Pharmacy Management Programs.
Our pharmacy programs are designed with the goal to bemake us a trusted partner in improving member health and healthcare affordability. We do this by strategically partneringpartner with the physicians and other healthcare providers who treat our members. This collaboration results in drug formularies and clinical initiatives that promote improved patient care. We employ full-time pharmacists and pharmacy technicians who work closely with providers to educate them onabout our formulary products, clinical programs, and the importance of cost-effective care.
Medical Cost Management
We use various strategies to mitigate the negative effects of healthcare cost inflation. Specifically, our health plans try to control medical care costs through contracts with independent providers of healthcare services. Through these contracted providers, our health plans emphasize preventive healthcare and appropriate use of specialty and hospital services. There can be no assurance, however, that our strategies to mitigate medical care cost inflation will be successful. Competitive pressures, new healthcare and pharmaceutical product introductions, demands from healthcare providers and customers, applicable regulations, or other factors may affect our ability to control medical care costs.
INFORMATION TECHNOLOGY
Our business is dependent on effective and secure information systems that assist us in among other things, processing provider claims, monitoring utilization and other cost factors, supporting our medical management techniques, and providing data to our regulators.regulators, and implementing our data security measures. Our members and providers also depend upon our information systems for enrollment, premium processing, primary care and specialist physician roster access, membership verifications, claims status, provider payments, and other information.
We have partnered with third parties to support our information technology systems. This makes our operations vulnerable to adverse effects if such third parties fail to perform adequately. On February 4,In 2019, we entered into a master servicesan agreement with Infosys Limited pursuant to which Infosys will managea third-party vendor who manages certain of our information technology infrastructure services including, among other things, our information technologyinfrastructure operations, end-user services, data centers, public cloud and data centers.application management.As a result of the agreement, we anticipate reducingwere able to reduce our administrative expenses, andwhile improving the reliability of our information technology functions, while aiming toand maintain targeted levels of service and operating performance. A segmentportion of the infrastructurethese services will beare provided on the Company’sour premises, while other portions of the infrastructure services will beare performed at Infosysthe vendor’s facilities. Infosys will provide us
Our information systems require an ongoing commitment of significant resources to maintain, protect, and enhance existing systems and develop new systems to keep pace with services required to migrate thosecontinuing changes in information processing technology, infrastructure operations that will be performed at Infosys facilities. As the infrastructure services currently performed by the Company are transitioned to Infosys, we expect to eliminate certain positions in our information technology group. Some of the employees in our information technology group may become employees of Infosys. The initial term of this agreement with Infosys is three years, commencing on February 4, 2019. We have the right to extend the agreement for up to two additional renewal terms of one year each.evolving systems and regulatory standards, changing customer preferences, acquisitions and increased security risks.
CENTRALIZED SERVICES
We provide certain centralized medical and administrative services to our subsidiaries pursuant to administrative services agreements that include, but are not limited to, information technology, product development and administration, underwriting, claims processing, customer service, certain care management services, human resources, legal, marketing, purchasing, risk management, actuarial, underwriting, finance, accounting, compliance, legal and public relations.
COMPETITIVE CONDITIONS AND ENVIRONMENT
We face varying levels of competition. Health careHealthcare reform proposals may cause organizations to enter or exit the market for government sponsoredgovernment-sponsored health programs. However, the licensing requirements and bidding and contracting procedures in some states may present partial barriers to entry into our industry.
We compete for government contracts, renewals of those government contracts, members, and providers. State agencies consider many factors in awarding contracts to health plans. Among such factors are the health plan’s provider network, quality scores, medical management, degree of member satisfaction, timeliness of claims payment, and financial resources. Potential members typically choose a health plan based on a specific provider being a part of the network, the quality of care and services available, accessibility of services, and reputation or name recognition of the health plan. We believe factors that providers consider in deciding whether to contract with a health plan include potential member volume, payment methods, timeliness and accuracy of claims payment, and administrative service capabilities.
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Medicaid
The Medicaid managed care industry is subject to ongoing changes as a result of health carehealthcare reform, business consolidations and new strategic alliances. We compete with national, regional, and local Medicaid service providers, principally on the basis of size, location, quality of the provider network, quality of service, and reputation. Our primary competitors in the Medicaid managed care industry include Centene Corporation, WellCare Health Plans, Inc., UnitedHealth Group Incorporated, Anthem, Inc., Aetna Inc., and other large not-for-profit health carehealthcare organizations. Competition can vary considerably from state to state.
Medicare
While we expect to see strong growth in theThe Medicare program in coming years, the market is highly competitive across the country, with large competitors, such as UnitedHealth Group Incorporated, Humana Inc., and Aetna Inc., holding significant market share.
Marketplace
Low-income members who receive government subsidies comprise the vast majority of Marketplace membership, which is served by a limited number of health plans. Our primary competitor for low-income Marketplace membership is Centene Corporation.
REGULATION
Our health plans are highly regulated by both state and federal government agencies. Regulation of managed care products and health carehealthcare services varies from jurisdiction to jurisdiction, and changes in applicable laws and rules occur frequently. Regulatory agencies generally have discretion to issue regulations and interpret and enforce laws and rules. Compliance with such laws and rules may lead to additional costs related to the implementation of additional systems, procedures and programs that we have not yet identified. Such agencies have become increasingly active in recent years in their review and scrutiny of health insurers and managed care organizations, including those operating in the Medicaid and Medicare programs.
HIPAA AND THE HITECH ACT
In 1996, Congress enacted the Health Insurance Portability and Accountability Act (“HIPAA”). All health plans are subject to HIPAA, including ours. HIPAA generally requires health plans to:
•Establish the capability to receive and transmit electronically certain administrative health carehealthcare transactions, such as claims payments, in a standardized format;
•Afford privacy to patient health information; and
•Protect the privacy of patient health information through physical and electronic security measures.
In 2009, the Health Information Technology for Economic and Clinical Health Act (“HITECH”) imposed requirements on uses and disclosures of health information; included requirements for HIPAA business associate agreements; extended parts of HIPAA privacy and security provisions to business associates; added data breach notification requirements for covered entities and business associates and reporting requirements to the U.S. Department of Health and Human Services (“HHS”) and, in some cases, to the media; strengthened enforcement; and imposed higher financial penalties for HIPAA violations. In the conduct of our business, depending on the circumstances, we may act as either a covered entity and/or a business associate. HIPAA privacy regulations do not preempt more stringent state laws and regulations that may apply to us.
We enforce an internalmaintain a HIPAA compliance program, which we believe complies with HIPAA privacy and security regulations, and have dedicated resources to monitor compliance with this program.
Health careHealthcare reform created additional tools for fraud prevention, including increased oversight of providers and suppliers participating or enrolling in Medicaid, CHIP, and Medicare. Those enhancements included mandatory licensure for all providers, and site visits, fingerprinting, and criminal background checks for higher risk providers.
FRAUD AND ABUSE LAWS AND THE FALSE CLAIMS ACT
Because we receive payments from federal and state governmental agencies, we are subject to various laws commonly referred to as “fraud and abuse” laws, including federal and state anti-kickback statutes, prohibited referrals, and the federal False Claims Act, which permit agencies and enforcement authorities to institute a suit against us for violations and, in some cases, to seek treble damages, criminal and civil fines, penalties, and assessments. Violations of these laws can also result in exclusion, debarment, temporary or permanent suspension
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from participation in government healthcare programs, or the institution of corporate integrity agreements. Liability under such federal and state statutes and regulations may arise if we know, or it is determined that we should have known, that information we provide to form the basis for a claim for government payment is false or fraudulent, and some courts have permitted False Claims Act suits to proceed if the claimant was out of compliance with program requirements.
Fraud, waste and abuse prohibitions encompass a wide range of operating activities, including kickbacks or other inducements for referral of members or for the coverage of products (such as prescription drugs) by a plan, billing for unnecessary medical services by a provider, upcoding, payments made to excluded providers, improper marketing, and the violation of patient privacy rights. In particular, there has recently been increased scrutiny by the Department of Justice on health plans’ risk adjustment practices, particularly in the Medicare program. Companies involved in public healthcare programs such as Medicaid and Medicare are required to maintain compliance programs to detect and deter fraud, waste and abuse, and are often the subject of fraud, waste and abuse investigations and audits.
The federal government has taken the position that claims presented in violation of the federal anti-kickback statute may be considered a violation of the federal False Claims Act. In addition, under the federal civil monetary penalty statute, the HHS Office of Inspector General has the authority to impose civil penalties against any person who, among other things, knowingly presents, or causes to be presented, certain false or otherwise improper claims. Qui tam actions under federal and state law are brought by a private individual, known as a relator, on behalf of the government. A relator who brings a successful qui tam lawsuit can receive 15 to 30 percent of the damages the government recovers from the defendants, which damages are trebled under the False Claims Act. Because of these financial inducements offered to plaintiffs, qui tam actions have increased significantly in recent years, causing greater numbers of healthcare companies to incur the costs of having to defend false claims actions, many of which are spurious and without merit. In addition, meritorious false claims actions could result in fines, or debarment from the Medicare, Medicaid, or other state or federal healthcare programs.
LICENSING AND SOLVENCY
Our health plans are generally licensed by the insurance departments in the states in which they operate, except the following: our California health plan is licensed by the California Department of Managed Health Care; one of our New York health plans is licensed as a prepaid health services plan by the New York State Department of Health; and our Massachusetts health plan acquired on December 31, 2020, is regulated as a risk-bearing entity by the Massachusetts Executive Office of Health and Human Services.
Our health plans are subject to stringent requirements to maintain a minimum amount of statutory capital determined by statute or regulation, and restrictions that limit their ability to pay dividends to us. For further information, refer to the Notes to Consolidated Financial Statements, Note 15, “Commitments and Contingencies—Regulatory Capital Requirements and Dividend Restrictions.”
HUMAN CAPITAL
As of December 31, 2021, we had nearly 14,000 employees. This includes over 2,600 employees we onboarded through the acquisitions of Magellan Complete Care, Passport, Evolent and Affinity Health Plan. Our diverse employee population reflects the diversity of the members and communities we serve.
Over the last couple of years, we have increased our focus on the health and safety of our employees. In response to the COVID-19 pandemic, we have offered a number of new benefits to our employees, including but not limited to supplemental compensation, paid time away and resources to support changing work-life needs.
As part of our workplace modernization program, we continue to introduce improvements focused on employee development, diversity, equity and inclusion, total rewards offerings and human capital policies and practices. We believe these improvements help us to achieve our goal to become a destination employer in the government-sponsored healthcare industry.
Annually, we invite all employees to participate in our engagement survey. The purpose of our survey is to obtain honest, comprehensive feedback on what is going well and which strategic, operational or cultural concerns are top of mind for our employees. Our results compare favorably to the benchmark data about all other employers.
Succession planning and managing our talent pipelines are key to our human capital strategy. We regularly monitor high performer retention and development. Our performance management practices and pay and recognition
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programs are aligned with meeting and exceeding our corporate objectives. The board of directors has purview to our employee engagement results, key executive performance and succession planning.
We offer formal leadership development programs such as new leader orientation, executive onboarding, front- line leadership essentials, and experienced leader training. We have targeted development plans for critical roles with an emphasis on leadership and business acumen.
We invest in our workforce through market competitive total rewards including, pay, benefits and time-off. Our pay and recognition program is designed to engage, motivate and reward top performers and attract new employees. To foster ownership and align the interests of employees with shareholders, we offer an employee stock purchase plan and grant equity-based compensation under our long-term incentive plan to eligible employees.
We also offer a comprehensive suite of benefits to all eligible employees, including, among others:
•Comprehensive health insurance coverage for employees working 30 hours or more per week;
•401(k) matching contributions of up to 100% on the first 4% contributed by the employee;
•Personal time off that provides employees with paid time away from work, combining vacation and sick leave;
•Volunteer time off that provides employees with paid time away from work to build strong community partnerships and connect with the people we serve;
•Employee wellness programs that provide tools and incentives to live a healthy life focusing on physical, emotional, financial and work well-being;
•Up to ten dependent-care back-up visits per year for a low co-pay, and five hours of homework and tutoring support per child per month at no cost;
•Employee assistance program benefits that provides up to six confidential counseling sessions per rolling 12-month period and includes assistance with physical, emotional, and financial related matters; and
•Employee discount and other programs, including tuition reimbursement.
AVAILABLE INFORMATION
Our principal executive offices are located at 200 Oceangate, Suite 100, Long Beach, California 90802, and our telephone number is (562) 435-3666. We also maintain corporate offices in New York City, New York.
You can access our website at www.molinahealthcare.com to learn more about our Company. From that site, you can download and print copies of our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K, along with amendments to those reports. You can also download our Corporate Governance Guidelines, board of director’s committee charters, Code of Business Conduct and Ethics and Environmental, Social and Governance Report. We make periodic reports and amendments available, free of charge, as soon as reasonably practicable after we file or furnish these reports to the U.S. Securities and Exchange Commission (“SEC”). We will also provide a copy of any of our corporate governance policies published on our website free of charge, upon request. To request a copy of any of these documents, please submit your request to: Molina Healthcare, Inc., 200 Oceangate, Suite 100, Long Beach, California 90802, Attn: Investor Relations. Information on or linked to our website is neither part of nor incorporated by reference into this Form 10-K or any other SEC filings.
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RISK FACTORS
You should carefully consider the risks described below and all of the other information set forth in this Form 10-K, including our consolidated financial statements and accompanying notes. These risks and other factors may affect our forward-looking statements, including those we make in this Form 10-K or elsewhere, such as in press releases, presentations to securities analysts or investors, or other communications made by or with the approval of one of our executive officers.
The risks described in the following section are not the only risks facing our Company. Additional risks that we are unaware of, or that we currently believe are not material, may also become important factors that adversely affect our business. In addition to the risks relating to the COVID-19 pandemic that are specifically described in these risk factors, the effects of the COVID-19 pandemic may also have the effect of significantly heightening many of the other risks associated with our business, including those described below. If any of the following risks actually occurs, our business, financial condition, results of operations, and future prospects could be materially and adversely affected. In that event, among other effects, the trading price of our common stock could decline, and you could lose part or all of your investment.
RISKS RELATED TO OUR INDUSTRY
Our business, financial condition, cash flows, and results of operations will continue to be impacted by the COVID-19 pandemic, and the extent of such impact cannot be reasonably foreseen at this time.
We currently expect that the COVID-19 pandemic will continue to impact our business, financial condition, cash flows, and results of operations in a number of ways, including the following:
•It will have an adverse impact on the health of an indeterminate number of our members, resulting in increases in their medical care costs, as well as increased costs related to testing and vaccination protocols;
•Spikes in hospitalizations and positive COVID-19 cases due to the continued emergence of variants, such as Delta, Omicron, and any new variants of potentially greater transmissibility and virulence that may emerge in 2022 and beyond could also increase the cost of caring for our members;
•Uncertainty and variability associated with the demand for medical services may lead states to pursue retroactive rate refunds (as has already occurred in certain instances), or to impose medical cost risk corridors or rate cuts that exceed the ultimate demand for medical services;
•Disrupted care patterns, as a result of the pandemic, may temporarily affect the ability to obtain complete member health status information, impacting future revenue in our Medicare and Marketplace lines of business, which utilize risk adjustment methodologies;
•As a result of the pandemic’s impact on the national economy, state tax revenues have declined significantly and may not recover in 2022, resulting in the extension of risk corridors or rate cuts, and also threatening the ability of states to make timely monthly capitation payments to us;
•The reduced demand for certain routine and non-critical medical services has created financial stress for certain providers and could result in the insolvency of such providers;
•The pandemic may continue to cause increased volatility in the capital markets and such volatility could have a negative impact on our ability to access those markets on acceptable terms;
•We will continue to incur increased costs associated with the measures we are currently implementing and planning to implement to mitigate the implications of the COVID-19 pandemic;
•The continuing work-from-home status of our workforce may heighten the risk of a cybersecurity incident or HIPAA (as defined below) breach;
•The pandemic may impact the ability of our outsourced information technology service providers, and other third-party vendors, to perform contracted services; and
•The PHE and associated suspension in redeterminations, and the potential impact on our workforce or contractors of federal or state vaccine mandates, could adversely affect our business.
Due to the uncertainty around the duration and breadth of the COVID-19 pandemic and its broad cascading effects, the ultimate impact on our business, financial condition, cash flows, and operating results cannot be reasonably estimated at this time.
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State and federal budget deficits may result in Medicaid, CHIP, or Medicare funding cuts which could have a material adverse effect on our business, financial condition, cash flows, or results of operations.
Nearly all of our premium revenues come from the joint federal and state funding of the Medicaid, Medicare, and CHIP programs. The states in which we operate regularly face significant budgetary pressures. State budgetary pressures may result in unexpected Medicaid, CHIP, or Medicare rate cuts which could reduce our revenues and profit margins. For example, in 2020, and continuing through December 31, 2021, various states enacted temporary risk corridors in response to the reduced demand for medical services stemming from COVID-19, which have resulted in a reduction of our medical margin. In some cases, these risk corridors were retroactive to earlier periods in 2020, or as early as the beginning of the states’ fiscal years in 2019. Beginning in the second quarter of 2020, we have recognized retroactive risk corridors that we believe to be probable, and where the ultimate premium amount is reasonably estimable. We recognized approximately $323 million related to such risk corridors in 2021, primarily in the Medicaid segment. It is possible that certain states could change the structure of existing risk corridors, implement new risk corridors in the future or discontinue existing risk corridors. Due to these uncertainties, the ultimate outcomes could differ materially from our estimates as a result of changes in facts or further developments, which could have an adverse effect on our consolidated financial position, results of operations, or cash flows.
The Medicare-Medicaid Duals Demonstration Pilot Programs could be discontinued or altered, resulting in a loss of premium revenue.
To coordinate care for those who qualify to receive both Medicare and Medicaid services (the “dual eligibles”), and to deliver services to these individuals in a more financially efficient manner, under the direction of CMS some states implemented demonstration pilot programs to integrate Medicare and Medicaid services for the dual eligibles. The health plans participating in such demonstrations are referred to as Medicare-Medicaid Plans (“MMPs”). We operate MMPs in six states: California, Illinois, Michigan, Ohio, South Carolina, and Texas. At December 31, 2021, our membership included approximately 69,000 integrated MMP members, representing approximately 1% of our total membership. However, the capitation paid to us for dual eligibles is significantly higher than the capitation paid for other members, representing 7% of our total premium revenues in 2021. If the states running the MMP demonstration pilot programs where we have members conclude that the demonstration pilot programs are not delivering better coordinated care and reduced costs, or they perceive other lack of benefits in the pilot programs, they may decide to discontinue such programs. If an MMP pilot program were discontinued and not succeeded by a substitutive program in which we participated, our premium revenues could be reduced.
If state regulators do not approve payments of dividends and distributions by our subsidiaries, it may negatively affect our ability to meet our debt service and other obligations.
We are a corporate parent holding company and hold most of our assets in, and conduct most of our operations through, our direct subsidiaries. As a holding company, our results of operations depend on the results of operations of our subsidiaries. Moreover, we are dependent on dividends or other intercompany transfers of funds from our subsidiaries to meet our debt service and other obligations. The ability of our subsidiaries to pay dividends or make other payments or advances to us will depend on their operating results and will be subject to applicable laws and restrictions contained in agreements governing the debt of such subsidiaries. In addition, our health plan subsidiaries are subject to laws and regulations that limit the amount of ordinary dividends and distributions that they can pay to us without prior approval of, or notification to, state regulators. In general, our health plans must give thirty days’ advance notice and the opportunity to disapprove “extraordinary” dividends to the respective state departments of insurance for amounts that exceed either (a) ten percent of surplus or net worth at the prior year end or (b) the net income for the prior year, depending on the respective state statute. The discretion of the state regulators, if any, in approving or disapproving a dividend is not clearly defined. Our health plans generally must provide notice to the applicable state regulator prior to paying a dividend or other distribution to us. Our parent company received $564 million and $635 million in dividends from our regulated health plan subsidiaries during 2021 and 2020, respectively. If the regulators were to deny or significantly restrict our subsidiaries’ requests to pay dividends to us, the funds available to our Company as a whole would be limited, which could have a material adverse effect on our business, financial condition, cash flows, or results of operations.
Our use and disclosure of personally identifiable information and other non-public information, including protected health information, is subject to federal and state privacy and security regulations, and our failure to comply with those regulations or to adequately secure the information we hold could result in significant liability or reputational harm.
State and federal laws and regulations including, but not limited to, the Health Insurance Portability and Accountability Act, as amended by the Health Information Technology for Economic and Clinical Health Act, and all regulations promulgated thereunder (collectively, “HIPAA”), the California Consumer Privacy Act (the “CCPA”) and the Gramm-Leach-Bliley Act, govern the collection, dissemination, use, privacy, confidentiality, security, availability,
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and integrity of personally identifiable information (“PII”), including protected health information (“PHI”). HIPAA establishes basic national privacy and security standards for protection of PHI by covered entities and business associates, including health plans such as ours. HIPAA requires covered entities like us to develop and maintain policies and procedures regarding PHI, and to adopt administrative, physical, and technical safeguards to protect PHI.
