Q1 2025 Molina Healthcare Inc Earnings Call
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Speaker Change: Good day and welcome to the Molina Healthcare first quarter 2025 earnings conference call.
All participants will be in listen only mode. [inaudible]
Speaker Change: Should you need assistance, please signify conference specialists by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on a telephone keypad. To withdraw your question, please press star then two. Thank you.
Speaker Change: Please note this event is being recorded. I would now like to turn the conference over to Jeffrey Geyer. Please go ahead.
Jeffrey Geyer: Good morning, and welcome to Molina Healthcare's first quarter 2025 earnings call.
Speaker Change: Joining me today are Molina's president and CEO , Joseph Rasky, and our CFO , Mark Keim [inaudible]
Speaker Change: A press release announcing our first quarter, 2025 earnings, was distributed after the market closed yesterday and is available on our investor relations website.
Speaker Change: For those of you who listen to the rebroadcast of this presentation, we remind you that all of the remarks are made as of today, Thursday, April 24th, 2025, and have not been updated subsequent to the initial learning fall.
On this call, we will refer to certain non-GAAP measures.
Speaker Change: A reconciliation of these measures with the most directly comparable gap measures can be found in the first quarter 2025 earnings release.
During the call, we will be making certain forward-looking statements.
Speaker Change: including, but not limited to, statements regarding our 2025 guidance, the estimated amount of our embedded earnings power and future earnings realization, expected Medicaid rate adjustments and updates,
our projected MCR, Organic Medicaid and Marketplace Membership Growth,
Speaker Change: our recent RFP awards, our acquisitions and M&A activity, revenue growth related to RFPs and M&A activity, potential Medicaid funding cuts or program changes, and our long-term growth strategy.
Speaker Change: Listeners are cautioned that all of our forward-looking statements are subject to certain risks and uncertainties that could cause our actual results to differ materially from our current expectations.
Speaker Change: We advise listeners to review the risk factors discussed in our Form 10-K annual report filed with the SEC, as well as our risk factors listed in our Form 10-Q and Form 8-K filings with the SEC.
Speaker Change: After the completion of our prepared remarks, we will open the call to take your questions.
Speaker Change: I will now turn the call over to our Chief Executive Officer Joe Zubretsky. Joe?
Thank you, Jeff, and good morning.
Today, I will discuss several topics.
our reported financial results for the first quarter.
our growth initiatives and the related increase to embedded earnings.
Speaker Change: and our full year 2025 guidance, which we reaffirm at $42 billion of premium revenue and at least $24.50 in earnings per share.
Let me start with our first quarter performance.
Speaker Change: Last night, we reported adjusted earnings per share of $6.08 on $10.6 billion of premium revenue, supported by strong operating metrics across all lines of business.
Speaker Change: Our 89.2% consolidated MCR reflects strong medical cost management and an improving rate environment.
Speaker Change: We produced a 3.9% adjusted pre-tax margin, or 3% after tax, a very strong result.
Speaker Change: In Medicaid, the business produced an MCR of 90.3% in the quarter, which was in line with our expectations.
Speaker Change: As contemplated in our initial guidance, medical costs increased moderately due to continued utilization of LTSS.
Speaker Change: high-cost drugs, and behavioral health services, as well as seasonal illnesses, the impacts of which were mostly offset by updates in the new rate cycle.
In Medicare, we reported a first-quarter MCR of 88.3%.
which was in line with our expectations.
Speaker Change: Medical cost trend was as expected and was adequately captured by rates and risk adjustment.
Speaker Change: Our strategy of leveraging our existing Medicaid footprint to serve high-acuity, low-income Medicare beneficiaries is working well.
Speaker Change: In Marketplace, the first quarter MCR was 81.7% and was higher than expected.
Speaker Change: This was the result of prior year items related to final risk adjustment and membership reconciliations, as well as a higher new store MCR related to the first quarter results of our Connecticut acquisition.
Speaker Change: Excluding these items, the normalized MCR was approximately 77.7% more in line with our expectations.
Turning now to our growth initiative.
Speaker Change: We continued our successful track record of winning RFPs in the quarter.
Speaker Change: In Medicaid, we successfully defended our position in Nevada as we were awarded a contract to serve Medicaid beneficiaries in the two largest urban areas in the state.
Speaker Change: In our Medicare Dual Eligible business, we were awarded a contract in Illinois to provide a fully integrated Dual Eligible special needs plan.
Speaker Change: This win completes the full transition of our existing MMP members to an integrated DSNP product in all of our MMP states for January 1st, 2026.
Speaker Change: We project incremental annual premium revenue of approximately $800 million from this new contract and have added 50 cents per share to our embedded earnings.
Speaker Change: This contract win also moves us closer to achieving our premium revenue target of $46 billion in 2026, and at least $52 billion, which is the low end of our target range for 2027.
Thank you.
