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Dive Brief:
- Molina Healthcare is hopeful that its Medicaid margins will turn around soon, as state reimbursement appears to finally be rising enough to cover higher spending in the safety-net insurance program.
- It’s the latest managed care company to report momentum in Medicaid — a welcome development for insurers (and their investors) after margins tumbled coming out of the coronavirus pandemic, and one that could set up Molina for profit growth in 2027.
- Still, renewed positivity in Medicaid doesn’t mean Molina expects higher earnings this year. The insurer reaffirmed its 2026 financial outlook after posting third quarter results Wednesday. Investors punished the California-based insurer for its conservatism, sending Molina’s stock down 5% in aftermarket trade.
Dive Insight:
Molina’s third quarter was mixed overall. The insurer outperformed expectations for revenue and earnings, though both metrics degraded compared to the prior year — especially earnings. Molina brought in $38 million in profit, half of what it posted in the prior-year period, despite revenue dipping just 3% to $11.1 billion.
Molina’s results “err more on the side of pressure than progress,” Jefferies analyst David Windley wrote in a note.
But Molina executives argued that positive developments in Medicaid — which makes up 90% of the insurer’s membership and almost 80% of its premiums — bode well for the company’s ability to dig itself out of the trough.
Medicaid costs remained elevated in the third quarter, particularly in outpatient care and high-cost drugs, CFO Mark Keim said on a call with investors Thursday morning. The segment posted a medical loss ratio, a marker of spending on patient care, of 93%, worse than Wall Street had expected.
Analysts said the MLR increase could be due in part to ongoing membership attrition saddling the insurer with a smaller and sicker population, and the start of a new Medicaid contract in Florida for children with complex conditions. Both factors appear to be pushing up Molina’s Medicaid spending.
Molina increased its full-year outlook for medical cost trend from 5% to 5.5% after the third quarter, executives said. State payment rates this year should net out to 4.5%, up from Molina’s previous expectation of 4%, leaving an unwelcome delta.
But rates should reach around 6% next year, CEO Joe Zubretsky said. The majority of Molina’s book of business renews in January, and the insurer knows draft rates for most of that cohort at this point in the year. Combining that with estimates of remaining rates leaves Molina confident that states’ Medicaid reimbursement will cover its spending in 2027, according to the CEO.
“The imbalance between rates and trend appears to have stabilized,” Zubretsky said.
UnitedHealth and Elevance also said their Medicaid businesses performed better than expected in the third quarter, thanks to stabilizing medical costs and state rate hikes.
Though, Medicaid insurers are contending with significant volatility hitting Medicaid from the GOP’s “Big Beautiful Bill,” which — among other reforms — enacted a national mandate tying eligibility in the program to work, education or volunteering hours. That’s expected to boot millions of Americans off Medicaid over the next decade, further contracting managed care companies’ Medicaid rolls and making it more difficult to control spending.
It’s a major concern for the Medicaid industry, which is just beginning to see a light at the end of the tunnel after a difficult few years. Still, insurance executives rushed to reassure investors that changes are manageable, and that states, which have some leeway in how work requirements are set up, are taking a liberal approach that’ll keep more beneficiaries enrolled.
“I think we’re seeing a more gentle interpretation of this,” Keim said.
According to the CFO, the impact of work requirements in Nebraska — the first state to roll out the policy, well ahead of the January 2027 deadline — has been “rather moderate” so far. (According to a September meeting of Nebraska’s Medicaid advisory committee, about 560 new Medicaid applicants have been denied due to work requirements, mostly because they failed to provide the information needed to verify compliance.)
Molina expects to lose 6% of its Medicaid enrollees — about 260,000 people — next year as a result of work requirements.
Overall, Molina posted an enterprise-wide MLR of 92.9%, up year over year but in line with analyst expectations.
Molina’s Medicare Advantage MLR was worse than analysts had expected, though executives said it was in line with internal forecasts as strong results in Molina’s dual-eligible business was offset by losses in its MA prescription drug products. Molina is exiting that business next year.
Molina’s Affordable Care Act plans posted a MLR of 92.5%, in line with analyst expectations. The ACA exchanges have been a source of pressure for Molina this year — the insurer retained more high-acuity members than planned after the loss of more generous plan subsidies caused significant enrollment turbulence.
That includes more members on high-cost drugs for conditions like HIV and cancer, which don’t always factor into the system used to redistribute funds from ACA insurers with healthier members to those with sicker members.
Molina expects its ACA business to operate at a loss this year. But it should be profitable again in 2027, after Molina cut its footprint from 14 states to seven states to ensure it enters the year with risk scores equal to the acuity of its population, Zubretsky said.