a reasonable degree of accuracy utilization rates,
including utilization rates associated with the flu or coronavirus;
•the full reimbursement of the ACA health insurer fee, or HIF;
•the success of our efforts to retain existing or awarded government contracts,
and the success of any requests for proposal, including our contracts in Ohio,
California, Texas, and Kentucky;
•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;
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•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;
•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;
•cyber-attacks, ransomware attacks, or other privacy or data security incidents
resulting in an inadvertent unauthorized disclosure of protected health
information;
•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;
•complications, member confusion, eligibility re-determinations, or enrollment
backlogs related to the renewal of Medicaid coverage, as well as the chilling
effect of the new so-called public charge rule;
•government audits, reviews, comment letters, or potential investigations, and
any fine, sanction, enrollment freeze, monitoring program, or premium recovery
that may result therefrom;
•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 favorable resolution of litigation, arbitration, or administrative
proceedings, including litigation involving the ACA to which we are not a direct
party;
•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 the Credit
Agreement or the indentures governing our outstanding notes;
•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 this Quarterly
Report on Form 10-Q, Current Reports on Form 8-K, the Quarterly Report on Form
10-Q for the quarter ended March 31, 2020, and in our Annual Report on Form 10-K
for the year ended December 31, 2019, 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 Annual Report on Form 10-K
for the year ended December 31, 2019.

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OVERVIEW
Molina Healthcare, Inc., a FORTUNE 500 company, provides managed healthcare
services under the Medicaid and Medicare programs, and through the state
insurance marketplaces (the "Marketplace"). Through our locally operated health
plans in 14 states and the Commonwealth of Puerto Rico, we served approximately
3.6 million members as of June 30, 2020. The health plans are generally operated
by our respective wholly owned subsidiaries in those states, each of which is
licensed as a health maintenance organization ("HMO").
SECOND QUARTER 2020 HIGHLIGHTS
We reported net income per diluted share of $4.65 for the second quarter of
2020, with net income of $276 million. This result was supported by:
•Premium revenue of $4.4 billion, which increased 8.0%.
•A consolidated medical care ratio ("MCR") of 82.3%, which decreased by 330
basis points compared with 85.6% in the second quarter of 2019.
•A general and administrative expense ("G&A") ratio of 7.5%, which was 30 basis
points lower than 2019.
•An after-tax margin of 6.0%, which was higher than our expectations.
The COVID-19 pandemic impacted many aspects of our quarterly results. Some of
these impacts increased earnings, while others served to decrease earnings. Our
medical margin in the second quarter of 2020 was impacted by two significant and
conflicting impacts related to the COVID-19 pandemic.
On the one hand, we had lower than expected medical costs due to COVID-related
curtailment of utilization, a phenomenon that may or may not recur during the
balance of the year. On the other hand, we had lower than expected Medicaid
revenue related to retroactively applicable Medicaid premium refunds payable in
a number of our states.
We estimate that, in combined effect, all the COVID-related impacts resulted in
an increase in net income in a range of approximately $65 million to $100
million, or $1.10 to $1.65 in net income per diluted share.
Also impacting our second quarter results was the performance of our Marketplace
business, where results were slightly lower than expected due to risk scores
that were not commensurate with the higher acuity of some new members we now
serve.
In summary, the core earnings and growth trajectory of our business have not
been disrupted by the short-term impacts of COVID. We continue to perform well
across the many fundamentals of managed care, which has been our hallmark, and
we are continuing to increase our revenues as a result of our focus on top-line
growth.
Balance Sheet
On June 2, 2020, we completed the private offering of $800 million aggregate
principal amount of senior notes (the "4.375% Notes") due June 15, 2028. The
proceeds from the 4.375% Notes offering was used to repay $600 million principal
amount outstanding under the term loan facility of the prior credit agreement,
and for general corporate purposes. In addition, on June 8, 2020, we entered
into a $1 billion credit agreement (the "Credit Agreement") that replaced our
prior credit agreement. The terms of the Credit Agreement are substantially
similar to the terms of the prior credit agreement, except as described in Notes
to Consolidated Financial Statements, Note 7, "Debt."
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FINANCIAL SUMMARY
                                                     Three Months Ended June 30,                                  Six Months Ended June 30,
                                                      2020                   2019                 2020                   2019

                                                                   (Dollars in millions, except per-share amounts)
Premium revenue                                 $       4,372           $

4,049 $ 8,676 $ 8,001 Premium tax revenue

                                       157                   110                  307                    248
Health insurer fees reimbursed                             71                     -                  137                      -
Investment income and other revenue                        18                    34                   47                     63

Medical care costs                              $       3,598           $

3,466 $ 7,314 $ 6,837 General and administrative expenses

                       345                   328                  662                    630
Premium tax expenses                                      157                   110                  307                    248
Health insurer fees                                        71                     -                  139                      -

Operating income                                $         424           $       265          $       698          $         545
Interest expense                                           24                    22                   45                     45
Other expense (income), net                                 5                   (14)                   5                    (17)
Income before income tax expense                          395                   257                  648                    517
Income tax expense                                        119                    61                  194                    123
Net income                                                276                   196                  454                    394
Net income per share - Diluted                  $        4.65           $

3.06 $ 7.54 $ 6.04

Operating Statistics:
Ending total membership 3,555,000 3,370,000 3,555,000 3,370,000
MCR (1) 82.3 % 85.6 % 84.3 % 85.5 %
G&A ratio (2) 7.5 % 7.8 % 7.2 % 7.6 %
Premium tax ratio (1) 3.5 % 2.6 % 3.4 % 3.0 %
Effective income tax rate 30.0 % 24.0 % 29.9 % 23.9 %
After-tax margin (2) 6.0 % 4.7 % 5.0 % 4.7 %

