Q4 2024 Earnings Summary
- MOH is strategically investing excess margins into competitive pricing in the Marketplace segment, expecting to drive significant membership growth while maintaining mid-single-digit pretax margins.
- MOH's management projects lower cost trends in 2025 and is confident in their projections, which could improve margins in their Medicaid business.
- MOH expects operating cash flow to improve in 2025, supporting capital deployment and financial flexibility.
- Elevated Medical Cost Trends Pressure Margins in Medicaid and Medicare Segments: Molina Healthcare is experiencing higher-than-anticipated medical cost trends in its Medicaid and Medicare segments, with core utilization trend projected at 4.5% in 2025, up from 3.25% in 2024, excluding the acuity shift. This persistent elevated trend could pressure margins if not fully offset by rate increases, especially since recent rate increases may not be sufficient.
- Insufficient Rate Increases May Not Cover Elevated Costs: The company relies on state Medicaid rate increases to offset higher medical cost trends. However, Molina stated that recent rate increases were not sufficient to completely offset higher medical cost pressure, and they are estimating only 2.5% rate increases on the 25% of rates not yet known for 2025. If actual rate increases are lower than needed, margins could be further compressed.
- Lower Investment Income and Operating Cash Flow Could Impact Financial Flexibility: Molina expects investment income to decrease to approximately $400 million in 2025, down from 2024 levels. Additionally, operating cash flow was lower in 2024 due to higher cash payments for prior year risk corridors. Reduced investment income and cash flow could impact the company's financial flexibility to invest in growth or manage unexpected costs.
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | +16% | Underlying business factors: Continued membership gains in Medicare and Marketplace, coupled with ongoing contract expansions and prior acquisitions, lifted revenue to $10.499B. External factors: Stable funding of government programs supported premium growth. Company initiatives: Integration of acquisitions drove scale. Forward-looking: Redeterminations remain a headwind, but new contracts are expected to sustain growth. |
Medicaid Segment | -10% | Underlying business factors: Revenue declined to $6.683B due to member losses from redeterminations outweighing enrollment gains from new state contracts. External factors: States’ resumption of eligibility checks reduced membership. Company challenges: Managing higher-acuity members. Forward-looking: Expansion in selected states may offset the remaining disenrollment impact. |
Medicare Segment | +16% | Underlying business factors: Segment rose to $1.241B, driven by membership expansion in Medicare Advantage and acquisitions from prior quarters. External factors: Demand from aging population supported enrollment. Company initiatives: Product enhancements and enhanced care coordination. Forward-looking: Potential for further enrollment gains and stable reimbursement. |
Marketplace Segment | +15% | Underlying business factors: Revenue grew to $0.612B, reflecting membership increases from targeted pricing and product strategies. External factors: Moderation in competition and demand for individual coverage. Company initiatives: Focus on profitable growth through tailored plans. Forward-looking: Risk-adjustment and plan design continue to shape profitability. |
Net Income | +16% | Underlying business factors: Net income climbed to $251M on higher premium revenue across segments and improved operating efficiencies (e.g., lower G&A ratio). External factors: Favorable interest rates modestly boosted investment income. Company initiatives: Synergies from acquisitions supported margin gains. Forward-looking: Managing costs amid rising medical utilization is key to sustaining profit growth. |
Diluted EPS | +20% | Underlying business factors: EPS rose to $4.44 primarily due to increased net income and disciplined share repurchases. External factors: Overall stable macro environment and healthcare funding. Company initiatives: Enhanced operating leverage reinforced earnings per share gains. Forward-looking: Continued margin management and capital deployment will influence EPS trajectory. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Premium Revenue | FY 2024 | $38B | no current guidance | no current guidance |
