Molina posts $230M loss in second quarter, will pull out of two states' ACA exchanges

For Molina Healthcare, which fired its CEO and CFO this spring after experiencing losses in its Affordable Care Act exchange business, matters appear to have gotten worse before they could get better.

The California-based insurer said Wednesday that it posted a $230 million loss in the second quarter, or $4.10 per diluted share. For comparison, in the second quarter of 2016 it posted a profit of $0.58 per diluted share.

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Those losses were driven by high medical costs and continued challenges with the company’s ACA exchange plans, interim CEO Joseph White said on a call with investors.

“The results reported today are disappointing and unacceptable,” he said.

In response, Molina is undergoing a restructuring plan that aims to reduce its annual run-rate expenses by $300 million to $400 million by the time it’s completed in 2018. Crucially, part of that restructuring plan will involve Molina pulling out of two states’ ACA exchanges next year: Utah and Wisconsin.  

Before the Sept. 27 deadline to finalize ACA exchange participation, Molina may also decide to pull out of other states where its individual market products have been performing poorly, White said, including Washington and Florida. In California, Michigan, New Mexico and Texas, he noted, the company’s exchange products have performed better.

Even so, Molina is increasing premiums by an average of 55% for the ACA exchange policies it will continue to offer—a calculation that assumes cost-sharing reduction payments won’t be funded next year. Even if the insurer had assumed funding for CSRs, the premium increase would have been 30%.

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In addition to its marketplace exits, Molina’s restructuring will lead it to lay off 1,500 employees, or 10% of its workforce, White said. Many of those who will be let go are on the management level, he noted.

Molina’s deep losses in the second quarter come on the heels of an encouraging first quarter, in which the company’s earnings beat Wall Street expectations. At the time, White said the results represent a “notable step forward for the company,” assessing its ACA exchange performance as “so far, so good.”

But in the fourth quarter of 2016, Molina posted a $110 million loss on its ACA exchange business, with then-CEO J. Mario Molina largely blaming issues with the risk adjustment program. Those financial troubles fueled the decision in May by Molina’s board to depose its CEO and its CFO, John Molina, both sons of the company’s founder. J. Mario Molina later suggested that his outspoken views about Republicans’ ACA repeal efforts contributed to his ouster.

During Wednesday’s call, White said Molina’s troubles were in large part tied to its inability to prepare for growth related to the ACA and its failure to meet the unique demands of its individual exchange plan enrollees. The company has learned a lot about the fine points of member billing, risk adjustment and pricing, he added, but “paid a price for that learning.”

When it comes to the insurer’s Medicaid business, though, White has a far more bullish outlook. “We remain committed to Medicaid managed care,” he said, noting that the company expects to play a major role in its continued growth across the country.

Further, while it is becoming clear that the open-ended nature of the Medicaid entitlement is ending, that’s a positive sign for managed care organizations, which have shown they can help cut costs. “That could be very good for Molina,” he said.