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OFFON

MOLINA HEALTHCARE, INC.

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

04/29/2021 | 11:10am EST
FORWARD-LOOKING STATEMENTS
This quarterly report on Form 10-Q contains forward-looking statements regarding
our business, financial condition, and results of operations within the meaning
of Section 27A of the Securities Act of 1933, or Securities Act, and Section 21E
of the Securities Exchange Act of 1934, or Securities Exchange Act. Many of the
forward-looking statements are located under the heading "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Forward-looking statements provide current expectations of future events based
on certain assumptions and include any statement that does not directly relate
to any historical or current fact. Forward-looking statements can also be
identified by words such as "guidance," "future," "anticipates," "believes,"
"estimates," "expects," "growth," "intends," "plans," "predicts," "projects,"
"will," "would," "could," "can," "may," and similar terms. Readers are cautioned
not to place undue reliance on any forward-looking statements, as
forward-looking statements are not guarantees of future performance and the
Company's actual results may differ significantly due to numerous known and
unknown risks and uncertainties. Those known risks and uncertainties include,
but are not limited to, the risk factors identified in the section titled "Risk
Factors" in our 2020 Annual Report on Form 10-K, including without limitation
the following:
•the impact of the COVID-19 pandemic and its associated or indirect effects on
our business, operations, and financial results;
•the numerous political, judicial, and market-based uncertainties associated
with the Affordable Care Act (the "ACA"), including the ultimate outcome of the
California et al. v Texas et al. matter currently pending for decision before
the United States Supreme Court;
•significant budget pressures on state governments from diminished tax revenues
incidental to the COVID-19 pandemic and their efforts to reduce rates or limit
rate increases, to impose profit caps or risk corridors, or to recoup previously
paid premium amounts on a retroactive basis;
•the market dynamics surrounding the ACA Marketplaces, including issues
impacting enrollment, risk adjustment estimates and results, the potential for
disproportionate enrollment of higher acuity members, and the discontinuation of
premium tax credits;
•the outcome of the legal proceedings in Kentucky with regard to the Medicaid
contract award to our Kentucky health plan and our acquisition of certain assets
of Passport;
•the success of our efforts to retain existing or awarded government contracts,
and the success of any bid submissions in response to requests for proposal,
including our contracts in California and Texas;
•subsequent adjustments to reported premium revenue based upon subsequent
developments or new information, including changes to estimated amounts payable
or receivable related to Marketplace risk adjustment;
•our ability to consummate, integrate, and realize benefits from acquisitions,
including the completed acquisitions of Magellan Complete Care and Passport, and
announced acquisitions of Affinity and of the Medicaid assets of Cigna in Texas;
•effective management of our medical costs;
•our ability to predict with a reasonable degree of accuracy utilization rates,
including utilization rates associated with COVID-19;
•cyber-attacks, ransomware attacks, or other privacy or data security incidents
resulting in an inadvertent unauthorized disclosure of protected information;
•the ability to manage our operations, including maintaining and creating
adequate internal systems and controls relating to authorizations, approvals,
provider payments, and the overall success of our care management initiatives;
•our receipt of adequate premium rates to support increasing pharmacy costs,
including costs associated with specialty drugs and costs resulting from
formulary changes that allow the option of higher-priced non-generic drugs;
•our ability to operate profitably in an environment where the trend in premium
rate increases lags behind the trend in increasing medical costs;
•the interpretation and implementation of federal or state medical cost
expenditure floors, administrative cost and profit ceilings, premium
stabilization programs, profit-sharing arrangements, and risk adjustment
provisions and requirements;
•our estimates of amounts owed for such cost expenditure floors, administrative
cost and profit ceilings, premium stabilization programs, profit-sharing
arrangements, and risk adjustment provisions and requirements;
                           Molina Healthcare, Inc. March 31, 2021 Form 10-Q | 20
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•the Medicaid expansion medical cost corridor, and any other retroactive
adjustment to revenue where methodologies and procedures are subject to
interpretation or dependent upon information about the health status of
participants other than Molina members;
•the interpretation and implementation of at-risk premium rules and state
contract performance requirements regarding the achievement of certain quality
measures, and our ability to recognize revenue amounts associated therewith;
•the success and renewal of our Medicare-Medicaid Plan ("MMP") programs in
California, Illinois, Michigan, Ohio, South Carolina, and Texas;
•the accurate estimation of incurred but not reported or paid medical costs
across our health plans;
•efforts by states to recoup previously paid and recognized premium amounts;
•changes in our annual effective tax rate, due to federal and/or state
legislation, or changes in our mix of earnings and other factors;
•complications, member confusion, eligibility redeterminations, or enrollment
backlogs related to the renewal of Medicaid coverage;
•fraud, waste and abuse matters, government audits or reviews, comment letters,
or potential investigations, and any fine, sanction, enrollment freeze,
corrective action plan, monitoring program, or premium recovery that may result
therefrom;
•our exit from Puerto Rico, including the payment in full of our outstanding
accounts receivable, the effective run-out of claims, and the return of our
capital;
•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;
•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 availability of adequate financing on acceptable terms to fund and
capitalize our expansion and growth, repay our outstanding indebtedness at
maturity, and meet our general liquidity needs;
•the sufficiency of funds on hand to pay the amounts due upon maturity of our
outstanding notes;
•the failure of a state in which we operate to renew its federal Medicaid
waiver;
•changes generally affecting the managed care industry;
•increases in government surcharges, taxes, and assessments;
•the unexpected loss of the leadership of one or more of our senior executives;
and
•increasing competition and consolidation in the Medicaid industry.
Each of the terms "Molina Healthcare, Inc." "Molina Healthcare," "Company,"
"we," "our," and "us," as used herein, refers collectively to Molina Healthcare,
Inc. and its wholly owned subsidiaries, unless otherwise stated. The Company
assumes no obligation to revise or update any forward-looking statements for any
reason, except as required by law.
Readers should refer to the section entitled "Risk Factors" in our 2020 Annual
Report on Form 10-K, for a discussion of certain risk factors that could
materially affect our business, financial condition, cash flows, or results of
operations. Given these risks and uncertainties, we can give no assurance that
any results or events projected or contemplated by our forward-looking
statements will in fact occur.
This Quarterly Report on Form 10-Q and the following discussion of our financial
condition and results of operations should be read in conjunction with the
accompanying consolidated financial statements and the notes to those statements
appearing elsewhere in this report, and the audited financial statements and
Management's Discussion and Analysis appearing in our 2020 Annual Report on Form
10-K.
                           Molina Healthcare, Inc. March 31, 2021 Form 10-Q | 21
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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, we served approximately 4.6 million members as of March 31, 2021.
FIRST QUARTER 2021 HIGHLIGHTS
We reported net income per diluted share of $3.89 for the first quarter of 2021,
with net income of $228 million, which included the following:
•Membership increase of 1.2 million, or 35%, compared with March 31, 2020.
•Premium revenue of $6.3 billion, which increased 47% compared with the first
quarter of 2020, reflecting increased membership consistent with our
expectations in Medicaid and Medicare, and exceeding our expectations in
Marketplace;
•Consolidated medical care ratio ("MCR") of 86.8%, which increased compared with
86.3% for the first quarter of 2020, but demonstrated strong fundamentals of
cost management, particularly in light of the various pressure points caused by
the COVID-19 pandemic, and was consistent with our expectations;
•General and administrative expense ("G&A") ratio of 7.3%, which increased
compared with 7.0% in the first quarter of 2020, but was consistent with our
expectations; and
•After-tax margin of 3.5%.
We note the following factors impacting first quarter of 2021 financial results:
•The net effect of COVID had a negligible impact on the first quarter of 2021,
as the COVID-related utilization curtailment was offset by the states'
COVID-related risk corridors and direct COVID medical costs;
•While the net effect of COVID was in-line with our expectations and net
negligible to the quarter in total, the impacts were varied by segment; and
•We experienced higher than expected membership increases in Marketplace, due to
strong open enrollment. This improvement resulted from several factors,
including strong product design and competitive pricing, better than expected
natural attrition rates, and the extended open enrollment period, as described
in further detail below in "Trends and Uncertainties."

