Dive Brief:
- The hits keep coming for insurers used to raking in the dough from government programs. On Monday, Molina became the latest payer with a heavy presence in Medicaid and the Affordable Care Act exchanges to slash its earnings expectations due to rising medical costs.
- Molina now expects to post $5.50 per share in adjusted earnings in the second quarter, below its own prior expectations and analyst forecasts. The company attributed the decline to across-the-board medical cost pressures that it expects to continue, leading Molina to also lower its earnings guidance for the full year.
- Molina’s revision follows Centene suspending its guidance last week after the insurer received new data that members in its ACA plans were sicker than previously expected. Centene experienced the largest intraday stock decline in the company’s history after yanking its outlook.
Dive Insight:
Molina provides health insurance to 5.8 million people and reports $40.7 billion in annual revenue — small potatoes compared to some of its larger, more diversified peers. However, the California-based insurer specializes in government programs, resulting in outsized exposure to changes in Medicaid and the ACA exchanges compared to most major managed care companies.
And outsized exposure to government programs is increasingly an issue.
“The short-term earnings pressure we are experiencing results from what we believe to be a temporary dislocation between premium rates and medical cost trend which has recently accelerated,” Molina CEO Joe Zubretsky said in a statement Monday.
Molina said the dislocation is evident across the company’s three lines of business: Medicaid, Medicare and the state insurance marketplaces set up by the ACA.
Seniors in Medicare began to utilize more medical care coming out of the coronavirus pandemic, while Medicaid underwent a historic post-COVID redeterminations process that removed millions of Americans from the coverage. Both trends have proved sticky, causing headaches for actuaries attempting to forecast medical costs and driving up spending for insurers, cutting into profits.
Over the past two years, relatively steady performance in the ACA exchanges has helped to boost flagging margins in other government programs. But more recently the marketplaces have also emerged as a point of concern.
Last week, Centene yanked its 2025 guidance after discovering that its ACA enrollees were using more medical care than it had planned. Overall market growth in most of Centene’s ACA states is “lower than expected” while members’ health needs are “significantly higher than, and materially inconsistent with, the Company’s assumptions,” Centene said in a document filed with the Securities and Exchange Commission on July 1.
Costs among Medicaid members are also stepping up, the payer said.
Centene is the second major payer to pull its outlook this year, after UnitedHealthcare suspended its 2025 guidance in May due to cost pressures in Medicare Advantage.
Molina’s Medicaid and ACA challenges were somewhat expected, especially given the insurer had some issues with its marketplace members in the first quarter. But evidence of cost pressures in MA could spur greater concerns for investors, analysts said.
“Following recent commentary, we see Medicaid and ACA Exchange pressures as relatively unsurprising, although we think the Medicare cost trend commentary will also be of note given that ex-[UnitedHealthcare] most [managed care organizations] have seen MA performance in line with expectations,” J.P. Morgan analyst John Stansel wrote in a note Monday.
However, Zubretsky said that Molina’s long-term outlook remains unchanged, despite the cost pressures — and despite the sweeping domestic policy bill passed into law by President Donald Trump on July 4 that’s expected to cause millions of Americans to lose health insurance.
Insurer stocks fell after Trump signed the bill, which was pushed through by Republicans in Congress largely along party lines after a marathon voting session. The legislation includes the largest cut to Medicaid in the program’s history and a significant rollback of the ACA that are expected to decimate U.S. insurance coverage gains over the past decade (and, subsequently, cut into payers’ earnings).
Molina plans to report full second quarter results after market close on July 23 and host a call with investors the following morning.
