Michael Ha

Michael Ha of Robert W. Baird & Co. sought confirmation on whether long-term behavioral health margin targets remain unchanged despite future DPP headwinds. He also asked about the potential ripple effects of Medicaid work requirements on uninsured volumes and provider bad debt.

Answer

Executive VP & CFO Steve Filton expressed confidence in the company's ability to be nimble and adjust its business model to mitigate the DPP impacts over the multi-year phase-in period. Regarding work requirements, he noted it's difficult to predict the impact, but stated that on the behavioral side, the company has more optionality to target specific patient groups and that uninsured patients typically find their way to other settings.

Sought confirmation on the potential DPP upside from Tennessee and D.C., asked about the flu season's impact, and inquired about the path to recovering pre-COVID margins in the acute care segment.

Answer

The DPP upside from TN/DC is disclosed in the 10-K and is expected to flow through to the bottom line. The flu season is not expected to have a significant earnings impact. While structural hurdles make a full return to pre-COVID acute margins difficult, improving performance combined with strong behavioral results should allow consolidated margins to recover to pre-COVID levels in the next couple of years.

Michael Ha of Robert W. Baird & Co. Incorporated sought confirmation on the potential DPP upside from Tennessee and D.C., asked about the impact of the flu season, and inquired about the path for acute care margins to return to pre-pandemic levels.

Answer

Executive Steve Filton confirmed the disclosed DPP figures in the 10-K are net of provider taxes and largely flow to earnings. He noted the flu season does not typically have a material impact on annual results. While structural challenges may prevent acute margins from fully returning to pre-COVID levels, he expects continued improvement and believes consolidated company margins can recover over the next couple of years.

Michael Ha sought to confirm the potential DPP revenue upside from Tennessee and D.C. and asked about the impact of the flu season. He also inquired about the path to returning to pre-COVID margins in the acute care segment.

Answer

Executive Steve Filton confirmed the DPP upside number was reasonable and that such payments typically flow to the bottom line. He stated the flu season does not have a significant earnings impact. On margins, he noted that while structural hurdles make a full return to pre-COVID acute margins difficult, continued improvement is expected, and consolidated company margins should reach pre-COVID levels within a couple of years, aided by the strong behavioral business.

Inquired about the progress of cost management efforts in acute care, sought clarity on the potential size of 2025 supplemental payments from California and New Mexico, and asked about the broader tailwind from states increasing Medicaid payments.

Answer

The executive stated that traditional productivity management has resumed post-pandemic, allowing for flexible cost adjustments to volume changes and contributing to margin recovery. The potential benefit from California is significant but cannot be sized until a formal plan is released. The broader trend of states increasing payments is a potential significant benefit beyond what's already disclosed, but it's difficult to size precisely at this stage.

Michael Ha asked how many of Molina's states are reflecting recent 2025 trends in the reference lookback period for upcoming January rates, and for elaboration on the nature of Medicaid member attrition, specifically how many lives are falling off due to procedural or administrative reasons.

Answer

CEO Joseph Zubretsky stated that data through June 2025 is virtually complete, and states are contemplating the latest cost information (either in baseline or trend assumption) for rates. CFO Mark Keim clarified that the specific lookback date is less relevant than the "fair trend" applied on top of it. Joseph Zubretsky confirmed states are more disciplined on eligibility, leading to 1% quarterly membership declines. Mark Keim specified 120,000 Medicaid members fell off in Q3 due to the termination of the Virginia contract.

Michael Ha asked about Medicaid margins and state rate increases, specifically how many states are reflecting recent 2025 trends in the lookback period for upcoming January rates, and sought elaboration on the nature of Medicaid member attrition, particularly procedural or administrative disenrollment.

Answer

CEO Joseph Zubretsky and CFO Mark Keim clarified that data through June 2025 is largely complete, and while actuaries prefer seasoned data, the latest cost information is being contemplated in rates, either in the baseline or as a trend assumption. They emphasized that the specific lookback period is less relevant if a fair trend is applied. On membership attrition, states have become more disciplined with eligibility requirements, leading to a 1% quarterly decline for the last three quarters. Additionally, 120,000 Medicaid members fell off in Q3 due to the termination of the Virginia contract.

