Dive Brief:
- Molina Healthcare on Wednesday posted a $230 million loss for Q2, an unexpected hit the payer attributed to various issues related to its participation in the Affordable Care Act (ACA) exchange markets.
- Molina said it will respond by cutting about 7% of its total workforce (about 1,500 employees) and reducing annual expenses by $300 million to $400 million. It will also set aside $78 million in a reserve fund in anticipation of the second half of the year continuing to “fall substantially short” of expectations.
- The company also announced it is pulling out of ACA exchanges in Utah and Wisconsin and scaling back participation in Washington state. Molina said premiums for its remaining exchange plans will increase an average of 55% in part because of political uncertainty surrounding cost-sharing reduction (CSR) payments.
Dive Insight:
The Q2 numbers are ugly for Molina. In May, the company fired CEO Mario Molina and CFO John Molina, the sons of the man who founded the company. The reason given was “disappointing financial performance.” The company’s Q1 still included a $67 million increase.
This is the first earnings report without the Molina brothers in the C-suite. Molina was previously seen as a darling of the ACA markets, but for Q2 medical care costs were "significantly in excess" for what Molina stated it usually experiences. "In total, we experienced out-of-period claims development that was approximately $85 million higher than expected at December 31, 2016," the earnings report stated.
The company noted marketplace performance in Florida, Utah, Washington and Wisconsin was disappointing.
Looking forward, the company will go through a restructuring process. This will include reviewing "high-cost" provider contracts and its vendor base.
Molina is far from the only insurance company to point to CSR uncertainty as a main driver for decisions to pull out of exchanges, as well as for steep premium hikes. President Donald Trump is expected to make an announcement this week about whether the CSRs will continue to be paid. Fitch Ratings recently warned, “a decision to stop paying CSR payments would significantly disrupt the already fragile individual market.”
"We continue to closely monitor the current political and programmatic developments pertaining to our 2018 participation in other marketplace states, and subject to those developments, will withdraw from 2018 participation as may be necessary," the company said.