________________________
(1) MCR represents medical care costs as a percentage of premium revenue;
premium tax ratio represents premium tax expenses as a percentage of premium
revenue plus premium tax revenue.
(2) G&A ratio represents general and administrative expenses as a percentage of
total revenue. 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 2020 amounted to $276 million, or $4.65 per
diluted share, compared with $196 million, or $3.06 per diluted share, in the
second quarter of 2019. Operating income of $424 million in the second quarter
of 2020, was higher compared with $265 million in the second quarter of 2019.
Net income in the six months ended June 30, 2020, amounted to $454 million, or
$7.54 per diluted share, compared with $394 million, or $6.04 per diluted share,
in the six months ended June 30, 2019. Operating income of $698 million in the
six months ended June 30, 2020, was higher compared with $545 million in the six
months ended June 30, 2019.
The improvement in operating income for both periods was mainly due to a
reduction in the MCR.
Net income per share in the second quarter and six months ended June 30, 2020,
was favorably impacted by the reduction in common shares outstanding as a result
of our share repurchase program that began in late 2019 and concluded in the
first quarter of 2020. See further discussion in "Liquidity and Financial
Condition," below.
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PREMIUM REVENUE
Premium revenue increased $323 million in the second quarter of 2020, when
compared with the second quarter of 2019, primarily due to increases in the
Medicaid and Medicare programs, resulting mainly from an increase in member
months. The increase was net of COVID-related premium refunds we expect to pay
in certain markets.
Premium revenue increased $675 million in the six months ended June 30, 2020,
when compared with the six months ended June 30, 2019, primarily due to
increases in the Medicaid and Medicare programs.
MEDICAL CARE RATIO
The consolidated MCR for the second quarter of 2020 decreased to 82.3%, compared
to 85.6% for the second quarter of 2019, reflecting the impact of reduced demand
for medical services across all programs due to the COVID-19 pandemic, partially
offset by COVID-related premium refunds and related actions, and the impact of
lower premiums in the Marketplace program. In the second quarter of 2020, the
lower medical costs and the retroactive rate refunds combined reduced our
reported MCR by an estimated 300 to 400 basis points.
The consolidated MCR for the six months ended June 30, 2020, decreased to 84.3%,
compared to 85.5% for the six months ended June 30, 2019. Reserve development
for the first six months of 2020 was not material. The comparable period in the
prior year was positively impacted by 110 basis points of favorable reserve
development, primarily in the Medicaid program.
PREMIUM TAX REVENUE AND EXPENSES
The premium tax ratio (premium tax expense as a percentage of premium revenue
plus premium tax revenue) was 3.5% in the second quarter of 2020, compared with
2.6% the second quarter of 2019; and 3.4% compared with 3.0% for the six months
ended June 30, 2020 and 2019, respectively. The current year ratio increases are
mainly due to the state of Illinois' implementation of a managed care
organization provider assessment in the third quarter of 2019.
INVESTMENT INCOME AND OTHER REVENUE
Investment income and other revenue decreased to $18 million in the second
quarter of 2020, compared with $34 million in the second quarter of 2019, and
decreased to $47 million in the six months ended June 30, 2020, compared with
$63 million in the six months ended June 30, 2019. We expect investment income
to decline in 2020 compared with 2019, due to the low interest rate environment.
G&A EXPENSES
The G&A expense ratio decreased to 7.5% in the second quarter of 2020, from 7.8%
in the second quarter of 2019, and decreased to 7.2% in the six months ended
June 30, 2020, compared with the 7.6% in the six months ended June 30, 2019.
These decreases were mainly due to increased revenues. The second quarter and
six months ended June 30, 2020 also reflect approximately $25 million and $31
million, respectively, of incremental expense associated with a variety of new
COVID-related operational protocols, technology implementations, and benefits
for our employees.
HEALTH INSURER FEES ("HIF")
In the second quarter of 2020 and the six months ended June 30, 2020, HIF
expense amounted to $71 million and $139 million, respectively, and HIF
reimbursements amounted to $71 million and $137 million, respectively. Public
Law No. 115-120 provided for a HIF moratorium in 2019; therefore, there was no
HIF incurred or reimbursed in that year. The HIF is reinstated in 2020, but the
Further Consolidated Appropriations Act, 2020, repealed the HIF effective for
years after 2020.
INTEREST EXPENSE
Interest expense increased to $24 million in the second quarter of 2020,
compared with $22 million in the second quarter of 2019. Additional interest
expense relating to the 4.375% Notes issued in the second quarter of 2020, was
partially offset by the decrease in interest expense resulting from the
settlement of the convertible senior notes. Interest expense was $45 million in
the six months ended June 30, 2020, and was unchanged compared with the six
months ended June 30, 2019. As further described below in "Liquidity," a portion
of the proceeds from the 4.375% Notes offering was used to repay $600 million
principal amount outstanding under the term loan facility of the prior credit
agreement. See further discussion in Notes to Consolidated Financial Statements,
Note 7, "Debt."
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OTHER EXPENSE (INCOME), NET
In the second quarter and six months ended June 30, 2020, we recognized losses
on debt repayment of $5 million, in connection with repayment of our term loan
facility and other financing transactions. In the second quarter and six months
ended June 30, 2019, we recognized gains on debt repayment of $14 million and
$17 million, respectively, in connection with convertible senior notes repayment
transactions.
INCOME TAXES
Income tax expense amounted to $119 million in the second quarter of 2020, or
30.0% of pretax income, compared with income tax expense of $61 million, or
24.0% of pretax income in the second quarter of 2019. Income tax expense
amounted to $194 million in the six months ended June 30, 2020, or 29.9% of
pretax income, compared with income tax expense of $123 million, or 23.9% of
pretax income in the six months ended June 30, 2019. The effective tax rate is
higher in 2020 due to higher nondeductible expenses in 2020, primarily related
to the nondeductible HIF. The HIF was not applicable in 2019 due to the
moratorium as noted above.

REPORTABLE SEGMENTS
We currently have two reportable segments: the Health Plans segment and the
Other segment. Our reportable segments are consistent with how we currently
manage the business and view the markets we serve.
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 Health Plans segment are
premium revenue, margin and MCR. MCR represents the amount of medical care costs
as a percentage of premium revenue. Therefore, the underlying margin, or the
amount earned by the Health Plans segment after medical costs are deducted from
premium revenue, is the most important measure of earnings reviewed by
management.
Margin for our Health Plans segment is referred to as "Medical Margin." Medical
Margin amounted to $774 million in the second quarter of 2020, and $583 million
in the second quarter of 2019. Medical Margin amounted to $1,362 million in the
six months ended June 30, 2020, and $1,164 million in the six months ended June
30, 2019. Management's discussion and analysis of the changes in the individual
components of Medical Margin follows.
See Notes to Consolidated Financial Statements, Note 9, "Segments," for more
information on our reportable segments.

