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Molina Healthcare Reports Fourth Quarter and Year-End 2014 Results

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Molina Healthcare, Inc. (NYSE:MOH) :

  • Full year 2014 net income per diluted share, continuing operations, of $1.30, representing a 35% increase over 2013 net income per diluted share, continuing operations, of $0.96.
  • Full year 2014 adjusted net income per diluted share, continuing operations,1 of $3.43, representing a 10% increase over 2013 adjusted net income per diluted share, continuing operations,1 of $3.13.
  • Full year 2014 total revenue of $9.7 billion, up 47% over 2013.
  • Aggregate membership up 36% over 2013.
  • Full year 2014 cash flow from operations exceeded $1 billion.

Molina Healthcare, Inc. (NYSE:MOH) today reported its financial results for the fourth quarter and year ended December 31, 2014.

“2014 was a year of great growth and accomplishment for Molina Healthcare. We added almost 700,000 members to our health plans; we launched our Medicare Medicaid dual eligible plans in California, Illinois, and Ohio; and we began operations at our South Carolina health plan,” said J. Mario Molina, M.D., chief executive officer of Molina Healthcare, Inc. “While the overall results fell short of our expectations due to factors outside of our control, such as the reimbursement of the Affordable Care Act’s Health Insurer Fee, we enter 2015 better prepared to meet many of the challenges ahead of us. We are incredibly excited about the Puerto Rico and dual eligible contracts in the pipeline for 2015. In addition, we are making significant progress as our company continues to shift toward becoming a chronic care company, while we continue to invest and position ourselves for the longer term.”

2015 Business Outlook and Investor Meeting

As has been our past practice, we will discuss the Company’s 2015 business outlook and strategy at our Investor Day Conference webcast and presentation to be held on February 12, 2015, at the Le Parker Meridien Hotel in New York City from 12:30 p.m. to 4:30 p.m. Eastern Time. The Company will webcast the presentations offered by its management team, followed by question-and-answer sessions. A 30-day online replay of the Investor Day meeting will be available approximately one hour following the conclusion of the live webcast. A link to this webcast can be found on the Company’s website at www.molinahealthcare.com.

Overview of Financial Results, Continuing Operations

Dramatic increases in enrollment and revenue, as well as improved administrative cost efficiency, offset higher medical costs and higher tax rates to generate a substantial improvement in the Company’s bottom-line performance between 2013 and 2014.

Strong enrollment growth across all of the Company’s programs combined with an 18% increase in premium revenue per member generated almost $3 billion, or 46%, more premium revenue for the year ended December 31, 2014, when compared with the year ended December 31, 2013.

Enrollment growth was primarily due to Medicaid Expansion program membership added as a result of the Affordable Care Act and membership added at the Company’s South Carolina and Illinois health plans. Higher per member per month premium revenue was primarily the result of the inclusion of long-term services and supports (LTSS) benefits in various Medicaid managed care programs in California, Florida, Illinois, New Mexico, and Ohio.

The Company reported substantial improvements in administrative cost efficiency in 2014. General and administrative expenses as a percentage of revenue declined to 7.3% for the fourth quarter of 2014, from 11.0% for the same period in 2013, and was 7.9% for the year ended December 31, 2014, versus 10.1% for 2013.

Although medical margin (defined as the excess of premium revenue over medical care costs) increased nearly 20% in 2014 over 2013, the Company’s consolidated medical care ratio (defined as medical care costs as a percentage of premium revenue) increased to 89.5% in 2014 from 87.1% in 2013.

The medical care ratio increased substantially in 2014 as a result of three developments:

  • Much of the Company’s revenue growth has come from participation in Medicaid programs covering LTSS. As the Company has previously discussed, percentage profit margins for LTSS benefits are generally lower than percentage profit margins for acute medical benefits.
  • Increases to the Company’s base premiums in recent years have not kept pace with medical cost trends.
  • Lack of coordination in the design of profit caps and medical cost floors in some of the Company’s state Medicaid contracts is resulting in counterproductive outcomes. In some instances, givebacks due to profitable performance in one product cannot be offset against losses in other products.

Affordable Care Act Health Insurer Fee Update

The Company previously reported that its results have been adversely affected by delays in reimbursement (including reimbursement for tax effects) of the Affordable Care Act’s Health Insurer Fee (ACA HIF) from California, Michigan, New Mexico, Texas and Utah.

During the fourth quarter, New Mexico and Texas agreed to full reimbursement, resulting in additional revenue of $30 million, or $0.38 per diluted share, for the fourth quarter of 2014. California has not yet committed to reimbursement for 2014.

