Molina hangs 2016 income losses on poor ACA market performance

Dive Brief:

  • Molina Healthcare expects to lose at least $110 million before income taxes as a result of the ACA marketplace, financial filings from Wednesday reveal.
  • Income before income taxes fell to $137 million in 2016 from $322 million in 2015, the filings show.
  • Strong enrollment growth generated about $16.3 billion of premium revenue, or 23% more premium revenue in 2016 compared with 2015, Molina added. Overall, Molina profits netted $8 million in 2016, down from $143 million in 2015.
  • “There are simply too many unknowns with the marketplace program to commit to our participation beyond 2017,” CEO Dr. J. Mario Molina said in a conference call, Bloomberg reported.

Dive Insight:

The insurer had been previously seen as one of the few insurers that understood the ACA markets. Molina in 2015 finished out the year with 205,000 ACA exchange members, up from 15,000 in 2014. On Wednesday, Molina's filings sang a different tune where the insurer blamed much of its lost revenue over the much beleaguered risk corridor payments and high risk adjustment payments.

"Risk transfer payments were approximately $325 million higher than anticipated in our pricing," the filing noted. "Risk transfer payments amounted to 24% of total premium in 2016, compared with a pricing expectation of 9%. Although medical costs were $120 million lower than anticipated by our pricing model, we nevertheless incurred $325 million in additional risk transfer payments noted above."

While Molina attributed enrollment growth to increased ACA marketplace enrollment and the purchase of Medicaid managed care members, it noted that its consolidated premium revenue decreased 4% in 2016 and the decline in per-member per-month (PMPM) revenue was mainly driven of lower PMPM premiums under Medicaid expansion and "an increase in the percentage of our premium revenue derived from TANF and Marketplace membership."

Reading into the financials, though ACA enrollment was up and brought in some revenue, decreased premiums overall and lack of federal payments through ACA programs stunted the company's profits. Put more bluntly in the filing: "The poor performance of our Marketplace program was very detrimental to our financial performance for both the quarter and the year ended December 31, 2016."

The document states the insurers will continue to "advocate for the immediate remediation of risk transfer methodologies that penalize comparatively efficient and affordable health plans like ours and, by extension, those individual consumers in need of affordable health insurance." With a changed methodology, Molina estimated its pre-tax income last year could have been increased by about $70 million. In addition, the insurer believes its owed about $90 million in ACA risk corridor payments for calendar year 2016; it also filed a suit in January 2017 seeking recovery of about $52 million of such payments for calendar year 2015 as well as the 2016 risk corridor payments.

The recently failed Aetna-Humana $37 billion merger involved terminating Molina's deal with Aetna to purchase some of its Medicare Advantage (MA) assets. As a resulted of the terminated deal, Molina will also receive a $75 million break up fee from Aetna. 

The profit loss adds to Molina's woes as the insurer is facing a class action lawsuit as various care providers argue the payer has yet to pay them for services that have already provided. In December 2016, Dr. Manuel Figueroa, a member of the Associated Spanish Physicians of Southern California, filed a class action lawsuit against the payer, alleging he hasn't received payments from Molina since 2013. 

Follow on Twitter

Filed Under: Payer
Top image credit: Depositphotos