HEALTH PLANS
The Health Plans segment consists of health plans operating in 14 states and the
Commonwealth of Puerto Rico. As of June 30, 2020, these health plans served
approximately 3.6 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.
TRENDS AND UNCERTAINTIES
COVID-19 Pandemic
As the COVID-19 pandemic continues to evolve, its ultimate 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
Health Plans segment follow.
Federal Economic Stabilization Programs
As a result of the pandemic, various stabilization programs were enacted
beginning in March 2020, which may impact our business directly or indirectly,
including the following:
Phase 1 - Coronavirus Preparedness and Response Supplemental Appropriations Act.
Enacted on March 6, 2020, this legislation provided $8.3 billion in COVID-19
response funding for developing a vaccine and preventing further spread of the
virus.
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Phase 2 - Families First Coronavirus Response Act. Enacted on March 18, 2020,
this legislation provided $100 billion in worker assistance, temporarily
increased each qualifying state and territory's federal medical assistance
percentage ("FMAP") by 6.2% beginning January 1, 2020, and waived cost sharing
for COVID-19 testing. The federal government guarantees matching funds to states
for qualifying Medicaid expenditures based on each state's FMAP.
Phase 3 - Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act").
Enacted on March 27, 2020, the CARES Act provided an estimated $2 trillion to
fight the COVID-19 pandemic and stimulate the U.S. economy. This assistance
included loans and support to major industries including airlines and small
businesses, direct payments to individuals and families, and $175 billion in
relief funds to hospitals and other healthcare providers.
Phase 3b - Paycheck Protection Program and Health Care Enhancement Act. Enacted
on April 24, 2020, this legislation provided $310 billion for the depleted
Paycheck Protection Program, and additional funding for hospitals and testing.
The Phase 4 stimulus package is currently under consideration by Congress.
Due to the uncertainty as to the duration and breadth of the COVID-19 pandemic,
we are unable to reasonably estimate the ultimate impact of the economic
stabilization programs to our business, financial condition, and operating
results at this time.
Health Plan Operations
The pandemic has impacted our business, and we currently expect it to further
impact our business in the following areas:
Member Enrollment. In the second quarter of 2020, we enrolled 151,000 additional
members, primarily in the Medicaid program, and mainly due to the suspension of
member redeterminations. As of June 30, 2020, we believe that newly unemployed
individuals have not yet enrolled in Medicaid managed care in material numbers.
While Medicaid eligibility and enrollment are likely to increase due to
increased unemployment, it remains unclear how high the membership peak will be,
how quickly it will be attained, how quickly it will fall as the economy
recovers, and where it will ultimately settle. Therefore, we are currently
unable to predict the timing or amount of the expected increases in enrollment.
Increased membership would increase our premium revenue, but would also likely
result in a significant increase in medical care claims and related costs. We
believe that we have the scalability necessary to serve the wave of new
membership enrollment, and be an able partner to our state customers.
Demand for Healthcare Services. The pandemic, along with the related quarantine
and social distancing measures, has reduced demand for certain routine and
non-critical medical services, while at the same time increased demand for other
medical services, such as COVID-19 testing and emergency services. Early in the
second quarter, we experienced significantly lower utilization in a variety of
cost categories, representing approximately two-thirds of our total spend, with
utilization levels increasing slowly as the quarter progressed. By the end of
the quarter, utilization in these categories was still approximately 10% percent
lower than we would have normally expected. The medical cost categories most
impacted were elective surgeries, services in ambulatory settings, ER visits,
behavioral services and wellness and preventive services. We also have incurred
the direct costs to care for COVID patients, with just over 4,100
hospitalizations, which represents an average in-patient episode cost of $9,000,
plus the cost of outpatient and other professional services. The cost per COVID
episode varies widely depending on the acuity of the patient. Since our book of
business is heavily weighted towards Medicaid; the effect on us of elective
procedure curtailment is therefore less pronounced.
Medicaid Premium Actions. Due to the reduced demand for medical services
described above, the level of utilization that was expected when capitation
rates were developed has not occurred. Consequently, various states are
implementing or proposing temporary premium rate refunds, profit corridors, and
related actions in response to the reduced demand for medical services stemming
from COVID-19, which are resulting in a reduction of our medical margin. In some
cases, these premium refunds and related actions are retroactive to earlier
periods in 2020, or as early as the beginning of the states' fiscal years in
2019. We have accrued approximately $75 million in the second quarter of 2020
for certain of these retroactive premium refunds and related actions that we
believe to be probable, and where the ultimate premium amount is reasonably
estimable. There is potential for additional near-term premium actions, however,
these proposals have not yet been finalized or enacted, the outcomes are subject
to significant uncertainties, and there are still wide variations in the
formulas and methodologies to be potentially employed. Due to these
uncertainties, the probability and ultimate impact of the changes cannot be
reasonably estimated at this time. We do not expect the uncertainties related to
these proposals to become known until the third or fourth quarter of 2020. The
facts for one or more of these pending matters could subsequently change as a
result
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of further developments, and the ultimate outcome could differ materially from
our estimates, which could have an adverse effect on our consolidated financial
position, results of operations, or cash flows.
Capital and Financial Resources. Refer to "Liquidity and Financial Condition"
below for a discussion of our capital and financial resources.
We continue to monitor and assess the estimated operating and financial impact
of the COVID-19 pandemic. As the pandemic evolves, we continue to process,
assemble, and assess 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.
Affordable Care Act
In December 2018, in a case brought by the state of Texas and nineteen other
states, a federal judge in Texas held that the ACA's individual mandate is
unconstitutional. He further held that since the individual mandate is
inseverable from the entire body of the ACA, the entire ACA is unconstitutional.
The effect of his ruling was stayed pending the appeal of the ruling to the
Fifth Circuit Court of Appeals. In December 2019, a three-judge panel of the
Fifth Circuit Court of Appeal, in a two to one decision, affirmed the District
Court's ruling that the individual mandate is unconstitutional, but remanded the
case back to the District Court for additional analysis and findings regarding
severability and the consideration of additional arguments.
The U.S. Supreme Court has accepted the appeal of the Fifth Circuit Court's
decision. The Supreme Court's decision is expected by June 2021. The ACA remains
in effect until judicial review of the decision is concluded. Any final,