                           Molina Healthcare, Inc. March 31, 2021 Form 10-Q | 22
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CONSOLIDATED FINANCIAL SUMMARY
                                                                              Three Months Ended March 31,
                                                                                2021                    2020

                                                                         (In millions, except per-share amounts)
Premium revenue                                                         $          6,306            $    4,304
Less: medical care costs                                                           5,474                 3,716
Medical margin                                                                       832                   588
MCR (1)                                                                             86.8  %               86.3  %

Other revenues:
Premium tax revenue                                                                  187                   150
Health insurer fees reimbursed                                                         -                    66

Investment income                                                                      9                    25
Other revenue                                                                         20                     4

General and administrative expenses                                                  473                   317
G&A ratio (2)                                                                        7.3  %                7.0  %

Premium tax expenses                                                                 187                   150
Health insurer fees                                                                    -                    68
Depreciation and amortization                                                         33                    20
Other                                                                                 20                     4
Operating income                                                                     335                   274
Interest expense                                                                      30                    21

Income before income tax expense                                                     305                   253
Income tax expense                                                                    77                    75
Net income                                                              $            228            $      178

Net income per share - Diluted                                          $           3.89            $     2.92

Diluted weighted average shares outstanding                                         58.6                  61.0

Other Key Statistics
Ending membership                                                                    4.6                   3.4
Effective income tax rate                                                           25.2  %               29.8  %
After-tax margin (3)                                                                 3.5  %                3.9  %


________________________
(1)  MCR represents medical care costs as a percentage of premium revenue.
(2)  G&A ratio represents general and administrative expenses as a percentage of
total revenue.
(3)  After-tax margin represents net income as a percentage of total revenue.