During the third quarter, Michigan and Utah committed to reimbursement of the ACA HIF, but not to the reimbursement of the related tax effects. While both states have informally indicated that it is their desire to reimburse the Company for those tax effects, there remained a shortfall of approximately $8 million for Michigan and Utah combined as of December 31, 2014.

The ACA HIF not reimbursed by California, as well as tax effects not yet reimbursed by Michigan and Utah, reduced income before taxes by approximately $20 million, or $0.26 per diluted share, for the year ended December 31, 2014 (per-share amount is on a GAAP and adjusted basis).

The following table summarizes the status of ACA HIF Medicaid revenue recognition for the year ended December 31, 2014.

ACA HIF Medicaid Revenue
Required
Reimbursement
through Not
Recognized Dec. 31, 2014 Recognized
(In millions)
Quarter 1 $ 16.6 $ 32.7 $ 16.1
Quarter 2 17.2 32.7 15.5
Quarter 3 27.0 32.7 5.7
Quarter 4 50.2 32.7 (17.5 )
Year ended December 31, 2014 $ 111.0 $ 130.8 $ 19.8

Texas Health Plan Quality Revenue Update

The Company’s non-recognition of a portion of the Texas health plan’s quality revenue reduced income before taxes by approximately $8 million, or $0.10 per diluted share, for the fourth quarter of 2014, and $25.5 million, or $0.33 per diluted share, for the year ended December 31, 2014 (per-share amounts for both periods are on a GAAP and adjusted basis).

The following table summarizes the status of Texas quality revenue recognition for the year ended December 31, 2014:

Texas Quality Revenue
Amount At Not
Recognized Risk Recognized
(In millions)
Quarter 1 $ 2.6 $ 8.6 $ 6.0
Quarter 2 1.1 8.6 7.5
Quarter 3 4.6 8.8 4.2
Quarter 4 1.0 8.8 7.8
Year ended December 31, 2014 $ 9.3 $ 34.8 $ 25.5

Of the $25.5 million of 2014 Texas quality revenue that was unrecognized at December 31, 2014, approximately $20 million is related to measures for which the Company lacks sufficient information to calculate its compliance. Should such information become available in the future, the Company may be able to recognize all or a portion of such revenue.

Conference Call

The Company’s management will host a conference call and webcast to discuss its fourth quarter and year-end results at 5:00 p.m. Eastern time on Monday, February 9, 2015. The number to call for the interactive teleconference is (212) 231-2938. A telephonic replay of the conference call will be available from 7:00 p.m. Eastern time on Monday, February 9, 2015, through 6:00 p.m. on Tuesday, February 10, 2015, by dialing (800) 633-8284 and entering confirmation number 21757432. A live audio broadcast of Molina Healthcare’s conference call will be available on the Company’s website, www.molinahealthcare.com. A 30-day online replay will be available approximately an hour following the conclusion of the live broadcast.

About Molina Healthcare

Molina Healthcare, Inc., a FORTUNE 500 company, provides managed health care services under the Medicaid and Medicare programs and through the state insurance marketplaces. Through our locally operated health plans in 11 states across the nation, Molina currently serves over 2.6 million members. Dr. C. David Molina founded our company in 1980 as a provider organization serving low-income families in Southern California. Today, we continue his mission of providing high quality and cost-effective health care to those who need it most. For more information about Molina Healthcare, please visit our website at www.molinahealthcare.com.

Notes:

1. Adjusted net income per diluted share, continuing operations, is a non-GAAP financial measure used by management as a supplemental metric in evaluating its financial performance, its financing and business decisions, and in forecasting and planning for future periods. This measure is not determined in accordance with accounting principles generally accepted in the United States of America (GAAP) and should not be viewed as a substitute for the most directly comparable GAAP measure, which is diluted net income per share, continuing operations. See below for reconciliations of the Company’s non-GAAP measures to the most directly comparable GAAP measures.

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995: This earnings release contains “forward-looking statements” regarding the Company’s plans, expectations, and anticipated future events. Actual results could differ materially due to numerous known and unknown risks and uncertainties, including, without limitation, risk factors related to the following:

  • continuing uncertainties associated with the implementation of the Affordable Care Act, including the full grossed up reimbursement by states of the non-deductible ACA health insurer fee, the Medicaid expansion, the insurance marketplaces, the effect of various implementing regulations, the King v. Burwell case now pending before the Supreme Court, and uncertainties regarding the Medicare-Medicaid dual eligible demonstration programs in California, Illinois, Michigan, Ohio, and South Carolina;
  • management of our medical costs, including seasonal flu patterns and rates of utilization that are consistent with our expectations, and our ability to reduce over time the high medical costs commonly associated with new patient populations;
  • federal or state medical cost expenditure floors, administrative cost and profit ceilings, and profit sharing arrangements;
  • the interpretation and implementation of at-risk premium rules regarding the achievement of certain quality measures, including 2014 at-risk premium rules in the state of Texas;
  • cyber-attacks or other privacy or data security incidents resulting in an inadvertent unauthorized disclosure of protected health information;
  • the success of our new health plan in Puerto Rico;
  • newly FDA-approved specialty drugs such as Sovaldi, Olysio, Harvoni, and other specialty drugs or generic drugs that are exorbitantly priced but not factored into the calculation of our capitated rates;
  • significant budget pressures on state governments and their potential inability to maintain current rates, to implement expected rate increases, or to maintain existing benefit packages or membership eligibility thresholds or criteria;
  • the accurate estimation of incurred but not paid medical costs across our health plans;
  • retroactive adjustments to premium revenue or accounting estimates which require adjustment based upon subsequent developments, including Medicaid pharmaceutical rebates or retroactive premium rate increases;
  • efforts by states to recoup previously paid amounts;
  • the success of our efforts to retain existing government contracts and to obtain new government contracts in connection with state requests for proposals (RFPs) in both existing and new states, including the success of the proposal of Molina Medicaid Solutions in New Jersey;
  • the continuation and renewal of the government contracts of both our health plans and Molina Medicaid Solutions and the terms under which such contracts are renewed;
  • complications, member confusion, or enrollment backlogs related to the annual renewal of Medicaid coverage;
  • government audits and reviews, and any fine, enrollment freeze, or monitoring program 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 or unfavorable resolution of litigation, arbitration, or administrative proceedings, including pending qui tam actions in Florida and California, and the litigation commenced against us by the state of Louisiana alleging that Molina Medicaid Solutions and its predecessors used an incorrect reimbursement formula for the payment of pharmaceutical claims;
  • the relatively small number of states in which we operate health plans;
  • our management of a portion of College Health Enterprises’ hospital in Long Beach, California;
  • 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 liquidity needs, including the interest expense and other costs associated with such financing;
  • the failure of a state in which we operate to renew its federal Medicaid waiver;
  • changes generally affecting the managed care or Medicaid management information systems industries;
  • increases in government surcharges, taxes, and assessments;
  • public alarm associated with the Ebola virus, measles, or any actual widespread epidemic;
  • changes in general economic conditions, including unemployment rates;
  • increasing competition and consolidation in the Medicaid industry;

and numerous other risk factors, including those discussed in the Company’s periodic reports and filings with the Securities and Exchange Commission. These reports can be accessed under the investor relations tab of the Company’s website or on the SEC’s website at www.sec.gov. Given these risks and uncertainties, we can give no assurances that the Company’s forward-looking statements will prove to be accurate, or that any other results or events projected or contemplated by the Company’s forward-looking statements will in fact occur, and we caution investors not to place undue reliance on these statements. All forward-looking statements in this release represent the Company’s judgment as of February 9, 2015, and we disclaim any obligation to update any forward-looking statements to conform the statement to actual results or changes in the Company’s expectations.

MOLINA HEALTHCARE, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended Year Ended
December 31, December 31,
2014 2013 2014 2013
(Amounts in thousands, except net income (loss) per share)
Revenue:
Premium revenue $ 2,598,273 $ 1,595,352 $ 9,022,511 $ 6,179,170
Service revenue 53,632 54,007 210,051 204,535
Premium tax revenue 91,335 44,411 294,388 172,017
Health insurer fee revenue (1) 51,699 119,484
Investment income 2,478 2,006 8,093 6,890
Other income 3,551 9,846 12,074 26,322
Total revenue 2,800,968 1,705,622 9,666,601 6,588,934
Operating expenses:
Medical care costs 2,322,538 1,414,290 8,076,331 5,380,124
Cost of service revenue 38,933 42,306 156,764 161,494
General and administrative expenses 204,488 187,006 764,693 665,996
Premium tax expenses 91,335 44,411 294,388 172,017
Health insurer fee expenses (1) 22,148 88,591
Depreciation and amortization 25,082 20,294 92,917 72,743
Total operating expenses 2,704,524 1,708,307 9,473,684 6,452,374
Operating income (loss) 96,444 (2,685 ) 192,917 136,560
Other expenses, net:
Interest expense 14,577 13,835 56,811 52,071
Other (income) expense, net (8 ) (4 ) 802 3,343
Total other expenses, net 14,569 13,831 57,613 55,414
Income (loss) from continuing operations before income taxes 81,875 (16,516 ) 135,304 81,146
Income tax expense (benefit) 47,942 (7,475 ) 72,726 36,316
Income (loss) from continuing operations 33,933 (9,041 ) 62,578 44,830
(Loss) income from discontinued operations (141 ) (85 ) (355 ) 8,099
Net income (loss) $ 33,792 $ (9,126 ) $ 62,223 $ 52,929
Diluted net income (loss) per share:
Income (loss) from continuing operations $ 0.69 $ (0.20 ) $ 1.30 $ 0.96
(Loss) income from discontinued operations (0.01 ) 0.17
Diluted net income (loss) per share $ 0.69 $ (0.20 ) $ 1.29 $ 1.13
Diluted weighted average shares outstanding 48,893 45,725 48,340 46,862
Operating Statistics, Continuing Operations:
Medical care ratio (2) 89.4 % 88.7 % 89.5 % 87.1 %
Service revenue ratio (3) 72.6 % 78.3 % 74.6 % 79.0 %
General and administrative expense ratio (4) 7.3 % 11.0 % 7.9 % 10.1 %
Premium tax ratio (2) 3.4 % 2.7 % 3.2 % 2.7 %
Effective tax rate 58.6 % 45.3 % 53.8 % 44.8 %