non-appealable determination that the ACA is unconstitutional could have a
material adverse effect on our business, financial condition, cash flows, or
results of operations. As of June 30, 2020, we served a significant number of
members enrolled in programs created by the ACA, including approximately 669,000
Medicaid Expansion members and 325,000 Marketplace members. In the six months
ended June 30, 2020, premium revenue associated with these members amounted to
$2.4 billion, and contributed Medical Margin of $477 million.
Other Recent Developments
New York. On July 1, 2020, we completed the acquisition of certain assets of
YourCare Health Plan, Inc. The purchase price of $42 million was funded with
cash on hand.
Kentucky. In May 2020, our Kentucky health plan was selected as an awardee
pursuant to the statewide Medicaid managed care RFP issued by the Kentucky
Cabinet for Health and Family Services, Department for Medicaid Services. The
contract is expected to begin on January 1, 2021, and runs through December 31,
2024, with six additional two-year renewal options.
In addition, on July 17, 2020, we entered into a definitive agreement to acquire
certain assets of Passport Health Plan in Kentucky. The purchase price for the
transaction is approximately $20 million, plus contingent consideration that is
payable in 2021 based on our Kentucky health plan's open enrollment results for
the 2021 plan year. We intend to fund this purchase with cash on hand.
The acquisition of Passport allows us to enhance operational readiness and
promote continuity of care for members in advance of our new contract award in
the Kentucky Medicaid market. We believe the anticipated reduction in health
plan startup costs and the positive margin impact from incremental revenue will
allow us to recover the purchase price from positive cash flow within the first
year following the acquisition. The transaction is subject to federal and state
regulatory approvals, and other customary closing conditions, and is expected to
close before the end of 2020.
Acquisition of Magellan Complete Care. On April 30, 2020, we entered into a
definitive agreement to acquire the Magellan Complete Care ("MCC") line of
business of Magellan Health, Inc. Net of certain tax benefits, the purchase
price for the transaction is approximately $820 million, which we intend to fund
with cash on hand.
MCC is a managed care organization serving members in six states, including
Medicaid members in Arizona and statewide in Virginia, and Integrated Acute Care
members in Florida. Through its Senior Whole Health branded plans, MCC provides
fully integrated plans for Medicaid and Medicare dual beneficiaries in
Massachusetts, as well as Managed Long Term Care in New York. MCC also provides
consultative services to participants who self-direct their care through
Wisconsin's long-term services and supports ("LTSS") program. As of December 31,
2019, MCC served approximately 155,000 members in managed care plans and
provided services to 25,000 LTSS program participants in Wisconsin, with full
year 2019 revenues over $2.7 billion.
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The transaction is subject to federal and state regulatory approvals, and other
customary closing conditions, and is expected to close by the first quarter of
2021. In connection with this transaction, Magellan Health, Inc. has agreed to
provide certain transition services following the closing.
Marketplace Risk Corridor Ruling. On April 27, 2020, the United States Supreme
Court issued its opinion in Maine Community Health Options v. United States. The
Supreme Court held that §1342 of the Affordable Care Act obligated the federal
government to pay participating insurers the full Marketplace risk corridor
amounts calculated by that statute, that such payment obligations survived
Congress' appropriations riders, and that impacted insurers may sue the federal
government in the U.S. Court of Federal Claims to recover damages for breach of
that obligation. On June 18, 2020, the Claims Court granted us judgment in the
amount of $128.1 million for our 2014, 2015, and 2016 Marketplace risk corridor
claims. This favorable judgment does not create additional minimum MLR rebates.
We had not recognized the judgment as of June 30, 2020, because the timing of
collection of the judgment award is uncertain.
Illinois. In March 2020, we terminated our agreement to acquire all of the
capital stock of NextLevel Health Partners, Inc. due to the seller's stated
unwillingness to close pursuant to the terms of the acquisition agreement.
Puerto Rico. We are exiting Puerto Rico's Medicaid program when our current
contract expires in October 2020. We will work closely with the regulatory
authorities and the provider community in a manner designed to ensure that our
members in Puerto Rico are cared for and have reliable continuity of care.
Update on Status of Significant Medicaid Contracts
California. Our managed care contracts with the California Department of Health
Care Services ("DHCS") cover six regions in central and southern California
(including the Los Angeles region covered under a separate subcontract with
Health Net, LLC). These contracts are effective through December 31, 2020, which
we expect to be renewed annually until the effectiveness of new forms of
contract following RFP awards. DHCS has publicly indicated it expects to release
the final Medicaid RFP in 2021, for implementation in January 2024.
Ohio. Our managed care contract with the Ohio Department of Medicaid ("ODM")
covers the entire state of Ohio, and is effective through July 1, 2021. In early
2019, the governor of Ohio asked ODM to initiate a process to re-procure the
Ohio Medicaid program related to this contract. The re-procurement of the Ohio
Medicaid program is currently projected to be released before the end of 2020,
although ODM has not committed to or confirmed a specific timeline at this time.
Texas. On March 25, 2020, the Texas Health and Human Services Commission
("HHSC"), notified our Texas health plan that HHSC had upheld our protest and
had canceled all previously awarded contracts associated with the re-procurement
awards announced in October 2019 for the ABD program (known in Texas as
"STAR+PLUS"). In addition, HHSC canceled the pending re-procurement associated
with the TANF and CHIP programs (known in Texas as "STAR/CHIP"). HHSC further
indicated that it was deliberating next steps with respect to both
re-procurements. We do not expect the HHSC to re-issue the RFPs in the near
future.
Update on Status of MMP Contracts
Our current Michigan, South Carolina and Texas MMP contracts are active through
December 31, 2020. These contracts represented aggregate revenues of
approximately $398 million in six months ended June 30, 2020. The current status
of these contracts is as follows:
Michigan. The state has filed an extension request with the Centers for Medicare
& Medicaid Services ("CMS"), which is under review. We expect the extension to
be completed in two phases: a one-year extension through December 31, 2021; and
a two-year extension through December 31, 2023.
South Carolina. CMS has granted a three-year extension through 2023; the
contract is pending execution.
Texas. A three-year extension amendment, through December 31, 2023, is under
development by CMS and HHSC.
For a discussion of additional Health Plans segment trends, uncertainties and
other developments, refer to our 2019 Annual Report on Form 10-K, "Item 1.
Business-Our Business," and "-Legislative and Political Environment."
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MEMBERSHIP
The following tables set forth our Health Plans segment membership as of the
dates indicated:
June 30, December 31, June 30,
2020 2019 2019
Ending Membership by Government Program:
Medicaid 3,122,000 2,956,000 2,962,000
Medicare 108,000 101,000 100,000
Marketplace 325,000 274,000 308,000
Total 3,555,000 3,331,000 3,370,000