Speaker Change: With respect to M&A activity, our acquisition pipeline continues to contain many actionable opportunities, as we remain opportunistic in deploying capital to accretive acquisitions.
Speaker Change: Embedded earnings have now increased from approximately $7.75 to $8.65 per share.
Turning now to our 2025 guidance.
Speaker Change: Full year 2025 premium revenue guidance remains unchanged at approximately 42 billion dollars.
Speaker Change: We also reaffirm our full year 2025 adjusted earnings per share guidance of at least $24.50 or 8% year-over-year growth.
Speaker Change: Mark will discuss a few of the changing components within our EPS guidance, a major point of which will be that full year 2025 Medicaid rates are projected to be slightly higher than previously expected.
Speaker Change: as states reflect recent cost trends in on- and off-cycle rate updates.
Speaker Change: Given that known fact, we also increased our outlook for cost trend, reflecting some conservatism at this early point in the year.
Speaker Change: Our 2025 guidance is a strong foundation off of which to grow and to realize the embedded earnings power of the opportunities we have already secured.
Turning now to the political and legislative landscape.
Speaker Change: In Medicaid, we continue to believe that any changes to the Medicaid program in the near term will be marginal.
Speaker Change: The general perception is that Congress and the current administration will implement Medicaid program changes through possible combinations of various funding reduction approaches in order to meet federal spending targets.
Speaker Change: There are many credible estimates of the potential impact of these various approaches.
Speaker Change: We continue to believe that any impacts to membership volume or the acuity of the risk pool will be manageable and will not disrupt the earnings trajectory of our business.
Speaker Change: You are all well aware of the complex legislative process which will ensue over the coming months to reconcile the Senate and House resolutions to a final bill.
Speaker Change: While we await a definitive legislative framework, we continue to believe that neither side of the aisle wants to see an increase in the number of uninsured
Speaker Change: A significant reduction in benefits for those relying on government assistance or the inevitable related impact to providers.
Speaker Change: In addition, the early read on states promoting the integration of Medicaid and Medicare bodes well for us having a significant Medicaid footprint and a competitive D-SNP offering.
Speaker Change: Finally, in Marketplace, we remain confident in the stability of our membership and the outlook for the business despite the various program integrity initiatives and a final decision on the enhanced subsidies, which would impact Marketplace enrollment in 2026.
Speaker Change: Any impacts to membership have been contemplated in current year guidance and our future year revenue outlook.
Speaker Change: States have also communicated a willingness to allow market participants to update rates for 2026 based on the final resolution of the enhanced subsidies, which would substantially mitigate any related pricing risk.
Speaker Change: Our first quarter results and reaffirmed full year 2025 guidance reflect our team's disciplined approach to medical cost management in an improving rate environment.
Speaker Change: Our revenue growth and pre-tax margin profiles across all segments remain consistent with our long-term targets, and we continue to harvest and replenish embedded earnings.
Speaker Change: As we take an early look into 2026, we are confident in the process for actuarial soundness and the adequacy of Medicaid rates.
Speaker Change: In reviewing publicly available information, state-by-state, we believe that the broad Medicaid market appears to need 200 to 300 basis points.
Speaker Change: of RATE, in excess of TRND, to attain some level of program equilibrium.
If rate updates were to be made at that level,
Speaker Change: recognizing that all market participants obtained the same rate, Molina should be soon returned to performing at 89% or better, perhaps also while paying into the corridors.
Speaker Change: Our businesses, while not immune to external forces, have been resilient in the face of many uncertainties over the past many years.
The redetermination process is behind us.
Speaker Change: any legislative changes to the Medicaid program are likely to be marginal.
and healthcare is generally less sensitive to economic cycles.
Speaker Change: Our 2025 earnings and growth profiles are solid and therefore remain very confident in our ability to achieve our 13 to 15 percent long-term earnings per share growth target.
Speaker Change: With that, I will turn the call over to Mark for some additional color on the financials. Mark?
Thanks, Joe, and good morning, everyone.
Speaker Change: Today, I'll discuss additional details on our first quarter performance, the balance sheet, and our 2025 guidance.
beginning with our first quarter results.
Speaker Change: For the quarter, we reported approximately $11 billion in total revenue and $10.6 billion of premium revenue, with adjusted EPS of $6.08.
Speaker Change: Our first quarter consolidated MCR was 89.2 and reflects strong medical cost management and an improving rate environment.
Speaker Change: In Medicaid, our first quarter reported MCR was 90.3 and in line with our expectations.
Speaker Change: As we expected, benefit costs increased moderately due to the continued utilization of LTSS.
Speaker Change: high-cost drugs, and behavioral health services, as well as seasonal illness.
Speaker Change: These were largely offset by the first quarter rate cycle, which came in as expected.
Speaker Change: In Medicare, our first quarter reported MCR was 88.3, in line with our expectations.