HIPAA violations may result in significant civil penalties. HIPAA authorizes state attorneys general to file suit under HIPAA on behalf of state residents. Courts can award damages, costs, and attorneys’ fees related to violations of HIPAA in such cases. We have experienced HIPAA breaches in the past, including breaches affecting over 500 individuals.
Even when HIPAA does not apply, according to the Federal Trade Commission (the “FTC”), failing to take appropriate steps to keep consumers’ personal information secure constitutes unfair acts or practices in or affecting commerce in violation of Section 5(a) of the Federal Trade Commission Act, 15 U.S.C § 45(a). The FTC expects a company’s data security measures to be reasonable and appropriate in light of the sensitivity and volume of consumer information it holds, the size and complexity of its business, and the cost of available tools to improve security and reduce vulnerabilities. Individually identifiable health information is considered sensitive data that merits stronger safeguards. The FTC’s guidance for appropriately securing consumers’ personal information is similar to what is required by the HIPAA security regulations.
In addition, certain state laws govern the privacy and security of health information in certain circumstances, many of which differ from each other in significant ways, thus complicating compliance efforts. For example, California enacted the CCPA, which became effective on January 1, 2020. The CCPA, among other things, creates new data privacy obligations for covered companies and provides new privacy rights to California residents, including the right to opt out of certain disclosures of their information. The CCPA also creates a private right of action with statutory damages for certain data breaches, thereby potentially increasing risks associated with a data breach.
If we do not comply with existing or new laws and regulations related to PHI, PII, or non-public information, we could be subject to criminal or civil sanctions. Any security breach involving the misappropriation, loss, or other unauthorized disclosure or use of confidential member information, whether by us or a third party, such as our vendors, could subject us to civil and criminal penalties, divert management’s time and energy, and have a material adverse effect on our business, financial condition, cash flows, or results of operations.
Unforeseen changes in pharmaceutical regulations or market conditions may impact our revenues and adversely affect our results of operations.
Pharmaceutical products and services are a significant component of our healthcare costs. Evolving regulations and state and federal mandates regarding coverage may impact the ability of our health plans to continue to receive existing price discounts on pharmaceutical products for our members. Other factors affecting our pharmaceutical costs include, but are not limited to, the price of pharmaceuticals, geographic variation in utilization of new and existing pharmaceuticals, and changes in discounts. The unpredictable nature of these factors may have a material adverse effect on our business, financial condition, cash flows, or results of operations.
Increases in our pharmaceutical costs could have a material adverse effect on the level of our medical costs and our results of operations.
Introduction of new high cost specialty drugs and sudden cost spikes for existing drugs increase the risk that the pharmacy cost assumptions used to develop our capitation rates are not adequate to cover the actual pharmacy costs, which jeopardizes the overall actuarial soundness of our rates. Bearing the high costs of new specialty drugs or the high cost inflation of generic drugs without an appropriate rate adjustment or other reimbursement mechanism would have an adverse impact on our financial condition and results of operations. In addition, evolving regulations and state and federal mandates regarding coverage may impact the ability of our health plans to continue to receive existing price discounts on pharmaceutical products for our members. Other factors affecting our pharmaceutical costs include, but are not limited to, geographic variation in utilization of new and existing pharmaceuticals, changes in discounts, civil investigations, and litigation. Some of our competitors have been subject to substantial sanctions related to allegations of improper transfer pricing practices. Further, our principal pharmacy benefit manager, or PBM, CVS Caremark (“CVS”), is party to certain lawsuits and putative class actions regarding its drug pricing practices and its rebate arrangements with drug manufacturers. The ultimate outcome of these complaints may have an adverse impact on our pharmaceutical costs, or potentially could result in our becoming involved or impleaded into similar or related costly litigation. Although we will continue to work with state Medicaid agencies in an effort to ensure that we receive appropriate and actuarially sound reimbursement for all new drug therapies and pharmaceuticals trends, there can be no assurance that we will be successful in that regard.
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Large-scale medical emergencies in one or more states in which we operate our health plans could significantly increase utilization rates and medical costs.
Large-scale medical emergencies can take many forms and be associated with widespread illness or medical conditions. For example, natural disasters, such as a major earthquake or wildfire in California, or a major hurricane affecting Florida, South Carolina or Texas, could have a significant impact on the health of a large number of our covered members. Other conditions that could impact our members include a virulent flu season or epidemic, newly emergent mosquito-borne illnesses, such as the Zika virus, the West Nile virus, or the Chikungunya virus, or new viruses such as COVID-19, conditions for which vaccines may not exist, are not effective, or have not been widely administered.
In addition, federal and state law enforcement officials have issued warnings about potential terrorist activity involving biological or other weapons of mass destruction. All of these conditions, and others, could have a significant impact on the health of the population of wide-spread areas. If one of the states in which we operate were to experience a large-scale natural disaster, a significant terrorist attack, or some other large-scale event affecting the health of a large number of our members, our covered medical expenses in that state would rise, which could have a material adverse effect on our business, financial condition, cash flows, or results of operations.
We face various risks inherent in the government contracting process that could materially and adversely affect our business and profitability, including periodic routine and non-routine reviews, audits, and investigations by government agencies.
We are subject to various risks inherent in the government contracting process. These risks include routine and non-routine governmental reviews, audits, and investigations, and compliance with government reporting requirements. Violation of the laws, regulations, or contract provisions governing our operations, or changes in interpretations of those laws and regulations, could result in the imposition of civil or criminal penalties, the cancellation of our government contracts, the suspension or revocation of our licenses, the exclusion from participation in government sponsored health programs, or the revision and recoupment of past payments made based on audit findings. If we are unable to correct any noted deficiencies, or become subject to material fines or other sanctions, we could suffer a substantial reduction in profitability, and could also lose one or more of our government contracts. In addition, government receivables are subject to government audit and negotiation, and government contracts are vulnerable to disagreements with the government. The final amounts we ultimately receive under government contracts may be different from the amounts we initially recognize in our financial statements.
Any changes to the laws and regulations governing our business, or the interpretation and enforcement of those laws or regulations, could require us to modify our operations and could negatively impact our operating results.
Our business is extensively regulated by the federal government and the states in which we operate. The laws and regulations governing our operations are generally intended to benefit and protect health plan members and providers rather than managed care organizations. The government agencies administering these laws and regulations have broad latitude in interpreting and applying them. Changes in the interpretation or application of our contracts could reduce our profitability if we have detrimentally relied on a prior interpretation or application. These laws and regulations, along with the terms of our government contracts, regulate how we do business, what services we offer, and how we interact with our members and the public. For instance, some states mandate minimum medical expense levels as a percentage of premium revenues. These laws and regulations, and their interpretations, are subject to frequent change. The interpretation of certain contract provisions by our governmental regulators may also change. Changes in existing laws or regulations, or their interpretations, or the enactment of new laws or regulations, could reduce our profitability by imposing additional capital requirements, increasing our liability, increasing our administrative and other costs, increasing mandated benefits, forcing us to restructure our relationships with providers, requiring us to implement additional or different programs and systems, or making it more difficult to predict future results. For example, on January 18, 2022, New York’s Governor unveiled the Executive Budget proposal for the fiscal year 2023 which, among other things, includes proposed changes to the procurement process with respect to procurement of managed care plans in certain of New York’s existing managed care lines. Among other things, if the Executive Budget proposal is approved in its current form, the State would be required to select two plans per product line, per region, but no more than five plans in a region. Currently, we operate our Medicaid Managed Care (“MMC”) and Health and Recovery Plans (“HARP”) plans in six of the eight CMS rating regions in New York. If the proposed Executive Budget is approved in its current form, our business, financial condition, cash flows, or results of operations could be adversely affected.
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We are subject to extensive fraud and abuse laws that may give rise to lawsuits and claims against us, the outcome of which may have a material adverse effect on our business, financial condition, cash flows, or results of operations.
Because we receive payments from federal and state governmental agencies, we are subject to various laws commonly referred to as “fraud and abuse” laws, including federal and state anti-kickback statutes, prohibited referrals, and the federal False Claims Act, which permit agencies and enforcement authorities to institute a suit against us for violations and, in some cases, to seek treble damages, criminal and civil fines, penalties, and assessments. Violations of these laws can also result in exclusion, debarment, temporary or permanent suspension from participation in government health carehealthcare programs, or the institution of corporate integrity agreements. Liability under such federal and state statutes and regulations may arise if we know, or it is founddetermined that we should have known, that information we provide to form the basis for a claim for government payment is false or fraudulent, and some courts have permitted False Claims Act suits to proceed if the claimant was out of compliance with program requirements.
Fraud, waste and abuse prohibitions encompass a wide range of operating activities, including kickbacks or other inducements for referral of members or for the coverage of products (such as prescription drugs) by a plan, billing for unnecessary medical services by a provider, upcoding, payments made to excluded providers, improper
marketing, and the violation of patient privacy rights. In particular, there has recently been increased scrutiny by the Department of Justice on health plans’ risk adjustment practices, particularly in the Medicare program. Companies involved in public health carehealthcare programs such as Medicaid and Medicare are required to maintain compliance programs to detect and deter fraud, waste and abuse, and are often the subject of fraud, waste and abuse investigations and audits. The regulations and contractual requirements applicable to participants in these public-sector programs are complex and subject to change.
The federal government has taken the position that claims presented in violation of the federal anti-kickback statute may be considered a violation of the federal False Claims Act. In addition, under the federal civil monetary penalty statute, the U.S. Department of Health and Human Services (“HHS”),Services’ Office of Inspector General has the authority to impose civil penalties against any person who, among other things, knowingly presents, or causes to be presented, certain false or otherwise improper claims. Qui tam actions under federal and state law can beare brought by anya private individual, known as a relator, on behalf of the government. QuiA relator who brings a successful qui tam lawsuit can receive 15 to 30 percent of the damages the government recovers from the defendants, which damages are trebled under the False Claims Act. Because of these financial inducements offered to plaintiffs, qui tamactions have increased significantly in recent years, causing greater numbers of health carehealthcare companies to haveincur the costs of having to defend a false claim action, payclaims actions, many of which are spurious and without merit. In addition, meritorious false claims actions could result in fines, or be excludeddebarment from the Medicare, Medicaid, or other state or federal health care programs as a result of an investigation arising out of such action.
LICENSING AND SOLVENCY
Our health plans are licensed by the insurance departments in the states in which they operate, except our New York HMO, which is licensed as a prepaid health services plan by the New York State Department of Health, and our California HMO, which is licensed by the California Department of Managed Health Care.
Our health planshealthcare programs. If we are subject to stringent requirementsliability under a qui tam or other actions, our business, financial condition, cash flows, or results of operations could be adversely affected. Even if we are successful in defending qui tam actions against us, the fact that these actions were filed against us, even if ultimately determined to maintain a minimum amount of statutory capital determined by statute or regulation,be without merit, could result in expensive defense costs, and restrictions that limit theiralso could have an adverse impact on our reputation and our ability to pay dividends to us. For further information, refer to the Notes to Consolidated Financial Statements, Note 17, “Commitments and Contingencies—Regulatory Capital Requirements and Dividend Restrictions.”obtain regulatory approval for acquisitions that we may pursue.
RISKS RELATED TO OUR BUSINESS
OTHER INFORMATION
EMPLOYEES
As of December 31, 2018, we had approximately 11,000 employees. Our employee base is multicultural and reflects the diverse membership we serve.
AVAILABLE INFORMATION
Our principal executive offices are located at 200 Oceangate, Suite 100, Long Beach, California 90802, and our telephone number is (562) 435-3666. The Company also maintains corporate offices in New York City, New York.
You can access our website at www.molinahealthcare.com to learn more about our Company. From that site, you can download and print copies of our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K, along with amendments to those reports. You can also download our Corporate Governance Guidelines, Board of Directors committee charters, and Code of Business Conduct and Ethics. We make periodic reports and amendments available, free of charge, as soon as reasonably practicable after we file or furnish these reports to the SEC. We will also provide a copy of any of our corporate governance policies published on our website free of charge, upon request. To request a copy of any of these documents, please submit your request to: Molina Healthcare, Inc., 200 Oceangate, Suite 100, Long Beach, California 90802, Attn: Investor Relations. Information on or linkedMay 2020 contract award to our websiteKentucky Medicaid plan, and its acquisition of Passport, is neither partthe subject of nor incorporated by reference into this Form 10-K or any other SEC filings.a legal challenge.
RISK FACTORS
You should carefully considerOn September 4, 2020, Anthem Kentucky Managed Care Plan, Inc. brought an action in Franklin County Circuit Court against the risks described belowKentucky Finance and Administration Cabinet, the Kentucky Cabinet for Health and Family Services, and all of the other information set forth in this Form 10-K,five winning bidder health plans, including our consolidated financial statementsKentucky health plan. This matter remains subject to additional legal and accompanying notes. These risksappellate proceedings, and other factors may affectno assurances can be given regarding the ultimate outcome. Under the Court’s June 16, 2021 final Order, our forward-looking statements, including those we make in this annual reportKentucky health plan will continue to operate for the foreseeable future under its current Medicaid contract and provide care to Kentucky Medicaid members. In the event the contract award to our Kentucky health plan or elsewhere, such as in press releases, presentations to securities analysts or investors, or other communications made by or with the approvalnovation of onethe Passport Medicaid contract is overturned, the business and revenue of our executive officers. The risks described below are not the only risks facing our Company. Additional risks that we are unaware of, or that we currently believe are not material,Kentucky health plan may also become important factors that
adversely affect our business. If any of the following risks actually occurs, our business, financial condition, results of operations, and future prospects could be materially and adversely affected. In that event, among other effects, the trading price of our common stock could decline, and you could lose part or all of your investment.
Risks Related to Our Business
If the responsive bids of our health plans for new or renewed Medicaid contracts are not successful, or if our government contracts are terminated or are not renewed on favorable terms, or at all, our premium revenues could be materially reduced and our operating results could be negatively impacted.
We currently derive our premium revenues from health plans that operate in 14 states and18 states. Our consolidated Medicaid premium revenue constituted 76% of our total premium revenue in the Commonwealth of Puerto Rico.year ended December 31, 2021. Measured by Medicaid premium revenue by health plan, our top four health plans were in California, Ohio, Texas, and
Molina Healthcare, Inc. 2021 Form 10-K | 22
Washington, with aggregate Medicaid premium revenue of $10,143 million,$10.4 billion, or approximately 58%51% of totalconsolidated Medicaid premium revenue, in the year ended December 31, 2018.2021. If we are unable to continue to operate in any of our existing jurisdictions, or if our current operations in those jurisdictions or any portionportions of those jurisdictions are significantly curtailed or terminated entirely, our revenues could decrease materially.
Many of our government contracts for the provision of managed care programs to people receiving government assistance are effective only for a fixed period of time and maywill only be extended for an additional period of time if the contracting entity or its agent elects to do so. For example, our contract in California is expected to be subject to re-procurement in February 2022, and our STAR+PLUS and STAR/CHIP contracts in Texas are expected to be subject to re-procurement in early 2022 and late 2022, respectively. When suchour government contracts expire, they may be opened for bidding by competing healthcare providers,health plans, and there is no guarantee that the contracts will be renewed or extended. For example,Even if our previous Medicaid contract withcontracts are renewed or extended, there can be no assurance that they will be renewed or extended on the Florida Agency for Health Care Administration (“AHCA”) expired on December 31, 2018, as of which date the Florida health plan served approximately 272,000 Medicaid members. In June 2018, our Florida health plan was awardedsame terms or without a comprehensive Medicaid Managed Care contract by AHCA, effective January 1, 2019, for two regions in Florida (which consisted of approximately 98,000 Medicaid members as of December 31, 2018), as opposed to the eight regions covered by our previous contract.
As yet another example, our New Mexico health plan’s Medicaid contract with the New Mexico Human Services Department (“HSD”) expired on December 31, 2018. In January 2018, we were notified by the New Mexico Medicaid agency that we had not been selected for a tentative award of a 2019 Medicaid contract. A hearing was held on our judicial protest on October 17, 2018, and our protest was rejected. We filed an appeal with the New Mexico Court of Appeals on January 28, 2019.We are continuing to manage the business in run-off until the determination of these further appeals or our decision not to pursue our appeal rights. As of December 31, 2018, we served approximately 196,000 Medicaid members in New Mexico, and Medicaid premium revenue amounted to $1,181 millionreduction in the year ended December 31, 2018. Our New Mexico health plan continues to serve Medicare and Marketplace members, but, effective January 1, 2019, no longer has Medicaid members.
In any bidding process, our health plans may face competition from numerous other health plans, many with greater financial resources and greater name recognition than we have. For example, in November 2018, our Texas health plan submitted RFP responsive bids under the following two programs:
The Texas Health and Human Service Commission (“HHSC”) currently contracts with five STAR+PLUS (or “ABD”) plans: Anthem, Cigna, Centene, United Healthcare, and Molina. Our Texas health plan served a total of approximately 87,000 STAR+PLUS members as of December 31, 2018. We expect the new Texas STAR+PLUS contracts to be awarded in the second quarter of 2019, and to become effective June 1, 2020.
The HHSC currently contracts with many STAR (or “TANF” and “CHIP”) plans, including Molina. Our Texas health plan served a total of approximately 122,000 STAR members as of December 31, 2018. We expect the new Texas STAR contracts to be awarded in the third quarter of 2019, and to become effective September 1, 2020.
If the RFP responsive bids of our Texas health plan are not successful, or if our Texas health plan’s contracts with HHSC are not renewed, or if they are renewed but coverage is reduced, our revenues would be materially and adversely impacted.applicable service areas.
Even if our responsive bids are successful, the bids may be based upon assumptions regarding enrollment, utilization, medical costs, or other factors which could result in the Medicaid contract being less profitable than we had expected or in extreme cases, could result in a net loss. Furthermore, our government contracts contain certain provisions regarding, among other things, eligibility, enrollment and dis-enrollment processes for covered services, eligible providers, periodic financial and information reporting, quality assurance and timeliness of claims payment, and are subject to cancellation if we fail to perform in accordance with the standards set by regulatory agencies.
If anyWe are subject to risks associated with outsourcing services and functions to third parties.
We contract with third party vendors and service providers who provide services to us and our subsidiaries or to whom we delegate selected functions. Some of these third parties have direct access to our systems. Our arrangements with third party vendors and service providers may make our operations vulnerable if those third parties fail to satisfy their obligations to us, including their obligations to maintain and protect the security and confidentiality of our governmental contractsinformation and data or the information and data relating to our members or customers. We are terminated,also at risk of a data security incident involving a vendor or third party, which could result in a breakdown of such third party’s data protection processes or cyber-attackers gaining access to our infrastructure through the third party. To the extent that a vendor or third party suffers a data security incident that compromises its operations, we could incur significant costs and possible service interruption. Any contractual remedies and/or indemnification obligations we may have for vendor or service provider failures or incidents may not renewed, renewedbe adequate to fully compensate us for any losses suffered as a result of any vendor’s failure to satisfy its obligations to us or under applicable law. Violations of, or noncompliance with, laws and/or regulations governing our business or noncompliance with contract terms by third party vendors and service providers could increase our exposure to liability to our members, providers, or other third parties, or could result in sanctions and/or fines from the regulators that oversee our business. In turn, this could increase the costs associated with the operation of our business or have an adverse impact on less favorable terms, or not renewed on a timely basis, our business and reputationreputation. Moreover, if these vendor and service provider relationships were terminated for any reason, we may not be able to find alternative partners in a timely manner or on acceptable financial terms. This may incur significant costs and/or experience significant disruption to our operations in connection with any such vendor or service provider transition. As a result, we may not be able to meet the full demands of our members or customers and, in turn, our business, financial condition, and results of operations may be adversely impacted, andharmed.
If we sustain a cyber-attack or suffer data privacy or security breaches that disrupt our financial position, results of
information systems or operations, or cash flowsresult in the dissemination of sensitive personal or confidential information, we could suffer increased costs, exposure to significant liability, reputational harm, loss of business, and other serious negative consequences.
As part of our normal operations, we routinely collect, process, store, and transmit large amounts of data, including sensitive personal information as well as proprietary or confidential information relating to our business or third parties. To ensure information security, we have implemented controls designed to protect the confidentiality, integrity and availability of this data and the systems that store and transmit such data. However, our information technology systems and safety control systems are subject to a growing number of threats from computer programmers, hackers, and other adversaries that may be materiallyable to penetrate our network security and adversely affected. In addition,misappropriate our confidential information or that of third parties, create system disruptions, or cause damage, security issues, or shutdowns. They also may be able to develop and deploy viruses, worms, and other malicious software programs that attack our systems or otherwise exploit security vulnerabilities. As a result of the COVID-19 pandemic, we may face increased cybersecurity risks due to our reliance on internet technology and the number of our employees who are working remotely, which may create additional opportunities for cybercriminals to exploit vulnerabilities. Because the techniques used to circumvent, gain access to, or sabotage security systems can be highly sophisticated and change frequently, they often are not recognized until launched against a target, and may originate from less regulated and remote areas around the world. We may be unable to supportanticipate these techniques
Molina Healthcare, Inc. 2021 Form 10-K | 23
or implement adequate preventive measures, resulting in potential data loss and damage to our systems. Our systems are also subject to compromise from internal threats such as improper action by employees, including malicious insiders, or by vendors, counterparties, and other third parties with otherwise legitimate access to our systems. Our policies, employee training (including phishing prevention training), procedures and technical safeguards may not prevent all improper access to our network or proprietary or confidential information by employees, vendors, counterparties, or other third parties. Our facilities may also be vulnerable to security incidents or security attacks, acts of vandalism or theft, misplaced or lost data, human errors, or other similar events that could negatively affect our systems and our and our members’ data.