Adjusted EPS | FY 2024 | at least $23.50 | no current guidance | no current guidance |
Consolidated MCR | FY 2024 | 88.7% | no current guidance | no current guidance |
Medicaid MCR | FY 2024 | 90% | no current guidance | no current guidance |
Medicare MCR | FY 2024 | 88.3% | no current guidance | no current guidance |
Marketplace MCR | FY 2024 | 74% | no current guidance | no current guidance |
G&A Ratio | FY 2024 | 6.8% | no current guidance | no current guidance |
Medicaid MCR | Q4 2024 | 89% | no current guidance | no current guidance |
Medicare MCR | Q4 2024 | 90% | no current guidance | no current guidance |
Marketplace MCR | Q4 2024 | 70.1% | no current guidance | no current guidance |
Premium Revenue | FY 2025 | no prior guidance | $42B | no prior guidance |
Adjusted EPS | FY 2025 | no prior guidance | at least $24.50 | no prior guidance |
Consolidated MCR | FY 2025 | no prior guidance | 88.7% | no prior guidance |
Medicaid MCR | FY 2025 | no prior guidance | 89.9% | no prior guidance |
Medicare MCR | FY 2025 | no prior guidance | 89% | no prior guidance |
Marketplace MCR | FY 2025 | no prior guidance | 79% | no prior guidance |
Full Year Rate Increases | FY 2025 | no prior guidance | 4.5% | no prior guidance |
Trend Assumption | FY 2025 | no prior guidance | 4.5% | no prior guidance |
Adjusted G&A Ratio | FY 2025 | no prior guidance | 7% | no prior guidance |
Normalized G&A Ratio | FY 2025 | no prior guidance | 6.6% | no prior guidance |
Effective Tax Rate | FY 2025 | no prior guidance | 25.3% | no prior guidance |
Adjusted Pretax Margin | FY 2025 | no prior guidance | 4.1% | no prior guidance |
Weighted Average Share Count | FY 2025 | no prior guidance | 55.6 million | no prior guidance |
Operating Cash Flow | FY 2025 | no prior guidance | Expected to improve | no prior guidance |
Embedded Earnings | FY 2025 | no prior guidance | $1.50 | no prior guidance |
Quarterly Earnings Distribution | FY 2025 | no prior guidance | Evenly distributed | no prior guidance |
| Metric | Period | Guidance | Actual | Performance |
|---|---|---|---|---|
Full Year 2024 Premium Revenue | FY 2024 | "$38B" | "$40.65B (sum of Q1: 9,931, Q2: 9,880, Q3: 10,340, Q4: 10,499)" | Beat |
Full Year 2024 Adjusted EPS | FY 2024 | "At least $23.50" | "20.41 (sum of Q1: 5.17, Q2: 5.16, Q3: 5.64, Q4: 4.44)" | Missed |
Full Year 2024 Consolidated MCR | FY 2024 | "88.7%" | "Approx. 84.8% (COGS total: 34,428 from Q1:8,414, Q2:8,368, Q3:8,643, Q4:9,003, ÷ total revenue: 40,648 from Q1:9,931, Q2:9,880, Q3:10,340, Q4:10,499)" | Beat |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
Medicaid Margin Pressures & Cost Trends | Q2: Elevated MCR (90%) from redeterminations and higher utilization; partial offset by known rate updates and risk corridors. Q3: MCR still above target (90.5%), driven by LTSS, pharmacy, and behavioral health. | Pressures persisted (Q4 MCR 90.2%), though 2025 MCR projected 89.9%. Optimistic about moderating trend, yet rate adequacy concerns remain. | Recurring topic, slight improvement expected in 2025 but still above target MCR. |
Rate Adequacy | Q2: Insufficient rate increases highlighted; states required to fund actuarially sound rates soon. Q3: Disparity between rates and costs; off-cycle rate increases in certain states to help. | Weighted average 4.5% increase (75% of rates known at 5%, 25% estimated at 2.5%), matching projected trend but risking shortfall if costs remain elevated. | Continues as a key concern; some optimism but remains a risk to margins in 2025. |
Marketplace Growth & Mid-Single-Digit Margins | Q2: Emphasis on growing Marketplace with mid-single-digit pretax margins (5-6%). Low MCR (71.6% in Q2). Q3: Strong growth strategy; SEP membership outperformance; continued margin targets. | 60% premium growth cited, half organic. MCR in target range, pretax margin 6% continues. Competition via pricing to sustain membership gains. | Maintained focus with strong enrollment growth and stable margins. |
Corridor Protection Usage | Q2: 200 bps corridor buffer embedded; partly used to offset cost pressures. Q3: 100 bps of corridor left; not discontinued but overshadowed by rate adjustments. | Risk corridors did not materially benefit Q4 results; uneven distribution across states. | Declined in relevance in Q4 discussions, with minimal financial impact reported. |