Speaker Change: We remain confident in the pricing and benefit adjustments we implemented for 2025.
Speaker Change: The reported MCR also reflects the improvement related to our decision to exit MAPD in 13 states.
In Marketplace, our first quarter reported MCR was 81.7.
Speaker Change: The MCR was higher than expected and driven by two prior year items.
Lower Final Risk Adjustment and Member Reconciliation Adjustments.
Speaker Change: Also note that the initial new store MCR of Connecticut is, as expected, running higher than target early on.
Speaker Change: Altogether, these three non-recurring items accounted for approximately 400 basis points in the quarter.
Speaker Change: Excluding these items, the normalized marketplace MCR was approximately 77.7 and reflects seasonality that was more in line with our expectations.
Speaker Change: Our adjusted G&A ratio for the quarter was 6.8, driven by operating discipline and the continued benefit of operating leverage.
Turning to the balance sheet.
Our Capital Foundation remains strong.
Speaker Change: In the quarter, we harvested approximately $110 million of subsidiary dividends, and our parent company cash balance was approximately $190 million at the end of the quarter.
Speaker Change: Our operating cash flow for the first quarter was $190 million.
Speaker Change: During the quarter, we repurchased approximately 1.7 million shares at a total cost of $500 million.
Speaker Change: Debt at the end of the quarter was two times trailing 12-month EBITDA, and our debt-to-cap ratio was about 47.
Speaker Change: We continue to have ample cash and access to capital to fuel our growth initiatives.
Speaker Change: Gays and Clims payable at the end of the quarter was $46.
Lower than normal.
while our reserving policies remain consistent.
Speaker Change: The timing of payments can have quarter-to-quarter impact on reported reserves, as it did this quarter, as we had one additional claim payment cycle.
We remain confident in the strength of our reserves.
Next, a few comments on our 2025
Speaker Change: As Joe mentioned, we continue to expect full-year premium revenue to be approximately $42 billion.
Within that number are a few moving pieces.
Speaker Change: We expect higher organic growth in our marketplace and Medicaid segments to offset the mid-year loss of our Virginia contract.
Speaker Change: Recall, we previously guided for this contract to carry through year-end, but now we expect our membership to be reallocated to other MCOs mid-year.
Our full year consolidated NCR is now 88.8.
Within Medicaid, the 4-year MCR is unchanged at 89.9.
Speaker Change: We are seeing rate increases slightly higher than we had previously expected as our state partners continue to update their actuarial data.
Speaker Change: These rate increases are offset by our outlook on full-year trend, which is now slightly higher and reflects our conservatism at this point in the year.
Speaker Change: Together, full-year race and trend are both higher by 50 basis points and result in no change to the MCR guidance.
Our MCR guidance on Medicare also remains unchanged at 89%.
Speaker Change: We remain confident in the performance of our Medicare Duals and integrated product business.
Speaker Change: In Marketplace, we are increasing our full-year MCR guidance from 79 to 80, which is the upper end of our long-term target range.
Speaker Change: This hundred basis point increase reflects the unfavorable non-recurring impacts in the quarter I discussed earlier.
Speaker Change: The Marketplace MCR trajectory for the rest of the year is largely unchanged from our prior view.
Speaker Change: We continue to expect the segment to produce mid-single-digit pre-tax margins.
Speaker Change: Effectuation rates remain strong through the first quarter and we are encouraged by early performance of new members added through the open enrollment and special enrollment periods.
Speaker Change: Our year-end outlook on membership increases by 40,000 to approximately 620,000 members and includes the estimated impact from income verifications and program integrity initiatives.
Speaker Change: We now expect the full-year G&A ratio to be approximately 6.9, better than previously guided by 10 basis points, as we continue to drive efficiencies in our operations.
Speaker Change: We reaffirm our full-year EPS guidance of at least $2450 per share.
Within that number are a few moving pieces.
Speaker Change: Our EPS guidance now includes a $0.40 benefit from share repurchases in the first quarter.
$0.30 from higher volumes in our Medicaid and Marketplace segments.
and 30 Cents commensurate with the improved G&A ratio.
Speaker Change: These favorable items offset a $0.60 headwind attributable to the higher marketplace MCR guidance and $0.40 loss from the mid-year termination of our Virginia contract.
Speaker Change: We continue to expect earnings to be evenly distributed throughout the year.
Turning to embedded earnings.
Speaker Change: Our new store embedded earnings are now approximately $8.65 per share, up 90 cents from our prior outlook of $7.75.
Speaker Change: This increase includes 50 cents from the recent dual contract win in Illinois.
Speaker Change: and an additional 40 cents as we are now recognizing half of the Virginia contract loss in current year guidance rather than next year as previously expected.
Speaker Change: We expect one-third of this new store-embedded earnings to emerge in 2026, giving us high confidence in our 13-15% long-term growth rate.