Moreover, we face the carryingongoing challenge of managing access controls in a complex environment. The process of enhancing our protective measures can itself create a risk of systems disruptions and security issues. Given the breadth of our operations and the increasing sophistication of cyberattacks, a particular incident could occur and persist for an extended period of time before being detected. The extent of a particular cyberattack and the steps that we may need to take to investigate the attack may take a significant amount of goodwilltime before such an investigation could be completed and full and reliable information about the incident is known. During such time, the extent of any harm or how best to remediate it might not be known, which could further increase the risks, costs, and consequences of a data security incident. In addition, our systems must be routinely updated, patched, and upgraded to protect against known vulnerabilities. The volume of new software vulnerabilities has increased substantially, as has the importance of patches and other remedial measures. In addition to remediating newly identified vulnerabilities, previously identified vulnerabilities must also be updated. We are at risk that cyber attackers exploit these known vulnerabilities before they have been addressed. The complexity of our systems and platforms, the increased frequency at which vendors are issuing security patches to their products, our need to test patches, and in some instances, coordinate with third-parties before they can be deployed, all could further increase our risks.
Where doing so is necessary in order to conduct our business, we also provide sensitive personal member information, as well as proprietary or confidential information relating to our business, to our third-party service providers. Although we obtain assurances from those third parties that they have recorded forsystems and processes in place to protect such data, and that they will take steps to assure the protection of such data by other third parties, those third-party service providers may also be subject to data intrusion or data breach. Any compromise of the confidential data of our members, employees, or business, or the failure to prevent or mitigate the loss of or damage to this data through breach, could result in operational, reputational, competitive, or other business harm, as well as financial costs and regulatory action. The Company maintains cybersecurity insurance in the event of an information security or cyber incident. However, the coverage may not be sufficient to cover all financial losses.
We may be unable to successfully integrate our acquisitions or realize the anticipated benefits of such acquisitions.
Our growth strategy includes the pursuit of targeted inorganic growth opportunities that we believe will provide a strategic fit, leverage operational synergies, and lead to incremental earnings accretion. For example, on December 31, 2020, we closed on our acquisition of the Magellan Complete Care line of business of Magellan Health, Inc., in the fourth quarter of 2021, we closed on our acquisition of Affinity Health Plan, Inc. in New York and in January 2022, we closed on our acquisition of the Medicaid assets of Cigna Corporation in Texas. In October 2021, we entered into a definitive agreement to acquire the Medicaid Managed Long Term Care business of AgeWell New York.Subject to the receipt of applicable federal and state regulatory approvals and the satisfaction of customary closing conditions, the closing of this transaction is expected to occur by the third quarter of 2022.The integration of acquired businesses with our existing business because its fair value is baseda complex, costly and time-consuming process. The success of acquisitions we make will depend, in part, on estimated futureour ability to successfully combine our existing business with such acquired businesses and realize the anticipated benefits, including synergies, cost savings, growth in earnings, innovation, and operational efficiencies, from the combinations. If we are unable to achieve these objectives within the anticipated time frame, or at all, the anticipated benefits may not be realized fully or at all, or may take longer to realize than expected.
Our acquisitions and the related integration activities involve a number of risks, including the following:
•The transition services that a seller may have agreed to provide following the closing, such as those Magellan Health, Inc. is currently providing in connection with the Magellan Complete Care transaction, may not be provided in a timely or efficient manner, or certain necessary transition services may not be provided at all;
•Unforeseen expenses or delays associated with the acquisition and/or integration;
•The assumptions underlying our expectations regarding the integration process or the expected benefits to be achieved from an acquisition may prove to be incorrect;
Molina Healthcare, Inc. 2021 Form 10-K | 24
•Maintaining employee morale and retaining key management and other employees;
•Difficulties retaining the business and operational relationships of the acquired business, and attracting new business and operational relationships;
•Unanticipated attrition in the membership of the acquired business pending the completion of the proposed transaction or after the closing of the transaction;
•Unanticipated difficulties or costs in integrating information technology, communications and other systems, consolidating corporate and administrative infrastructures, and eliminating duplicative operations;
•Attention to integration activities may divert management’s attention from ongoing business concerns, which could result in performance shortfalls;
•Successfully addressing the challenges inherent in managing a larger company and coordinating geographically separate organizations; and
•Delays in obtaining, or inability to obtain, necessary state or federal regulatory approvals, or such approvals may impose conditions that were not anticipated.
Many of these factors are outside of our control and any one of them could result in delays, increased costs, decreases in the amount of expected revenues, and diversion of management's time and energy, which could have a material adverse effect on our business, financial condition, cash flows.flows or results of operations. There can be no assurances that we will be successful in managing our expanded operations as a result of acquisitions or that we will realize the expected growth in earnings, operating efficiencies, cost savings, or other benefits.
If we lose contracts that constitute a significant amount of our premium revenue, we will lose the administrative cost efficiencies or cost leverage that areis inherent in a largelarger revenue base. In such circumstances, we may not be able to reduce fixed costs proportionally with our lower revenue, and the financial impact of lost contracts may exceed the net income ascribed to those contracts.
We are currently able to spread the cost of centralized services over a large revenue base. Many of our administrative costs are fixed in nature, and will be incurred at the same level regardless of the size of our revenue base. If we lose contracts that constitute a significant amount of our revenue, we may not be able to reduce the expense of centralized services in a manner that is proportional to that loss of revenue. In such circumstances, not only will our total dollar margins decline, but our percentage margins, measured as a percentage of revenue, will also decline. This loss of cost efficiency or cost leverage, and the resulting stranded administrative costs, could have a material and adverse impact on our business, financial condition, cash flows, financial position, or results of operations.
Our health plans operate with very low profit margins, and small changes in operating performance or slight changes to our accounting estimates will have a disproportionate impact on our reported net income.
A substantial portion of our premium revenue is subject to contract provisions pertaining to medical cost expenditure floors and corridors, administrative cost and profit ceilings, premium stabilization programs, and cost-plus and performance-based reimbursement programs. Many of these contract provisions are complex, or are poorly or ambiguously drafted, and thus are subject to differing interpretations by us and the relevant government agency with whom we contract. If the applicable government agency disagrees with our interpretation or implementation of a particular contract provision, we could be required to adjust the amount of our obligation under that provision. Any such adjustment could have a material adverse effect on our business, financial condition, cash flows, or results of operations.
In addition, many of our contracts contain provisions pertaining to at-risk premiums that require us to meet certain quality performance measures to earn all of our contract revenues. If we are unsuccessful in achieving the stated performance measure, we will be unable to recognize the revenue associated with that measure, which could have a material adverse effect on our business, financial condition, cash flows, or results of operations.
Our Medicaid premium revenues could be adversely impacted by retroactive adjustments or states’ delays in processing rate changes.
The complexity of some of our Medicaid contract provisions, imprecise language in those contracts, the desire of state Medicaid agencies in some circumstances to retroactively adjust for the acuity of the medical needs of our members, and state delays in processing rate changes, can create uncertainty around the amount of revenue we should recognize. Any circumstance such as those described above could have a material adverse effect on our business, financial condition, cash flows, or results of operations.
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If, in the interestsinterest of maintaining or improving longer termlong-term profitability, we decide to exit voluntarily certain state contractual arrangements, make changes to our provider networks, or make changes to our administrative infrastructure, we may incur short- to medium-term disruptions to our business that could in the short term materially reduce our premium revenues and our net income.
Decisions that we make with regard to retaining or exiting our portfolio of state andor federal contracts, and changes to the manner in which we serve the members attached toof those contracts, could generate substantial expenses associated with the run out of existing operations and the restructuring of those operations that remain. Such expenses could include, but would not be limited to, goodwill and intangible asset impairment charges, restructuring costs, additional medical costs incurred due to the inability to leverage long-term relationships with medical providers, and costs incurred to finish the run out of businesses that have ceased to generate revenue.
If we are unable to successfully executerevenue, all of which could materially reduce our profit maintenance and improvement initiatives and our restructuring plans, or if we fail to realize the anticipated benefits of those initiatives and plans, our business, cash flows, financial position, or results of operations could be materially and adversely affected.
In August 2017, we announced the implementation of a comprehensive restructuring and profitability improvement plan (the “2017 Restructuring Plan”). The 2017 Restructuring Plan included the streamlining of our organizational structure, including the elimination of over 2,000 positions, the re-design of certain core operating processes, the remediation of high cost provider contracts, the restructuring of our direct delivery operations, and the review of our vendor base in an attempt to insure that we were partnering with the lowest cost, most effective, vendors. Since the inception of the 2017 Restructuring Plan in August 2017 through December 31, 2018, we have reported restructuring and separation costs of $271 million under the 2017 Restructuring Plan.
In addition, in the second half of 2017, we launched several profit maintenance and improvement initiatives. We pursued additional profit maintenance and improvement initiatives throughout 2018, and have begun to implement a plan to outsource certain functions of our information technology department. As a part of that plan, on February 4, 2019, we entered into a master services agreement with Infosys Limited pursuant to which Infosys will manage certain of our information technology infrastructure services including, among other things, our information technology operations, end-user services, and data centers.
Our restructuring plan and profit improvement initiatives create numerous uncertainties, including the effect of the initiatives and plan on our business, operations,premium revenues and profitability, potential disruptions tonet income. For example, following our business as a result of management’s attention to the initiatives and plan, uncertainty regarding the potential amount and timing of future cost savings associated with the initiatives and plan or problems experienced as a result of the outsourcing ofexit from Puerto Rico in October 2020, significant accounts receivable under our information technology infrastructure services, and the potential negative impact of the initiatives and plan on employee morale. The success of the initiatives and plan will depend, in part, on factors that are beyond our control, including reliance on third parties as is the case with our agreement with Infosys. Accordingly,Puerto Rico Medicaid contract remained, which we can provide no assurance that the goals of the initiatives and plan will be fully achieved. Failure in this regard could have a material and adverse impact on our business, cash flows, financial position, or results of operations.ultimately may never recover.
A failure to accurately estimate incurred but not paid medical care costs may negatively impact our results of operations.
Because of the lag in time lag between when medical services are actually rendered by our providers and when we receive, process, and pay a claim for those medical services, we must continually estimate our medical claims liability at particular points in time and establish claims reserves related to such estimates. Our estimated reserves
for such incurred but not paid, (“IBNP”)or IBNP, medical care costs are based on numerous assumptions. We estimate our medical claims liabilities using actuarial methods based on historical data adjusted for claims receipt and payment experience (and variations in that experience), changes in membership, provider billing practices, health carehealthcare service utilization trends, cost trends, product mix, seasonality, prior authorization of medical services, benefit changes, known outbreaksincidence of disease, including COVID-19, or increased incidence of illness such as influenza,the flu, provider contract changes, changes to Medicaid fee schedules, and the incidence of high dollar or catastrophic claims. Our ability to accurately estimate claims for our newer lines of business or populations is negatively impacted by the more limited experience we have had with those newer lines of business or populations.
The IBNP estimation methods we use and the resulting reserves that we establish are reviewed and updated, and adjustments, if deemed necessary, are reflected in the current period. Given the numerous uncertainties inherent in such estimates, our actual claims liabilities for a particular quarter or other period could differ significantly from the amounts estimated and reserved for that quarter or period. Our actual claims liabilities have varied and will continue to vary from our estimates, particularly in times of significant changes in utilization, medical cost trends, and populations and markets served.
If our actual liability for claims payments is higher than previously estimated, our earnings in any particular quarter or annual period could be negatively affected. Our estimates of IBNP may be inadequate in the future, which would negatively affect our results of operations for the relevant time period. Furthermore, if we are unable to accurately estimate IBNP, our ability to take timely corrective actions may be limited, further exacerbating the extent of the negative impact on our results.
We are subject to retroactive adjustment to our Medicaid premium revenue as a result of retroactive risk adjustment; retroactive changes to contract terms and the resolution of differing interpretations of those terms; the difficulty of estimating performance-based premium; and retroactive adjustments to “blended” premium rates to reflect the actual mix of members captured in those blended rates.
The complexity of some of our Medicaid contract provisions, imprecise language in those contracts, the desire of state Medicaid agencies in some circumstances to retroactively adjust for the acuity of the medical needs of our members; and state delays in processing rate changes, can create uncertainty around the amount of revenue we should recognize.
A current example of exposure to this risk is in California. In the third and fourth quarters of 2018, we recognized adjustments of $57 million and $24 million, respectively, mainly related to the retroactive reinstatement of the Medicaid Expansion risk corridor requirement by the California Department of Health Care Services, mainly for the state fiscal years ended June 2017 and 2018. The risk corridor provision mandates a minimum loss ratio (“MLR”) of 85% and a maximum MLR of 95%. The total impact of these adjustments resulted in a reduction to premium revenue totaling approximately $81 million in the year ended December 31, 2018.
Any circumstance such as those described above could have a material adverse effect on our business, financial condition, cash flows, or results of operations.
If we fail to accurately predict and effectively manage our medical care costs, our operating results could be materially and adversely affected.
Our profitability depends to a significant degree on our ability to accurately predict and effectively manage our medical care costs. Historically, our medical care ratio, meaning our medical care costs as a percentage of our premium revenue, has fluctuated substantially, and has varied across our state health plans. Because the premium payments we receive are generally fixed in advance and we operate with a narrow profit margin, relatively small changes in our medical care ratio can create significant changes in our overall financial results. For example, if our overall medical care ratio of 85.9%,88.3% for the year ended December 31, 20182021, had been one percentage point higher, or 86.9%89.3%, our net income per diluted share for the year ended December 31, 20182021 would have been approximately $8.54$7.76 rather than our actual net income per diluted share of $10.61,$11.25, a difference of $2.07.$3.49.
Many factors may affect our medical care costs, including:
•the level of utilization of health care services,healthcare services;
•the impact of the COVID-19 pandemic;
•changes in the underlying risk acuity of our membership,membership;
•unexpected patterns in the annual flu season,season;
•increases in hospital costs,costs;
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•increased incidences or acuity of high dollar claims related to catastrophic illnesses or medical conditions for which we do not have adequate reinsurance coverage,coverage;
•increased maternity costs,costs;
payment rates that are not actuarially sound,
•changes in state eligibility certification methodologies,methodologies;
•relatively low levels of hospital and specialty provider competition in certain geographic areas,areas;
•increases in the cost of pharmaceutical products and services,services;
•changes in health carehealthcare regulations and practices,practices;
epidemics,•epidemics;
•new medical technologies,technologies; and
•other various external factors.
Many of these factors are beyond our control and could reduce our ability to accurately predict and effectively manage the costs of providing health care services.control. The inability to forecast and manage our medical care costs or to establish and maintain a satisfactory medical care ratio, either with respect to a particular state health plan or across the consolidated entity, could have a material adverse effect on our business, financial condition, cash flows, or results of operations.
If we are unable to collect health insurer fee (“HIF”) reimbursement for 2018 from our state partners, our business, cash flows, financial position, or results of operations could be materially and adversely affected.
Because Medicaid is a government funded program, Medicaid health plans must request reimbursement for the HIF from respective state partners to offset the impact of this tax. When states reimburse us for the amount of the HIF, that reimbursement is itself subject to income tax, the HIF, and applicable state premium taxes. Because the HIF is not deductible for income tax purposes, our net income is reduced by the full amount of the assessment. The 2018 HIF assessment, related to our Medicaid business, was $257 million, with an expected tax gross-up effect from the reimbursement of the assessment of approximately $72 million. Therefore, the total reimbursement needed as a result of the Medicaid-related HIF was approximately $329 million. As of December 31, 2018, we have collected $188 million of this total, with reimbursements receivable of $141 million. The delay or failure of our state partners to reimburse us in full for the 2018 HIF and its related tax effects could have a material adverse effect on our business, financial condition, cash flows, or results of operations.
An impairment charge with respect to our recorded goodwill, or our finite-lived intangible assets, could have a material impact on our financial results.
As of December 31, 2018, the carrying amounts of goodwill and intangible assets, net, amounted to $143 million, and $47 million, respectively.
Goodwill represents the excess of the purchase price over the fair value of net assets acquired in business combinations. Goodwill is not amortized but is tested for impairment on an annual basis and more frequently if impairment indicators are present. Such events or circumstances may include experienced or expected operating cash-flow deterioration or losses, significant losses of membership, loss of state funding, loss of state contracts, and other factors. Goodwill is impaired if the carrying amount of the reporting unit exceeds its estimated fair value. This excess is recorded as an impairment loss and adjusted if necessary for the impact of tax-deductible goodwill. The loss recognized may not exceed the total goodwill allocated to the reporting unit. Our reporting units consist of our individual health plans.
Finite-lived, separately-identified intangible assets acquired in business combinations are assets that represent future expected benefits but lack physical substance (such as purchased contract rights and provider contracts). Following the identification of any potential impairment indicators, to determine whether an impairment exists, we would compare the carrying amount of a finite-lived intangible asset with the greater of the undiscounted cash flows that are expected to result from the use of the asset or related group of assets, or its value under the asset liquidation method. If it is determined that the carrying amount of the asset is not recoverable, the amount by which the carrying value exceeds the estimated fair value is recorded as an impairment.
An event or events could occur that would cause us to revise our estimates and assumptions used in analyzing the value of our goodwill, and intangible assets, net. For example, if the responsive bid of one or more of our health plans is not successful, we will lose our Medicaid contract in the applicable state or states. If such state health plans have recorded goodwill and intangible assets, net, the contract loss would result in a non-cash impairment charge. Such a non-cash impairment charge could have a material adverse impact on our financial results.
We operate in an uncertain political and judicial environment which creates uncertainties with regard to the sources and amounts of our revenues, volatility with regard to the amount of our medical costs, and vulnerability to unforeseen programmatic or regulatory changes.
As a result of the election of President Trump, the GOP control of the Senate and the former GOP control of the House, several changes have been made to the provisions of the ACA, including reduced funding. Accordingly, the future of the ACA and its underlying programs are subject to continuing and substantial uncertainty, making long-
term business planning exceedingly difficult. In December 2018, in a case brought by the state of Texas and nineteen other states, a federal judge in Texas struck down the ACA based on his determination that the ACA’s individual mandate is unconstitutional and, since that mandate cannot be separated from the rest of the ACA, the judge ruled that the rest of the ACA is also unconstitutional. The decision has been appealed to the U.S. Court of Appeals for the Fifth Circuit. Any final, not-appealable determination that the ACA is unconstitutional would have a material adverse effect on our business, financial condition, cash flows and results of operations.
We are unable to predict with any degree of certainty whether the ACA will be modified or repealed in its entirety, and if it is repealed, what it will be replaced with; nor are we able to predict when any such changes, if enacted, would become effective.
Currently, there are a number of different legislative proposals being considered, some of which would involve significantly reduced federal spending on the Medicaid program, and constitute a fundamental change in the federal role in health care. These proposals include elements such as the following: ending the entitlement nature of Medicaid (and perhaps Medicare as well) by capping future increases in federal health spending for these programs, and shifting much more of the risk for health costs in the future to states and consumers; reversing the ACA’s expansion of Medicaid that enables states to cover low-income childless adults; changing Medicaid to a state block grant program, including potentially capping spending on a per-enrollee basis; requiring Medicaid beneficiaries to work; limiting the amount of lifetime benefits for Medicaid beneficiaries; prohibiting the federal government from operating Marketplaces; eliminating the advanced premium tax credits, and cost sharing reductions for low income individuals who purchase their health insurance through the Marketplaces; expanding and encouraging the use of private health savings accounts; providing for insurance plans that offer fewer and less extensive health insurance benefits than under the ACA’s essential health benefits package, including broader use of catastrophic coverage plans, or short-term health insurance (Short-Term Medical or STM plans); establishing and funding high risk pools or reinsurance programs for individuals with chronic or high cost conditions; allowing insurers to sell insurance across state lines; and numerous other potential changes and reforms. Changes to or the repeal of the ACA, or the adoption of new health care regulatory laws, could have a material adverse effect on our business, financial condition, cash flows, or results of operations.
A reversal of the Medicaid Expansion would have a negative impact on our revenues.
In the states that have elected to participate, the ACA provided for the expansion of the Medicaid program to offer eligibility to nearly all individuals under age 65 with incomes at or below 138% of the federal poverty line. Since January 1, 2014, several of our health plans have participated in the Medicaid Expansion program under the ACA. At December 31, 2018, our membership included approximately 660,000 Medicaid Expansion members, or 17% of our total membership. If the Medicaid Expansion is reversed by repeal of the ACA or otherwise, we could lose this membership, which could have a material adverse effect on our business, financial condition, cash flows, or results of operations.
Our participation in the Marketplace creates certain risks which could adversely impact our business, financial position, and results of operations.