CONSOLIDATED RESULTS
NET INCOME AND OPERATING INCOME
Net income in the first quarter of 2021 amounted to $228 million, or $3.89 per
diluted share, compared with $178 million, or $2.92 per diluted share, in the
first quarter of 2020. Operating income of $335 million in the first quarter of
2021, was higher compared with $274 million in the first quarter of 2020.
The improvement in operating income was mainly due to membership growth and
higher premium revenues in Medicaid and Marketplace, partially offset by
increases in the Medicare and Marketplace MCRs.
Net income per share in the first quarter of 2021 was favorably impacted by the
reduction in common shares outstanding as a result of our share repurchases in
late 2020 and early 2021. See further discussion in "Liquidity and Financial
Condition," below.
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PREMIUM REVENUE
Premium revenue increased $2 billion in the first quarter of 2021, when compared
with the first quarter of 2020.
In the first quarter of 2021, membership increased by 1.2 million compared with
the first quarter of 2020, which mainly reflected increases in the Medicaid and
Marketplace segments and included the impact from the Magellan Complete Care and
other acquisitions that closed in the second half of 2020. The increase in
premium revenue was net of COVID-related risk corridors that have been enacted
in several states beginning in the second quarter of 2020.
MEDICAL CARE RATIO
The consolidated MCR in the first quarter of 2021 was 86.8%, compared with 86.3%
in the first quarter of 2020. Our overall medical margin performance and MCR
were consistent with expectations. The net effect of COVID had a negligible
impact on the first quarter of 2021; however, the impacts were varied by
segment. The Medicaid MCR benefited from lower utilization due to modest
COVID-related curtailment, severe winter weather in several states, and the
absence of a typical flu season, which was mostly offset by COVID-related risk
corridors enacted in several states. The Medicare and Marketplace MCRs both
increased compared with the first quarter of 2020, as both segments experienced
a disproportionately negative impact from the net effect of COVID.
The prior year reserve development in the first quarter of 2021 was modestly
favorable, but its impact on earnings was absorbed by the COVID-related risk
corridors.
PREMIUM TAX REVENUE AND EXPENSES
The premium tax ratio (premium tax expense as a percentage of premium revenue
plus premium tax revenue) was 2.9% and 3.4% for the first quarter of 2021 and
2020, respectively. The current year ratio decrease was mainly due to changes in
business mix resulting from the Magellan Complete Care and other acquisitions
closed in the second half of 2020.
INVESTMENT INCOME
Investment income decreased to $9 million in the first quarter of 2021, compared
with $25 million in the first quarter of 2020, due to the continued low interest
rate environment and a temporarily higher allocation in shorter-term invested
assets during the COVID-19 pandemic, which has been rescinded effective for the
second quarter of 2021.
OTHER REVENUE
Other revenue increased to $20 million in the first quarter of 2021, compared
with $4 million in the first quarter of 2020. Beginning in the first quarter of
2021, other revenue includes service revenue associated with the long-term
services and supports consultative services we now provide in Wisconsin, as a
result of our Magellan Complete Care acquisition. Such service revenue amounted
to $17 million in the first quarter of 2021.
G&A EXPENSES
The G&A expense ratio increased to 7.3% in the first quarter of 2021, compared
with 7.0% in the first quarter of 2020, mainly reflecting integration and other
costs associated with the Magellan Complete Care and other acquisitions closed
in the second half of 2020.
HEALTH INSURER FEES ("HIF")
There were no HIF fees incurred or reimbursed in 2021, because the HIF was
repealed effective for years after 2020.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization increased to $33 million in the first quarter of
2021, compared with $20 million in the first quarter of 2020, due primarily to
amortization associated with acquisitions completed in the second half of 2020.
Refer to Notes to Consolidated Financial Statements, Note 10, "Segments," for
further information.
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OTHER OPERATING EXPENSES
Other operating expenses increased to $20 million in the first quarter of 2021,
compared with $4 million in the first quarter of 2020. Beginning in the first
quarter of 2021, other operating expenses included service costs associated with
the long-term services and supports consultative services we now provide in
Wisconsin, as noted above. Such service costs amounted to $13 million in the
first quarter of 2021.
INTEREST EXPENSE
Interest expense increased to $30 million in the first quarter of 2021, compared
with $21 million in the first quarter of 2020, mainly due to the issuance of
$650 million principal amount of 3.875% Notes issued in the fourth quarter of
2020. See further details of our financing transactions in Notes to Consolidated
Financial Statements, Note 8, "Debt," and below in "Liquidity and Financial
Condition."
INCOME TAXES
Income tax expense amounted to $77 million in the first quarter of 2021, or
25.2% of pretax income, compared with income tax expense of $75 million, or
29.8% of pretax income in the first quarter of 2020. The effective tax rate was
lower in 2021 mainly because the nondeductible HIF was repealed for years after
2020.