Ending Membership by Health Plan:
California 572,000 565,000 590,000
Florida 131,000 132,000 142,000
Illinois 242,000 224,000 221,000
Michigan 377,000 362,000 360,000
Ohio 329,000 288,000 297,000
Puerto Rico 167,000 176,000 200,000
South Carolina 145,000 131,000 130,000
Texas 352,000 341,000 360,000
Washington 913,000 832,000 811,000
Other (1) 327,000 280,000 259,000
Total 3,555,000 3,331,000 3,370,000

_________________________

(1)"Other" includes the Idaho, Mississippi, New Mexico, New York, Utah and Wisconsin health plans, which are not individually significant to our consolidated operating results.



FINANCIAL PERFORMANCE
The tables in the section below summarize premium revenue, Medical Margin, and
MCR by state health plan and by government program for the periods indicated
(dollars in millions):
HEALTH PLANS
                                                                                   Three Months Ended June 30,
                                                                2020                                                                                   2019
                                                                 Medical                                                     Medical
                                         Premium Revenue          Margin             MCR             Premium Revenue          Margin             MCR
California                              $          559          $   111               80.2  %       $          560          $   110               80.4  %
Florida                                            162               25               85.0                     176               26               85.7
Illinois                                           306               50               83.6                     242               27               89.0
Michigan                                           415              106               74.4                     413               75               81.8
Ohio                                               751              119               84.2                     654               82               87.3
Puerto Rico                                        122               25               79.7                     122               13               89.2
South Carolina                                     157               23               85.4                     140               15               89.0
Texas                                              731               83               88.6                     765               97               87.3
Washington                                         775              137               82.2                     662               92               86.1
Other (1)                                          394               95               76.0                     315               46               85.5
Total                                   $        4,372          $   774               82.3  %       $        4,049          $   583               85.6  %



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                                                                                          Six Months Ended June 30,
                                                                   2020                                                                                            2019

                                         Premium Revenue         Medical Margin            MCR             Premium Revenue         Medical Margin            MCR
California                              $        1,110          $         196               82.3  %       $        1,115          $         184               83.5  %
Florida                                            316                     55               82.8                     399                     96               76.0
Illinois                                           614                     84               86.4                     469                     69               85.2
Michigan                                           826                    180               78.2                     818                    149               81.8
Ohio                                             1,471                    202               86.3                   1,274                    150               88.2
Puerto Rico                                        227                     23               89.8                     224                     25               88.7
South Carolina                                     314                     42               86.6                     276                     36               87.1
Texas                                            1,474                    174               88.1                   1,512                    203               86.6
Washington                                       1,548                    250               83.8                   1,323                    138               89.5
Other (1)                                          776                    156               79.9                     591                    114               80.7
Total                                   $        8,676          $       1,362               84.3  %       $        8,001          $       1,164               85.5  %


__________________
(1)"Other" includes the Idaho, Mississippi, New Mexico, New York, Utah and
Wisconsin health plans, which are not individually significant to our
consolidated operating results.
As discussed in "Trends and Uncertainties" above, the COVID-19 pandemic had a
significant impact on many aspects of our quarterly results. Some of these
impacts increased earnings, such as the lower than expected medical costs from
the curtailment of utilization, while others served to decrease earnings, such
as the temporary, retroactive Medicaid premium rate refunds, profit corridors,
and related actions enacted by certain states. All our state health plans
benefited from the lower than expected medical costs, while certain of our state
customers enacted Medicaid premium rate refunds and related actions.
Comments relating to the performance of our health plans in California, Ohio,
Texas and Washington, which represent our largest health plans from a premium
revenue standpoint, follow:
California. For the second quarter of 2020, Medical Margin was relatively flat
year-over-year, as the lower medical costs from the curtailment of utilization
was offset by Medicaid premium actions and underperformance in Marketplace. For
the six months ended June 30, 2020, Medical Margin improved compared with the
prior year due to lower MCRs in the Medicaid and Medicare businesses, due to a
net favorable overall impact from COVID-19, partially offset by the
underperformance in Marketplace.
Ohio. For the second quarter and six months ended June 30, 2020, Medical Margin
was higher when compared with the same periods in 2019 due to stronger
performance in Medicaid. The lower medical costs from the curtailment of
utilization due to COVID-19 were offset by retroactive Medicaid premium rate
refunds and related actions. Premium revenues were higher year-over-year, mainly
due to program changes and rate increases in Medicaid.
Texas. For the second quarter and six months ended June 30, 2020, performance
declined year-over-year, with a lower Medical Margin compared with the same
periods in 2019. The decline resulted mainly from underperformance in
Marketplace, due primarily to lower premiums and higher acuity for some of the
new members we now serve, partially offset by lower MCRs in Medicaid and
Medicare.
Washington. For the second quarter and six months ended June 30, 2020, Medical
Margin was higher when compared with the same periods in 2019, mainly driven by
improved results in Medicaid. Medicaid premium revenues increased in both the
second quarter and six months ended June 30, 2020, due to membership growth. In
addition, lower medical costs from the curtailment of utilization driven by
COVID-19 were partially offset by related Medicaid premium refund actions by the
state.
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PROGRAMS
                                                                             Three Months Ended June 30,
                                                              2020                                                                             2019
                                                              Medical                               Premium          Medical
                                      Premium Revenue          Margin              MCR              Revenue           Margin             MCR
Medicaid                             $        3,375          $   553                83.6  %       $  3,067          $   364               88.1  %
Medicare                                        630              125                80.0               572               84               85.2
Marketplace                                     367               96                74.0               410              135               67.2
Total                                $        4,372          $   774                82.3  %       $  4,049          $   583               85.6  %



                                                                                        Six Months Ended June 30,
                                                                 2020                                                                                            2019

                                       Premium Revenue         Medical Margin            MCR             Premium Revenue         Medical Margin            MCR
Medicaid                              $        6,661          $         918               86.2  %       $        6,071          $         710               88.3  %
Medicare                                       1,264                    242               80.8                   1,123                    169               85.0
Marketplace                                      751                    202               73.1                     807                    285               64.7
Total                                 $        8,676          $       1,362               84.3  %       $        8,001          $       1,164               85.5  %