The ACA authorized the creation of marketplace insurance exchanges (the “Marketplace”), allowing individuals and small groups to purchase federally subsidized health insurance. As of December 31, 2018, we participated in the individual Marketplace in seven states which represented approximately 9% of our total membership. For 2019, we are currently estimating that our Marketplace end-of-year membership will range from 250,000-275,000. This estimated membership is lower than the 362,000 enrollment as of December 31, 2018, despite our return to Utah and Wisconsin, and we expect our Marketplace revenues to decrease in 2019 as a result.
A number of larger commercial insurance plans, including Humana Inc., have discontinued their participation in the Marketplace. The perceived instability and impending changes in the Marketplace could further promote reduced participation among the uninsured. Further, the withdrawal of cost sharing subsidies and/or premium tax credits, the elimination of the individual mandate to purchase health insurance in December 2017, the use of special enrollment periods, or any announcement that some or all of our health plans will be leaving the Marketplace, could additionally impact Marketplace enrollment. These market and political dynamics may increase the risk that our Marketplace products will be selected by individuals who have a higher risk profile or utilization rate than we anticipated when we established the pricing for our Marketplace products, leading to financial losses.
The Medicare-Medicaid Duals Demonstration Pilot Programs could be discontinued or altered, resulting in a loss of premium revenue.
To coordinate care for those who qualify to receive both Medicare and Medicaid services (the “dual eligibles”), and to deliver services to these individuals in a more financially efficient manner, under the direction of CMS some
states implemented demonstration pilot programs to integrate Medicare and Medicaid services for the dual eligibles. The health plans participating in such demonstrations are referred to as Medicare-Medicaid Plans (“MMPs”). We operate MMPs in six states: California, Illinois, Michigan, Ohio, South Carolina, and Texas. At December 31, 2018, our membership included approximately 54,000 integrated MMP members, representing just over 1% of our total membership. However, the capitation payments paid to us for dual eligibles are significantly higher than the capitation payments for other members, representing 8% of our total premium revenues in 2018. If the states running the MMP pilot programs conclude that the demonstration pilot programs are not delivering better coordinated care and reduced costs, they could decide to discontinue or substantially alter such programs, resulting in a reduction to our premium revenues.
Continuing changes in health care laws, and in the health care industry, make it difficult to develop actuarially sound rates.
Comprehensive changes to the U.S. health care system make it more difficult for us to manage our business, and increase the likelihood that the assumptions we make with respect to our future operations and results will prove to be inaccurate. The continuing pace of change has made it difficult for us to develop actuarially sound rates because we have limited historical information on which to develop these rates. In the absence of significant historical information to develop actuarial rates, we must make certain assumptions. These assumptions may subsequently prove to be inaccurate. For example, rates of utilization could be significantly higher than we projected, or the assumptions of policymakers about the amount of savings that could be achieved through the use of utilization management in managed care could be flawed. Moreover, our lack of actuarial experience for a particular program, region, or population, could cause us to set our reserves at an inadequate level.
Our health plans operate with very low profit margins, and small changes in operating performance or slight changes to our accounting estimates will have a disproportionate impact on our reported net income.
A substantial portion of our premium revenue is subject to contract provisions pertaining to medical cost expenditure floors and corridors, administrative cost and profit ceilings, premium stabilization programs, and cost-plus and performance-based reimbursement programs. Many of these contract provisions are complex, or are poorly or ambiguously drafted, and thus are potentially subject to differing interpretations by ourselves and the relevant government agency with whom we contract. If the applicable government agency disagrees with our interpretation or implementation of a particular contract provisions at issue, we could be required to adjust the amount of our obligations under these provisions and/or make a payment or payments to such government agency. Any interpretation of these contract provisions by the applicable governmental agency that varies from our interpretation and implementation of the provision, or that is inconsistent with our revenue recognition accounting treatment, could have a material adverse effect on our business, financial condition, cash flows, or results of operations.
In addition, many of our contracts also contain provisions pertaining to at-risk premiums that require us to meet certain quality performance measures to earn all of our contract revenues. If we are unsuccessful in achieving the stated performance measure, we will be unable to recognize the revenue associated with that measure. Any failure of our health plans to satisfy one of these performance measure provisions could have a material adverse effect on our business, financial condition, cash flows, or results of operations.
If we are unable to deliver quality care, and maintain good relations with the physicians, hospitals, and other providers with whom we contract, or if we are unable to enter into cost-effective contracts with such providers, our profitability could be adversely affected.
We contract with physicians, hospitals, and other providers as a means to ensure access to health carehealthcare services for our members, to manage healthmedical care costs and utilization, and to better monitor the quality of care being delivered. We compete with other health plans to contract with these providers. We believe providers select plans in which they participate based on criteria including reimbursement rates, timeliness and accuracy of claims payment, potential to deliver new patient volume and/or retain existing patients, effectiveness of resolution of calls and complaints, and other factors. We cannotThere can be sureno assurance that we will be able to successfully attract and retain providers to maintain a competitive network in the geographic areas we serve. In addition, in any particular market, providers could refuse to contract with us, demand higher payments, or take other actions which could result in higher healthmedical care costs, disruption to provider access for current members, a decline in our growth rate, or difficulty in meeting regulatory or accreditation requirements.
The Medicaid program generally pays doctors and hospitals at levels well below those of Medicare and private insurance. Large numbers of doctors, therefore, do not accept Medicaid patients. In the face of fiscal pressures, some states may reduce rates paid to providers, which may further discourage participation in the Medicaid program.
In some markets, certain providers, particularly hospitals physician/hospital organizations, and some specialists, may have significant market positions or even monopolies. If these providers refuse to contract with us or utilize their market position to negotiate favorable contracts which are disadvantageous to us, our profitability in those areas could be adversely affected.
Some providers that render services to our members are not contracted with our health plans. In those cases, there is no pre-established understanding between the provider and our health plan about the amount of compensation that is due to the provider. In some states, the amount of compensation is defined by law or regulation, but in most instances it is either not defined or it is established by a standard that is not clearly translatable into dollar terms.dollars. In such instances, providers may believeclaim they are underpaid for their services and may either litigate or arbitrate their dispute with our health plan. The uncertainty of the amount to pay to such providers and the possibility of subsequent adjustment of the payment or litigation with the provider that results in an adverse decision could adversely affect our business, financial condition, cash flows, or results of operations.
The exorbitant cost of specialty drugs and new generic drugs could have a material adverse effect on the level of our medical costs and our results of operations.
Introduction of new high cost specialty drugs and sudden costs spikes for existing drugs increase the risk that the pharmacy cost assumptions used to develop our capitation rates are not adequate to cover the actual pharmacy costs, which jeopardizes the overall actuarial soundness of our rates. Bearing the high costs of new specialty drugs or the high cost inflation of generic drugs without an appropriate rate adjustment or other reimbursement mechanism has an adverse impact on our financial condition and results of operations. For example, the FDA approved the first drug to treat patients with spinal muscular atrophy, Spinraza, in December 2016. After this approval, the distributor of Spinraza announced that one dose will have a list price of $125,000, which means the drug will cost between $650,000 and $750,000 to cover the five or six doses required in the first year, and approximately $375,000 annually thereafter, presumably for the life of the patient. The inordinate cost of Spinraza was not contemplated in the development of our 2017 capitation rates. In addition, evolving regulations and state and federal mandates regarding coverage may impact the ability of our health plans to continue to receive existing price discounts on pharmaceutical products for our members. Other factors affecting our pharmaceutical costs include, but are not limited to, geographic variation in utilization of new and existing pharmaceuticals, and changes in discounts. Although we will continue to work with state Medicaid agencies in an effort to ensure that we receive appropriate and actuarially sound reimbursement for all new drug therapies and pharmaceuticals trends, there can be no assurance that we will always be successful.
We rely on the accuracy of eligibility lists provided by state governments. Inaccuracies in those lists would negatively affect our results of operations.
Premium payments to our health plans are based upon eligibility lists produced by state governments. From time to time, states require us to reimburse them for premiums paid to us based on an eligibility list that a state later discovers contains individuals who are not in fact eligible for a government sponsored program or are eligible for a different premium category or a different program. Alternatively, a state could fail to pay us for members for whom we are entitled to payment. Our results of operations would be adversely affected as a result of such reimbursement to the state if we make or have made related payments to providers and are unable to recoup such payments from the providers.
Further, when a state implements new programs to determine eligibility, establishes new processes to assign or enroll eligible members into health plans, or chooses new subcontractors, there is an increased potential for an unanticipated impact on the overall number of members assigned to managed care health plans. Whenever a state effects an eligibility redetermination for any reason, there is generally a an associated
Molina Healthcare, Inc. 2021 Form 10-K | 27
reduction in Medicaid membership, associated with that exercise which could have an adverse effect on our premium revenues and results of operations.
Our investment portfolio may suffer losses which could materially and adversely affect our results of operations or liquidity.
We maintain a significant investment portfolio of cash equivalents and short-term and long-term investments in a variety of securities, which are subject to general credit, liquidity, market and interest rate risks and will decline in value if interest rates increase or one of the issuers’ credit ratings is reduced. As a result, we may experience a reduction in value or loss of our investments, which may have a negative adverse effect on our results of operations, liquidity and financial condition.
The insolvency of a delegated provider could obligate us to pay its referral claims, which could have a material adverse effect on our business, membership,financial condition, cash flows, or results of operations.
Many of our primary care physicians and a small portion of our specialists and hospitals are paid on a capitated basis. Under capitation arrangements, we pay a fixed amount per member per month to the provider without regard to the frequency, extent, or nature of the medical services actually furnished. Due to insolvency or other circumstances, such providers may be unable or unwilling to pay claims they have incurred with third parties in connection with referral services provided to our members. The inability or unwillingness of delegated providers to pay referral claims presents us with both immediate financial risk and potential disruption to member care, as well as potential loss of members. Depending on states’ laws, we may be held liable for such unpaid referral claims even though the delegated provider has contractually assumed such risk. Additionally, competitive pressures or practical regulatory considerations may force us to pay such claims even when we have no legal obligation to do so; or we have already paid claims to a delegated provider and such payments cannot be recouped when the delegated provider becomes insolvent. Liabilities incurred or losses suffered as a result of provider insolvency could have a material adverse effect on our business, financial condition, cash flows, or results of operations.
State and federal budget deficits may result in Medicaid, CHIP, or Medicare funding cuts which could have a material adverse effect on our business, financial condition, cash flows, or results of operations.
Nearly all of our premium revenues come from the joint federal and state funding of the Medicaid, Medicare, and CHIP programs. The states in which we operate our health plans regularly face significant budgetary pressures. As discussed below, such budgetary pressures are particularly intense in the Commonwealth of Puerto Rico. State budgetary pressures may result in unexpected Medicaid, CHIP, or Medicare rate cuts which could reduce our revenues and profit margins. Moreover, some federal deficit reduction or entitlement reform proposals would fundamentally change the structure and financing of the Medicaid program. A number of these proposals include both tax increases and spending reductions in discretionary programs and mandatory programs, such as Social Security, Medicare, and Medicaid.
We are unable to determine how any future congressional spending cuts will affect Medicare and Medicaid reimbursement. We believe there will continue to be legislative and regulatory proposals at the federal and state levels directed at containing or lowering the cost of health care that, if adopted,other circumstances could have a material adverse effect on our business, financial condition, cash flows, or results of operations.
Receipt of inadequate or significantly delayed premiums could negatively affect our business, financial condition, cash flows, or results of operations.
Our premium revenues consist of fixed monthly payments per member, and supplemental payments for other services such as maternity deliveries. These premiums are fixed by contract, and we are obligated during the contract periods to provide health carehealthcare services as established by the state governments. We use a large portion of our revenues to pay the costs of health carehealthcare services delivered to our members. If premiums do not increase when expenses related to medicalhealthcare services rise, our medical margins will be compressed, and our earnings will be negatively affected. A state could increase hospital or other provider rates without making a commensurate increase in the rates paid to us, or could lower our rates without making a commensurate reduction in the rates paid to hospitals or other providers.providers, or could delay the processing of rate changes. In addition, if the actuarial assumptions made by a state in implementing a rate or benefit change are incorrect or are at variance with the particular utilization patterns of the members of one or more of our health plans, our medical margins could be reduced. Any of these rate adjustments in one or more of the states in which we operate could have a material adverse effect on our business, financial condition, cash flows, or results of operations.
Furthermore, a state or commonwealth undergoing a budget crisis may significantly delay the premiums paid to one of our health plans. Any significant delay in the monthly payment of premiums to any of our health plans could have a material adverse effect on our business, financial condition, cash flows, or results of operations.
If a state fails to renew its federal waiver application for mandated Medicaid enrollment into managed care or such application is denied, our membership in that state will likely decrease.
States may only mandate Medicaid enrollment into managed care under federal waivers or demonstrations. Waivers and programs under demonstrations are approved for two- to five-year periods and can be renewed on an ongoing basis if the state applies and the waiver request is approved or renewed by CMS. We have no control over this renewal process. If a state in which we operate a health plan does not renew its mandated program or the federal government denies the state’s application for renewal, our business would suffer as a result of a likely decrease in membership.
The Commonwealth of Puerto Rico may fail to pay the premiums of our Puerto Rico health plan, which could negatively impact our business, financial condition, cash flows, or results of operations.
The government of Puerto Rico continues to struggle with major fiscal and liquidity challenges. The extreme financial difficulties faced by the Commonwealth may make it very difficult for ASES, the Puerto Rico Medicaid agency, to pay our Puerto Rico health plan under the terms of the parties’ Medicaid contract. As of December 31, 2018, our Puerto Rico health plan served approximately 252,000 members, and had recognized premium revenue of approximately $147 million in the fourth quarter of 2018. A default by ASES on its payment obligations under our Medicaid contract, or a determination by ASES to terminate our contract based on insufficient funds available, could result in our having paid, or in our having to pay, provider claims in amounts for which we are not paid reimbursement, and could make it unfeasible for the Puerto Rico health plan to continue to operate. A default by ASES or termination of our Puerto Rico Medicaid contract could have a material adverse effect on our business, financial condition, cash flows, or results of operations.
Large-scale medical emergencies in one or more states in which we operate our health plans could significantly increase utilization rates and medical costs.
Large-scale medical emergencies can take many forms and be associated with widespread illness or medical conditions. For example, natural disasters, such as a major earthquake or wildfire in California, or a major hurricane affecting Florida, Puerto Rico, South Carolina or Texas, could have a significant impact on the health of a large number of our covered members. Other conditions that could impact our members include a virulent influenza season or epidemic, or newly emergent mosquito-borne illnesses, such as the Zika virus, the West Nile virus, or the Chikungunya virus, conditions for which vaccines may not exist, are not effective, or have not been widely administered.
In addition, federal and state law enforcement officials have issued warnings about potential terrorist activity involving biological or other weapons of mass destruction. All of these conditions, and others, could have a significant impact on the health of the population of wide-spread areas. We seek to set our IBNP reserves appropriately to account for anticipatable spikes in utilization, such as for the flu season. However, if one of our health plan states were to experience a large-scale natural disaster, a viral epidemic or pandemic, a significant terrorism attack, or some other large-scale event affecting the health of a large number of our members, our covered medical expenses in that state would rise, which could have a material adverse effect on our business, cash flows, financial condition, or results of operations.
If state regulators do not approve payments of dividends and distributions by our subsidiaries, it may negatively affect our business strategy.
We are a corporate parent holding company and hold most of our assets in, and conduct most of our operations through, our direct subsidiaries. As a holding company, our results of operations depend on the results of operations of our subsidiaries. Moreover, we are dependent on dividends or other intercompany transfers of funds from our subsidiaries to meet our debt service and other obligations. The ability of our subsidiaries to pay dividends or make other payments or advances to us will depend on their operating results and will be subject to applicable laws and restrictions contained in agreements governing the debt of such subsidiaries. In addition, our health plan subsidiaries are subject to laws and regulations that limit the amount of ordinary dividends and distributions that they can pay to us without prior approval of, or notification to, state regulators. In California, our health plan may dividend, without notice to or approval of the California Department of Managed Health Care, amounts by which its tangible net equity exceeds 130% of the tangible net equity requirement. In general, our other health plans must give thirty days’ advance notice and the opportunity to disapprove “extraordinary” dividends to the respective state departments of insurance for amounts over the lesser of (a) ten percent of surplus or net worth at the prior year end or (b) the net income for the prior year. The discretion of the state regulators, if any, in approving or disapproving a dividend is not clearly defined. Health plans that declare ordinary dividends must usually provide notice to the regulators ten or fifteen days in advance of the intended distribution date of the ordinary dividend. We received $288 million, $245 million, and $100 million in dividends from our regulated health plan subsidiaries during 2018, 2017 and 2016, respectively. The aggregate additional amounts our health plan subsidiaries could have paid us at December 31, 2018 and 2017, without approval of the regulatory authorities, were approximately $126 million and $85 million, respectively. If the regulators were to deny or significantly restrict our subsidiaries’ requests to pay dividends to us, the funds available to our Company as a whole would be limited, which could harm our ability to implement our business strategy. For example, we could be hindered in our ability to make debt service payments under our senior notes or credit agreement (“Credit Agreement”).
Our use and disclosure of personally identifiable information and other non-public information, including protected health information, is subject to federal and state privacy and security regulations, and our
failure to comply with those regulations or to adequately secure the information we hold could result in significant liability or reputational harm.
State and federal laws and regulations including, but not limited to, HIPAA and the Gramm-Leach-Bliley Act, govern the collection, dissemination, use, privacy, confidentiality, security, availability, and integrity of personally identifiable information (“PII”), including protected health information (“PHI”). HIPAA establishes basic national privacy and security standards for protection of PHI by covered entities and business associates, including health plans such as ours. HIPAA requires covered entities like us to develop and maintain policies and procedures for PHI that is used or disclosed, and to adopt administrative, physical, and technical safeguards to protect PHI. HIPAA also implemented the use of standard transaction code sets and standard identifiers that covered entities must use when submitting or receiving certain electronic health care transactions, including activities associated with the billing and collection of health care claims.
Mandatory penalties for HIPAA violations range from $100 to $50,000 per violation, and up to $1.5 million per violation of the same standard per calendar year. A single breach incident can result in violations of multiple standards, resulting in possible penalties potentially in excess of $1.5 million. If a person knowingly or intentionally obtains or discloses PHI in violation of HIPAA requirements, criminal penalties may also be imposed. HIPAA authorizes state attorneys general to file suit under HIPAA on behalf of state residents. Courts can award damages, costs, and attorneys’ fees related to violations of HIPAA in such cases. While HIPAA does not create a private right of action allowing individuals to sue us in civil court for HIPAA violations, its standards have been used as the basis for a duty of care in state civil suits such as those for negligence or recklessness in the misuse or breach of PHI. We have experienced HIPAA breaches in the past, including breaches affecting over 500 individuals.
New health information standards, whether implemented pursuant to HIPAA, congressional action, or otherwise, could have a significant effect on the manner in which we must handle health care related data, and the cost of complying with standards could be significant. If we do not comply with existing or new laws and regulations related to PHI, PII, or non-public information, we could be subject to criminal or civil sanctions. Any security breach involving the misappropriation, loss, or other unauthorized disclosure or use of confidential member information, whether by us or a third party, such as our vendors, could subject us to civil and criminal penalties, divert management’s time and energy, and have a material adverse effect on our business, financial condition, cash flows, or results of operations.
We are subject to extensive fraud and abuse laws that may give rise to lawsuits and claims against us, the outcome of which may have a material adverse effect on our business, financial condition, cash flows, or results of operations.
Because we receive payments from federal and state governmental agencies, we are subject to various laws commonly referred to as “fraud and abuse” laws, including federal and state anti-kickback statutes, prohibited referrals, and the federal False Claims Act, which permit agencies and enforcement authorities to institute a suit against us for violations and, in some cases, to seek treble damages, criminal and civil fines, penalties, and assessments. Violations of these laws can also result in exclusion, debarment, temporary or permanent suspension from participation in government health care programs, or the institution of corporate integrity agreements. Liability under such federal and state statutes and regulations may arise if we know, or it is found that we should have known, that information we provide to form the basis for a claim for government payment is false or fraudulent, and some courts have permitted False Claims Act suits to proceed if the claimant was out of compliance with program requirements. Fraud, waste and abuse prohibitions encompass a wide range of operating activities, including kickbacks or other inducements for referral of members or for the coverage of products (such as prescription drugs) by a plan, billing for unnecessary medical services by a provider, upcoding, payments made to excluded providers, improper marketing, and the violation of patient privacy rights. In particular, there has recently been increased scrutiny by the Department of Justice on health plans’ risk adjustment practices, particularly in the Medicare program. Companies involved in public health care programs such as Medicaid and Medicare are required to maintain compliance programs to detect and deter fraud, waste and abuse, and are often the subject of fraud, waste and abuse investigations and audits. The regulations and contractual requirements applicable to participants in these public-sector programs are complex and subject to change. The federal government has taken the position that claims presented in violation of the federal anti-kickback statute may be considered a violation of the federal False Claims Act. In addition, under the federal civil monetary penalty statute, the U.S. Department of Health and Human Services (“HHS”), Office of Inspector General has the authority to impose civil penalties against any person who, among other things, knowingly presents, or causes to be presented, certain false or otherwise improper claims. Qui tam actions under federal and state law can be brought by any individual on behalf of the government. Qui tam actions have increased significantly in recent years, causing greater numbers of health care companies to have to defend a false claim action, pay fines, or be excluded from the Medicare, Medicaid, or other state or federal
health care programs as a result of an investigation arising out of such action. We have been the subject of qui tam actions in the past and other qui tam actions may be filed against us in the future. If we are subject to liability under a qui tam or otheractions, our business, financial condition, cash flows, or results of operations could be adversely affected.