TRENDS AND UNCERTAINTIES
COVID-19 PANDEMIC
As the COVID-19 pandemic continues to evolve, its ongoing impact to our
business, results of operations, financial condition, and cash flows is
uncertain and difficult to predict. Specific trends and uncertainties related to
our Medicaid, Medicare, and Marketplace segments follow.
Federal Economic Stabilization and Other Programs
In addition to various programs enacted in 2020 and described in our 2020 Annual
Report on Form 10-K, the $1.9 trillion American Rescue Plan Act of 2021 was
enacted on March 11, 2021. This legislation includes several components to
assist in COVID-19 vaccine testing and deployment, as well as provisions
relating to the opening of schools; direct immediate relief to working families;
and additional support for communities struggling the most in the wake of the
pandemic. Among its specific provisions:
•$350 billion in state and local funding;
•Funding for Medicaid and CHIP COVID-19 vaccines and treatment to be matched at
100% of the federal medical assistance percentage ("FMAP");
•Incentives for states that have not expanded Medicaid to do so;
•State flexibility to extend Medicaid eligibility to women for 12 months
postpartum;
•A temporary 10% FMAP increase for states to improve Medicaid home- and
community-based services for one year; and
•An increase to the ACA Marketplace premium subsidies for 2021 and 2022.
In addition, the Biden Administration has extended the COVID-19 related Public
Health Emergency Declaration ("PHE"). The Biden Administration has indicated the
PHE will likely remain in place throughout 2021, and that states will receive 60
days' notice before the end of the PHE to prepare for the end of emergency
authorities and the resumption of pre-PHE rules. This extension of the PHE will
continue the suspension in state Medicaid eligibility redeterminations.
Also, President Biden's January 2021 executive order providing for a three-month
Marketplace special enrollment period from February 15, 2021, to May 15, 2021,
was extended through August 15, 2021.
Due to the uncertainty as to the duration and breadth of the pandemic, we are
unable to reasonably estimate the ultimate impact of the economic stabilization
and other programs to our business, financial condition, and operating results.
                           Molina Healthcare, Inc. March 31, 2021 Form 10-Q | 25
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Operations
Enrollment and Premium Revenue
Excluding acquisitions and our exit from Puerto Rico, we have added nearly
500,000 new Medicaid members since March 31, 2020, when we first began to report
on the impacts of the pandemic. We believe this membership increase was mainly
due to the suspension of redeterminations for Medicaid eligibility. We expect
Medicaid enrollment to continue to benefit from the extension of the PHE period,
and the associated pause on membership redeterminations, through the end of the
third quarter of 2021. We estimate that for each month the PHE is extended, it
could increase our full-year revenue estimate by $150 million.
Marketplace revenue growth is now expected to be over 50% in 2021, and we expect
to end 2021 with slightly more than 500,000 members.
The current rate environment is stable and rational. We continue to believe that
the risk-sharing corridors previously introduced are related to the declared PHE
and will likely be eliminated as the COVID pandemic subsides. However, the risk
corridors continue to contribute an added level of variability to our results of
operations. In the first quarter of 2021, we recognized approximately
$110 million for the impact of risk corridors enacted in several states
beginning in the second quarter of 2020, in response to the lower utilization of
medical services resulting from COVID-19.
It is possible that certain states could increase the level of existing risk
corridors, and other states could implement some form of retroactive risk
corridors in the future. Due to these uncertainties, the ultimate outcomes could
differ materially from our estimates as a result of changes in facts or further
developments, which could have an adverse effect on our consolidated financial
position, results of operations, or cash flows.
Medical Care Costs
We expect continued uncertainty regarding utilization trends as the pandemic
continues. The speed and extent to which utilization rebounds will be greatly
impacted by the economy and consumer behavior, provider capacity, and the
potential resurgence of COVID-19 infection rates. We believe that some portion
of the utilization curtailment experienced in the first quarter of 2021 is
likely the result of service deferrals, and so these services will likely be
provided to members over the remainder of the year.
Capital and Financial Resources
We continue to monitor and assess the estimated operating and financial impact
of the COVID-19 pandemic, and as it evolves, we continue to process, assemble,
and assess member utilization information. We believe that our cash resources,
borrowing capacity available under the Credit Agreement, and cash flow generated
from operations will continue to be sufficient to withstand the financial impact
of the pandemic, and will enable us to continue to support our operations,
regulatory requirements, debt repayment obligations, and capital expenditures
for the foreseeable future. Refer to "Liquidity and Financial Condition" below
for further discussion of our capital and financial resources.
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 individual mandate of the ACA 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 further consideration of the severability
issue. The intervenor defendant states led by California subsequently appealed
the case to the U.S. Supreme Court, which heard oral arguments in the case on
November 10, 2020. The Supreme Court's decision is expected by June 2021. If the
Supreme Court were to rule that the individual mandate is unconstitutional, and
that the individual mandate is not severable from the balance of the ACA, or
that the entirety of the ACA is unconstitutional, that ruling could have a
material adverse effect on our business, financial condition, cash flows, or
results of operations.
As of March 31, 2021, we served a significant number of members enrolled in
programs created by the ACA, including approximately 990,000 Medicaid Expansion
members and 620,000 Marketplace members. In the first quarter of 2021, premium
revenue associated with these members amounted to $2.1 billion, and contributed
medical margin of $374 million.
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OTHER RECENT DEVELOPMENTS
Texas Acquisition-Medicaid and Medicare. On April 22, 2021, we announced a
definitive agreement to acquire Cigna Corporation's Texas Medicaid and
Medicare-Medicaid Plan ("MMP") contracts, along with certain operating assets.
As of December 31, 2020, Cigna served approximately 48,000 members in the Texas
ABD program, also known as "STAR+PLUS," in the Hidalgo, Tarrant and Northeast
service areas, and approximately 2,000 MMP members in the Hidalgo service area,
with full year 2020 premium revenue of approximately $1.0 billion. The purchase
price for the transaction is approximately $60 million, which we intend to fund
with cash on hand. The transaction is subject to receipt of applicable federal
and state regulatory approvals and satisfaction of other customary closing
conditions. We currently expect the transaction to close in the second half of
2021.
Ohio Procurement-Medicaid. On April 13, 2021, we announced that our Ohio health
plan subsidiary was selected as an awardee in all three regions across the state
pursuant to the Medicaid managed care request for award issued on September 30,
2020, by the Ohio Department of Medicaid. This new contract is expected to begin
in early 2022, and will offer health care coverage to Medicaid beneficiaries
through the state of Ohio's Covered Family and Children, Expansion, and ABD
programs.
For a discussion of additional segment trends, uncertainties and other
developments, refer to our 2020 Annual Report on Form 10-K, "Item 1.
Business-Our Business," and "-Legislative and Political Environment."