Medicaid
Medicaid premium revenue increased $308 million in the second quarter of 2020
when compared with the second quarter of 2019, and increased $590 million in the
six months ended June 30, 2020, when compared with the six months ended June 30,
2019. The increase in both periods was mainly due to membership growth and
premium increases in several states, partially offset by premium refunds and
related actions related to COVID-19.
As described above in "Health Plans," and "Trends and Uncertainties," we accrued
$75 million in the second quarter of 2020 for certain states that are
implementing premium rate refunds, profit corridors, and related actions in
response to the lower utilization of medical services resulting from COVID-19.
The Medical Margin in our Medicaid program increased $189 million, or 52%, in
the second quarter of 2020 when compared with the second quarter of 2019, and
increased $208 million, or 29% in the six months ended June 30, 2020, when
compared with the six months ended June 30, 2019. The increase in both periods
was mainly driven by the reduction in the MCR.
The Medicaid MCR decreased to 83.6% in the second quarter of 2020, from 88.1% in
the second quarter of 2019, or 450 basis points. The Medicaid MCR decreased to
86.2% in the six months ended June 30, 2020, from 88.3% in the six months ended
June 30, 2019, or 210 basis points. The year-over-year comparisons are impacted
primarily by the lower utilization of medical services stemming from COVID-19,
as elective and discretionary healthcare services have been postponed and
deferred, and the premium rate refunds, new risk corridors and related actions.
In the second quarter of 2020, the MCR for TANF and CHIP decreased 730 basis
points, and decreased 180 basis points in the ABD program, due mainly to lower
utilization of medical services stemming from COVID-19. The MCR for TANF and
CHIP decreased 60 basis points in the six months ended June 30, 2020, due to the
lower utilization of medical services stemming from COVID-19, partially offset
by unfavorable year-over-year changes in prior year reserve development.
The decrease in the Medicaid Expansion MCR in the second quarter of 2020, when
compared with the second quarter of 2019, was mainly due to lower utilization of
medical services stemming from COVID-19. The decrease in the Medicaid Expansion
MCR in the six months ended June 30, 2020, when compared with the six months
ended June 30, 2019, was mainly due to lower utilization of medical services
stemming from COVID-19, partially offset by unfavorable year-over-year changes
in prior year reserve development.
Medicare
Medicare premium revenue increased by $58 million in the second quarter of 2020
and $141 million in the six months ended June 30, 2020, primarily due to
increases in premium revenue PMPM and member months. PMPMs improved due to
increased revenue resulting from risk scores that are more commensurate with the
acuity of our population and increases in quality incentive premium revenues.
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The Medical Margin for Medicare increased $41 million, or 49%, in the second
quarter of 2020 when compared with the second quarter of 2019, and was mainly
attributed to increased revenues described above and lower utilization of
medical services stemming from COVID-19. The Medical Margin for Medicare
increased $73 million, or 43%, in the six months ended June 30, 2020, when
compared with the six months ended June 30, 2019, and resulted primarily from
the increased revenues described above.
The Medicare MCR decrease for the second quarter and six months ended June 30,
2020, when compared with the same periods in 2019, was due to the same factors
impacting the year-over-year changes in Medical Margin as discussed above.
Marketplace
Marketplace premium revenue decreased $43 million in the second quarter of 2020
and $56 million in the six months ended June 30, 2020, mainly due to lower
pricing in an effort to be more competitive, lower risk scores that were not
commensurate with the risk of the population, and the impact of more health
plans being subject to minimum medical loss ratio rebates when compared with the
prior year.
The Marketplace Medical Margin decreased $39 million in the second quarter of
2020, when compared with the second quarter of 2019, and decreased $83 million
in the six months ended June 30, 2020, when compared with the six months ended
June 30, 2019. In both periods, the Medical Margin decrease was primarily due to
the decrease in premium revenues.
The Marketplace MCR increased in the second quarter and the six months ended
June 30, 2020, which was mainly attributable to lower premium revenues. Medical
cost PMPM was slightly lower compared with the same periods in 2019.

OTHER

The Other segment includes certain corporate amounts not allocated to the Health Plans segment. Such amounts are immaterial to our consolidated results of operations.

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 Health Plans segment 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 2020, we did not experience noticeable delays
of, or changes in, the timing and 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 regarding various
states' premium actions in "Future Sources and Uses of Liquidity-Future Uses."
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
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 ended June 30, 2020, the parent received $185 million and
$235 million, respectively, in dividends from the regulated health plan
subsidiaries. See further discussion of dividends below in "Future Sources and
Uses of Liquidity-Future Sources."
To satisfy minimum statutory net worth requirements, the parent company may
contribute capital to the regulated health plan subsidiaries. In the second
quarter and six months ended June 30, 2020, the parent contributed capital of
$42 million and $52 million, respectively, to the regulated health plan
subsidiaries.
Cash, cash equivalents and investments at the parent company amounted to $1,166
million, and $997 million as of June 30, 2020, and December 31, 2019,
respectively. The increase in 2020 was mainly due to net proceeds of $789
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million for the newly issued 4.375% Notes, $380 million drawn on the term loan
facility in the first quarter of 2020, and $235 million of dividends received
from our regulated health plan subsidiaries year to date. The increase was
partially offset by the $600 million repayment of the term loan facility,
purchases of our common stock amounting to $453 million, $42 million net cash
paid for the aggregate convertible notes-related transactions, and $52 million
contributed to our 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 10 years, or less than 10 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 AA. 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 the current volatility in the
capital markets.
Our restricted investments are invested principally in cash, cash equivalents,
and U.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,
2020 2019 Change

(In millions)
Net cash provided by operating activities $ 749 $ 156 $ 593
Net cash provided by (used in) investing activities 38 (393) 431
Net cash provided by (used in) financing activities 71 (362) 433

Net increase (decrease) in cash, cash equivalents, and restricted cash and cash equivalents