Failure to attain profitability in any newly acquired health plans or new start-up operations could negatively affect our results of operations.
Start-up costs associated with a new business can be substantial. For example, to obtain a certificate of authority to operate as a health maintenance organization in most jurisdictions, we must first establish a provider network, have infrastructure and required systems in place, and demonstrate our ability to obtain a state contract and process claims. Often, we are also required to contribute significant capital to fund mandated net worth requirements, performance bonds or escrows, or contingency guaranties. If we are unsuccessful in obtaining the certificate of authority, winning the bid to provide services, or attracting members in sufficient numbers to cover our costs, the new business wouldcould fail. We also could be required by the state or commonwealth to continue to provide services for some period of time without sufficient revenue to cover our ongoing costs or to recover our start-up costs.
Even if we are successful in establishing a profitable health plan in a new jurisdiction, increasing membership, revenues, and medical costs will trigger increased mandated net worth requirements which could substantially exceed the net income generated by the health plan. Rapid growth in an existing jurisdiction will also result in increased net worth requirements. In such circumstances, we may not be able to fund on a timely basis, or at all, the increased net worth requirements with our available cash resources. The expenses associated with starting up a health plan in a new jurisdiction, or expanding a health plan in an existing jurisdiction, or acquiring a new health plan, could have a material adverse effect on our business, financial condition, cash flows, or results of operations.
Failure to maintain effective internal controls over financial reporting could have a material adverse effectMolina Healthcare, Inc. 2021 Form 10-K | 28
Our business depends on our business, operating results, stock price,information and result inmedical management systems, and our inability to maintain compliance with applicable stock exchange listing requirements.effectively integrate, manage, update, and keep secure our information and medical management systems could disrupt our operations.
A material weaknessOur business is dependent on effective and secure information systems that assist us in processing provider claims, monitoring utilization and other cost factors, supporting our medical management techniques, providing data to our regulators, and implementing our data security measures. Our members and providers also depend upon our information systems for enrollment, premium processing, primary care and specialist physician roster access, membership verifications, claims status, provider payments, and other information. If we experience a deficiency,reduction in the performance, reliability, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.
The Sarbanes-Oxley Act of 2002 requires, among other things, that we maintain effective internal control over financial reporting. In particular, we must perform system and process evaluation and testingavailability of our internal controls over financial reporting to allowinformation and medical management to report on, andsystems, our independent registered public accounting firm to attest to, our internal controls over financial reporting as required by Section 404 of the Sarbanes-Oxley Act of 2002. Our future testing, or the subsequent testing by our independent registered public accounting firm, may reveal deficiencies in our internal controls over financial reporting that are deemed to be material weaknesses.
We have identified material weaknesses in our internal control over financial reporting in the past, which have subsequently been remediated. If additional material weaknesses in our internal control over financial reporting are discovered or occur in the future, our consolidated financial statements may contain material misstatements and we could be required to restate our financial results.
Our compliance with Section 404 will continue to require that we incur substantial accounting expense and expend significant management time and effort. Moreover, if we are unable to comply with the requirements of Section 404 in a timely manner, or if we or our independent registered public accounting firm identify deficiencies in our internal control over financial reporting that are deemed to be material weaknesses, the market price of our stock could decline and we could be subject to sanctions or investigations by the New York Stock Exchange, SEC, or other regulatory authorities which would require additional financial and management resources.
This Form 10-K reflects management's conclusion regarding the effectiveness of our disclosure controls and procedures and internal control over financial reporting as of December 31, 2018. See Item 9A, “Controls and Procedures–Management’s Evaluation of Disclosure Controls and Procedures and Management’s Report on Internal Control Over Financial Reporting.”
We are dependent on the leadership of our chief executive officer and other executive officers and key employees.
In late 2017, the board hired Joe Zubretsky as our chief executive officer. Mr. Zubretsky, in turn, has hired other senior level executives. Under the leadership and direction of Mr. Zubretsky, our executive team has launched a vigorous turnaround plan, including many profit improvement initiatives. Our turnaround plan and operational improvements are highly dependent on the efforts of Mr. Zubretsky and our other key executive officers and
employees. The loss of their leadership, expertise, and experience could negatively impact our operations. Ouroperations, ability to replace them or any other key employee may be difficultpay claims, ability to produce timely and may take an extended period of time because of the limited number of individuals in the health care industry who have the breadthaccurate reports, and depth of skills and experience necessaryability to operate and lead a business such as ours. Competition to hire from this limited pool is intense, and we may be unable to hire, train, retain, or motivate these personnel. If we are unsuccessful in recruiting, retaining, managing, and motivating such personnel, our business, financial condition, cash flows, or results of operations maymaintain proper security measures could be adversely affected.
We face various risks inherent in the government contracting process that could materially and adversely affect our business and profitability, including periodic routine and non-routine reviews, audits, and investigations by government agencies.
We are subjecthave partnered with third parties to various risks inherent in the government contracting process. These risks include routine and non-routine governmental reviews, audits, and investigations, and compliance with government reporting requirements. Violation of the laws, regulations, or contract provisions governing our operations, or changes in interpretations of those laws and regulations, could result in the imposition of civil or criminal penalties, the cancellation of our government contracts, the suspension or revocation of our licenses, the exclusion from participation in government sponsored health programs, or the revision and recoupment of past payments made based on audit findings. If we are unable to correct any noted deficiencies, or become subject to material fines or other sanctions, we could suffer a substantial reduction in profitability, and could also lose one or more of our government contracts. In addition, government receivables are subject to government audit and negotiation, and government contracts are vulnerable to disagreements with the government. The final amounts we ultimately receive under government contracts may be different from the amounts we initially recognize in our financial statements.
If we sustain a cyber-attack or suffer privacy or data security breaches that disrupt our information systems or operations, or result in the dissemination of sensitive personal or confidential information, we could suffer increased costs, exposure to significant liability, reputational harm, loss of business, and other serious negative consequences.
As part of our normal operations, we routinely collect, process, store, and transmit large amounts of data, including sensitive personal information as well as proprietary or confidential information relating to our business or third parties. To ensure information security, we have implemented controls to protect the confidentiality, integrity and availability of this data and the systems that store and transmit such data. However,support our information technology systems and safety control systems are subjectsystems. This makes our operations vulnerable to a growing number of threats from computer programmers, hackers, and other adversaries that may be able to penetrate our network security and misappropriate our confidential information or that ofadverse effects if such third parties create system disruptions, or cause damage, security issues, or shutdowns. They also may be ablefail to develop and deploy viruses, worms, and other malicious software programs that attack our systems or otherwise exploit security vulnerabilities. Because the techniques used to circumvent, gain access to, or sabotage security systems can be highly sophisticated and change frequently, they often are not recognized until launched against a target, and may originate from less regulated and remote areas around the world. We may be unable to anticipate these techniques or implement adequate preventive measures, resulting in potential data loss and damage to our systems. Our systems are also subject to compromise from internal threats such as improper action by employees including malicious insiders, vendors, counterparties, and other third parties with otherwise legitimate access to our systems. Our policies, employee training (including phishing prevention training), procedures and technical safeguards may not prevent all improper access to our network or proprietary or confidential information by employees, vendors, counterparties, or other third parties. Our facilities may also be vulnerable to security incidents or security attacks, acts of vandalism or theft, misplaced or lost data, human errors, or other similar events that could negatively affect our systems and our and our members’ data.
Moreover, we face the ongoing challenge of managing access controls in a complex environment. The process of enhancing our protective measures can itself create a risk of systems disruptions and security issues. Given the breadth of our operations and increasing sophistication of cyberattacks, a particular incident could occur and persist for an extended period of time before being detected. The extent of a particular cyberattack and the steps that we may need to take to investigate the attack may take a significant amount of time before such an investigation could be completed and full and reliable information about the incident is known. During such time, the extent of any harm or how best to remediate it might not be known, which could further increase the risks, costs, and consequences of a data security incident. In addition, our systems must be routinely updated, patched, and upgraded to protect against known vulnerabilities. The volume of new software vulnerabilities has increased substantially, as has the importance of patches and other remedial measures. In addition to remediating newly identified vulnerabilities, previously identified vulnerabilities must also be updated. We are at risk that cyber attackers exploit these known
vulnerabilities before they have been addressed. The complexity of our systems and platforms that we operate, the increased frequency at which vendors are issuing security patches to their products, our need to test patches, and in some instances, coordinate with third-parties before they can be deployed, all could further increase our risks. The increased use of mobile devices and other technologies can heighten these and other risks.
Furthermore, certain aspects of the security of various technologies are unpredictable or beyond our control.perform adequately. For example, onin February 4, 2019, we entered into a master services agreement with Infosys Limited pursuant to which Infosys will managea third party vendor who manages certain of our information technology infrastructure services including, among other things, our information technology operations, end-user services, and data centers. The securityIf any licensor or vendor of these services will depend in part on Infosys’s abilityany technology which is integral to performour operations were to become insolvent or otherwise fail to support the contracted functions and services, including with respecttechnology sufficiently, our operations could be negatively affected. Additionally, our operations are vulnerable to data security, in a timely, satisfactory, and compliant manner. The Infosys transaction will require us to devote significant resources to transition from our existing systems infrastructure, andadverse effects if wesuch third parties are unable to successfully execute and manage this transition, any movementperform due to forces outside of data during the transition may enhance the information management and data security risks we currently face.
The cost to eliminatetheir control, such as a natural disaster or address the foregoing security threats and vulnerabilities before or after a cyber-incident could be significant. We may need to expend significant additional resourcesserious weather event. For example, in 2021, our third party call center, located in the future to continue to protect against potential security breaches or to address problems caused by such attacks or any breachprovince of our systems. Our remediation efforts may not be successful and could resultCebu in interruptions, delays, or cessation of service, and loss of members, vendors, and state contracts. Further, our remediation efforts may be delayed or complicatedthe Philippines, suffered significant disruptions as a result of our desire to cooperate with law enforcement agencies. In addition, breaches of our security measures and the unauthorized dissemination of sensitive personal information or proprietary information or confidential information about our members could expose our members to the risk of financial or medical identity theft, or expose us or other third parties to a risk of loss or misuse of this information, result in litigation and potential liability for us (including but not limited to material fines, damages, consent orders, penalties and/or remediation costs, mandatory disclosure to the media and regulators, or enforcement proceedings), damage our reputation, or otherwise have a material adverse effect on our business, financial condition, cash flows, or results of operations.
Any changes to the laws and regulations governing our business, or the interpretation and enforcement of those laws or regulations, could require us to modify our operations and could negatively impact our operating results.
Our business is extensively regulateddestruction caused by the federal government and the states in which we operate. The laws and regulations governing our operations are generally intended to benefit and protect health plan members and providers rather than managed care organizations. The government agencies administering these laws and regulations have broad latitude in interpreting and applying them. These laws and regulations, along with the terms of our government contracts, regulate how we do business, what services we offer, and how we interact with members and the public. For instance, some states mandate minimum medical expense levels as a percentage of premium revenues. These laws and regulations, and their interpretations, are subject to frequent change. The interpretation of certain contract provisions by our governmental regulators may also change. Changes in existing laws or regulations, or their interpretations, or the enactment of new laws or regulations, could reduce our profitability by imposing additional capital requirements, increasing our liability, increasing our administrative and other costs, increasing mandated benefits, forcing us to restructure our relationships with providers, requiring us to implement additional or different programs and systems, or making it more difficult to predict future results. Changes in the interpretation of our contracts could also reduce our profitability if we have detrimentally relied on a prior interpretation.
Potential divestitures of businesses or product lines may materially adversely affect our business, financial condition, cash flows, or results of operations.
As a part of our business strategy, we continually review our products and business lines across all geographies to identify opportunities for performance improvement. Depending on the particular circumstances, we may determine that a divestiture of one or more businesses or product lines would be the best means to further our plan to improve and sustain profitability and enhance our focus on the execution of our business plan. For example, in late 2018 we sold two of our former wholly owned subsidiaries: Molina Information Systems, LLC d/b/a Molina Medicaid Solutions, and Pathways Health and Community Support LLC.
Divestitures involve risks, including: difficulties in the separation of operations, services, products and personnel; the diversion of management's attention from other business concerns; the disruption of our business; the potential loss of key employees; the retention of uncertain contingent liabilities related to the divested business or product line; and the failure of our efforts to divest any such business or product line on the terms and time frames desired by management, or at all. Furthermore, we may be unsuccessful in finding a replacement for any lost revenue or
income previously derived from the divested business or product line. In addition, divestitures may result in significant impairment charges, including those related to goodwill and other intangible assets, all of which could have a material adverse effect on our business, financial condition, cash flows, or results of operations.Super Typhoon Rai.
Our encounter data may be inaccurate or incomplete, which could have a material adverse effect on our results of operations, financial condition, cash flows and ability to bid for, and continue to participate in, certain programs.
Our contracts require the submission of complete and correct encounter data. The accurate and timely reporting of encounter data is increasingly important to the success of our programs because more states are using encounter data to determine compliance with performance standards and to set premium rates. We have expended and may continue to expend additional effort and incur significant additional costs to collect or correct inaccurate or incomplete encounter data and have been, and continue to be, exposed to operating sanctions and financial fines and penalties for noncompliance. In some instances, our government clients have established retroactive requirements for the encounter data we must submit. There also may be periods of time in which we are unable to meet existing requirements. In either case, it may be prohibitively expensive or impossible for us to collect or reconstruct this historical data.
We have experienced challenges in obtaining complete and accurate encounter data, due to difficulties with providers and third-party vendors submitting claims in a timely fashion in the proper format, and with state agencies in coordinating such submissions. As states increase their reliance on encounter data, these difficulties could adversely affect the premium rates we receive and how membership is assigned to us and subject us to financial penalties, which could have a material adverse effect on our results of operations,business, financial condition, cash flows, or results of operations, and on our ability to bid for, and continue to participate in, certain programs.
Our business dependsAn impairment charge with respect to our recorded goodwill, or our finite-lived intangible assets, could have a material impact on our informationfinancial results.
As of December 31, 2021, the carrying amount of goodwill was $982 million, and medical management systems,intangible assets, net, were $270 million.
Goodwill represents the excess of the purchase consideration over the fair value of net assets acquired in business combinations. Goodwill is not amortized but is tested for impairment on an annual basis and more frequently if impairment indicators are present. Impairment indicators may include experienced or expected operating cash-flow deterioration or losses, significant losses of membership, loss of state funding, loss of state contracts, and other factors. Goodwill is impaired if the carrying amount of the reporting unit exceeds its estimated fair value. This excess is recorded as an impairment loss and adjusted if necessary for the impact of tax-deductible goodwill. The loss recognized may not exceed the total goodwill allocated to the reporting unit.
An event could occur that would cause us to revise our estimates and assumptions used in analyzing the value of our goodwill, and intangible assets, net. For example, if the responsive bid of one or more of our health plans is not successful, we will lose a contract in the applicable state or states and may be an indicator of impairment. If an event or events occur that would cause us to revise our estimates and assumptions used in analyzing the value of our goodwill and other intangible assets, such revision could result in a non-cash impairment charge that could have a material impact on our results of operations in the period in which the impairment occurs.
Molina Healthcare, Inc. 2021 Form 10-K | 29
GENERAL RISK FACTORS
We are dependent on the leadership of our chief executive officer and other executive officers and key employees.
The success of our business and the ability to execute our strategy are highly dependent on the efforts of Mr. Zubretsky, our chief executive officer, and our inabilityother key executive officers and employees. The loss of their leadership, expertise, and experience could negatively impact our operations. Our ability to effectively integrate, manage, update,replace them or any other key employee may be difficult and keep secure our informationmay take an extended period of time because of the limited number of individuals in the healthcare industry who have the breadth and medical management systems could disrupt our operations.
Ourdepth of skills and experience necessary to operate and lead a business such as ours. Competition to hire from this limited pool is dependent on effectiveintense, and secure information systems that assist us in, among other things, processing provider claims, monitoring utilization and other cost factors, supporting our medical management techniques, and providing datawe may be unable to our regulators. Our members and providers also depend upon our information systems for enrollment, primary care and specialist physician roster access, membership verifications, claims status, and other information.hire, train, retain, or motivate these personnel. If we experience a reductionare unsuccessful in the performance, reliability,recruiting, retaining, managing, and motivating such personnel, our business, financial condition, cash flows, or availabilityresults of our information and medical management systems, our operations ability to pay claims, and ability to produce timely and accurate reports could be adversely affected.
We have partnered with third parties to support our information technology systems. This makes our operations vulnerable to adverse effects if such third parties fail to perform adequately. For example, on February 4, 2019, we entered into a master services agreement with Infosys Limited pursuant to which Infosys will manage certain of our information technology infrastructure services including, among other things, our information technology operations, end-user services, and data centers. If Infosys or any licensor or vendor of any technology which is integral to our operations were to become insolvent or otherwise fail to support the technology sufficiently, our operations could be negatively affected.
Our information systems and applications require continual maintenance, upgrading, and enhancement to meet our operational needs. On an ongoing basis, we evaluate the ability of our existing operations to support our current and future business needs and to maintain our compliance requirements. As a result, we periodically consolidate, integrate, upgrade and expand our information systems capabilities as a result of technology initiatives, industry trends and recently enacted regulations, and changes in our system platforms. Our information systems require an ongoing commitment of significant resources to maintain, protect and enhance existing systems and develop new systems to keep pace with continuing changes in information processing technology, evolving systems and regulatory standards and changing customer preferences. Any inability or failure by us or our vendors to properly maintain information management systems; any failure to efficiently and effectively consolidate our information systems, including to renew technology, maintain technology currency, keep pace with evolving industry standards or eliminate redundant or obsolete applications; or any inability or failure to successfully update or expand processing capability or develop new capabilities to meet our business needs, could result in operational disruptions, loss of existing members, providers, and customers, difficulty in attracting new members, providers, and customers, disputes with members, providers, and customers, regulatory or other legal or compliance problems, and significant increases in administrative expenses and/or other adverse consequences. If for any reason there is a business continuity interruption resulting in loss of access to or availability of data, we may, among other things,
not be able to meet the full demands of our customers and, in turn, our business, results of operations, financial condition and cash flow could be adversely impacted.
Moreover, business acquisitions require transitions to or from, and the integration of, various information systems. If we experience difficulties with the transition to or from information systems or are unable to properly implement, maintain, upgrade or expand our systems, we could suffer from, among other things, operational disruptions, loss of members, difficulty in attracting new members, regulatory problems, and increases in administrative expenses.
Because our corporate headquarters are located in Southern California, our business operations may be significantly disrupted as a result of a major earthquake or wildfire.
Our corporate headquarters is located in Long Beach, California. In addition, some of our health plans’ claims are processed in Long Beach. Southern California is exposed to a statistically greater risk of a major earthquake and wildfires than most other parts of the United States. If a major earthquake or wildfire were to strike the Los Angeles area, our corporate functions and claims processing could be significantly impaired for a substantial period of time. If there is a major Southern California earthquake or wildfire, there can be no assurances that our disaster recovery plan will be successful or that the business operations of our health plans, including those that are remote from any such event, would not be substantially impacted.
We face claims related to litigation which could result in substantial monetary damages.
We are subject to a variety of legal actions, including provider disputes,claims, employment related disputes, health carehealthcare regulatory law-based litigation and enforcement actions, breach of contract actions, qui tam or False Claims Act actions, and securities class actions. If we incur liability materially in excess of the amount for which we have insurance coverage, our profitability would suffer. Even if any claims brought against us are unsuccessful or without merit, we may have to defend ourselves against such claims. The defense of any such actions may be time-consuming and costly, and may distract our management’s attention.
Furthermore, claimants often sue managed care organizations for improper denials of or delays in care, and in some instances improper authorizations of care. Claims of this nature could result in substantial damage awards against us and our providers that could exceed the limits of any applicable insurance coverage. Successful claims asserted against us, our providers, or our employees could adversely affect our business, financial condition, cash flows, or results of operations.
We cannot predict the outcome of any lawsuit. Some of the liabilities related to litigation that we may incur may not be covered by insurance, the insurers could dispute coverage, or the amount of insurance could be insufficient to cover the damages awarded. In addition, insurance coverage for all or certain types of liability may become unavailable or prohibitively expensive in the future or the deductible on any such insurance coverage could be set at a level which would result in us effectively self-insuring cases against us. The litigation to which we are subject Such legal actions could have a material adverse effect on our business, financial condition, results of operations, andor cash flows.
WeBecause our corporate headquarters are subject to competition which negatively impactslocated in Southern California, our ability to increase penetration in the markets we serve.