____________

(1)

Health insurer fee expenses represent insurer fees levied by the federal government under the Affordable Care Act, which are not tax deductible. Associated revenues represent state and federal reimbursement of such fees (including the related income tax effect) for Medicaid and Medicare insurers.

(2)

Medical care ratio 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. Medical care costs include costs incurred for providing long term services and supports (LTSS).

(3)

Service revenue ratio represents cost of service revenue as a percentage of service revenue.

(4)

Computed as a percentage of total revenue.

MOLINA HEALTHCARE, INC.
UNAUDITED CONSOLIDATED BALANCE SHEETS
December 31,
2014 2013
(Amounts in thousands,
except per-share data)
ASSETS
Current assets:
Cash and cash equivalents $ 1,539,063 $ 935,895
Investments 1,019,462 703,052
Receivables 596,456 298,935
Income tax refundable 32,742
Deferred income taxes 39,532 26,556
Prepaid expenses and other current assets 50,884 42,484
Total current assets 3,245,397 2,039,664
Property, equipment, and capitalized software, net 340,778 292,083
Deferred contract costs 53,675 45,675
Intangible assets, net 89,273 98,871
Goodwill 271,964 230,738
Restricted investments 102,479 63,093
Derivative asset 329,323 186,351
Other assets 44,326 46,462
$ 4,477,215 $ 3,002,937
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Medical claims and benefits payable $ 1,200,522 $ 669,787
Accounts payable and accrued liabilities 241,654 263,043
Amounts due government agencies 527,193 56,922
Deferred revenue 196,076 122,216
Income taxes payable 8,987
Current maturities of long-term debt 341 182,008
Total current liabilities 2,174,773 1,293,976
Convertible senior notes 704,097 416,368
Lease financing obligations 160,710 159,394
Lease financing obligations – related party 40,241 27,092
Deferred income taxes 24,271 580
Derivative liability 329,194 186,239
Other long-term liabilities 33,487 26,351
Total liabilities 3,466,773 2,110,000
Stockholders’ equity:
Common stock, $0.001 par value; 150,000 shares authorized; outstanding: 49,727 shares and 45,871 shares at December 31, 2014 and 2013, respectively 50 46

Preferred stock, $0.001 par value; 20,000 shares authorized, no shares issued and outstanding

Additional paid-in capital 396,059 340,848
Accumulated other comprehensive loss (1,019 ) (1,086 )
Retained earnings 615,352 553,129
Total stockholders’ equity 1,010,442 892,937
$ 4,477,215 $ 3,002,937
MOLINA HEALTHCARE, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS,
CONTINUING AND DISCONTINUED OPERATIONS
Three Months Ended Year Ended
December 31, December 31,
2014 2013 2014 2013
(Amounts in thousands)
Operating activities:
Net income (loss) $ 33,792 $ (9,126 ) $ 62,223 $ 52,929
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization 34,940 25,831 134,404 93,866
Deferred income taxes 8,353 7,395 (2,352 ) (31,047 )
Stock-based compensation 5,612 8,040 21,727 28,694
Amortization of convertible senior notes and lease financing obligations 7,184 6,692 27,379 22,820
Other, net 2,347 3,323 6,222 17,729
Changes in operating assets and liabilities:
Receivables (170,773 ) (4,968 ) (297,521 ) (149,253 )
Prepaid expenses and other current assets 32,065 4,488 (19,517 ) (23,064 )
Medical claims and benefits payable 76,676 37,081 530,735 175,257
Accounts payable and accrued liabilities 37,481 12,234 11,097 32,550
Amounts due government agencies 129,496 28,646 470,271 28,446
Deferred revenue 5,220 (2,172 ) 73,860 (19,582 )
Income taxes 16,666 (38,250 ) 41,729 (39,262 )
Net cash provided by operating activities 219,059 79,214 1,060,257 190,083
Investing activities:
Purchases of investments (337,031 ) (142,130 ) (953,355 ) (770,083 )
Sales and maturities of investments 158,964 171,795 632,800 399,595
Purchases of equipment (43,163 ) (33,623 ) (114,934 ) (98,049 )
(Increase) decrease in restricted investments (9,360 ) 2,132 (33,661 ) (18,992 )
Net cash paid in business combinations (36,633 ) (3,837 ) (44,133 ) (61,521 )
Other, net (7,226 ) 3,768 (22,446 ) 5,739
Net cash used in investing activities (274,449 ) (1,895 ) (535,729 ) (543,311 )
Financing activities:

Proceeds from issuance of convertible senior notes, net of financing costs paid

(762 ) 122,625 537,973
Proceeds from sale-leaseback transactions 158,694
Purchase of call option (149,331 )
Proceeds from issuance of warrants 75,074
Treasury stock purchases (2,662 ) (52,662 )
Principal payments on term loan (47,471 )
Repayment of amounts borrowed under credit facility (40,000 )
Contingent consideration liabilities settled (50,349 )
Proceeds from employee stock plans 6,412 4,246 14,040 9,402
Principal payments on convertible senior notes (10,449 ) (10,449 )
Other, net 656 436 2,773 1,674
Net cash (used in) provided by financing activities (4,143 ) 2,020 78,640 493,353
Net (decrease) increase in cash and cash equivalents (59,533 ) 79,339 603,168 140,125
Cash and cash equivalents at beginning of period 1,598,596 856,556 935,895 795,770
Cash and cash equivalents at end of period $ 1,539,063 $ 935,895 $ 1,539,063 $ 935,895
MOLINA HEALTHCARE, INC.
UNAUDITED NON-GAAP FINANCIAL MEASURES

The Company uses two non-GAAP financial measures as supplemental metrics in evaluating its financial performance, making financing and business decisions, and forecasting and planning for future periods. For these reasons, management believes such measures are useful supplemental measures to investors in comparing the Company’s performance to the performance of other public companies in the health care industry. These non-GAAP financial measures should be considered as supplements to, and not as substitutes for or superior to, GAAP measures.

The first of these non-GAAP measures is earnings before interest, taxes, depreciation and amortization (EBITDA). The following table reconciles net income (loss), which the Company believes to be the most comparable GAAP measure, to EBITDA.

Three Months Ended Year Ended
December 31, December 31,
2014 2013 2014 2013
(Amounts in thousands)
Net income (loss) $ 33,792 $ (9,126 ) $ 62,223 $ 52,929
Adjustments:
Depreciation, and amortization of intangible assets and capitalized software 30,202 25,831 113,715 93,866
Interest expense 14,577 13,835 56,811 52,071
Income tax expense (benefit) 48,087 (7,341 ) 72,523 26,404
EBITDA $ 126,658 $ 23,199 $ 305,272 $ 225,270
The second of these non-GAAP measures is adjusted net income, continuing operations (including adjusted net income per diluted share). The following tables reconcile net income (loss) from continuing operations, which the Company believes to be the most comparable GAAP measure, to adjusted net income, continuing operations.

Three Months Ended December 31,
2014 2013
(In thousands, except per diluted share amounts)
Net income (loss), continuing operations $ 33,933 $ 0.69 $ (9,041 ) $ (0.20 )
Adjustments, net of tax:
Depreciation, and amortization of capitalized software 15,883 0.33 12,643 0.28
Amortization of convertible senior notes and lease financing obligations 4,526 0.09 4,216 0.09
Stock-based compensation 3,328 0.07 8,716 0.19
Amortization of intangible assets 3,143 0.06 3,631 0.08
Change in fair value of derivatives, net (5 ) (2 )
Adjusted net income, continuing operations $ 60,808 $ 1.24 $ 20,163 $ 0.44
Year Ended December 31,
2014 2013
(In thousands, except per diluted share amounts)
Net income, continuing operations $ 62,578 $ 1.30 $ 44,830 $ 0.96
Adjustments, net of tax:
Depreciation, and amortization of capitalized software 58,770 1.21 46,018 0.98
Amortization of convertible senior notes and lease financing obligations 17,249 0.36 14,377 0.31
Stock-based compensation 14,288 0.29 24,501 0.52
Amortization of intangible assets 12,870 0.27 13,117 0.28
Change in fair value of derivatives, net (10 ) 3,580 0.08
Adjusted net income, continuing operations $ 165,745 $ 3.43 $ 146,423 $ 3.13
MOLINA HEALTHCARE, INC.
UNAUDITED HEALTH PLANS SEGMENT MEMBERSHIP DATA,
CONTINUING OPERATIONS
As of December 31,
2014 2013 2012
Ending Membership by Health Plan:
California 531,000 368,000 336,000
Florida 164,000 89,000 73,000
Illinois 100,000 4,000
Michigan 242,000 213,000 220,000
New Mexico 212,000 168,000 91,000
Ohio 347,000 255,000 244,000
South Carolina (1) 118,000
Texas 245,000 252,000 282,000
Utah 83,000 86,000 87,000
Washington 497,000 403,000 418,000
Wisconsin 84,000 93,000 46,000
2,623,000 1,931,000 1,797,000
Ending Membership by Program:
Temporary Assistance for Needy Families (TANF), CHIP (2) 1,831,000 1,624,000 1,517,000
Medicaid Expansion (3) 385,000
Aged, Blind or Disabled (ABD) 325,000 268,000 244,000
Medicare Special Needs Plans 49,000 39,000 36,000
Medicare-Medicaid Plan (MMP) – Integrated (4)(5) 18,000
Marketplace (3) 15,000
2,623,000 1,931,000 1,797,000

