MOLINA HEALTHCARE, INC. Q2 FY2025 earnings call

Second Quarter Performance

• Reported adjusted earnings per share of $5.48 on $10.9 billion of premium revenue. Consolidated MCR was 90.4%, adjusted pretax margin 3.3%. Year-to-date, consolidated MCR was 89.8% and adjusted pretax margin 3.6%. Medicaid faced medical cost pressure in behavioral health, pharmacy, inpatient, and outpatient care with an MCR of 91.3%. Medicare had an MCR of 90% due to higher utilization in acute populations. Marketplace had an MCR of 85.4% due to higher utilization relative to risk adjustment.

2025 Guidance

• Full year premium revenue expected to be approximately $42 billion. Adjusted earnings per share guidance is no less than $19 per share. Consolidated MCR increases to 90.2%, pretax margin 3.1%. Medicaid full year MCR guidance is 90.9% with a 3.6% pretax margin. Medicare full year MCR is 90% with a low single-digit pretax margin. Marketplace full year MCR is 85% with a low single-digit pretax margin.

Growth Initiatives

• On track to achieve premium revenue targets of $46 billion in 2026 and $52 billion in 2027. M&A pipeline has actionable opportunities. Embedded earnings power is at $8.65 per share.

Political and Legislative Landscape

• Medicaid changes from the budget bill are gradual. Marketplace enhanced subsidies not extended, and 2026 rate filings consider risk pool acuity shift from subsidy expiration and program integrity policies.

In the second quarter, Medicaid had an MCR of 91.3%, with full year guidance at 90.9% and a pretax margin of 3.6%. Medicare had a second quarter MCR of 90%, with full year guidance at 90% and a low single-digit pretax margin. Marketplace had a second quarter MCR of 85.4%, with full year guidance at 85% and a low single-digit pretax margin. Marketplace accounts for 10% of premium revenue.

Full year 2025 premium revenue is expected to be approximately $42 billion. Adjusted earnings per share guidance is no less than $19 per share. Consolidated MCR increases to 90.2%, up 140 basis points from initial guidance. Medicaid full year MCR guidance is raised to 90.9%, Medicare MCR to 90%, and Marketplace MCR to 85%. Full year G&A ratio is expected to be approximately 6.6%.

Medical cost trend exceeding rate updates; uncertainty around Medicaid program changes from the budget bill including membership and risk pool shifts; impact of Marketplace enhanced subsidies expiration and program integrity policies on risk pool and pricing; persistent high medical cost trend across all products with unclear moderation timeline.

Q: You noted that the back half Medicaid MLR is higher than the first half. How do you get confidence that Medicaid margins will improve from here when the spot rate for reimbursement seems to be inadequate in an inflationary trend environment and newer redeterminations and integrity measures look like they may impact both membership and risk pool on a go-forward basis?

A: Mark Lowell Keim said trend slightly outstripping the rates that they know about, which is why there's a little upward pressure on that. Previous guidance already had a bunch of rate manifesting in Q3 and Q4, and they're modeling the observed trend.

Q: On the Marketplace, as you look to refile the rates, is there a number you have in mind for the required premium increases next year to properly account for all the trend and risk pool issues across both '25 and '26 and reset to a normalized margin?

A: Joseph Michael Zubretsky said they're not going to disclose state-by-state rates, but rates need to catch up on underperformance, include medical cost trend, and acuity shift from subsidy expiration, but not state-specific.

Q: First question is around run rate earnings. It looks like your back half is around $7.50. Curious if that's a reasonable way to think about it in your mind? And if so, how does that bias us to think about your ability to grow earnings year-over-year into 2026?

A: Joseph Michael Zubretsky said the back half math is about $15 a share, optimistic about the 1/1 rate cycle for 2026, and Mark Lowell Keim added about embedded earnings and the importance of the rate cycle.

Q: Think about second half of this year versus potentially first half of next year? I know you've got 55% of your book resets and rates. I'm trying to understand how much of a hole you have when you compare first half of this year against your jumping off point for first half next year.

A: Mark Lowell Keim said they're disappointed in the outlook for the second half of the year, but the rate cycle is critical for January 1 and the industry needs rates to get back to target margins.

Q: On the exchange side, I believe in the past, you've given us some commentary on what I might call a same-store basis. Is there any way you can call out unit utilization for your same membership that you had in 2024 and this year versus the new members in 2025?

A: Joseph Michael Zubretsky said whether a member came in through OEP or SEP, everything ran higher than expected, and Mark Lowell Keim added that high trend and utilization is pervasive from many perspectives.