Michael Ha of Robert W. Baird & Co. questioned the degree of conservatism in the second-half MLR guidance and asked which risk factor holds the most uncertainty. He also asked about applying learnings from redeterminations to mitigate future procedural disenrollments under new work requirements.

Answer

CFO Mark Keim defended the guidance's conservatism by highlighting the significant sequential increase in the normalized Marketplace MCR from 80% in the first half to a guided 86% in the second, a jump that exceeds normal seasonality. CEO Joseph Zubretsky addressed the work requirements, noting that many members will be exempt and that they are working with states to ensure a gradual, manageable process.

Michael Ha asked about new internal processes for Marketplace risk adjustment and sought more detail on Medicare/Medicaid integration, including whether states might change RFP processes in response.

Answer

CFO Mark Keim noted that new CMS integrity rules should bolster the Marketplace process, while emphasizing a focus on margin over growth. On integration, CEO Joseph Zubretsky pointed to recent RFP wins in Illinois, Ohio, and Michigan as proof of Molina's strong, truly integrated D-SNP offering. He acknowledged chatter about states allowing more plans but expressed confidence in Molina's competitive platform.

Michael Ha inquired about the performance of the recently closed Prospect Health acquisition, potential for synergy upside, and future capital deployment priorities, particularly regarding M&A. He also asked for a worst-case scenario analysis of Medicaid and exchange headwinds on the 2027 EBITDA target.

Answer

President & CEO Brandon Sim confirmed Prospect's strong performance was in line with expectations and reiterated the $12-15M synergy target, noting potential upside. He stated that large-scale M&A is paused until leverage targets of below 2.5x are met. Sim characterized Medicaid headwinds as manageable, providing a sensitivity analysis, and confirmed these factors are already considered in their long-term outlook.

Michael Ha inquired about the financial performance of the newly acquired Prospect Health, the potential for synergy upside, and future capital deployment priorities, particularly regarding M&A. He also asked for a worst-case scenario analysis of headwinds from Medicaid and exchange policy changes on the company's 2027 EBITDA target.

Answer

President & CEO Brandon Sim confirmed that Prospect performed in line with expectations in the first half of the year and reiterated the $12-15 million synergy target over 12-18 months, noting potential for upside. He stated that large-scale M&A will be paused until the net leverage ratio is below 2.5x. Regarding policy headwinds, Sim described them as manageable, estimating a conservative Medicaid enrollment decline would impact EBITDA by only $10-15 million, which would not derail long-term targets.

Michael Ha inquired about the performance of the recently closed Prospect acquisition, including year-to-date results, potential synergies, and any surprises. He also asked about future capital deployment priorities and the potential impact of legislative changes on the Medicaid and Exchange businesses, particularly concerning the 2027 EBITDA target.

Answer

President & CEO Brandon Sim confirmed that Prospect's performance is strong and in line with expectations, reiterating a $12-15 million synergy target over 12-18 months with potential for upside. He stated that large-scale M&A is paused, with a focus on deleveraging to below 2.5x net debt to EBITDA. Sim characterized potential Medicaid headwinds as manageable, estimating a conservative enrollment drop would have a minimal impact on the company's broader EBITDA, and that the 2027 target remains firm.

Michael Ha of Robert W. Baird & Co. asked about the durability of Alignment's sub-10% SG&A ratio and the potential for further efficiencies from AI. He also inquired about the final risk adjustment sweep and the company's 2026 bid assumptions.

Answer

CEO John Kao attributed the low SG&A to a modern, unified data architecture that reduces the need for manual reconciliation, creating a competitive advantage. He noted that investments in streamlining workflows and data quality are paving the way for future AI-driven efficiencies. CFO Jim Head clarified that the $14M final sweep payment was for 2024 and is a normal part of business as the company grows, reflecting a catch-up for new members. He did not comment on specific bid assumptions.

