Molina Healthcare surpassed analyst earnings expectations for the first quarter and detailed a mergers and acquisition environment that may lead to deals in the future.
The company recorded an adjusted earnings per share of $6.08 and $11.15 billion in revenue, with premium revenues of $10.63 billion.
CEO Joe Zubretsky said the insurer is “actively engaged” in seeking out more acquisitions, like its purchase of ConnectiCare, a Connecticut-based health plan from EmblemHealth, last year.
“On the M&A front, the pipeline is still replete with opportunities,” he said. “Some of these smaller, single-state, single-geography companies are struggling. So no, I would say it’s not casting a pall over M&A activity. In fact, it might even be increasing some of the flow as some of these single-state operators have seen how difficult it is to run a business.”
Molina operates in 22 states and receives the vast majority of its revenue from Medicaid. The company also has a Medicare Advantage and individual marketplace business.
Zubretsky reiterated his belief cuts to Medicaid will be “marginal” because the political implications of slashing the program will prove too unpopular, the same message he stressed during a fourth-quarter earnings call.
Molina served 5.8 million members and reaffirmed its guidance for the full year to achieve $42 billion in premium revenue and adjusted earnings of $24.50. The company reported $800 million in premium revenue after winning a dual eligible Medicaid contract from Illinois.
The company’s costs increased in Medicaid, dampening the insurer’s performance for the quarter. Increases were led by prescription drugs and seasonal illnesses like the flu. The company also received a rate update of $150 million during the first quarter.
“So, states are obviously recognizing certain cost pressures and updating rates, both on cycle and off cycle to compensate for it,” Zubretsky added.
In the individual marketplace, executives noted spending increased because members enrolled in plans they did not intend to have, partially due to broker fraud. The government clawed back approximately $13.3 million in these circumstances, but Chief Financial Officer Mark Keim expects that figure will decrease as program integrity requirements by the Centers for Medicare & Medicaid Services improve.
Molina’s medical cost ratio came in at 89.2%, higher than the consensus mark of 88.5%. Net income dipped year over year from $301 million to $298 million.
The insurer’s stock is down 5% today at the time of publication. Molina missed its earnings projections last quarter by $500 million in revenue.