Molina Healthcare, Inc. Q4 FY2025 earnings call

Management Statement and Operational Highlights

• Fourth Quarter and Full Year Results: Adjusted loss per share was $2.75 on $10.7 billion of premium revenue in the fourth quarter. Full year premium revenue was $43.1 billion, with adjusted EPS of $11.03. Fourth quarter results were affected by trend pressure in Medicare/Marketplace and retroactive items in Medicaid.
• Growth Initiatives: Secured a historic RFP win in Florida (expected $6 billion annual run rate premium, live late 2026), renewed/secured contracts in Wisconsin, Georgia, and Texas. RFP win rate was 90% on renewals ($14 billion retained revenue) and 80% on new contracts ($20 billion new revenue). Active M&A pipeline with opportunities to deploy capital.
• 2026 Outlook: Projected premium revenue of approximately $42 billion, with adjusted EPS at least $5. Medicaid rates expected at ~4%, medical cost trend at 5%; Medicare members transitioning to integrated products (lower margins in the first year); Marketplace premium reduced by 50%.

Segment Performance

• Medicaid: Fourth quarter MCR was 93.5%, full year MCR was 91.8% with a pretax margin of 2.8%. Represents 75% of total premium revenue. Rates increased from 4.5% to 6% for the year, while medical cost trend went from 4.5% to 7.5% (250 basis points due to acuity shift from membership declines).
• Medicare: Fourth quarter MCR was 97.5%, full year MCR was 92.4%. Experienced elevated utilization of LTSS and high-cost drugs, with slower margin recovery in the MAPD product.
• Marketplace: Fourth quarter MCR was 99%, full year MCR was 90.6%. Impacted by elevated utilization and prior period provider claim settlements. Represents 10% of total premium revenue.

Guidance

• 2026 Premium Revenue: Approximately $42 billion, slightly lower than 2025. Medicaid up $1.1 billion due to the Florida CMS contract and modest rate cycle, offset by the Virginia contract loss and market contraction; Medicare up $300 million due to product mix shift, offset by MAPD decline; Marketplace down $2.3 billion.
• Earnings: Adjusted EPS at least $5, with underlying earnings approximately $7.50 per share after adjusting for certain items. Upside from moderation in Medicaid cost trend, favorable Medicaid rate adjustments, and upside in Medicare/Marketplace.

Risks

• Medical Cost Trend: Uncertainty around medical cost trend continuing at elevated levels, which could impact MCR and margins.
• Regulatory and Rate Environment: Fluctuations in Medicaid rates and regulatory changes that could affect margins.
• Marketplace Volatility: Volatility in the Marketplace risk pool due to factors like enhanced subsidy expiration and program integrity initiatives, impacting MCR and margins.

Question and Answer

• Q: Sort of a 2-parter on the Medicaid side. Is there a large variance that remains across your states with regard to Medicaid margins? And are you at the point in any state where you're contemplating a potential exit? And sort of part b would be, what were the drivers of the negative retro adjustments in California that seems incongruous with what you were seeing in terms of rate increases and margins? Is California just a market that happen to be running higher than average margins?
  • **A: Josh, on part A of your question, no. Rates are generally underfunded across the universe of our portfolio and there's no state where the regulatory environment is so unfriendly to managed care in the rating environment that we are contemplating an exit. To your second question, the 2 issues in California were very situational. They were event-driven. The undocumented population, which we serve, I think, 180,000 members for a lot of reasons, which are pretty obvious, did not use services during the year that we're priced to. And therefore, the state decided to, I'll call it, claw back due to the introduction of a retroactive corridor. And in L.A. County -- separately in L.A. County, there was a dramatic shift of churn in the membership roles during the year, which caused a disequilibrium and risk profile amongst the various carriers. They did a risk adjustment update at the end of the year, moved money around, and we had to pay it back.
• Q: I wanted to ask Joe about your attrition assumption in 2026. Looks like you're assuming down about 2% membership attrition, and that's offset by, I think, 100,000 members in Florida coming on. Let me know if I'm wrong on that. But 2% versus what it appears some of your peers are talking about mid- to high single digits, it looks like you had some pretty significant attrition just in the last quarter or 2 and what some of your peers are talking about? And then maybe you could talk about if you do see attrition hire, would we assume that, that would impact risk pool and cost trend?
  • A: Sure. Going back a little bit historical here is clinical data. The industry and Molina on a same-store basis, not counting our new store growth, lost 20% membership organically over the past number of years. It is 13% in 2024, 4% in 2025. And now we're projecting it to be 2%. We believe that the redetermination effects are largely over. We're feeling the tail end of that. And now it's just about program integrity. It's about tightening up on -- before OB3 kicks in, that will kick in for '27 to '28. So we're talking about '26. Due to just more rigor around the enrollment process, the redetermination process, we believe that 4% we experienced in 2025, which is exact -- that's the exact number will fall to 2% next year. Now if we're wrong, it ends up being a little higher, Mark -- I'll kick it to Mark here in a minute. We've done an exhaustive analysis of low users. And it depends on what your definition is over what period of time what's a lower-than-average loss ratio. Everybody doesn't use services at 90% of premium. Some use a lot more, some use a lot less. And so your question you're asking is, if we won about it, is there an acute shift coming and we don't think so. Mark, do you want to take that?
  • **A: Joe, that's well summarized across the board. So Justin, to your framing question, yes, we're 4.6% roughly flat across the beginning of the year to the end of the year. That's a 2% decline organically offset by Florida. So you got that exactly right. And then to Joe's point, the market is down about 20% since the start of redetermination. We've done exhaustive cohort analysis of who were the joiners, who were the levers. And it's really interesting. Of the people that left since the start-up redetermination we estimate about 5% fewer people in our population are low users or no users. So if you look at any given quarter, how many folks didn't use it all, or used very low, say, $200 PMPM, something like that, that population is now 5% smaller within our current population than it was 2 years ago. That's not the only impact. Many of the cohorts changed around, but that's the one that kind of grab your attention. So that's a lot of what's driving trend over the last 2 years as that mix shift happens, I think Joe referred to it in his prepared remarks. So going forward, most of those people are out now as a result of that. The low users and no users that were on there when redetermination was suspended mostly are gone now. So on a go-forward basis, we're estimating 2% attrition across the year organically, which is a relatively small number. Even if it's a little bit bigger -- the big driver of acuity shift or trend is those low users and no users, and those are mostly out of the system now.