$      858

$ (599) $ 1,457




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 ended June 30, 2020 was $749
million, compared with $156 million in the six months ended June 30, 2019. The
$593 million increase in cash flow was due to stronger operating results in the
six months ended June 30, 2020, and the net impact of timing differences in
government receivables and payables.
Investing Activities
Net cash provided by investing activities was $38 million in the six months
ended June 30, 2020, compared with $393 million used in investing activities in
the six months ended June 30, 2019, an increase in cash flow of $431 million.
The year over year increase was primarily due to decreased purchases of
investments in the six months ended June 30, 2020.
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Financing Activities
Net cash provided by financing activities was $71 million in the six months
ended June 30, 2020, compared with $362 million used in financing activities in
the six months ended June 30, 2019, an increase in cash flow of $433 million. In
the six months ended June 30, 2020, cash inflows included $789 million from the
issuance of the 4.375% Notes and $380 million borrowed under the term loan
facility. Cash outflows included the $600 million repayment of the term loan
facility, common stock purchases of $453 million, which included $7 million to
settle shares purchased in late December 2019, and net cash paid for the
aggregate convertible senior notes-related transactions amounting to $42
million. In the six months ended June 30, 2019, net cash paid for the aggregate
convertible senior notes-related transactions amounted to $609 million,
partially offset by proceeds of $220 million borrowed under the term loan
facility.
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, at June 30, 2020, our working capital was $3,307
million, compared with $2,698 million at December 31, 2019. At June 30, 2020,
our cash and investments amounted to $5,296 million, compared with $4,477
million at December 31, 2019.
Regulatory Capital and Dividend Restrictions
Each of our regulated HMO 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 HMO 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 (net assets) requirement for these subsidiaries was estimated to be
approximately $1,300 million at June 30, 2020, compared with $1,110 million at
December 31, 2019. Our HMO subsidiaries were in compliance with these minimum
capital requirements as of both dates.
Under applicable regulatory requirements, the amount of dividends that may be
paid by our HMO subsidiaries without prior approval by regulatory authorities as
of June 30, 2020, is approximately $41 million in the aggregate. Our HMO
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 of June 30, 2020, management
believes that its regulated health plan 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 high-yield senior notes is rated "BB-" by Standard & Poor's, and
"B2" by Moody's Investor Service, Inc. A downgrade in our ratings could
adversely affect our borrowing capacity and increase our 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. As of June 30, 2020,
we were in compliance with all financial and non-financial covenants under the
Credit Agreement and other long-term debt.
In addition, the indentures governing the high-yield 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.
FUTURE SOURCES AND USES OF LIQUIDITY
Future Sources
Our Health Plans segment 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
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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. While Medicaid eligibility and enrollment
are likely to increase due to increased unemployment, it remains unclear how
high the membership peak will be, how quickly it will be attained, how quickly
it will fall as the economy recovers, and where it will ultimately settle.
Therefore, we are currently unable to predict the timing or amount of the
expected increases in enrollment. Increased membership would increase our
premium revenue, but would also likely result in a significant increase in
medical care claims and related costs.
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 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 of June 30, 2020, we had available
borrowing capacity of approximately $1 billion under the revolving credit
facility of our new 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 we maintain a minimum consolidated net leverage ratio. See further
discussion in the Notes to Consolidated Financial Statements, Note 7, "Debt."
Future Uses
Potential Impact of COVID-19 Pandemic. The pandemic, along with the related
quarantine and social distancing measures, has reduced demand for certain
routine and non-critical medical services, while at the same time increased
demand for other medical services, such as COVID-19 testing and emergency
services. Increased demand for medical services, which we are presently unable
to predict the timing or magnitude, could result in a significant increase in
medical care costs and related provider claims payments.
Also, as described above in "Health Plans Segment-Trends and Uncertainties,"
various states are implementing or proposing temporary premium rate refunds,
profit corridors, and related actions in response to the reduced demand for
medical services stemming from COVID-19, which are resulting in a reduction of
our medical margin. In some cases, these premium refunds and related actions are
retroactive to earlier periods in 2020, or as early as the beginning of the
states' fiscal years in 2019. We have accrued approximately $75 million in the
second quarter of 2020 for certain of these retroactive premium refunds and
related actions that we believe to be probable, and where the ultimate premium
amount is reasonably estimable. There is potential for additional near-term
premium actions, however, these proposals have not yet been finalized or
enacted, the outcomes are subject to significant uncertainties, and there are
still wide variations in the formulas and methodologies to be potentially
employed. Due to these uncertainties, the probability and ultimate impact of the
changes cannot be reasonably estimated at this time. We do not expect the
uncertainties related to these proposals to become known until the third or
fourth quarter of 2020. The facts for one or more of these pending matters could
subsequently change as a result of further developments, and the ultimate
outcome could differ materially from our estimates, which could have an adverse
effect on our consolidated financial position, results of operations, or cash
flows.
Acquisitions. Our strategic focus has shifted to a disciplined and steady
approach to growth. Organic growth, which includes leveraging our existing
health plan portfolio and winning new territories, is our highest priority. In
addition to organic growth, we will consider targeted acquisitions that are a
strategic fit that we believe will leverage operational synergies, and lead to
incremental earnings accretion.
On April 30, 2020, we entered into a definitive agreement to acquire the
Magellan Complete Care ("MCC") line of business of Magellan Health, Inc. Net of
certain tax benefits, the purchase price for the transaction is approximately
$820 million, which we intend to fund with cash on hand. The transaction is
subject to federal and state regulatory approvals, and other customary closing
conditions, and is expected to close by the first quarter of 2021. In connection
with this transaction, Magellan Health, Inc. has agreed to provide certain
transition services following the closing.
In addition, on July 17, 2020, we entered into a definitive agreement to acquire
certain assets of Passport Health Plan in Kentucky. The purchase price for the
transaction is approximately $20 million, plus contingent consideration that is
payable in 2021 based on our Kentucky health plan's open enrollment results for
the 2021 plan year. We intend to fund this purchase with cash on hand.
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Outcome of ACA Litigation. As described above in "Health Plans Segment-Trends
and Uncertainties," the U.S. Supreme Court has accepted the appeal of the Fifth
Circuit Court's decision regarding the constitutionality and severability of the
individual mandate. The Supreme Court's decision is expected by June 2021. The
ACA remains in effect until judicial review of the decision is concluded. Any
final, non-appealable determination that the ACA is unconstitutional could have
a material adverse effect on our business, financial condition, cash flows, or
results of operations.
Regulatory Capital Requirements and Dividend Restrictions. 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 of December 31, 2019, was disclosed in our Annual Report on Form
10-K for the year ended December 31, 2019.
Other than the financing transactions described in Notes to Consolidated
Financial Statements, Note 7, "Debt," there were no significant changes to this
previously filed information outside the ordinary course of business during the
six months ended June 30, 2020.