We operate in a highly competitive environment and in an industry that is subject to ongoing changes from business consolidations, new strategic alliances, and aggressive marketing practices by other managed care organizations and service providers. Our health plans compete for members principally on the basis of size, location, and quality of provider network; benefits supplied; quality of service; and reputation. A number of these competitive elements are partially dependent upon and can be positively affected by the financial resources available to us. Many other organizations with which we compete, including large commercial plans and other service providers, have substantially greater financial and other resources than we do. For these reasons, weoperations may be unable to grow our business, or may lose business to third parties.
We are subject to risks associated with outsourcing services and functions to third parties.
We contract with third party vendors and service providers who provide services to us and our subsidiaries or to whom we delegate selected functions. Some of these third-parties also have direct access to our systems. For example, on February 4, 2019, we entered into a master services agreement with Infosys Limited pursuant to which Infosys will manage certain of our information technology infrastructure services including, among other things, our information technology operations, end-user services, and data centers. Our arrangements with third party vendors and service providers such as Infosys may make our operations vulnerable if those third parties fail to satisfy their obligations to us, including their obligations to maintain and protect the security and confidentiality of our information and data or the information and data relating to our members or customers. We are also at risk of a data security incident involving a vendor or third party, which could result in a breakdown of such third party’s data protection
processes or cyber-attackers gaining access to our infrastructure through the third party. To the extent that a vendor or third party suffers a data security incident that compromises its operations, we could incur significant costs and possible service interruption, which could have an adverse effect on our business and operations. In addition, we may have disagreements with third party vendors and service providers regarding relative responsibilities for any such failures or incidents under applicable business associate agreements or other applicable outsourcing agreements. Any contractual remedies and/or indemnification obligations we may have for vendor or service provider failures or incidents may not be adequate to fully compensate us for any losses sufferedsignificantly disrupted as a result of a major earthquake or wildfire.
Our corporate headquarters are located in Long Beach, California. In addition, some of our health plans’ claims are processed in Long Beach, California. Southern California is exposed to a statistically greater risk of a major earthquake and wildfires than most other parts of the United States. If a major earthquake or wildfire were to strike Southern California, our corporate functions and claims processing could be significantly impaired for a substantial period of time. If there is a major Southern California earthquake or wildfire, there can be no assurances that our disaster recovery plan will be successful or that the business operations of our health plans, including those that are remote from any vendor’s failure to satisfy its obligations to us or under applicable law. Further, we maysuch event, would not be adequately indemnified against all possible losses through the terms and conditions of our contracts with third party vendors and service providers. Our outsourcing arrangements could be adversely impacted by changes in vendors’ or service providers’ operations orsubstantially impacted.
Failure to maintain effective internal controls over financial condition or other matters outside of our control. If we fail to adequately monitor and regulate the performance of our third party vendors and service providers, we could be subject to additional risk, including significant cybersecurity risk. Violations of, or noncompliance with, laws and/or regulations governing our business or noncompliance with contract terms by third party vendors and service providers could increase our exposure to liability to our members, providers, or other third parties, or could result in sanctions and/or fines from the regulators that oversee our business. In turn, this could increase the costs associated with the operation of our business or have an adverse impact on our business and reputation. Moreover, if these vendor and service provider relationships were terminated for any reason, we may not be able to find alternative partners in a timely manner or on acceptable financial terms, and may incur significant costs and/or experience significant disruption to our operations in connection with any such vendor or service provider transition. As a result, we may not be able to meet the full demands of our members or customers and, in turn, our business, financial condition, and results of operations may be harmed. In addition, we may not fully realize the anticipated economic and other benefits from our outsourcing projects or other relationships we enter into with third party vendors and service providers, as a result of regulatory restrictions on outsourcing, unanticipated delays in transitioning our operations to the third party, vendor or service provider noncompliance with contract terms, unanticipated costs or expenses, or violations of laws and/or regulations, or otherwise. This could result in substantial costs or other operational or financial problems thatreporting could have a material adverse effect on our business, financial condition, cash flows,operating results, and results of operations.
We arestock price, and could subject to a number of risks in connection with our decision to enter into a master services agreement with Infosys for the management of certain of our information technology infrastructure functions.
On February 4, 2019, we entered into a master services agreement with Infosys Limited pursuant to which Infosys will manage certain of our information technology infrastructure services including, among other things, our information technology operations, end-user services, and data centers.
Given the scope of services that will be provided by Infosys, the transition of services presents considerable execution risk inherent to large scale strategic and operational initiatives, including, among others, with respect to the efficient and secure transfer of information and data and the management of our workforce, which will require us to coordinate with Infosys and monitor the transition. We have incurred costs and will continue to incur costs and devote substantial resources during the transition to prepare for Infosys’s services. If we are unable to efficiently, effectively and successfully carry out the transition of our information technology infrastructure activities to Infosys insanctions by regulatory authorities.
A material weakness is a coordinated and timely manner, including securely transferring information and data between the parties, such failuresdeficiency, or delays in the start of Infosys’s services could materially impact the amount of the intended cost savings and other intended benefits of the Infosys transaction.
The success of our business will depend in part on Infosys’s ability to perform the contracted functions and services, including with respect to data security, in a timely, satisfactory, and compliant manner. To protect our expectations regarding Infosys’ performance, the agreement has minimum service levels that Infosys must meet or exceed. In the event of an expiration of our agreement with Infosys or upon termination of the agreement for any reason, we have the right to obtain disengagement assistance from Infosys to facilitate the transition of the infrastructure services from Infosys to another supplier or back to the Company itself. We would be required to pay for any disengagement assistance based on a combination of pre-determined charges and hourly fees for services for whichdeficiencies, in internal control over financial reporting, such that there is no pre-determined charge.a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. We retain the right to terminate the agreement with Infosys,have identified material weaknesses in whole or in part, for, among other things, cause, convenience, and, if certain criteria are met, a changeour internal control over financial reporting in the past, which have subsequently been remediated. If additional material weaknesses in our internal control of Infosys. However, we will be required to pay varying termination charges if we terminate the agreement for certain reasons other than for cause. Depending upon the circumstances of the termination, the termination charge may be material.
Furthermore, changes in Infosys’s operations, security postureover financial reporting are discovered or vulnerabilities, financial condition, or other matters outside of our control could adversely affect the provision of their services to the Company. If we experience a loss or disruptionoccur in the provision of any of these functions or services, or they are not performed in a timely, satisfactory or compliant manner, wefuture, our consolidated financial statements may not fully achieve anticipated cost savings or other expected benefits of the transaction; we may be subject to regulatory enforcement actions; we may be vulnerable to security breaches that threaten the security and confidentiality of our information and data; we may not be able to meet the full demands of our customers and members or be subject to claims against us by our members and providers; and we may have difficulty in finding alternate providers in a timely manner on terms and conditions favorable to us upon expiration or termination of the agreement, or at all. Furthermore, the contractual remedies and indemnification obligations for Infosys’s failures may not fully compensate us for any losses suffered as a result of Infosys’s failure to satisfy its obligations to us. Any of the foregoing could have acontain material and adverse impact on our business.
Our substantial indebtedness could adversely affect our ability to raise additional capital to fund our operations, limit our ability to react to changes in the economy or our industry, expose us to interest rate risk to the extent of any variable rate debt, and prevent us from meeting our obligations under our outstanding indebtedness.
We have a significant amount of indebtedness. As of December 31, 2018, our total indebtedness was approximately $1,458 million, including lease financing obligations. As of December 31, 2018, we also had $493 million available for borrowing under our Credit Facility. On January 31, 2019, we entered into a Sixth Amendment to the Credit Agreement that provides for a delayed draw term loan facility in an aggregate principal amount of $600 million (the “Term Loan”), under which we may request up to ten advances, each in a minimum principal amount of $50 million, until 18 months after January 31, 2019.
Our substantial indebtedness could have significant consequences, including:
increasing our vulnerability to adverse economic, industry, or competitive developments;
requiring a substantial portion of our cash flows from operations to be dedicated to the payment of principal and interest on our indebtedness, therefore reducing our ability to use our cash flows to fund operations, make capital expenditures, and pursue future business opportunities;
exposing us to the risk of increased interest rates to the extent of any future borrowings, including borrowings under our Credit Agreement, at variable rates of interest;
making it more difficult for us to satisfy our obligations with respect to our indebtedness, including our Credit Agreement and our outstanding senior notes, and any failure to comply with the obligations of any of our debt instruments, including restrictive covenants and borrowing conditions, could result in an event of default under the indenture governing our outstanding senior notes and the agreements governing such other indebtedness;
restricting us from making strategic acquisitions or causing us to make non-strategic divestitures;
limiting our ability to obtain additional financing for working capital, capital expenditures, product and service development, debt service requirements, acquisitions, and general corporate or other purposes; and
limiting our flexibility in planning for, or reacting to, changes in our business or market conditions and placing us at a competitive disadvantage compared to our competitors who are less highly leveraged and who, therefore, may be able to take advantage of opportunities that our substantial indebtedness may prevent us from exploiting.
The terms of our debt impose, and will impose, restrictions on us that may affect our ability to successfully operate our business and our ability to make payments on our outstanding senior notes.
The indentures governing our outstanding senior notes and the Credit Agreement governing our revolving Credit Facility and Term Loan contain various covenants that could materially and adversely affect our ability to finance our future operations or capital needs and to engage in other business activities that may be in our best interest. These covenants limit our ability to, among other things:
incur additional indebtedness or issue certain preferred equity;
pay dividends on, repurchase, or make distributions in respect of our capital stock, prepay, redeem, or repurchase certain debt or make other restricted payments;
make certain investments;
create certain liens;
sell assets, including capital stock of restricted subsidiaries;
enter into agreements restricting our restricted subsidiaries’ ability to pay dividends to us;
consolidate, merge, sell, or otherwise dispose of all or substantially all of our assets;
enter into certain transactions with our affiliates; and
designate our restricted subsidiaries as unrestricted subsidiaries.
All of these covenants may restrict our ability to pursue our business strategies. Our ability to comply with these covenants may be affected by events beyond our control, such as prevailing economic conditions and changes in regulations, and if such events occur, we cannot be sure that we will be able to comply. A breach of these covenants could result in a default under the indentures for our outstanding senior notes and/or the Credit Agreement governing our Credit Facility and Term Loan including, as a result of cross default provisions and, in the case of our Credit Agreement, permit the lenders to cease making loans to us. If there were an event of default under the indentures governing our outstanding senior notes and/or the Credit Agreement governing our Credit Facility and Term Loan, holders of such defaulted debt could cause all amounts borrowed under these instruments to be due and payable immediately. Our assets or cash flow may not be sufficient to repay borrowings under our outstanding debt instruments in the event of a default thereunder.
In addition, the restrictive covenants in the Credit Agreement governing our Credit Facility and Term Loan require us to maintain specified financial ratios and satisfy other financial condition tests. Our ability to meet those financial ratios and tests will depend on our ongoing financial and operating performance, which, in turn, will be subject to economic conditions and to financial, market, and competitive factors, many of which are beyond our control.
If our operating performance declines, we may be required to obtain waivers from the lenders under our Credit Agreement governing our Credit Facility and Term Loan, from the holders of our outstanding senior notes or from the holders of other obligations, to avoid defaults thereunder. For example, in February 2017, to avoid default under our Credit Agreement as a result of our failure to comply with certain financial covenants therein applicable to the three months ended December 31, 2016, we sought, and obtained, a waiver of such defaults by the required lenders under our Credit Agreement.
If we are not able to obtain such waivers, our creditors could exercise their rights upon default,misstatements and we could be forced into bankruptcy or liquidation.
We may not be ablerequired to generate sufficient cash to service all of our indebtedness and may be forced to take other actions to satisfy our obligations under our indebtedness, which may not be successful.
Our ability to make scheduled payments on or to refinance our debt obligations depends onrestate our financial condition and operating performance, which is subject to prevailing economic and competitive conditions and to certain financial, business, and other factors beyond our control. We may not be able to maintain a level of cash flows from operating activities sufficient to permit us to pay the principal, and interest on our indebtedness.results.
If our cash flows and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay investments and capital expenditures, or to sell assets, seek additional capital, or restructure or refinance our indebtedness. Our ability to restructure or refinance our debt will depend on the condition of the capital markets and our financial condition at such time. Any refinancing of our debt could be at higher interest rates and may require us to comply with onerous covenants, which could further restrict our business operations. The terms of existing or future debt instruments, including our Credit Agreement, and the indentures governing our outstanding senior notes, may restrict us from adopting some of these alternatives. In addition, any failure to make payments of interest and principal on our outstanding indebtedness on a timely basis would likely result in a reduction of our credit rating, which would harm our ability to incur additional indebtedness. These alternative measures may not be successful and may not permit us to meet our scheduled debt service obligations.
A lowering or withdrawal of the ratings assigned to our debt securities by rating agencies may increase our future borrowing costs and reduce our access to capital.Molina Healthcare, Inc. 2021 Form 10-K | 30
There can be no assurance that any rating assigned by the rating agencies to our debt or our corporate rating will remain for any given period of time or that a rating will not be lowered or withdrawn entirely by a rating agency if, in that rating agency’s judgment, future circumstances relating to the basis of the rating, such as adverse changes, so warrant. In 2017, both Moody’s and Standard and Poor’s downgraded our debt ratings. In February 2018, both S&P and Moody’s downgraded our corporate and debt ratings further to BB- and B3, respectively, with modest negative impact on future borrowing cost. A further lowering or withdrawal of the ratings assigned to our debt securities by rating agencies would likely increase our future borrowing costs and reduce our access to capital, which could have a materially adverse impact on our business, financial condition, cash flows, or results of operations.
Risks Related to Our Common Stock
Future sales of our common stock or equity-linked securities in the public market could adversely affect the trading price of our common stock and our ability to raise funds in new stock offerings.
We may issue equity securities in the future, or securities that are convertible into or exchangeable for, or that represent the right to receive, shares of our common stock. Sales of a substantial number of shares of our common stock or other equity securities, including sales of shares in connection with any future acquisitions, could be substantially dilutive to our stockholders. These sales may have a harmful effect on prevailing market prices for our common stock and our ability to raise additional capital in the financial markets at a time and price favorable to us. Moreover, to the extent that we issue restricted stock/units, stock appreciation rights, options, or warrants to purchase our common stock in the future and those stock appreciation rights, options, or warrants are exercised or as the restricted stock/units vest, our stockholders may experience further dilution. Holders of our shares of common stock have no preemptive rights that entitle holders to purchase a pro rata share of any offering of shares of any class or series and, therefore, such sales or offerings could result in increased dilution to our stockholders. Our certificate of incorporation provides that we have authority to issue 150 million shares of common stock and 20 million shares of preferred stock. As of December 31, 2018, approximately 62 million shares of common stock and no shares of preferred or other capital stock were issued and outstanding.
It may be difficult for a third party to acquire us, which could inhibit stockholders from realizing a premium on their stock price.
We are subject to the Delaware anti-takeover laws regulating corporate takeovers. These provisions may prohibit stockholders owning 15% or more of our outstanding voting stock from merging or combining with us. In addition, any change in control of our state health plans would require the approval of the applicable insurance regulator in each state in which we operate.
Our certificate of incorporation and bylaws also contain provisions that could have the effect of delaying, deferring, or preventing a change in control of our Company that stockholders may consider favorable or beneficial. These provisions could discourage proxy contests and make it more difficult for our stockholders to elect directors and take other corporate actions. These provisions could also limit the price that investors might be willing to pay in the future for shares of our common stock. These provisions include:
a staggered board of directors, so that it would take three successive annual meetings to replace all directors,
prohibition of stockholder action by written consent, and
advance notice requirements for the submission by stockholders of nominations for election to the board of directors and for proposing matters that can be acted upon by stockholders at a meeting.
In addition, changes of control are often subject to state regulatory notification, and in some cases, prior approval of such state regulatory agencies.
Further, our board of directors or a committee thereof has the power, without stockholder approval, to designate the terms of one or more series of preferred stock and issue shares of preferred stock. The ability of our board of directors or a committee thereof to create and issue a new series of preferred stock could impede a merger, takeover or other business combination involving us or discourage a potential acquirer from making a tender offer for our common stock, which, under certain circumstances, could reduce the market price of our common stock.
PROPERTIES
As of December 31, 2018, the Health Plans segment leased a total of 66 facilities. We own a 186,000 square-foot office building in Troy, Michigan, a 24,000 square-foot mixed use facility in Pomona, California, and a 26,700 square foot data center in Albuquerque, New Mexico.lease certain real properties to support the business operations of our reportable segments. While we believe our current and anticipated facilities will beare adequate to meet our operational needs in the near term, we continually evaluate the adequacy of our properties for our anticipated future needs.
LEGAL PROCEEDINGS
Kentucky RFP. On September 4, 2020, Anthem Kentucky Managed Care Plan, Inc. brought an action in Franklin County Circuit Court against the Kentucky Finance and Administration Cabinet, the Kentucky Cabinet for Health and Family Services, and all of the five winning bidder health plans, including our Kentucky health plan. This matter remains subject to additional legal and appellate proceedings, and no assurances can be given regarding the ultimate outcome. Under the Court’s June 16, 2021 final Order, our Kentucky health plan will continue to operate for the foreseeable future we continueunder its current Medicaid contract and provide care to periodically evaluate our employeeKentucky Medicaid members.
Puerto Rico. On August 13, 2021, Molina Healthcare of Puerto, Inc. (“MHPR”) filed a complaint asserting, among other claims, breach of contract against Puerto Rico Health Insurance Administration (“ASES”). On September 13, 2021, in addition to filing its answer to MHPR’s complaint, ASES filed a counterclaim and operational growth prospectsa third-party complaint against MHPR and the Company. The counterclaim alleges that MHPR and the Company breached contractual obligations by failing to determine if additional spacepay providers and, in addition to damages, seeks various equitable remedies. On October 8, 2021, MHPR filed its reply to the counterclaim, denying all the allegations, and on November 1, 2021, the Company filed its answer to the third-party complaint. On December 3, 2021, MHPR filed a request for disbursement of illegally withheld funds, and ASES filed its opposition. At a status hearing on January 19, 2022, the Company and ASES both argued MHPR’s request for disbursement. The court has not ruled. This matter is required,in its early stages, and where it wouldno prediction can be best located.
LEGAL PROCEEDINGSmade as to the outcome. No gain or loss is probable and reasonably estimable with regard to either MHPR’s complaint or the counterclaim of ASES.
Refer to the Notes to Consolidated Financial Statements, Note 17,15, “Commitments and Contingencies—Legal Proceedings,” for a discussion of legal proceedings.further information.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
STOCK REPURCHASE PROGRAMS
Purchases of common stock made by us, or on our behalf during the quarter ended December 31, 2018,2021, including shares withheld by us to satisfy our employees’ income tax obligations, are set forth below:
| | | | | | | | | | | | | | | | | | | | | | | |
| Total Number of Shares Purchased (1) | | Average Price Paid per
Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2) | | Approximate Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs (2) |
| October 1 — October 31 | 2,000 | | | $ | 273.61 | | | — | | | $ | 500,000,000 | |
| November 1 — November 30 | — | | | $ | — | | | — | | | $ | 500,000,000 | |
| December 1 — December 31 | — | | | $ | — | | | — | | | $ | 500,000,000 | |
| 2,000 | | | $ | 273.61 | | | — | | | |
_______________________
(1)During the three months ended December 31, 2021, we withheld approximately 2,000 shares of common stock to settle employee income tax obligations, for releases of awards granted under the Molina Healthcare, Inc. 2019 Equity Incentive Plan. For further information refer to Notes to Consolidated Financial Statements, Note 13, “Stockholders' Equity.”
(2)For further information on our stock repurchase programs, refer to Notes to Consolidated Financial Statements, Note 13, “Stockholders' Equity.”
Molina Healthcare, Inc. 2021 Form 10-K | 31
|
| | | | | | | | | | | | | |
| Total Number
of Shares
Purchased
| | Average Price Paid per
Share | | Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs
| | Approximate Dollar Value of Shares Authorized to Be Purchased Under the Plans or Programs |
October 1 — October 31 | — |
| | $ | — |
| | — |
| | $ | — |
|
November 1 — November 30 | — |
| | $ | — |
| | — |
| | $ | — |
|
December 1 — December 31 | — |
| | $ | — |
| | — |
| | $ | — |
|
| — |
| | $ | — |
| | — |
| | |
STOCK PERFORMANCE GRAPH
The following graph and related discussion are being furnished solely to accompany this Annual Report on Form 10-K pursuant to Item 201(e) of Regulation S-K and shall not be deemed to be “soliciting materials” or to be “filed” with the U.S. Securities and Exchange Commission (“SEC”) (other than as provided in Item 201) nor shall this information be incorporated by reference into any future filing under the Securities Act or the Exchange Act, whether made before or after the date hereof and irrespective of any general incorporation language contained therein, except to the extent that we specifically incorporate it by reference into a filing.
The following line graph compares the percentage change in the cumulative total return on our common stock against the cumulative total return of the Standard & Poor’s Corporation Composite 500 Index (the “S&P 500”) and a peer group index for the five-year period from December 31, 20132016 to December 31, 2018.2021. The comparison assumes $100 was invested on December 31, 2013,2016, in our common stock and in each of the foregoing indices and assumes reinvestment of dividends. The stock performance shown on the graph below represents historical stock performance and is not necessarily indicative of future stock price performance.