____________

(1)

The South Carolina health plan began serving members under the state of South Carolina’s new full-risk Medicaid managed care program effective January 1, 2014.

(2)

CHIP stands for Children’s Health Insurance Program.

(3)

Medicaid Expansion membership phased in, and Marketplace became available for consumers to access coverage, beginning January 1, 2014.

(4)

Medicare-Medicaid Plans serve members who are dually eligible for Medicare and Medicaid. The Company’s MMP implementations in California, Illinois and Ohio offered coverage beginning in the second quarter of 2014.

(5)

MMP members who receive both Medicaid and Medicare coverage from the Company.

MOLINA HEALTHCARE, INC.
UNAUDITED SELECTED HEALTH PLANS SEGMENT FINANCIAL DATA,
CONTINUING OPERATIONS

(In thousands, except percentages and per-member per-month amounts)

Three Months Ended December 31, 2014

Member
Months(1)

Premium Revenue Medical Care Costs MCR (2)

Medical
Margin

Total PMPM Total PMPM
California 1,590 $ 463,224 $ 291.27 $ 379,281 $ 238.49 81.9 % $ 83,943
Florida 362 126,243 348.60 129,198 356.76 102.3 (2,955 )
Illinois 238 84,323 353.71 77,181 323.76 91.5 7,142
Michigan 725 213,190 294.14 184,398 254.41 86.5 28,792
New Mexico 653 298,210 456.40 293,369 448.99 98.4 4,841
Ohio 1,035 491,614 475.15 426,294 412.02 86.7 65,320
South Carolina 354 93,389 263.97 73,624 208.10 78.8 19,765
Texas 741 339,700 458.42 300,031 404.88 88.3 39,669
Utah 251 75,480 300.28 69,739 277.44 92.4 5,741
Washington 1,472 363,302 246.91 341,468 232.08 94.0 21,834
Wisconsin 254 37,843 148.99 35,498 139.75 93.8 2,345
Other (3) 11,755 12,457 (702 )
7,675 $ 2,598,273 $ 338.52 $ 2,322,538 $ 302.60 89.4 % $ 275,735

Three Months Ended December 31, 2013

Member
Months(1)

Premium Revenue Medical Care Costs MCR (2)

Medical
Margin

Total PMPM Total PMPM
California 1,101 $ 196,805 $ 178.70 $ 169,278 $ 153.71 86.0 % $ 27,527
Florida 261 77,309 295.65 69,815 266.99 90.3 7,494
Illinois 7 8,121 1,201.34 7,869 1,164.10 96.9 252
Michigan 640 167,252 261.23 138,539 216.38 82.8 28,713
New Mexico 508 147,991 291.16 132,465 260.62 89.5 15,526
Ohio 773 278,916 360.85 236,409 305.86 84.8 42,507
South Carolina
Texas 761 321,938 423.35 284,998 374.77 88.5 36,940
Utah 259 73,903 285.88 66,136 255.84 89.5 7,767
Washington 1,219 275,778 226.15 248,871 204.09 90.2 26,907
Wisconsin 280 38,925 139.19 31,797 113.70 81.7 7,128
Other (3) 8,414 28,113 (19,699 )
5,809 $ 1,595,352 $ 274.63 $ 1,414,290 $ 243.46 88.7 % $ 181,062

____________

(1)

A member month is defined as the aggregate of each month’s ending membership for the period presented.

(2)

The MCR represents medical costs as a percentage of premium revenue.

(3)

“Other” medical care costs include primarily medically related administrative costs at the parent company, and direct delivery costs.