CRITICAL ACCOUNTING ESTIMATES
When we prepare our consolidated financial statements, we use estimates and
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 6, "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, there have been
no significant changes during the six months ended June 30, 2020, to our
disclosure reported in "Critical Accounting Estimates" in our Annual Report on
Form 10-K for the year ended December 31, 2019.
•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. 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."
•Goodwill and intangible assets, net. There have been no significant changes,
during the six months ended June 30, 2020, to our disclosure reported in
"Critical Accounting Estimates" in our Annual Report on Form 10-K for the year
ended December 31, 2019.

Latest news about Molina Healthcare, Inc.

Barclays Adjusts Molina Healthcare Price Target to $430 From $437	Apr. 25	MT
Transcript : Molina Healthcare, Inc., Q1 2024 Earnings Call, Apr 25, 2024	Apr. 25
Molina Healthcare beats profit estimates aided by higher premiums	Apr. 24	RE
Molina Healthcare Q1 Adjusted Earnings Fall, Revenue Rises; 2024 Adjusted EPS Outlook Affirmed	Apr. 24	MT
Earnings Flash (MOH) MOLINA HEALTHCARE Reports Q1 Revenue $9.93B, vs. Street Est of $9.43B	Apr. 24	MT
Earnings Flash (MOH) MOLINA HEALTHCARE Posts Q1 EPS $5.73, vs. Street Est of $5.64	Apr. 24	MT
Molina Healthcare, Inc. Provides Earnings Guidance for the Full Year 2024	Apr. 24	CI
Molina Healthcare, Inc. Reports Earnings Results for the First Quarter Ended March 31, 2024	Apr. 24	CI
Molina Healthcare Shares Down After Price Target Cuts	Apr. 15	MT
Wells Fargo Cuts Price Target on Molina Healthcare to $410 From $440, Keeps Equalweight Rating	Apr. 15	MT
Truist Securities Adjusts Price Target on Molina Healthcare to $440 From $460	Apr. 15	MT
Molina Healthcare Selected for Medicaid Service Contract in Michigan	Apr. 11	MT
All eyes on Powell	Apr. 03
BofA Securities Downgrades Molina Healthcare to Underperform From Neutral Reflecting Lower Risk-Reward, Price Target is $439	Mar. 28	MT
Molina Healthcare Receives a Shareholder Proposal from John Chevedden	Mar. 21	CI
Wells Fargo Raises Price Target on Molina Healthcare to $440 From $420, Maintains Equal-Weight Rating	Mar. 20	MT
Molina Healthcare Insider Sold Shares Worth $401,050, According to a Recent SEC Filing	Feb. 21	MT
Truist Adjusts Price Target on Molina Healthcare to $460 From $435, Maintains Buy Rating	Feb. 20	MT
Molina Healthcare Insider Sold Shares Worth $597,570, According to a Recent SEC Filing	Feb. 16	MT
Molina Healthcare Insider Sold Shares Worth $299,340, According to a Recent SEC Filing	Feb. 16	MT
Wells Fargo Upgrades Molina Healthcare to Equalweight From Underweight, Adjusts Price Target $420 From $367	Feb. 15	MT
Molina Healthcare Insider Sold Shares Worth $5,798,455, According to a Recent SEC Filing	Feb. 14	MT
UBS Adjusts Molina Healthcare Price Target to $395 From $380, Maintains Neutral Rating	Feb. 09	MT
Cantor Fitzgerald Adjusts Price Target on Molina Healthcare to $406 From $374, Maintains Overweight Rating	Feb. 09	MT
Deutsche Bank Adjusts Molina Healthcare Price Target to $357 From $375, Maintains Hold Rating	Feb. 09	MT

Chart Molina Healthcare, Inc.

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Company Profile

Molina Healthcare, Inc. specializes in the provision of health care services managed within the Medicaid and Medicare health insurance and coverage programs, and through the health insurance marketplace, financed by the States and the Federal Government of the United States. Revenues break down by activity as follows: - Health care services within the Medicaid program (80.9%): services for low-income individuals, families and people with disabilities; - health care services within the Medicare program (12.9%): services for the elderly and people with certain diseases, covered by the Medicare health insurance program; - operating a health insurance marketplace (6.2%; Marketplace): a platform for offering health insurance plans, and allowing members of the Medicaid program, whose rising incomes have taken them out of eligibility, to purchase federally subsidized health insurance policies. The group also offers virtual care services. At the end of 2023, Molina Healthcare, Inc. had approximately 5 million members broken down by program between Medicaid (4.5 million members), Medicare (0.2 million) and Marketplace (0.5 million). All revenues are earned in the United States.

Sector

Managed Healthcare

Calendar

2024-05-01 - Annual General Meeting

Related indices

S&P 500

More about the company

Income Statement Evolution

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Analysis / Opinion

Molina Healthcare, Inc. : A small insurer with a big vision

June 02, 2023 at 10:35 am EDT

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Ratings for Molina Healthcare, Inc.

Trading Rating

Investor Rating

ESG Refinitiv

B-

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Analysts' Consensus

Sell

Buy

Mean consensus

OUTPERFORM

Number of Analysts

Last Close Price

367.4 USD

Average target price

417.7 USD

Spread / Average Target

+13.69%

Consensus

EPS Revisions

Estimates Revisions

Quarterly earnings - Rate of surprise

Company calendar

Sector Other Managed Healthcare

	1st Jan change	Capi.
MOLINA HEALTHCARE, INC.	-2.49%	21.52B
UNITEDHEALTH GROUP INC.	-6.19%	448B
ELEVANCE HEALTH, INC.	+14.45%	124B
CIGNA	+18.39%	99.92B
CENTENE CORPORATION	+1.98%	40.75B
HUMANA INC.	-31.98%	38.08B
ALIGNMENT HEALTHCARE, INC.	-40.07%	979M
CLOVER HEALTH INVESTMENTS, CORP.	-29.63%	322M

Other Managed Healthcare

Molina Healthcare, Inc.

Equities

MOH

US60855R1005

Managed Healthcare

Molina Healthcare : MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ("MD&A")

EPS Revisions