REPORTABLE SEGMENTS
As of March 31, 2021, we served approximately 4.6 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.
In the first quarter of 2021, we realigned our reportable operating segments to
reflect recent changes in our internal operating and reporting structure, which
is now organized by government program. These reportable segments consist of:
1) Medicaid; 2) Medicare; 3) Marketplace; and 4) Other.
The Medicaid, Medicare, and Marketplace segments represent the government-funded
or sponsored programs under which we offer managed healthcare services. The
Other segment, which is insignificant to our consolidated results of operations,
includes certain corporate amounts not associated with or allocated to the
Medicaid, Medicare, or Marketplace segments. Additionally, the Other segment
includes service revenues and service costs associated with the long-term
services and supports consultative services we now provide in Wisconsin, as a
result of the Magellan Complete Care acquisition on December 31, 2020.
HOW WE ASSESS PERFORMANCE
We derive our revenues primarily from health insurance premiums. Our primary
customers are state Medicaid agencies and the federal government.
The key metrics used to assess the performance of our Medicaid, Medicare, and
Marketplace segments are premium revenue, medical margin and MCR. MCR represents
the amount of medical care costs as a percentage of premium revenue. Therefore,
the underlying medical margin, or the amount earned by the Medicaid, Medicare,
and Marketplace segments after medical costs are deducted from premium revenue,
represents the most important measure of earnings reviewed by management, and is
used by our chief executive officer to review results, assess performance, and
allocate resources. The key metric used to assess the performance of our Other
segment is service margin. The service margin is equal to service revenue minus
cost of service revenue.
Management's discussion and analysis of the change in medical margin is
discussed below under "Segment Financial Performance." For more information, see
Notes to Consolidated Financial Statements, Note 10, "Segments."
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SEGMENT MEMBERSHIP
The following table sets forth our membership by segment as of the dates
indicated:
                 March 31,         December 31,         March 31,
                 2021 (1)              2020               2020
Medicaid       3,859,000          3,599,000           2,970,000
Medicare         126,000            115,000             105,000
Marketplace      620,000            318,000             329,000
Total          4,605,000          4,032,000           3,404,000


____________________
(1)Approximately 200,000 members, from the Magellan Complete Care acquisition
that closed on December 31, 2020, are included in the totals as of March 31,
2021, but not in prior periods.

SEGMENT FINANCIAL PERFORMANCE The following table summarizes premium revenue, medical margin, and MCR by segment for the periods indicated (dollars in millions):

                                                  Three Months Ended March 31,
                                          2021                                    2020
                            Premium       Medical                   Premium      Medical
                            Revenue        Margin        MCR        Revenue       Margin        MCR
            Medicaid      $   4,840      $    604       87.5  %    $ 3,286      $    365       88.9  %
            Medicare            799            77       90.3           634           117       81.7
            Marketplace         667           151       77.3           384           106       72.3
            Total         $   6,306      $    832       86.8  %    $ 4,304      $    588       86.3  %