MOLINA HEALTHCARE, INC.
UNAUDITED SELECTED HEALTH PLAN SEGMENT FINANCIAL DATA,
CONTINUING OPERATIONS

(In thousands, except percentages and per-member per-month amounts)

Year Ended December 31, 2014

Member
Months(1)

Premium Revenue Medical Care Costs MCR (2)

Medical
Margin

Total PMPM Total PMPM
California 5,630 $ 1,523,084 $ 270.51 $ 1,268,937 $ 225.37 83.3 % $ 254,147
Florida 1,104 439,107 397.79 419,422 379.95 95.5 19,685
Illinois 307 153,271 498.48 140,480 456.88 91.7 12,791
Michigan 2,802 780,896 278.68 660,790 235.81 84.6 120,106
New Mexico 2,471 1,075,330 435.17 995,626 402.92 92.6 79,704
Ohio 3,650 1,552,949 425.47 1,335,436 365.87 86.0 217,513
South Carolina 1,463 381,317 260.72 323,061 220.89 84.7 58,256
Texas 2,980 1,318,192 442.32 1,197,465 401.81 90.8 120,727
Utah 996 309,411 310.64 285,303 286.43 92.2 24,108
Washington 5,522 1,304,605 236.27 1,218,886 220.75 93.4 85,719
Wisconsin 1,036 156,229 150.87 135,557 130.91 86.8 20,672
Other (3) 28,120 95,368 (67,248 )
27,961 $ 9,022,511 $ 322.68 $ 8,076,331 $ 288.84 89.5 % $ 946,180
Year Ended December 31, 2013

Member
Months(1)

Premium Revenue Medical Care Costs MCR (2)

Medical
Margin

Total PMPM Total PMPM
California 4,233 $ 749,755 $ 177.10 $ 666,592 $ 157.46 88.9 % $ 83,163
Florida 973 264,998 272.23 231,261 237.57 87.3 33,737
Illinois 7 8,121 1,201.34 7,869 1,164.10 96.9 252
Michigan 2,581 676,000 261.91 570,644 221.09 84.4 105,356
New Mexico 1,492 446,758 299.36 384,466 257.62 86.1 62,292
Ohio 3,007 1,098,795 365.44 924,675 307.53 84.2 174,120
South Carolina
Texas 3,178 1,291,001 406.27 1,114,852 350.84 86.4 176,149
Utah 1,040 310,895 299.05 259,397 249.51 83.4 51,498
Washington 4,941 1,168,405 236.47 1,028,210 208.10 88.0 140,195
Wisconsin 1,060 143,465 135.40 114,340 107.91 79.7 29,125
Other (3) 20,977 77,818 (56,841 )
22,512 $ 6,179,170 $ 274.48 $ 5,380,124 $ 238.99 87.1 % $ 799,046

____________

(1)

A member month is defined as the aggregate of each month’s ending membership for the period presented.

(2)

The MCR represents medical costs as a percentage of premium revenue.

(3)

“Other” medical care costs include primarily medically related administrative costs at the parent company, and direct delivery costs.

MOLINA HEALTHCARE, INC.

UNAUDITED SELECTED FINANCIAL DATA

(Dollars in thousands, except per-member-per-month amounts)

The following tables provide the details of the Company’s medical care costs from continuing operations for the periods indicated:

Three Months Ended December 31,
2014 2013
Amount PMPM % of

Total

Amount PMPM % of

Total

Fee for service $ 1,643,620 $ 214.14 70.8 % $ 936,744 $ 161.26 66.2 %
Pharmacy 353,955 46.12 15.3 243,301 41.88 17.2
Capitation 211,855 27.60 9.1 162,651 28.00 11.5
Direct delivery 26,249 3.42 1.1 20,549 3.54 1.5
Other 86,859 11.32 3.7 51,045 8.78 3.6
$ 2,322,538 $ 302.60 100.0 % $ 1,414,290 $ 243.46 100.0 %
Year Ended December 31,
2014 2013
Amount PMPM % of

Total

Amount PMPM % of

Total

Fee for service $ 5,672,483 $ 202.87 70.2 % $ 3,611,529 $ 160.43 67.1 %
Pharmacy 1,273,329 45.54 15.8 935,204 41.54 17.4
Capitation 748,388 26.77 9.3 603,938 26.83 11.2
Direct delivery 96,196 3.44 1.2 48,288 2.14 0.9
Other 285,935 10.22 3.5 181,165 8.05 3.4
$ 8,076,331 $ 288.84 100.0 % $ 5,380,124 $ 238.99 100.0 %
The following table provides the details of the Company’s medical claims and benefits payable as of the dates indicated:
December 31,
2014 2013
Fee-for-service claims incurred but not paid (IBNP) $ 870,429 $ 424,173
Pharmacy payable 71,412 45,037
Capitation payable 28,150 20,267
Other (1) 230,531 180,310
$ 1,200,522 $ 669,787

____________

(1)

“Other” medical claims and benefits payable include amounts payable to certain providers for which the Company acts as an intermediary on behalf of various state agencies without assuming financial risk. Such receipts and payments do not impact the Company’s unaudited consolidated statements of operations. As of December 31, 2014 and 2013, the Company had recorded non-risk provider payables of approximately $119.3 million and $151.3 million, respectively.