Michael Ha from Robert W. Baird & Co. asked for clarification on the drivers of the first quarter's MLR outperformance, specifically the impact of Part D seasonality. He also inquired about Alignment's strategic posture for 2026 regarding the balance between margin expansion and growth, given the highly favorable rate environment.

Answer

CFO Robert Freeman explained that while modest Part D favorability and prior period reserve releases contributed, the primary driver of the MLR beat was strong underlying inpatient utilization management, which was better than expected. CEO John Kao added that while the 2026 rate notice is favorable and their relative advantages on Stars and V28 persist, they will not comment on the specific margin versus growth trade-off as they are currently in the bid process, but emphasized they are in a very strong competitive position.

Michael Ha asked about the significant Stars rating tailwinds projected for 2027 and 2028, inquiring about the current raw score for the California HMO contract and if this creates a path to a 4.5 or 5-star rating. He also asked if the powerful cohort maturation dynamic is tracking as expected.

Answer

Executive Robert Freeman confirmed the thesis, stating the tailwinds provide a significant buffer to maintain a 4-star rating and support the goal of reaching 4.5 or 5 stars, widening their competitive advantage. Regarding cohort maturation, he affirmed that the dynamic is proceeding as expected and that the large number of members who joined in late 2024 provides an incremental margin tailwind for future years as engagement continues.

Michael Ha inquired about the reasons for the slightly higher implied full-year MLR in the 2024 guidance and asked for details on the competitive advantage provided by Alignment's superior Star ratings for 2026.

Answer

Executive Robert Freeman clarified that the minor MBR update was due to investments supporting growth and did not affect confidence in the 2025 EBITDA target, as it was offset by SG&A leverage. He noted that a 4-star plan has a 5-10% revenue advantage over lower-rated competitors, which, combined with a relative advantage from the V28 risk model, positions them well for 2026.

Michael Ha from Robert W. Baird & Co. asked if a certain level of high membership growth could compromise future earnings and also requested commentary on the raw results for call center metrics related to STARS.

Answer

President and CEO James Rechtin declined to comment on any STARS data, citing the quiet period. On membership, he stated that while extreme growth could pose an operational challenge, the company would not turn off growth due to year-one economics and would focus on long-term value. CFO Celeste Mellet added that the timing of growth matters and is factored into guidance.

Michael Ha sought clarification on several points: the change in wording for the MA margin target, the reason for a lower GAAP EPS guide related to a put/call valuation, and whether the V28 risk model change structurally impairs the CenterWell J-curve.

Answer

CEO Jim Rechtin clarified there was no change in the margin target timeline, which is still 2027, and stated there is no structural impairment to CenterWell's performance from V28. CFO Celeste Mellet explained the GAAP EPS adjustment was due to a complex put/call valuation calculation and did not represent a write-down of assets.

Michael Ha of Robert W. Baird & Co. asked about the long-term Medicaid outlook, specifically what tactics Centene can use to prevent procedural disenrollments under new work requirements, given the negative precedent set by redeterminations.

Answer

CEO Sarah London acknowledged the risk and outlined a multi-pronged strategy. This includes developing more digital enrollment and verification processes, leveraging a recent TCPA rule change that facilitates digital outreach, and scaling up existing programs that help members find work. She stressed that these proactive measures, combined with strong state partnerships, are key to maximizing coverage for eligible members.

Michael Ha of Robert W. Baird & Co. asked about the long-term Medicaid outlook, specifically what tactics Centene can use to avoid procedural disenrollments under future work requirements, given the negative precedent set by redeterminations.

Answer

CEO Sarah London emphasized that Centene's size and scale will be crucial for managing future policy changes efficiently. She outlined a strategy focused on reducing member friction through digital enrollment and verification, leveraging a recent TCPA rule change that facilitates more digital outreach. She also noted Centene's existing experience in states with work requirements, which provides a foundation for helping members maintain coverage.

Michael Ha asked if delayed ACA FTR rechecks were reflected in the guide and how the company gets comfortable that new Medicaid work requirements won't cause another procedural disenrollment crisis.