Speaker Change: This concludes our prepared remarks. Operator, we are now ready to take questions.
Thank you.
Speaker Change: We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster.
Speaker Change: And the first question comes from Stephen Baxter with Wells Fargo. Please go ahead.
Stephen Baxter: Hey, good morning. I just wanted to start on the exchanges. I was hoping first, you know, you could expand what you saw on risk adjustment and also this member reconciliation dynamic. I guess specifically with member reconciliation, you know, what exactly are you describing there and trying to understand better, you know, why we should think about that as a non-occurring item and then just thinking about the rest of the year.
Mark Keim, Jeffrey Geyer
Stephen Baxter: on impact and just trying to understand, you know, kind of the continuing elements of what you saw in the first quarter and how much of that we need to think about continuing for the rest of the year. Thank you.
Stephen Baxter: Stephen, the marketplace story is a very positive one. We did have non-recurring items in the first quarter which elevated the MCR by 400 basis points.
Stephen Baxter: I'll kick it to Mark in a minute for more detail.
Stephen Baxter: authorized to be in the plan, but we were servicing last year because they were they were in the membership roles. That was a scrub by CMS to eliminate members who lacked authorization. One-time item. The other one-time item was a true-up to 2024 risk adjustment.
the final piece, as typical for an acquisition.
The MCR will be operating at the inherited MCR.
which for Connecticut is in the mid to high 80s.
Stephen Baxter: We're still confident in bringing that down to our target to produce the full $1 of earnings accretion that resides in our embedded earnings. The marketplace story is very positive. We're going to end the year with 620,000 members, mid single-digit margins, and still operating.
within our long-term range.
Stephen Baxter: all be it an increase from our previous guidance of 79, now to 80 percent. Mark, anything to add? Yeah, Joe, I think you got it. Let me just break that down a little further. The 400 basis points is about 40 million, and that breaks down pretty much a third, a third, a third on the things that Joe talked about.
I'll add a little color to them.
Speaker Change: On the final prior year risk adjustment, I'm sure you're aware in Marketplace, risk adjustment is on a relative basis, not an absolute basis like Medicare.
Stephen Baxter: So, it's right about now that we find, relative to the other players, exactly how we scored last year. And we were just a little bit less than we thought on risk adjustment when the final numbers came in. These are the weeklies.
Stephen Baxter: So that's a non-recurring normal function of how we settle up risk adjustment. On member reconciliation, this is not FTR. This is members that were on the books last year that when they get their tax filings realized they had a policy and didn't know it.
Stephen Baxter: Sometimes that's administration issues, sometimes it's broker issues, but right about now is when we see those, because that's when the tax filings come due. We're pretty confident in that number, and that's a pretty final number for last year. You know, the good news is, with all the integrity stuff going on, you're going to see a lot less of that going forward.
Speaker Change: And then lastly as Joe mentioned on the new store impact of Connecticut that ran in the high 80s Initially, we'll pull that down quick with the Molina playbook But there's a little bit of noise in there that certainly pulls our reported MCR up roll those together. That's the 400 pips We talked about
Speaker Change: And the next question comes from Andrew Mock with Barclays. Please go ahead.
Andrew Mock: Hi, good morning. In the prepared remarks, you called out higher assumptions for both rates and cost trends. Cost trend, it sounds like the rates is, you know, on the Medicaid side, sounds like the cost trend is on the ACA side. Do I have that right and what exactly are you seeing on each of those items that is informing that updated assumption? Thanks.
Jeffrey Geyer: Andrew, I'll give you a high-level answer then kick it to Mark. I want to be very clear on what we forecasted for the Medicaid business.
We received rate updates in the first quarter.
Speaker Change: $150 million, which equates to 50 basis points on a full year basis.
Thank you.
Speaker Change: Those will nearly entirely impact cues 2, 3, and 4 and did not have an impact in cue 1.
Speaker Change: So, states are obviously recognizing certain cost pressures and updating rates, both on-cycle and off-cycle, to compensate for it.
Speaker Change: The only reason we increased our trend estimate for the year is at this early stage in the year reflecting appropriate conservatism
Speaker Change: We were not going to improve our Medicaid MCR by 50 basis points at this early stage
Speaker Change: So, rather than let those rate increases drop through to our guidance, we offset them with a top-side adjustment, if you want to call it, to medical cost trend until we see more in the second quarter.
Speaker Change: So, still holding CERB on our 89.9% MCR estimate in Medicaid for the year.
Speaker Change: but the rates are moving in the right direction. Mark, anything to add? That's exactly right, Joe. So, on a full-year basis, Medicaid guidance unchanged at 89.9. The only thing that's different is our rate assumption is now 5% versus 4.5% for the full year. And our trend assumption is 5% versus 4.5% for the full year. And again, this is all a function of the known rates we've received going forward.