Medicaid M&A Pipeline | Q2: Active pipeline, particularly for Medicaid deals; expectation of transactions within 12–18 months. | No mention in Q3 or Q4. | Topic dropped; no updates in subsequent quarters. |
D-SNP Expansions | Q2: Not discussed. [N/A] | Q3: Introduced major Michigan contract ($1B revenue by 2027). Q4: D-SNP expansions referenced broadly (including Michigan), viewed as future growth engine, but fewer details provided. | Newly emphasized in Q3; limited further detail in Q4 but recognized as a future growth driver. |
Operating Cash Flow & Investment Income | Q2: Lower OCF vs. prior year due to corridor and tax timing; expected “higher for longer” investment income. Q3: No major Q4 changes discussed. [N/A] | Q4: OCF down vs. 2023 (corridor timing); expected rebound in 2025. Investment income forecast slightly lower ($400M) amid interest rate environment. | Emerged as a focus in Q4, with near-term OCF pressure but expected 2025 recovery. |
Medicaid Cost Sentiment | Q2: Rising trends (redeterminations, higher acuity) but expected improvements in H2 2024. Q3: Continued elevation, though rate updates provided cautious optimism for 2025. | Q4: Shift to lower 2025 trend (4.5%), assuming no repeat of acuity spike. Still wary of insufficient rates. | More optimistic for 2025, but lingering concerns about rates fully covering elevated utilization. |
GLP-1 Drug Cost Pressures | Q2: Highlighted among pharmacy cost drivers, though manageable with risk corridors. | Q3 & Q4: Not specifically revisited; only broad reference to pharmacy cost pressures in Q4. | Declined focus; no direct update after Q2 mention. |
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Medicaid MLR Guidance
Q: Can you achieve long-term Medicaid margins in 2025?
A: We project a 4.5% rate increase and 4.5% cost trend in Medicaid for 2025, with known rates for 75% of our business at 5% and estimated 2.5% for the remaining 25%. This puts us 90 basis points above our long-term MLR range high of 89%, but we believe with a rate action or two, we can reach our target margins in 2025. -
Medicare Advantage MLR
Q: What's driving Medicare Advantage MLR pressures?
A: Our Medicare MLR is projected at 89% for 2025, reflecting low rates around 2.5% and slightly higher cost trends. We exited certain MAPD plans in 13 states, improving our MLR by 40 basis points. Despite these pressures, we expect a pretax margin of 2.2% on nearly $6 billion in revenue. -
Marketplace Margins and Growth
Q: How confident are you in achieving marketplace margins?
A: We are targeting a 6% pretax margin with an MLR of 79% for 2025, investing excess margins into growth. We saw strong open enrollment growth, starting with 612,000 members and expect a 4% monthly attrition, ending the year around 580,000 members. Our pricing positions us as #1 or #2 silver plan in 50% of our geographies. -
Risk Corridors Impact
Q: What's the update on risk corridors for 2025?
A: Risk corridors did not provide material benefit in Q4 due to geography-specific underperformance. For 2025, we have similar corridor liabilities, and if we outperform forecasts, there's potential upside as we may retain more gains. -
Cost Trend Assumptions
Q: Why is cost trend lowering to 4.5% in 2025?
A: In 2024, we had a 6.5% trend due to redetermination acuity shifts and core utilization. The projected 4.5% for 2025 reflects core utilization without the prior year's acuity shift, which doesn't recur. We've fully considered second-half 2024 pressures in our 2025 outlook. -
Operating Cash Flow and Investment Income
Q: What are your 2025 cash flow and investment income expectations?
A: We're expecting about $400 million in investment income for 2025, slightly lower than 2024 due to interest rate environments. Operating cash flow should improve in 2025, realigning with net income after the corridor effects seen in 2024. -
Policy Changes Impact
Q: How might policy reforms affect Medicaid funding?
A: Significant changes are unlikely because options like reducing membership, benefits, or provider payments are politically untenable. Any changes to managed Medicaid would likely be marginal. -
Quarterly Earnings Progression
Q: How will earnings progress quarterly in 2025?
A: We expect earnings to be evenly distributed across quarters in 2025. This considers the timing of rate increases, seasonal cost trends, and front-loaded G&A expenses due to investments like our 2026 readiness initiative.
Research analysts covering MOLINA HEALTHCARE.