MOLINA HEALTHCARE, INC.

UNAUDITED CHANGE IN MEDICAL CLAIMS AND BENEFITS PAYABLE

The Company’s claims liability includes an allowance for adverse claims development based on historical experience and other factors including, but not limited to, variations in claims payment patterns, changes in utilization and cost trends, known outbreaks of disease, and large claims. The Company’s reserving methodology is consistently applied across all periods presented. The amounts displayed for “Components of medical care costs related to: Prior period” represent the amount by which the Company’s original estimate of claims and benefits payable at the beginning of the period were more than the actual amount of the liability based on information (principally the payment of claims) developed since that liability was first reported. The following table shows the components of the change in medical claims and benefits payable from continuing and discontinued operations as of the periods indicated:

Three Months Ended

December 31,

Year Ended
December 31,

2014 2013 2014 2013
(Dollars in thousands, except per-member amounts)
Balances at beginning of period $ 1,123,846 $ 632,706 $ 669,787 $ 494,530
Components of medical care costs related to:
Current period 2,392,191 1,455,385 8,122,885 5,434,443
Prior period (69,656 ) (41,142 ) (45,979 ) (52,779 )
Total medical care costs 2,322,535 1,414,243 8,076,906 5,381,664
Change in non-risk provider payables (16,629 ) 27,596 (31,973 ) 111,267
Payments for medical care costs related to:
Current period 1,489,503 1,017,300 7,064,427 4,932,195
Prior period 739,727 387,458 449,771 385,479
Total paid 2,229,230 1,404,758 7,514,198 5,317,674
Balances at end of period $ 1,200,522 $ 669,787 $ 1,200,522 $ 669,787
Benefit from prior period as a percentage of:
Balance at beginning of period 6.2 % 6.5 % 6.9 % 10.7 %
Premium revenue, trailing twelve months 0.8 % 0.7 % 0.5 % 0.9 %
Medical care costs, trailing twelve months 0.9 % 0.8 % 0.6 % 1.0 %
Claims Data:
Days in claims payable, fee for service 49 43 49 43
Number of members at end of year 2,623,000 1,931,000 2,623,000 1,931,000
Number of claims in inventory at end of year 307,700 145,800 307,700 145,800

Billed charges of claims in inventory at end of year

$ 718,500 $ 276,500 $ 718,500 $ 276,500
Claims in inventory per member at end of year 0.12 0.08 0.12 0.08
Billed charges of claims in inventory per member at end of year $ 273.92 $ 143.19 $ 273.92 $ 143.19
Number of claims received during the year 7,893,700 5,566,000 27,597,000 21,317,500

Billed charges of claims received during the year

$ 8,809,100 $ 5,565,600 $ 30,315,600 $ 21,414,600

MOLINA HEALTHCARE, INC.

ACA HIF MEDICAID REVENUE DETAILS BY HEALTH PLAN

(In thousands)

ACA HIF Reimbursement Recognized

Required ACA
HIF
Reimbursement
through
Dec. 31, 2014

Three Months Ended

Year Ended
Dec. 31,
2014

March 31,
2014

June 30,
2014

Sept. 30,
2014

Dec. 31,
2014

Gross (1)
California $ $ $ $ $ $ 11,616
Florida 1,416 1,473 1,487 1,459 5,835 5,835
Illinois 40 42 40 40 162 162
Michigan 8,011 2,663 10,674 17,471
New Mexico 11,322 11,322 11,322
Ohio 7,791 8,117 6,912 7,606 30,426 30,426
Texas 18,518 18,518 18,518
Utah 3,000 1,049 4,049 5,332
Washington 6,229 6,489 6,217 6,311 25,246 25,246
Wisconsin 1,080 1,126 1,372 1,193 4,771 4,771
Medicaid 16,556 17,247 27,039 50,161 111,003 130,699
Medicare 2,892 3,199 3,068 3,053 12,212 12,212
$ 19,448 $ 20,446 $ 30,107 $ 53,214 $ 123,215 $ 142,911
Recognized in:
Health insurer fee revenue $ 18,696 $ 19,662 $ 29,427 $ 51,699 $ 119,484
Premium tax revenue 752 784 680 1,515 3,731
$ 19,448 $ 20,446 $ 30,107 $ 53,214 $ 123,215

____________

(1)

Amounts in the table include the full economic impact of the excise tax including premium tax and the income tax effect.

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