Speaker Change: Got it. Okay, so it sounds like your forward expectations on forward rates has remained unchanged. Is that right?
Speaker Change: No, our forward rates are slightly better, so we're raising our full year guidance from four and a half to five percent.
Speaker Change: Right, but that's for rates you've already received and have visibility into, so are the forward rate expectations also higher?
the ones that haven't been finalized.
We know
Speaker Change: We know rates on 85% of our, when we gave initial guidance, we knew about rates on about 75% of our revenue. That's now 85%. So yes, there is an estimate in for the September and October rate adjustments that we still have in at a very modest level.
Speaker Change: So, the 5% annual rate increase includes 85% known rates for the year.
Speaker Change: Yeah, we've sort of moved to the ILI definition that a lot of people have, which is largely flu at this point. We've not really given a normalized number, but I think the more helpful thing for you is we probably ran 10 to 15 million hot.
Speaker Change: versus what we might call normal, but again we had that in our guidance so that really wasn't a surprise to us.
Speaker Change: And your next question will be from Josh Raskin with Nefron Research. Please go ahead.
Hi, thanks.
Speaker Change: Josh Hanson said it yesterday, the product line is completely synergistic with our pure play government-sponsored managed care theme to our strategy.
Speaker Change: As people income up and down from Medicaid into Medicaid expansion, into highly subsidized marketplace, people are moving in and out of life circumstances.
Speaker Change: often, frequently, and having a product where we can capture the member for their lifetime, or as long as they're in government assistance, across a broad range of products.
Speaker Change: is totally synergistic. In fact, when they turn 65, which 50,000 members of ours do every single year, we have a DSNP offering that captures the agents.
Speaker Change: So, very, very synergistic and an attractive contributor to the profile of the business.
Speaker Change: while still targeting mid-single-digit pre-tax margins. We will grow the business at a rate that allows us to hit mid-single-digit pre-tax margins for the reasons you articulated, that it can be
Speaker Change: follow. When you bring on new membership, not knowing their cost profile and not having the benefit of risk adjustment means there is a cost to growth and we want to manage that volatility.
Speaker Change: Mark, anything to add? No, I think that's well summarized. Joe, you've sometimes referred to it as a residual market because when other things in the economy go up and down it sort of captures the excess.
Speaker Change: Therefore, there is more volatility, Josh. And what we've always been very clear about is it's a relatively small part of our portfolio. We will price for margin and let the volume fall where it does.
Speaker Change: And your next question will come from AJ Rice with UBS. Please go ahead.
Hi, everybody. Thanks for the question.
We need
Speaker Change: Step back. You mentioned a nod to the Washington backdrop of all this chatter about Medicaid.
Speaker Change: Jeff Cutts adjustments, whatever. I wonder is that are you seeing that in any way impact the discussions with states around
Speaker Change: rate updates, or RFP processes, or is what's going on in Washington and any uncertainty that creates having any impact on any of that?
No, A.J., I would say not.
Speaker Change: The rate discussions are pure actuary-to-actuary, looking at the actuarial data.
Speaker Change: And the real positive news about rates is the cost pressure are coming from cost categories that are very discrete and prominent in the rate models. LTSS rated separately, behavioral usually viewed separately, as well as high-cost drugs including GLP-1s. So the cost pressures
Speaker Change: that the industry is experiencing are very highly profiled in the rate development environment.
Washington debate about how far to pull back Medicaid.
same thing with the RFP cycle.
Speaker Change: The RFP cycle right now is actually at a low point. It was at a high point in the last two years where we did really, really well as advertised.
Speaker Change: It is $50 billion from 2025 to 2028 in total contract value. We have our eyes on a couple of very...
Jeffrey Zubretsky, Mark Keim, Jeffrey Geyer
Speaker Change: And your next question comes from Justin Lake with Wolf Research. Please go ahead.
Justin Lake: Thanks, good morning. Question on effectuation rates, Joe, can you remind us what you're seeing there and then can you give us a ballpark on what the MLR looks like for those members versus the overall book?
Justin Lake: Sure, I'll give you a high-level answer and then hand it to Mark. But we've had a very successful open enrollment period in Marketplace, a very successful special enrollment period early on. We're sitting here with 660,000 members, having ended last year at 400.
Justin Lake: Our affectuation rates seem to be better or higher than many of our competitors for a variety of reasons.
Justin Lake: Mark, do you want to elaborate? Yeah. Good morning, Justin. We are actually seeing pretty good effectuation rates, and you might be comparing that to what others have said in the market, and I can't really talk to their results.
Justin Lake: But I think we mentioned last time around we're either number one or number two in about 50% of our footprint
Justin Lake: And part of effectuation is people rolling into the new cycle and seeing that their payments are maybe different than they were last year, which is a function of pricing.
Justin Lake: So some of the folks that might be losing might be at different points on the pricing scale.
and I think people...