Medicaid

Medicaid premium revenue increased $1,554 million in the first quarter of 2021,
when compared with the first quarter of 2020. The increase was mainly due to
membership growth and the impact from the Magellan Complete Care and other
acquisitions closed in the second half of 2020. Excluding the acquisitions, the
membership growth was across several states and was mainly driven by the
extension of the PHE period and the associated suspension of membership
redeterminations due to COVID-19. The overall increase was partially offset by
state risk corridors stemming from COVID-19.
As described above in "Trends and Uncertainties," we recognized approximately
$110 million in the first quarter of 2021, for the impact of risk corridors
enacted in several states beginning in the second quarter of 2020, in response
to the lower utilization of medical services resulting from COVID-19.
The medical margin in our Medicaid program increased $239 million, or 65%, in
the first quarter of 2021 when compared with the first quarter of 2020. The
increase was driven by increased premium revenues and margin associated with the
membership growth discussed above, and from a reduction in the MCR.
The total Medicaid MCR decreased to 87.5% in the first quarter of 2021, from
88.9% in the first quarter of 2020, or 140 basis points. The improvement was
mainly attributable to lower than expected utilization, resulting from the
combined effects of a modest level of COVID-related utilization curtailment,
severe winter weather in several states, and the absence of a typical flu
season. Performance in utilization management and payment integrity also
favorably impacted the MCR. The improvement was partially offset by the impact
of the various COVID-related risk corridors enacted by several states, as
discussed above.
Medicare
Medicare premium revenue increased $165 million in the first quarter of 2021,
primarily due to the impact from the Magellan Complete Care acquisition,
including higher membership and higher premium revenue PMPM. The increase was
partially offset by risk corridors, mainly in MMP, enacted in response to the
lower utilization of medical services stemming from COVID-19.
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The medical margin for Medicare decreased $40 million, in the first quarter of
2021, when compared with the first quarter of 2020, mainly due to an increase in
the MCR, partially offset by the increase in revenues.
The Medicare MCR increased to 90.3% in the first quarter of 2021, from 81.7% in
the first quarter of 2020, or 860 basis points. The increase was primarily
driven by higher direct COVID medical costs, and risk scores that do not fully
reflect the acuity of our membership.
Marketplace
Marketplace premium revenue increased $283 million in the first quarter of 2021,
mainly due to increased membership, partially offset by a decrease in premium
revenue PMPM. Our Marketplace membership as of March 31, 2021, amounted to
620,000 members, representing growth of 302,000 members sequentially, and
substantially exceeding our previous beginning of the year expectation of
approximately 500,000 members. This improvement resulted from several factors,
including strong product design and competitive pricing, better than expected
natural attrition rates, and the extended open enrollment period. The decrease
in premium revenue PMPM was mainly driven by changes in business mix, with an
increase of members in the bronze metal tier.
The Marketplace medical margin increased $45 million in the first quarter of
2021, when compared with the first quarter of 2020, primarily due to the
increase in membership and premiums, partially offset by an increase in the MCR
compared to 2020.
The Marketplace MCR increased to 77.3% in the first quarter of 2021, from 72.3%
in the first quarter of 2020, or 500 basis points. The increase resulted from
higher direct COVID medical costs, as the COVID infection rate resurged in many
of our Marketplace geographies.
Other
The Other segment includes service revenues and costs associated with the
long-term services and supports consultative services we now provide in
Wisconsin, and also includes certain corporate amounts not allocated to the
Medicaid, Medicare, or Marketplace segments. Such amounts were immaterial to our
consolidated results of operations in the first quarters of 2021 and 2020,
respectively.

LIQUIDITY AND FINANCIAL CONDITION
LIQUIDITY
We manage our cash, investments, and capital structure to meet the short- and
long-term obligations of our business while maintaining liquidity and financial
flexibility. We forecast, analyze, and monitor our cash flows to enable prudent
investment management and financing within the confines of our financial
strategy.
We maintain liquidity at two levels: 1) the regulated health plan subsidiaries;
and 2) the parent company. Our regulated subsidiaries generate significant cash
flows from premium revenue, which is generally received a short time before
related healthcare services are paid. Premium revenue is our primary source of
liquidity. Thus, any decline in the receipt of premium revenue, and our
profitability, could have a negative impact on our liquidity. In the first
quarter of 2021, 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 in "Future Sources and Uses of
Liquidity-Future Uses-Potential Impact of COVID-19 Pandemic."
A majority of the assets held by our regulated health plan subsidiaries is in
the form of cash, cash equivalents, and investments. When available and as
permitted by applicable regulations, cash in excess of the capital needs of our
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 first
quarter of 2021, the parent received $74 million in dividends from the regulated
health plan subsidiaries. See further discussion of dividends below in "Future
Sources and Uses of Liquidity-Future Sources."
The parent company may also contribute capital to the regulated health plan
subsidiaries to satisfy minimum statutory net worth requirements, including
funding for newer health plans with growing enrollment. In the first quarter of
2021, the parent contributed capital of $52 million to the regulated health plan
subsidiaries.
Cash, cash equivalents and investments at the parent company amounted to
$436 million and $644 million as of March 31, 2021, and December 31, 2020,
respectively. The decrease as of March 31, 2021, was mainly due to our share
repurchase program. In the first quarter of 2021, we purchased an aggregate of
approximately 577,000 shares for $122 million, at an average cost of $211.65 per
share.
                           Molina Healthcare, Inc. March 31, 2021 Form 10-Q | 29
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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:
                                                                  Three Months Ended March 31,
                                                          2021                2020              Change

                                                                         (In millions)
Net cash provided by operating activities             $      568          $     143          $      425
Net cash used in investing activities                        (87)              (103)                 16
Net cash used in financing activities                       (207)              (125)                (82)