Answer

Felicia Norwood, President of Government Health Benefits, addressed the work requirements concern. She highlighted the company's positive experience in states like Indiana and Georgia, emphasizing their role as a collaborative partner that brings innovative programs to help states manage the operational challenges and resource constraints associated with such requirements.

Asked a series of questions about the IMS deal's risk profile, earnings seasonality, and the broader market impact of V28 on other risk-bearing provider models.

Answer

The executive clarified that none of the IMS lives are capitated. He stated that earnings seasonality should follow historical patterns. Regarding the market, he believes that some competitor models built on full-risk are proving to be unsustainable under pressures like V28, which could create disruption and drive more provider groups toward Privia's more sustainable, shared-risk model.

Michael Ha asked about the net directional impact of the strong 2026 rate notice versus a major payer's potential significant decline in star ratings, and how agilon could mitigate this headwind.

Answer

CEO Steven Sell expressed overall optimism for 2026. He acknowledged the payer's star rating challenge but noted agilon has experience managing this through various mechanisms like increased premium percentages or lump-sum payments. He emphasized that agilon's ability to deliver high quality scores (4.25+ stars) is a key differentiator that provides leverage and opportunities for performance incentives.

Michael Ha inquired about the potential for pursuing full claims delegation as an ultimate solution to data lag issues and asked about the company's technological readiness and other potential hurdles.

Answer

CEO Steven Sell stated that a full claims delegation model is not viable in most of their markets, nor is it supported by their payer partners. Instead, he highlighted the success of their financial data pipeline, particularly the 'big leap' in obtaining census data that provides a two-week lag view on inpatient utilization. He stressed that access to such data is now a prerequisite for partnership, influencing decisions to exit certain contracts or delay onboarding new partners.

Michael Ha asked for a volume versus pricing split for the USPI growth guide and questioned how potential Medicaid administrative cuts might impact states and provider rates.

Answer

Dr. Saum Sutaria, Chairman and CEO, reiterated that the long-term USPI growth algorithm is roughly half volume and half price/mix, but they don't guide to it annually due to lumpiness. On policy, he noted that recent Medicaid redeterminations may have already addressed some issues, and he expects states to be allies in advocating for funding, which is critical for patient access.

Michael Ha asked about the improvement in hospital average length of stay, the timeline to return to pre-COVID levels, and the sources and durability of the strong inpatient admission trends.

Answer

Chairman and CEO Dr. Saum Sutaria acknowledged the progress on length of stay but cautioned against targeting pre-COVID levels, as the portfolio's rising acuity naturally increases it. He expressed confidence in the durability of inpatient demand into 2025, attributing the strength to both urgent and elective business, as well as a favorable payer mix driven by commercial and significant health exchange growth.

Michael Ha sought to clarify the implied EBITDA guidance, confirm that downside risk from member verification is now fully priced in, and asked about the retention of 2024 SEP lives and the expected MLR tailwind.

Answer

CFO Scott Blackley confirmed the implied adjusted EBITDA guidance would be around $415 million at the high end and affirmed that the 1.8 million paid member figure bakes in known risks, leaving more potential upside. He noted 'terrific' retention of the SEP cohort, which is expected to have a normalized MLR in 2025. CEO Mark Bertolini added that the risk scores for this SEP population will fully mature in 2025, providing a benefit not fully realized in 2024.

Michael Ha from Baird asked Oscar to reconcile its double-digit ACA market growth forecast with lower peer expectations. He also inquired if the 2027 SG&A target of 16% could be beaten, given strong current performance, and what a mature SG&A profile might look like.

Answer

CEO Mark Bertolini reaffirmed double-digit market growth expectations, driven by Medicaid redeterminations and subsidies, though he noted 15% may now be the high end of the range. CFO Scott Blackley added that known factors support this outlook. On SG&A, Blackley confirmed that improvement is driven by both fixed cost leverage and variable cost efficiencies, and agreed that a low-to-mid-teens ratio is a reasonable long-term floor.