Justin Lake: through effectuation are staying with Molina or in the case of SEP coming to Molina.
Justin Lake: So, we're seeing good results on both SEP and effectuation. Now, on the MLR, it's really too soon, this early in the year, to get a handle on that because 50% of the book is new, which is not an unusual phenomenon. But we'll have to see how that develops, and if you ask that question in the second quarter, I'll be able to give you a pretty specific view.
Speaker Change: And your next question comes from John Stansel with J.P. Morgan. Please go ahead.
John Stansel: Great, thanks for taking my question. Last quarter you spoke to GNA being a little bit more front-loaded as you take on the IT costs for the $1 of implementation costs in 2025.
Speaker Change: I think G&A came in nicely in the quarter. I guess, how are we thinking about progression for G&A this year and, you know, how we get to kind of ten basis points lower than your initial expectation?
John Stansel: John, the GNA story is a very positive one for us. We focus on it with the same discipline and rigor that we focus on every dollar of medical costs.
Thank you.
John Stansel: We've broken through the 7.0% barrier. We've broken through that. And I'm gonna talk on a mixed equivalent basis because obviously mixed matters to the GNA ratio. But on a mixed equivalent basis, we're comfortably in the high sixes. We think over time as we grow to the $55 billion of.
John Stansel: 2027 Revenue Target. With our Discipline over Fixed Cost Leverage, we can move that down on a mixed-equivalent basis into the mid-sixes, perhaps even the low-sixes.
John Stansel: It's a very positive part of the story that's either going to improve margins over time in our investment thesis or serve to act as a hedge to any MCR pressure we might see over the long term.
John Stansel: Mark, on the short term? Yeah, John, if you're looking to model the rest of the year, expect a pretty flat G&A trajectory across the year. We had a 6.8 here in the first quarter. We'll have a 6.9 in our guidance.
which implies pretty flat across the full year.
John Stansel: What's maybe driving that? We talked about more of the implementation costs up front in the year, and that's true. It's a little more front-end loaded. But the back-end loaded part is always some of the marketing costs.
John Stansel: around the OEP within Medicare and Marketplace that usually drive up G&A. So you've got some different things going on, but I think a pretty flat G&A story through the year.
and Jeffrey Geyer. Thank you. Thank you.
Speaker Change: And your next question comes from Sarah James with Cancer Fitzgerald. Please go ahead.
Sarah James: Thank you. One clarification and then a Hicks question. So just to clarify, when you moved up the Medicaid cost trend 50 basis points, was that pure conservatism or did you see trend data above your prior expectations? And then on exchanges, do you think that the pricing and benefit design changes or the new member mix?
could change your MLR seasonality on the HICS business.
Sherry, you heard my prepared remarks correctly.
and the Medicaid business.
Sarah James: We absolutely received rate updates of $150 million, which caused us to increase our full year rate update from previous guidance of 4.5% to 5%.
As we said,
Sarah James: in our member month mix, 85% of rates on our member month are known at this point in time, only 15% is an estimate.
Those rate updates will impact quarters 2, 3, and 4.
having known that.
Sarah James: We then said, do we let that drop through to our guidance and drop our MCR guidance by 50 basis points? At this early stage and in this environment, we decided not to.
Sarah James: was entirely due to early-in-the-year conservatism. We'd like to see how the second-quarter experience emerges before making a final call on updating the Medicaid MCR for the full year.
Thank you.
Speaker Change: your second question on HICS. Can you repeat it, please? Do you have it, Mark? I'll take that one. Hey, Sarah, on the full year trajectory of Marketplace MLR, we're a little flatter than normal this year, or at least in prior years. First of all, we've got more new membership in SEP this year, so we're a little more conservative in our initial picks.
Speaker Change: But the other thing is, you'll see Connecticut improving through the year, as new stores typically do. And then lastly, we've got a lower bronze mix this year. And bronze tends to be a much more seasonal product. So a little bit flatter on the trajectory, if you're modeling it.
Speaker Change: And your next question will come from Joanna Gajic with Bank of America. Please go ahead.
Speaker Change: Hey, good morning. Thanks so much for taking the question. So if I may, given the discussions around trend by product, I don't think I heard you talk about...
Speaker Change: I know you said that in the quarter it sounds like MLR was in line with expectations. So can you talk about anything that's maybe happening in your Medicare Advantage book and are you still expecting the same trend for the year? I think you had said on the last quarter an increase of 2.7% for the year. Thank you.
and Mark Johnson.
Speaker Change: And your next question will come from Ryan Langston with TD Cowan. Please go ahead.
Speaker Change: etc, I guess is that impacting the willingness of potential M&A targets to engage on a potential deal or is it having any impact on the potential multiples just given we don't know where everything's going to shake out? Thanks
Speaker Change: On the M&A front, the pipeline is still replete with opportunities. Obviously, the last one we announced was the Connecticut acquisition.