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

              $      274          $ 

(85) $ 359



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 first quarter of 2021 was $568 million,
compared with $143 million in the first quarter of 2020. The $425 million
increase in cash flow was due to the growth in operations and the net impact of
timing differences in government receivables and payables.
Investing Activities
Net cash used in investing activities was $87 million in the first quarter of
2021, compared with $103 million in the first quarter of 2020, an increase in
cash flow of $16 million. This increase was primarily due to decreased purchases
of investments in the first quarter of 2021.
Financing Activities
Net cash used in financing activities was $207 million in the first quarter of
2021, compared with $125 million in the first quarter of 2020, a decrease in
cash flow of $82 million. In the first quarter of 2021, financing cash outflows
included common stock purchases of $128 million, $51 million for common stock
withheld to settle employee tax obligations, and $20 million paid to settle
contingent consideration liabilities relating to our Kentucky Passport
acquisition in 2020. In the first quarter of 2020, net cash paid for the common
stock purchases amounted to $453 million, partially offset by proceeds of $380
million borrowed under the term loan facility.

                           Molina Healthcare, Inc. March 31, 2021 Form 10-Q | 30
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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 March 31, 2021, our working capital was $3.0
billion, compared with $2.9 billion at December 31, 2020. At March 31, 2021, our
cash and investments amounted to $6.5 billion, compared with $6.2 billion at
December 31, 2020.
Regulatory Capital and Dividend Restrictions
Each of our regulated, wholly owned subsidiaries must maintain a minimum amount
of statutory capital determined by statute or regulations. Such statutes,
regulations and capital requirements also restrict the timing, payment and
amount of dividends and other distributions, loans or advances that may be paid
to us as the sole stockholder. To the extent our subsidiaries must comply with
these regulations, they may not have the financial flexibility to transfer funds
to us. Based upon current statutes and regulations, the minimum capital and
surplus requirement for these subsidiaries was estimated to be approximately
$1.7 billion at March 31, 2021, compared with $1.5 billion at December 31, 2020.
The aggregate capital and surplus of our wholly owned subsidiaries was in excess
of these minimum capital requirements as of both dates.
Under applicable regulatory requirements, the amount of dividends that may be
paid by our wholly owned subsidiaries without prior approval by regulatory
authorities as of March 31, 2021, was approximately $30 million in the
aggregate. The 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 March 31, 2021, management
believes that its regulated wholly owned subsidiaries remain well capitalized
and exceed their regulatory minimum requirements. We have the ability, and have
committed to provide, additional capital to each of our health plans as
necessary to ensure compliance with statutory capital and surplus requirements.
Debt Ratings
Each of our high-yield senior notes is rated "BB-" by Standard & Poor's, and
"Ba3" 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.
In addition, the indentures governing each of our outstanding high-yield senior
notes contain cross-default provisions that are triggered upon default by us or
any of our subsidiaries on any indebtedness in excess of the amount specified in
the applicable indenture. As of March 31, 2021, we were in compliance with all
financial and non-financial covenants under the Credit Agreement and other
long-term debt.