The peer group index consists of Acadia Healthcare Company, Inc. (ACHC), Anthem, Inc. (ANTM), Centene Corporation (CNC), Cigna Corporation (CI), DaVita HealthCare Partners,Community Health Systems, Inc. (DVA)(CYH), HCA Healthcare, Inc. (HCA), Humana, Inc. (HUM), Laboratory Corporation of America Holdings (LH), Magellan Health, Inc. (MGLN), Team Health Holdings, Inc. (TMH)Quest Diagnostics Incorporated (DGX), Tenet Healthcare Corporation (THC), Triple-S Management Corporation (GTS), Universal American Corporation (UAM), and Universal Health Services, Inc. (UHS) and WellCare Health Plans,.
Molina Healthcare, Inc. (WCG).2021 Form 10-K | 32
STOCK TRADING SYMBOL AND DIVIDENDS
Our common stock is listed on the New York Stock Exchange under the trading symbol “MOH.” As of February 15, 2019,11, 2022, there were 1413 registered holders of record of our common stock.
stock, including Cede & Co. To date we have not paid cash dividends on our common stock. We currently intend to retain any future earnings to fund our projected business operations. However, we intend to periodically evaluate our cash position to determine whether to pay a cash dividend in the future.
Our ability to pay dividends is partially dependent on, among other things, our receipt of cash dividends from our regulated subsidiaries. The ability of our regulated subsidiaries to pay dividends to us is limited by the state departments of insurance in the states in which we operate or may operate, as well as requirements of the government-sponsored health programs in which we participate. Additionally, the indentures governing our outstanding senior notes and the Credit Agreement governing the revolving Credit Facility and Term Loancredit agreement contain various covenants that limit our ability to pay dividends on our common stock.
Any future determination to pay dividends will be at the discretion of our board of directors and will depend upon, among other factors, our results of operations, financial condition, capital requirements and contractual and regulatory restrictions. For more information regarding restrictions on the ability of our regulated subsidiaries to pay dividends to us, please see the Notes to Consolidated Financial Statements, Note 17,15, “Commitments and Contingencies—Regulatory Capital Requirements and Dividend Restrictions.”
SELECTED FINANCIAL DATA
Molina Healthcare, Inc. 2021 Form 10-K | 33
|
| | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2018 | | 2017 | | 2016 | | 2015 | | 2014 |
| | (In millions, except per-share data, percentages and membership) |
| Premium revenue | $ | 17,612 |
| | $ | 18,854 |
| | $ | 16,445 |
| | $ | 13,261 |
| | $ | 9,035 |
|
| Total revenue | $ | 18,890 |
| | $ | 19,883 |
| | $ | 17,782 |
| | $ | 14,178 |
| | $ | 9,667 |
|
| Operating income (loss) | $ | 1,131 |
| | $ | (555 | ) | | $ | 306 |
| | $ | 387 |
| | $ | 193 |
|
| Income (loss) before income taxes | $ | 999 |
| | $ | (612 | ) | | $ | 205 |
| | $ | 322 |
| | $ | 135 |
|
| Net income (loss) | $ | 707 |
| | $ | (512 | ) | | $ | 52 |
| | $ | 143 |
| | $ | 62 |
|
| | | | | | | | | | |
Basic net income (loss) per share (1) | $ | 11.57 |
| | $ | (9.07 | ) | | $ | 0.93 |
| | $ | 2.75 |
| | $ | 1.33 |
|
Diluted net income (loss) per share (1) | $ | 10.61 |
| | $ | (9.07 | ) | | $ | 0.92 |
| | $ | 2.58 |
| | $ | 1.29 |
|
| | | | | | | | | | |
| Weighted average shares outstanding: | | | | | | | | | |
| Basic | 61.1 |
| | 56.4 |
| | 55.4 |
| | 52.2 |
| | 46.9 |
|
| Diluted | 66.6 |
| | 56.4 |
| | 56.2 |
| | 55.6 |
| | 48.3 |
|
| | | | | | | | | | |
| Operating Statistics: | | | | | | | | | |
Medical care ratio (2) | 85.9 | % | | 90.6 | % | | 89.8 | % | | 88.9 | % | | 89.4 | % |
G&A ratio (3) | 7.1 | % | | 8.0 | % | | 7.8 | % | | 8.1 | % | | 7.9 | % |
| Effective income tax expense (benefit) rate | 29.2 | % | | (16.4 | )% | | 74.8 | % | | 55.5 | % | | 53.8 | % |
Pre-tax margin (3) | 5.3 | % | | (3.1 | )% | | 1.2 | % | | 2.3 | % | | 1.4 | % |
After-tax margin (3) | 3.7 | % | | (2.6 | )% | | 0.3 | % | | 1.0 | % | | 0.6 | % |
| | | | | | | | | | |
| Ending Membership by Government Program: | | | | | | | | | |
| Medicaid | 3,361,000 |
| | 3,537,000 |
| | 3,605,000 |
| | 3,235,000 |
| | 2,541,000 |
|
| Medicare | 98,000 |
| | 101,000 |
| | 96,000 |
| | 93,000 |
| | 67,000 |
|
| Marketplace | 362,000 |
| | 815,000 |
| | 526,000 |
| | 205,000 |
| | 15,000 |
|
| | 3,821,000 |
| | 4,453,000 |
| | 4,227,000 |
| | 3,533,000 |
| | 2,623,000 |
|
| |
(1) | Source data for calculations in thousands. |
| |
(2) | Medical care ratio represents medical care costs as a percentage of premium revenue.
|
| |
(3) | G&A ratio represents general and administrative expenses as a percentage of total revenue. Pre-tax margin represents net income (loss) before income taxes as a percentage of total revenue. After-tax margin represents net income (loss) as a percentage of total revenue.
|
|
| | | | | | | | | | | | | | | | | | | |
| | December 31, |
| | 2018 | | 2017 | | 2016 | | 2015 | | 2014 |
| | (In millions) |
| Balance Sheet Data: | | | | | | | | | |
| Cash and cash equivalents | $ | 2,826 |
| | $ | 3,186 |
| | $ | 2,819 |
| | $ | 2,329 |
| | $ | 1,539 |
|
| Total assets | 7,154 |
| | 8,471 |
| | 7,449 |
| | 6,576 |
| | 4,435 |
|
| Medical claims and benefits payable | 1,961 |
| | 2,192 |
| | 1,929 |
| | 1,685 |
| | 1,201 |
|
Long-term debt, including current portion (1) | 1,458 |
| | 2,169 |
| | 1,645 |
| | 1,609 |
| | 887 |
|
| Total liabilities | 5,507 |
| | 7,134 |
| | 5,800 |
| | 5,019 |
| | 3,425 |
|
| Stockholders’ equity | 1,647 |
| | 1,337 |
| | 1,649 |
| | 1,557 |
| | 1,010 |
|
| |
(1) | Also includes lease financing obligations. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (“MD&A”)
Management’s discussion and analysis of financial condition and results of operations as of and for the years ended December 31, 2021 and 2020, are presented in the sections that follow. Our MD&A as of and for the year ended December 31, 2019, may be found in our 2020 Annual Report on Form 10-K, which prior disclosure is incorporated by reference herein. OVERVIEW
Molina Healthcare, Inc., a FORTUNE 500 multi-statecompany (currently ranked 155), provides managed healthcare organization, arranges for the delivery of health care services to individuals and families who receive their care throughunder the Medicaid and Medicare programs, and through the state insurance marketplaces (the “Marketplace”). Through our locally operated health plans in 14 states and the Commonwealth of Puerto Rico, weWe served approximately 3.85.2 million members as of December 31, 2018. These health plans are operated by our respective wholly owned subsidiaries in those states and in the Commonwealth of Puerto Rico, each of which is licensed as a health maintenance organization (“HMO”).2021, located across 18 states.
We currently have two reportable segments: our Health Plans segment and our Other segment. We manage the vast majority
2021 HIGHLIGHTS
Highlights of our operations through our Health Plans segment. Our Other segment includes2021 results included the historical resultsfollowing:
•Net income for 2021 was $659 million, or $11.25 per diluted share, compared to $673 million, or $11.23 per diluted share, in 2020;
•Total revenue of the Pathways behavioral health subsidiary,$27.8 billion, which we sold in the fourth quarterincreased 43% compared to 2020;
•Premium revenue of 2018, and certain corporate amounts not allocated$26.9 billion, which increased 47% compared to the Health Plans segment. Effective in the fourth quarter of 2018, we reclassified the historical results relating to our Molina Medicaid Solutions (“MMS”) segment, which we sold in the third quarter of 2018, to the Other segment. Previously, results for MMS were reported in a stand-alone segment.2020;
2018 HIGHLIGHTS
In summary, we produced pretax earnings of $999 million and net income of $707 million for the full year ending December 31, 2018, resulting in an after-tax margin of 3.7%. These results include, on a consolidated basis, a•Consolidated medical costcare ratio (“MCR”) of 85.9%88.3%, compared to 86.5% in 2020;
•Membership, increased 1.2 million members year-over-year to 5.2 million at December 31, 2021;
•General and administrative expense ratio (“G&A ratio”) improved to 7.4%, compared to 7.6% in 2020; and
•After-tax margin of 2.4%.
The net effect of COVID decreased 2021 net income per diluted share by $3.50 per diluted share and decreased 2020 net income per diluted share by $2.30. The net effect of COVID impacted all three lines of business and increased the 2021 consolidated MCR by approximately 90 basis points, compared to an increase of approximately 50 basis points to the consolidated MCR in 2020. The net effect of COVID reflects COVID-related inpatient costs and COVID-related risk corridors enacted by a number of our state customers beginning in the second quarter of 2020, partially offset by a decrease in medical costs due to COVID-related utilization curtailment.
Growth Initiatives
We have made major strides related to our growth strategy. On October 7, 2021, we signed a definitive agreement to acquire the Medicaid Managed Long Term Care business of AgeWell New York. On October 25, 2021, we closed on the acquisition of Affinity Health Plan in New York. On January 1, 2022, we closed the acquisition of Cigna Corporation’s Texas Medicaid and Medicare-Medicaid Plan contracts, along with certain operating assets. Each of these acquisitions involve financially underperforming health plans, but with stable membership and revenue bases. We believe they provide attractive opportunities for margin improvement, operating leverage and membership growth. Our growth initiatives continue to be anchored by our capital allocation priorities: first, organic growth; second, inorganic growth through accretive acquisitions; and third, programmatically returning excess capital to stockholders.
Molina Healthcare, Inc. 2021 Form 10-K | 34
FINANCIAL RESULTS SUMMARY
| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2021 | | 2020 |
| | | |
| (In millions, except per-share amounts) |
| Premium revenue | $ | 26,855 | | | $ | 18,299 | |
| Less: medical care costs | 23,704 | | | 15,820 | |
| Medical margin | 3,151 | | | 2,479 | |
MCR (1) | 88.3 | % | | 86.5 | % |
| | | |
| Other revenues: | | | |
| Premium tax revenue | 787 | | | 649 | |
| Health insurer fees reimbursed | — | | | 271 | |
| Marketplace risk corridor judgment | — | | | 128 | |
| Investment income | 52 | | | 59 | |
| Other revenue | 77 | | | 17 | |
| | | |
| General and administrative expenses | 2,068 | | | 1,480 | |
G&A ratio (2) | 7.4 | % | | 7.6 | % |
| | | |
| Premium tax expenses | 787 | | | 649 | |
| Health insurer fees | — | | | 277 | |
| Depreciation and amortization | 131 | | | 88 | |
| Other | 61 | | | 31 | |
| Operating income | 1,020 | | | 1,078 | |
| Interest expense | 120 | | | 102 | |
| Other expenses (income), net | 25 | | | 15 | |
| Income before income tax expense | 875 | | | 961 | |
| Income tax expense | 216 | | | 288 | |
| Net income | $ | 659 | | | $ | 673 | |
| | | |
| Net income per diluted share | $ | 11.25 | | | $ | 11.23 | |
| | | |
| Diluted weighted average shares outstanding | 58.6 | | | 59.9 | |
| | | |
| Other Key Statistics: | | | |
Ending Membership (4) | 5.2 | | | 4.0 | |
| Effective income tax rate | 24.7 | % | | 30.0 | % |
After-tax margin (3) | 2.4 | % | | 3.5 | % |
__________________
(1)MCR represents medical care costs as a percentage of premium revenue.
(2)G&A ratio represents general and administrative (“G&A”) expense ratioexpenses as a percentage of 7.1%. The improved performance in 2018 across alltotal revenue.
(3)After-tax margin represents net income as a percentage of our programs, health plans, operating metrics, and the actions we took with respect to capital management, are summarized below.total revenue.
Program Performance. The improved performance in 2018 demonstrates the effectiveness of our margin recovery and sustainability plan.
Our Medicaid program, with $13.6 billion in premium revenue, ended the year with a 90.0% MCR, both improved when compared with 2017. Several factors contributed to this result, including our ability to manage medical costs, our success in executing on a variety of profit improvement initiatives, including network contracting, front-line utilization management, and retaining increased levels of revenue at risk for quality scores.
Our Medicare program also delivered improved results in 2018 when compared to 2017. We earned premium revenues of $2.1 billion in 2018 and attained an MCR of 84.5%. We believe we have proved our ability to manage high-acuity(4)Approximately 200,000 members, who have complex medical conditions and co-morbidities, and we believe we have proved to be proficient at managing long-term services and supports benefits, an important and fast-growing benefit across all of our products. Additionally, we increased revenues tied to member risk scores to be more commensurate with the acuity of our membership.
Our Marketplace program was a significant contributor to our results in 2018, with approximately $1.9 billion in premium revenue and an MCR of 58.9%. In 2017 and prior years, the performance in our Marketplace program was challenged, and we executed corrective pricing actions of nearly 60% in 2018 to improve our results. Our prices were competitive, even with the significant increases over 2017; which enabled us to retain higher membership in 2018 than we expected. Lastly, execution of the core managed care fundamentals that are also applicable to our other programs, and an increase in revenues tied to member risk scores to be commensurate with the acuity of our membership, also helped to produce the results that we attained.
Health Plan Performance. In summary, we believe our health plan portfolio is performing well. In 2017, more than 25% of our premium revenue related to plans that were not profitable. In 2018, all these plans were profitable. We significantly improved the performance and balance of our locally operated health plans in 2018. Our largest health plans from a membership standpoint (going forward in 2019)–California, Ohio, Michigan, Texas, and Washington– continued to perform well. Florida and New Mexico were challenges due to contract losses, but performed well considering they faced the run-off of large proportions of membership and revenues. Additionally, our Washington health plan began to improve its profitability midway through 2018 and we believe is now well-positioned to improve its pretax margins on an expanded revenue base.
Operational Improvements. We implemented operational improvements that enabled us to gain operating efficiencies. We continued to improve our G&A cost profile, managing to a G&A expense ratio of 7.1% for the full year of 2018, which is a 90 basis-point improvement compared to 2017. We reduced our core business workforce by more than 800 full-time equivalents, or nearly 7% from the beginning of the year. More importantly, we continued to investMagellan Complete Care acquisition that closed on December 31, 2020, are not included in the business. We improved the performancetotals as of our core processes: claims, payment integrity, member and provider services and a host of others, all of which create lasting effects. Finally, in 2018, we set the stage for ongoing improvement by making significant progress on a variety of outsourcing initiatives, including the recently announced outsourcing of certain information technology infrastructure functions to Infosys, which will benefit us in 2019 and beyond.December 31, 2020.
Balance Sheet and Capital Management. Our improved operating performance in 2018 allowed our business to dividend approximately $300 million to the parent company. We deployed approximately $1.2 billion to retire convertible debt and repay the outstanding amount drawn on our revolving Credit Facility. This reduced earnings per share volatility and lowered our debt-to-capital ratio to approximately 47%.
FINANCIAL SUMMARY
Molina Healthcare, Inc. 2021 Form 10-K | 35
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2018 | | 2017 | | 2016 |
| | (Dollars in millions, except per-share amounts) |
| Premium revenue | $ | 17,612 |
| | $ | 18,854 |
| | $ | 16,445 |
|
| Premium tax revenue | 417 |
| | 438 |
| | 468 |
|
| Health insurer fees reimbursed | 329 |
| | — |
| | 292 |
|
| Investment income and other revenue | 125 |
| | 70 |
| | 38 |
|
| | | | | | |
| Medical care costs | 15,137 |
| | 17,073 |
| | 14,774 |
|
| General and administrative expenses | 1,333 |
| | 1,594 |
| | 1,393 |
|
| Premium tax expenses | 417 |
| | 438 |
| | 468 |
|
| Health insurer fees | 348 |
| | — |
| | 217 |
|
| Restructuring and separation costs | 46 |
| | 234 |
| | — |
|
| Impairment losses | — |
| | 470 |
| | — |
|
| | | | | | |
| Loss on sales of subsidiaries, net of gain | (15 | ) | | — |
| | — |
|
| Operating income (loss) | 1,131 |
| | (555 | ) | | 306 |
|
| Interest expense | 115 |
| | 118 |
| | 101 |
|
| Other expenses (income), net | 17 |
| | (61 | ) | | — |
|
| Income tax expense (benefit) | 292 |
| | (100 | ) | | 153 |
|
| Net income (loss) | 707 |
| | (512 | ) | | 52 |
|
| Net income (loss) per diluted share | $ | 10.61 |
| | $ | (9.07 | ) | | $ | 0.92 |
|
| | | | | | |
| Operating Statistics: | | | | | |
| Ending total membership | 3,821,000 |
| | 4,453,000 |
| | 4,227,000 |
|
Medical care ratio (1) | 85.9 | % | | 90.6 | % | | 89.8 | % |
G&A ratio (2) | 7.1 | % | | 8.0 | % | | 7.8 | % |
Premium tax ratio (1) | 2.3 | % | | 2.3 | % | | 2.8 | % |
| Effective income tax expense (benefit) rate | 29.2 | % | | (16.4 | )% | | 74.8 | % |
After-tax margin (2) | 3.7 | % | | (2.6 | )% | | 0.3 | % |
__________________
| |
(1) | Medical care ratio represents medical care costs as a percentage of premium revenue; premium tax ratio represents premium tax expenses as a percentage of premium revenue plus premium tax revenue. |
| |
(2) | G&A ratio represents general and administrative expenses as a percentage of total revenue. After-tax margin represents net income (loss) as a percentage of total revenue. |
CONSOLIDATED RESULTS
See tables below, under “Summary of Significant Items,” for details relating to significant non-run rate items, such as impairment losses, restructuring costs and material out of period adjustments to premiums or medical care costs.
NET INCOME AND OPERATING INCOME
2018 vs. 2017
Net income amounted to $707$659 million, or $10.61$11.25 per diluted share in 2018, compared with a net loss of $512 million, or $9.07 per diluted share in 2017. The year-over-year improvement was mainly driven by a decline in the medical care ratio (“MCR”) and the general and administrative (G&A) expense ratio. Additionally, results for 2017 reflect $704 million in impairment losses and restructuring costs, or $8.87 per diluted share.
2017 vs. 2016
Net loss was $512 million, or $9.07 per diluted share in 20172021, compared with net income of $52$673 million, or $0.92$11.23 per diluted share, in 2016.2020. We estimate that the net effect of COVID decreased net income by approximately $3.50 per diluted share in 2021. In 2020, the net effect of COVID decreased net income by approximately $2.30 per diluted share.
Operating income was $1,020 million in 2021, compared with $1,078 million in 2020. The substantial declinedecrease in 2017operating income was mainly due to $704the increase in MCR, reflecting increases in all our segments, and the $128 million in impairment losses and restructuring costs, as mentioned above.
PREMIUM REVENUE
2018 vs. 2017
Premium revenue decreased $1,242 million in 2018 when compared with 2017. Lower premium revenue was mainly driven by a decrease in Marketplace membership, and lower premiums in Medicaid, including retroactive California Medicaid Expansion risk corridor adjustments,judgment received in 2020, partially offset by Marketplacethe favorable impact of membership growth and higher premium rate increases.revenues.
2017 vs. 2016Net income per share in 2021 was favorably impacted by the reduction in common shares outstanding as a result of our share repurchase programs in 2020. See further discussion and information in “Liquidity and Financial Condition,” below, and in the Notes to Consolidated Financial Statements, Note 3, “Net Income Per Share.”
PREMIUM REVENUE
Premium revenue increased $2,409 million$8.6 billion, or 47%, in 20172021, when compared with 2016, due2020. The higher premium revenue mainly reflects growth in membership across all segments in 2021.
Membership increased by 1.2 million compared with December 31, 2020, which mainly reflected the impact of acquisitions that closed in the second half of 2020, including Magellan Complete Care and the Affinity acquisition that closed in the fourth quarter of 2021, and organic increases in the Medicaid and Marketplace segments. The lower impact of COVID-related risk corridors in 2021, that were enacted in several states beginning in the second quarter of 2020 in response to a 10%COVID-related utilization curtailment, also contributed to increase in membership, mainlypremium revenue.