Speaker Change: The pipeline is full. Our M&A team is actively engaged in analyzing core products, core markets, and attractive prices. Businesses are underperforming. And in this environment, as you know, performance is a challenge in this environment.
Some of these smaller, single-state, single-geography companies are struggling.
So, no, I would say that the, it's not...
Speaker Change: The pipeline is full of opportunities, and we hope to fulfill the commitment we made that one-third of our forward growth rate, as we said it is yesterday,
Speaker Change: is likely coming from M&A, bearing in mind that we're already at our $52 billion estimate for 2027, which is the low end of our range. I've got 18 to 24 months to fill that other $3 billion, and while nothing's a layup in this business, I'm highly confident we're going to do it.
Speaker Change: And your next question will come from Lance Wilkes with Bernstein. Please go ahead.
Speaker Change: and whether that's impacted kind of the growth and access with hospitals in your network. And then also, what are you seeing as far as, and what are you doing in the form of value-based care contracting?
Speaker Change: Do you see any subcomponents of that that you feel you're going to need to own or partner? And maybe if as you're doing that if you can just kind of clarify in utilization if there any unusual puts and takes between You know categories of like hospital, behavioral, drugs, etc. Thanks
Speaker Change: Lance, let me take the second part of your question first on value-based care and value-based contracting.
Speaker Change: As you know, in the past five years, most of the activity on BBC has been aimed at Medicare Advantage. That's where the lives are, that's where the premium was, and that's where a lot of the activity. It is coming to Medicaid. It is coming to Medicaid more slowly.
Speaker Change: There are regulatory definitions of how much of your medical costs needs to go through a VBC arrangement. We are fully compliant with the minimum requirements.
Speaker Change: Now it's about can you manage your cost structure and risk adjustment based on your relationships?
Speaker Change: We're getting there. We have a national networking unit has a VBC arm. They are actively engaged in working with our major provider partners where we have membership density to work on value-based care arrangements.
Speaker Change: Again, over the next two or three years, we will increase our penetration. Right now, we are fully compliant with the regulatory rules.
on your other question about supplemental payments.
Mark Keim: Let me kick it to Mark and let him take that one.
Mark Keim: Right, what you're calling supplemental payments, I think we call directed payments.
Mark Keim: and they're certainly a very big part of the formula. They're getting a little bit more attention, it seems, these days.
Mark Keim: But that's business as usual for us. We don't run them, for the most part, through the P&L.
Mark Keim: So they're not an aberration in our economics. We sometimes refer to them as pass-throughs because they come from us, from the government, and go right to providers. And they're targeted for situations where providers need enhanced funding.
and the policy question you're getting to with that question.
Mark Keim: enrollment reductions, benefit reductions, or payments to providers. And this is one source of payments to providers. And a provider would tell you that they're not supplemental, meaning they're enhancing their margins. They're helping them make their margins. So this is a big policy question in terms of whether the providers.
Mark Keim: can bear Medicaid-related cuts of any type, either in the fee schedule or supplemental payments. I don't have a point of view on that, but that is much of a raging debate in the policy discussions.
Speaker Change: And your next question will come from Michael Ha with Baird. Please go ahead.
Michael Ha: Hi, thank you. On the exchange MLR pressure, I understand you're confident.
Speaker Change: into next year. These issues are non-recurring, but as you can see to
and thinking about risk adjustment specifically.
Speaker Change: Have you implemented any new internal work streams to sort of help bolster this process for this year? And, yeah, what gives you confidence on that? And then, Joe, I believe you mentioned the early read on MNA Medicaid integration is voting well so far.
Speaker Change: Are you hearing or, I guess, seeing anything new from states that gives you this incremental confidence? Any early behavior change from states at all about how they might approach future Medicaid RFPs?
Speaker Change: And just for context, I've heard some speculation that, you know, states might even open up Medicaid RFPs to include more plans because of this. So, just curious to hear what you're seeing or hearing that gives you more confidence. Thank you.
Speaker Change: Well, we've heard some of those same things, but here are the facts as we know them sitting here today.
Speaker Change: Three very large states in the MMP program, which is really the only true integration program that existed, are Ohio, Illinois, and Michigan. We just ran the table. Very, very complex RFP submissions.
intensity around true integration.
Speaker Change: One membership card, one phone number, one set of integrated benefits. You can't run one side off your Medicare platform and the other side off your Medicaid platform. And we're investing heavily in making sure that we're able to handle those populations.
Speaker Change: The discussion around exclusively aligned enrollment is there. Whether most of the states settle there or not and allow D-SNP only plans in, we'll see.
Speaker Change: But, the early discussions bode well for a company that has a very broad and deep Medicaid footprint, like Molina, and also has a competitive D-SNP offering. We're situated quite well, and yes, we've heard the chatter that you're referencing about allowing more plans in. We'll see.