FUTURE SOURCES AND USES OF LIQUIDITY
Future Sources
Our regulated subsidiaries generate significant cash flows from premium revenue,
which is generally received a short time before related healthcare services are
paid. Premium revenue is our primary source of liquidity. Thus, any decline in
the receipt of premium revenue, and our profitability, could have a negative
impact on our liquidity.
Potential Impact of COVID-19 Pandemic. Excluding acquisitions and our exit from
Puerto Rico, we have added nearly 500,000 new Medicaid members since March 31,
2020, when we first began to report on the impacts of the pandemic. We believe
this membership increase was mainly due to the suspension of redeterminations
for Medicaid eligibility. We expect Medicaid enrollment to continue to benefit
from the extension of the PHE period, and the associated pause on membership
redeterminations, through the end of the third quarter of 2021. We estimate that
for each month the PHE is extended, it could increase our full-year revenue
estimate by $150 million.
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
                           Molina Healthcare, Inc. March 31, 2021 Form 10-Q | 31
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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 March 31, 2021, we had available
borrowing capacity of $1.0 billion under the revolving credit facility of our
Credit Agreement. In addition, the Credit Agreement provides for a $15 million
swingline sub-facility and a $100 million letter of credit sub-facility, as well
as incremental term loans available to finance certain acquisitions up to
$500 million, plus an unlimited amount of such term loans as long as our
consolidated net leverage ratio is not greater than a defined maximum. See
further discussion in the Notes to Consolidated Financial Statements, Note 8,
"Debt."
Future Uses
Common Stock Purchases. In September 2020, our board of directors authorized the
purchase of up to $500 million, in the aggregate, of our common stock. This
program is funded with cash on hand and extends through December 31, 2021. The
exact timing and amount of any repurchase is determined by management based on
market conditions and share price, in addition to other factors, and subject to
the restrictions relating to volume, price, and timing under applicable law. As
of April 29, 2021, approximately $219 million remained available to purchase our
common stock under this program through December 31, 2021.
Acquisitions. On April 22, 2021, we announced a definitive agreement to acquire
Cigna Corporation's Texas Medicaid and Medicare-Medicaid Plan ("MMP") contracts,
along with certain operating assets. As of December 31, 2020, Cigna served
approximately 48,000 members in the Texas ABD program, also known as
"STAR+PLUS," in the Hidalgo, Tarrant and Northeast service areas, and
approximately 2,000 MMP members in the Hidalgo service area, with full year 2020
premium revenue of approximately $1.0 billion. The purchase price for the
transaction is approximately $60 million, which we intend to fund with cash on
hand. The transaction is subject to receipt of applicable federal and state
regulatory approvals and satisfaction of other customary closing conditions. We
currently expect the transaction to close in the second half of 2021.
In September 2020, we entered into a definitive agreement to acquire
substantially all of the assets of Affinity Health Plan, Inc., a Medicaid health
plan in New York. The net purchase price for the transaction is approximately
$380 million, subject to various adjustments at closing, which we intend to fund
with cash on hand. We currently expect the transaction to close in the third
quarter of 2021.
In connection with the acquisition of certain assets of Passport Health Plan,
Inc. in 2020, in the first quarter of 2021, the contingent purchase
consideration relating to 2021 member enrollment was finalized and half the
consideration due, or $23 million, was paid to the seller. We expect to pay the
remaining balance of the liabilities, reported in "Accounts payable, accrued
liabilities and other" in the accompanying consolidated balance sheets, later in
2021 and in the first quarter of 2022.
Outcome of ACA Constitutionality Court Case. As described above in "Trends and
Uncertainties," the Supreme Court's decision is expected by June 2021. If the
Supreme Court were to rule that the individual mandate is unconstitutional, and
that the individual mandate is not severable from the balance of the ACA, or
that the entirety of the ACA is unconstitutional, that ruling could have a
material adverse effect on our business, financial condition, cash flows, or
results of operations.
Potential Impact of COVID-19 Pandemic. As described above in "Trends and
Uncertainties," we have been subject to Medicaid risk corridors as a result of
the pandemic. Beginning in 2020, through March 31, 2021, various states enacted
temporary risk corridors in response to the reduced demand for medical services
stemming from COVID-19, which have resulted in a reduction of our medical
margin. In some cases, these risk corridors were retroactive to earlier periods
in 2020, or as early as the beginning of the states' fiscal years in 2019.
Beginning in the second quarter of 2020, we have recognized retroactive risk
corridors that we believe to be probable, and where the ultimate premium amount
is reasonably estimable. In the first quarter of 2021, we recognized
approximately $110 million related to such risk corridors, primarily in the
Medicaid segment.
It is possible that certain states could increase the level of existing risk
corridors, and other states could implement some form of retroactive risk
corridors in the future. Due to these uncertainties, the ultimate outcomes could
differ materially from our estimates as a result of changes in facts or further
developments, which could have an adverse effect on our consolidated financial
position, results of operations, or cash flows.
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.

                           Molina Healthcare, Inc. March 31, 2021 Form 10-Q | 32
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CONTRACTUAL OBLIGATIONS
A summary of future obligations under our various contractual obligations and
commitments as of December 31, 2020, was disclosed in our 2020 Annual Report on
Form 10-K.
There were no significant changes to our contractual obligations and commitments
outside the ordinary course of business during the first quarter of 2021.

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 7, "Medical Claims and Benefits Payable," for a table that
presents the components of the change in medical claims and benefits payable,
and for additional information regarding the factors used to determine our
changes in estimates for all periods presented in the accompanying consolidated
financial statements. Other than the discussion as noted above, in the first
quarter of 2021 there have been no significant changes to our disclosure
reported in "Critical Accounting Estimates" in our 2020 Annual Report on Form
10-K.
•Contractual provisions that may adjust or limit revenue or profit. For a
discussion of this topic, including amounts recorded in our consolidated
financial statements, refer to Notes to Consolidated Financial Statements, Note
2, "Significant Accounting Policies."
•Quality incentives. In the first quarter of 2021, there have been no
significant changes to our disclosure reported in "Critical Accounting
Estimates" in our 2020 Annual Report on Form 10-K.
•Business combinations, goodwill, and intangible assets, net. In the first
quarter of 2021, we realigned our reportable operating segments to reflect
recent changes in our internal operating and reporting structure, which is now
organized by government program. The revised reporting structure reflects the
reporting and review process used by our chief executive officer (who is our
chief operating decision maker) to assess performance and allocate resources,
and is consistent with how we currently manage the business and view the markets
we serve. These reportable segments consist of: 1) Medicaid; 2) Medicare;
3) Marketplace; and 4) Other. Such reportable operating segments also now
constitute our reporting units in the annual assessment of goodwill impairment.
Refer to Notes to Consolidated Financial Statements, Note 10, "Segments," for a
presentation of goodwill, and intangibles assets, net, by reportable segment,
and "Critical Accounting Estimates," in our 2020 Annual Report on Form 10-K, for
further information.

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