Speaker Change: We continue to believe that our integrated offering will be highly competitive, our broker relationships are great, and the platform being truly integrated from a clinical and operational perspective is key, and we're all well on our way to being there.
Mark
on the marketplace question, Michael.
Speaker Change: Just so we're sending the right message, it's not growth for the sake of growth in Marketplace. As I said earlier, Marketplace is given a little bit of volatility in the space, is first on margin and the volume will fall where it does.
Speaker Change: Separately, as you well know, the subsidies are potentially a headwind in the new year. So, again, we'll price for margin and the volume is going to fall where it does.
Speaker Change: And your next question will come from George Hill with Deutsche Bank. Please go ahead.
George Hill: Yeah, good morning, Joe. I have kind of a big picture question and if I hear your comments right, you said that it's like state Medicaid needs 200 to 300 basis points in advance of trend. I imagine you guys are seeing mid to high single-digit trend like everybody else.
Speaker Change: Like what's the conversation at the macro level given that 45 or 50 states are in a budget deficit situation? And I imagine they can't look around by the answer is, you know Medicaid costs are going to be up eight and a half or nine percent the next couple years Like what is the ask of the plans?
Speaker Change: as it relates to keeping a cap on costs and like I'm just I'm interested in like the state perspective I understand all the actuarial soundness stuff, but like like the states just can't afford high single-digit spending increases in Medicaid, so I'd kind of love to hear the big picture of conversations that you guys are having at the state level
Speaker Change: That based on our analysis, the broad market and as you know the market sets the rate with its cost structure.
Speaker Change: We appear to be operating two to 300 base, even though we're a 100 basis points off the top end of our long term range, we appear to be operating two to 300 basis points better than the broad market to broad market needs that could come back to some semblance of program equilibrium when that occurs and we're confident it will we should be comfortably back at 89.
Speaker Change: Percent or better and paying into the quarters once again.
Speaker Change: So yes it.
Speaker Change: Should that be kind of a big picture concern absolutely, but history has shown us.
Speaker Change: That the actuarial soundness concept works, particularly over the intermediate term not necessarily in any one quarter, but it works over time, and we're confident that the market will get what it needs and therefore would be comfortably back into our long term range of 89% or better better here in the in the foreseeable future.
Speaker Change: And your next question will come from Dave Windley with Jefferies. Please go ahead.
Dave Windley: Hi, Good morning, Thanks for taking my questions I wanted to ask another one on exchange on the member reconciliations if I understand Mark what you describe these are essentially the people that were unknowingly enrolled.
Dave Windley: In a product so several questions sorry for this but several questions worthy. So there. These are these are 100% subsidized people, where the subsidies clawed back back to the beginning of their enrollment.
Dave Windley: Second.
Dave Windley: How confident you you mentioned do you think this is over how comprehensive was the CNS is a review of this such that we should think that this wouldn't bleed over into 'twenty five.
Dave Windley: And then as these low risk people low utilize our people are coming out of the pool. How does this thing how does this make you think about your risk adjustment.
Dave Windley: Our assumptions for 2025, thank you.
Dave Windley: Great Dave Thanks for all that so as you described it that's largely the case.
Dave Windley: Some cases, there is broker fraud and in some cases, it's just people signing up for things not being aware they did it the way they find out about it generally is in their 2020 for tax filing.
Dave Windley: They hear from the government that they made too much money to qualify for whatever subsidies. They got therefore, they owe the government back some money they say well Gee I never signed up for that product, we look and there were no claims so they didn't use the product. So the government will claw back to subsidize premiums that they gave us.
Dave Windley: So those are revenue headwinds now to size that I told you there was about 40 bps or $440.
Dave Windley: Of $40 million of adjustment in marketplace from prior year, a third of that is this phenomenon we're talking about.
Dave Windley: Now we're pretty much at the end of the tax season could we see a little bit more sure, but it would be a fraction of what we saw in the first quarter, which is becoming de Minimis now on a go forward basis, you might recall that the integrity rules increased quite a bit for OA, Pete just a few months ago.
Dave Windley: And one of the biggest things was the agent of record walk, which made it a whole lot harder for brokers to switch people.
Dave Windley: And actually made the market a lot more sticky you didn't see the churn that you normally see so will these kind of situations go away, 100% of course not.
Dave Windley: But do the new integrity rules go a long way this upturn and maybe some fraudulent activity I think so so we really consider this a one time and I think it is largely behind us.
Dave Windley: And to be very clear when we received a membership file that hasnt member on it we have no reason to believe they're either not authorize your authorized we have to service them.
Dave Windley: As informed by CMS.
Dave Windley: This concludes our question and answer session and today's conference call.
Dave Windley: Thank you for attending today's presentation you may now disconnect.
Dave Windley: [music].