MEDICAL CARE RATIO
The consolidated MCR in 2021 increased to 88.3%, compared to 86.5% in 2020, and reflects increases in all our segments. The net effect of COVID increased the consolidated MCR by approximately 90 basis points in 2021, and reflects higher COVID inpatient costs, and lower COVID-related utilization curtailment, partially offset by a lower impact of COVID-related risk corridors. The net effect of COVID impacted all our segments, but the year-over-year change was unfavorable for our Medicare and Marketplace and a 5% increasesegments. In 2020, the net effect of COVID increased our consolidated MCR by approximately 50 basis points.
The prior year reserve development in 2021 was modestly favorable, but its impact on earnings was mostly absorbed by the overall premium revenue PMPM.COVID-related risk corridors.
PREMIUM TAX REVENUE AND EXPENSES
2018 vs. 2017
The premium tax ratio (premium tax expense as a percentage of premium revenue plus premium tax revenue) remained consistent in 2018 when compared to 2017 and was 2.3% in both years. The decrease in expense is consistent with the decline in premiums.
2017 vs. 2016
The premium tax ratio decreased to 2.3% in 2017 from 2.8% in 2016,2021, compared with 3.4% in 2020. The current year ratio decrease was mainly due to the significant revenue growth at our Florida health planchanges in 2017business mix resulting from the Magellan Complete Care and other acquisitions closed in the second half of 2020.
MARKETPLACE RISK CORRIDOR JUDGMENT
In June 2020, the U.S. Court of Federal Claims granted us judgment in the amount of $128 million for 2014, 2015, and 2016 Marketplace risk corridor claims, following a favorable U.S. Supreme Court decision in April 2020 which operatesheld section 1342 of the Affordable Care Act obligated the federal government to pay participating insurers the full Marketplace risk corridor amounts calculated by that statute. We received the judgment in a stateOctober 2020 and, consistent with no premium tax,the timing of the cash receipt, the gain was recognized in our fourth quarter 2020 financial results and growthreported in MMP revenue.“Marketplace risk corridor judgment” in our consolidated statements of income. The Medicare portion of MMP revenue isjudgment did not subject to premium tax.create additional Minimum MLR rebates.
INVESTMENT INCOME AND OTHER REVENUE
2018 vs. 2017
Investment income decreased to $52 million in 2021, compared with $59 million in 2020. The year-over-year decrease was due to the continued low interest rate environment and othera temporarily higher allocation in shorter-term invested assets during the COVID-19 pandemic, which was rescinded effective for the second quarter of 2021.
Molina Healthcare, Inc. 2021 Form 10-K | 36
OTHER REVENUE
Other revenue increased to $125$77 million in 2018,2021, compared with $70$17 million in 2017, primarily for two reasons. First, investment income increased due to improved annualized portfolio yields and higher average invested assets2020. Beginning in 2018. In addition,the first quarter of 2021, other revenue increasedincludes service revenue associated with the long-term services and supports consultative services we now provide in 2018 due to administrative services fees earned byWisconsin, as a result of our Washington health plan, following that state’s decision to transition the management of Medicaid pharmacy benefits to an administrative services-based arrangement in 2018.
2017 vs. 2016
Investment income and other revenue increased to $70 million in 2017 compared with $38 million in 2016, mainly due to an increase in average invested assets.
MEDICAL CARE RATIO (“MCR”)
2018 vs. 2017
Overall, the MCR improved to 85.9% in 2018, from 90.6% in 2017. Excluding the retroactive California Medicaid Expansion risk corridor adjustments, and the combined benefit of the 2017 Marketplace risk adjustment and CSR
benefit, the MCR for 2018 would have been 86.3%. Excluding several, substantial out-of-period items that are discussed further below, the MCR for 2017 would have been 89.3%. The improvement was due to a decrease in the MCRs across our Medicaid, Medicare and Marketplace programs.
2017 vs. 2016
The medical care ratio increased to 90.6% in 2017, from 89.8% in 2016. Our 2017 medical care ratio was burdened by substantial unfavorable out-of-period items, including $150 million of medical margin deterioration resulting from unfavorable prior period claims development, the related need to replenish margins for adverse development in our liability for medical claims and benefits payable, increased reserves for premiums we expect to repay to state Medicaid agencies, and approximately $90 million of unfavorable Marketplace items, most notably the lack of CSR reimbursement in the fourth quarter of 2017. Absent these items, our medical care ratio for 2017 would have been approximately 89.3%.Magellan Complete Care acquisition.
GENERAL AND ADMINISTRATIVE (“G&A”) EXPENSES
2018 vs. 2017
The G&A expense ratio improveddecreased slightly to 7.1%7.4% in 20182021 compared with 8.0%7.6% in 2017. This year-over-year improvement was primarily2020. The year over year decrease reflects the resultbenefits of continued G&Ascale produced by our growth and our disciplined cost containment,management, partially offset by decreased leverage resulting from the decline in premium revenues.
2017 vs. 2016
The G&A expense ratioappropriate investments to support our business growth and increased to 8.0% in 2017 compared with 7.8% in 2016 due to increased spending related to growth in our Marketplace membership, partially offset by the benefit of increased leverage resulting from the associated increase in premium revenues.acquisition-related expenses.
HEALTH INSURER FEES (“HIF”)
Health insurer fees amounted to $348 million, and health insurer fees reimbursed amounted to $329 million in 2018. There were no HIF expensedfees incurred or reimbursed in 2017 due2021, because the HIF was repealed effective for years after 2020.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization increased to the moratorium under the Consolidated Appropriations Act of 2016. A new moratorium will be$131 million in effect in 2019.
IMPAIRMENT LOSSES
In the year ended December 31, 2017, we recorded impairment losses relating to goodwill and intangible assets, net, of $470 million. These losses included $269 million recorded in the Health Plans segment, and $201 million recorded in the Other segment, relating to our recently divested Pathways and Molina Medicaid Solutions subsidiaries.
RESTRUCTURING AND SEPARATION COSTS
In 2018, we incurred restructuring and separation costs of $46 million, including $37 million of additional costs related to implementation of our restructuring and profit improvement plan in 2017 (the “2017 Restructuring Plan”), and $9 million related to our IT restructuring plan that was commenced in 2018. In 2017, we incurred restructuring and separation costs of $234 million as a result of the implementation of our 2017 Restructuring Plan.
LOSS ON SALES OF SUBSIDIARIES, NET OF GAIN
Molina Medicaid Solutions. We closed on the sale of Molina Medicaid Solutions (“MMS”) to DXC Technology Company on September 30, 2018. The net cash selling price for the equity interests of MMS was $233 million. As a result of this transaction, we recognized a pretax gain, net of transaction costs, of $37 million. The gain, net of income tax expense, was $28 million.
Pathways. We closed on the sale of our Pathways behavioral health subsidiary to Pyramid Health Holdings, LLC on October 19, 2018, for a nominal purchase price. As a result of this transaction, we recognized a pretax loss of $52 million. The loss, net of income tax benefit, was $32 million.
INTEREST EXPENSE
2018 vs. 2017
Interest expense decreased to $115 million for the year ended December 31, 2018,2021, compared with $118 million for the year ended December 31, 2017. As further described below in “Liquidity,” we reduced the principal amount of outstanding debt by $759$88 million in 2018.
Interest expense includes non-cash interest expense relating to the amortization of the discount on our long-term debt obligations, which amounted to $22 million and $32 million, and $31 million for the years ended December 31, 2018, 2017, and 2016 respectively. See further discussion in Notes to Consolidated Financial Statements, Note 11, “Debt.”
2017 vs. 2016
Interest expense increased to $118 million for the year ended December 31, 2017, compared with $101 million for the year ended December 31, 2016.2020. The increase was due primarily to our issuance of $330 million aggregate principal amount of senior notes (the “4.875% Notes”) due June 15, 2025, and $300 million borrowed under our Credit Facilityamortization associated with acquisitions completed in the thirdsecond half of 2020 and 2021.
OTHER OPERATING EXPENSES
Other operating expenses increased to $61 million in the year ended December 31, 2021, compared with $31 million in the year ended December 31, 2020. Beginning in the first quarter of 2017.2021, other operating expenses include service costs associated with the long-term services and supports consultative services we now provide in Wisconsin, as noted above.
INTEREST EXPENSE
Interest expense increased to $120 million in 2021, compared with $102 million in 2020, mainly due to higher levels of average outstanding debt, resulting from the net impact of financing activities in both 2020 and 2021.
OTHER EXPENSES (INCOME), NET
In 2018,2021, we recorded other expenses of $17 million, primarily due to therecognized a loss on debt extinguishment resulting from our 1.125% Convertible Notes repayments and the 1.625% Convertible Notes exchange. These transactions are described further in Notes to Consolidated Financial Statements, Note 11, “Debt.” In early 2017, we received a $75repayment of $25 million fee in connection with early redemption of our 5.375% Notes. In 2020, we recognized a terminated Medicare acquisition.loss on debt repayment of $15 million, in connection with repayment of our term loan facility and other financing transactions.
INCOME TAXES
2018 vs. 2017
Income tax expense amounted to $292$216 million in 2018,2021, or 29.2%24.7% of pretax income, compared with an income tax benefitexpense of $100$288 million in 2017,2020, or 16.4%30.0% of the pretax loss.
income. The effective tax rate is lower in 2021 mainly because the nondeductible HIF was repealed for 2018 differs from 2017 mainly due to:years after 2020.
REPORTABLE SEGMENTS
As of December 31, 2021, we served approximately 5.2 million members eligible for Medicaid, Medicare, and other government-sponsored healthcare programs for low-income families and individuals, including Marketplace members, most of whom receive government premium subsidies.
In the first quarter of 2021, we realigned our reportable operating segments to reflect recent changes in our internal operating and reporting structure, which is now organized by government program. These reportable segments consist of: 1) Medicaid; 2) Medicare; 3) Marketplace; and 4) Other.
The Medicaid, Medicare, and Marketplace segments represent the reduction in the federal statutory rate from 35%government-funded or sponsored programs under which we offer managed healthcare services. The Other segment, which is insignificant to 21% under the Tax Cuts and Jobs Actour consolidated results of 2017 (“TCJA”); and 2) higher non-deductible expenses in 2018, primarily relatedoperations, includes certain corporate amounts not associated with or allocated to the non-deductible HIF,Medicaid, Medicare, or Marketplace segments. Additionally, the Other segment includes service revenues and service costs associated with the long-term services and supports consultative services we now provide in Wisconsin, as a percentageresult of pre-tax income (loss). The HIF was not applicable in 2017 due to the 2017 HIF moratorium.
The revaluation of deferred tax assets in connection with the TJCAresulted in $54 million additional income tax expense in the year endedMagellan Complete Care acquisition on December 31, 2017. In addition, the effective tax benefit rate for 2017 was less than the statutory tax benefit due to the relatively large amount of reported expenses that were not deductible for tax purposes, primarily relating to goodwill impairment losses and separation costs.
2017 vs. 2016
The income tax benefit amounted to $100 million in 2017, or 16.4% of the pretax loss, compared with an income tax expense of $153 million in 2016, or 74.8% of pretax income.
As discussed above, the effective tax benefit rate in 2017 was impacted by a revaluation of deferred tax assets and relatively large amounts of nondeductible expenses. The effective tax rate of 74.8% in 2016 mainly reflected the relatively large impact of the non-deductible HIF expenses relative to pretax income.
SUMMARY OF SIGNIFICANT ITEMS
The tables below summarize the impact of certain items significant to our financial performance in the periods presented. The individual items presented below increase (decrease) income (loss) before income tax expense (benefit).2020.
Molina Healthcare, Inc. 2021 Form 10-K | 37
|
| | | | | | | |
| | Year Ended December 31, 2018 |
| | Amount | | Per Diluted Share (1) |
| | (In millions) | | |
| Retroactive California Medicaid Expansion risk corridor | $ | (81 | ) | | $ | (0.95 | ) |
| Marketplace risk adjustment, for 2017 dates of service | 56 |
| | 0.66 |
|
| Marketplace CSR subsidies, for 2017 dates of service | 81 |
| | 0.95 |
|
| Loss on sales of subsidiaries, net of gain | (15 | ) | | (0.05 | ) |
| Restructuring costs | (46 | ) | | (0.54 | ) |
| Loss on debt extinguishment | (22 | ) | | (0.29 | ) |
| | $ | (27 | ) | | $ | (0.22 | ) |
|
| | | | | | | |
| | Year Ended December 31, 2017 |
| | Amount | | Per Diluted Share (1) |
| | (In millions) | | |
| Termination of CSR subsidy payments for the fourth quarter of 2017 | $ | (73 | ) | | $ | (0.82 | ) |
| Marketplace adjustments related to risk adjustment, CSR subsidies, and other items for 2016 dates of service | (47 | ) | | (0.52 | ) |
| Change in Marketplace premium deficiency reserve for 2017 dates of service | 30 |
| | 0.33 |
|
| Impairment losses | (470 | ) | | (6.01 | ) |
| Restructuring and separation costs | (234 | ) | | (2.86 | ) |
| Loss on debt extinguishment | (14 | ) | | (0.24 | ) |
| Fee received for terminated Medicare acquisition | 75 |
| | 0.84 |
|
| | $ | (733 | ) | | $ | (9.28 | ) |
___________________________
| |
(1) | Except for permanent differences between GAAP and tax (such as certain expenses that are not deductible for tax purposes), per diluted share amounts are generally calculated at the statutory income tax rate of 22% for 2018, and 37% for 2017. |
REPORTABLE SEGMENTS
HOW WE ASSESS PERFORMANCE
We derive our revenues primarily from health insurance premiums. Our primary customers are state Medicaid agencies and the federal government.
One of theThe key metrics used to assess the performance of our Health Plans segment is theMedicaid, Medicare, and Marketplace segments are premium revenue, medical margin and MCR. MCR which represents the amount of medical care costs as a percentage of premium revenue. Therefore, the underlying medical margin, or the amount earned by the Health Plans segmentMedicaid, Medicare, and Marketplace segments after medical costs are deducted from premium revenue, isrepresents the most important measure of earnings reviewed by management.
Margin formanagement, and is used by our Health Planschief executive officer to review results, assess performance, and allocate resources. The key metric used to assess the performance of our Other segment is referredservice margin. The service margin is equal to as “Medical Margin,” and for Other, as “Service Margin.” service revenue minus cost of service revenue.
Management’s discussion and analysis of the changeschange in the individual components of Medical Margin and Service Margin follows.
Seemedical margin is discussed below under “Segment Financial Performance.” For more information, see Notes to Consolidated Financial Statements, Note 18, “Segments,16, “Segments.” for more information.
SEGMENT SUMMARY
|
| | | | | | | | | | | |
| | 2018 | | 2017 | | 2016 |
| | (In millions) |
Medical Margin (1) | $ | 2,475 |
| | $ | 1,781 |
| | $ | 1,671 |
|
Service Margin (2) | 43 |
| | 29 |
| | 54 |
|
| Total Margin | $ | 2,518 |
| | $ | 1,810 |
| | $ | 1,725 |
|
| | | | | | |
| MCR | 85.9 | % | | 90.6 | % | | 89.8 | % |
_______________________
| |
(1) | Represents premium revenue minus medical care costs. |
| |
(2) | Represents service revenue minus cost of service revenue. |
HEALTH PLANS SEGMENT
RECENT DEVELOPMENTS
For a description of recent renewals of Medicaid contracts, see Item 1. Business—Strategy—Growth Opportunities.
TRENDS AND UNCERTAINTIES
For descriptionsa discussion of “Status of Contract Re-procurements,”the trends, uncertainties and other developments see Itemthat affected our reportable segments during the year, refer to “Item 1. Business—Our Business—Medicaid,Medicare and Marketplace.
For discussions of “Pressures on Medicaid Funding,Business,” and “ACA and the Marketplace,“—COVID-19 Pandemic,” see Item 1. Business—“—Legislative and Political Environment,.” “—Operations—Medical Management,” and “—Regulation.”
SEGMENT FINANCIAL PERFORMANCE BY PROGRAM
The following table summarizes our membership by segment as of the dates indicated:
| | | | | | | | | | | |
| As of December 31, |
| 2021 | | 2020 |
| | | |
| | | |
| | | |
| Medicaid | 4,329,000 | | | 3,599,000 | |
| | | |
| | | |
| Medicare | 142,000 | | | 115,000 | |
| | | |
| Marketplace | 728,000 | | | 318,000 | |
Total (1) | 5,199,000 | | | 4,032,000 | |
____________________
(1)Approximately 200,000 members, from the Magellan Complete Care acquisition that closed on December 31, 2020, are not included in the totals as of December 31, 2020.
The tables below summarize member months, premium revenue, medical care costs,margin, and MCR and medical margin by programsegment for the periods indicated (PMPM amounts are in whole dollars; member months and other dollar amounts are(dollars in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 |
| Premium Revenue | | Medical Margin | | MCR | | Premium Revenue | | Medical Margin | | MCR |
| | | | | |
| Medicaid | $ | 20,461 | | | $ | 2,322 | | | 88.7 | % | | $ | 14,265 | | | $ | 1,804 | | | 87.4 | % |
| Medicare | 3,361 | | | 430 | | | 87.2 | | | 2,512 | | | 351 | | | 86.0 | |
| Marketplace | 3,033 | | | 399 | | | 86.9 | | | 1,522 | | | 324 | | | 78.7 | |
| Total | $ | 26,855 | | | $ | 3,151 | | | 88.3 | % | | $ | 18,299 | | | $ | 2,479 | | | 86.5 | % |
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2018 |
| | Member Months (1) | | Premium Revenue | | Medical Care Costs | | MCR (2) | | Medical Margin |
| | | Total | | PMPM | | Total | | PMPM | | |
| TANF and CHIP | 29.4 |
| | $ | 5,508 |
| | $ | 187.04 |
| | $ | 4,908 |
| | $ | 166.66 |
| | 89.1 | % | | $ | 600 |
|
| Medicaid Expansion | 8.1 |
| | 2,884 |
| | 356.81 |
| | 2,587 |
| | 320.11 |
| | 89.7 |
| | 297 |
|
| ABD | 5.0 |
| | 5,231 |
| | 1,049.26 |
| | 4,763 |
| | 955.22 |
| | 91.0 |
| | 468 |
|
| Total Medicaid | 42.5 |
| | 13,623 |
| | 320.43 |
| | 12,258 |
| | 288.31 |
| | 90.0 |
| | 1,365 |
|
| MMP | 0.7 |
| | 1,443 |
| | 2,192.58 |
| | 1,241 |
| | 1,885.59 |
| | 86.0 |
| | 202 |
|
| Medicare | 0.5 |
| | 631 |
| | 1,180.46 |
| | 511 |
| | 955.81 |
| | 81.0 |
| | 120 |
|
| Total Medicare | 1.2 |
| | 2,074 |
| | 1,738.85 |
| | 1,752 |
| | 1,468.77 |
| | 84.5 |
| | 322 |
|
| Total Medicaid and Medicare | 43.7 |
| | 15,697 |
| | 359.14 |
| | 14,010 |
| | 320.53 |
| | 89.2 |
| | 1,687 |
|
| Marketplace | 4.9 |
| | 1,915 |
| | 392.97 |
| | 1,127 |
| | 231.33 |
| | 58.9 |
| | 788 |
|
| | 48.6 |
| | $ | 17,612 |
| | $ | 362.54 |
| | $ | 15,137 |
| | $ | 311.59 |
| | 85.9 | % | | $ | 2,475 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2017 |
| | Member Months (1) | | Premium Revenue | | Medical Care Costs | | MCR (2) | | Medical Margin |
| | | Total | | PMPM | | Total | | PMPM | | |
| TANF and CHIP | 30.2 |
| | $ | 5,554 |
| | $ | 183.75 |
| | $ | 5,111 |
| | $ | 169.09 |
| | 92.0 | % | | $ | 443 |
|
| Medicaid Expansion | 8.1 |
| | 3,150 |
| | 388.42 |
| | 2,674 |
| | 329.73 |
| | 84.9 |
| | 476 |
|
| ABD | 4.9 |
| | 5,135 |
| | 1,050.41 |
| | 4,863 |
| | 994.80 |
| | 94.7 |
| | 272 |
|
| Total Medicaid | 43.2 |
| | 13,839 |
| | 320.16 |
| | 12,648 |
| | 292.61 |
| | 91.4 |
| | 1,191 |
|
| MMP | 0.7 |
| | 1,446 |
| | 2,177.72 |
| | 1,317 |
| | 1,982.36 |
| | 91.0 |
| | 129 |
|
| Medicare | 0.5 |
| | 601 |
| | 1,143.63 |
| | 493 |
| | 939.67 |
| | 82.2 |
| | 108 |
|
| Total Medicare | 1.2 |
| | 2,047 |
| | 1,722.47 |
| | 1,810 |
| | 1,523.15 |
| | 88.4 |
| | 237 |
|
| Total Medicaid and Medicare | 44.4 |
| | 15,886 |
| | 357.68 |
| | 14,458 |
| | 325.53 |
| | 91.0 |
| | 1,428 |
|
| Marketplace | 10.8 |
| | 2,968 |
| | 274.47 |
| | 2,615 |
| | 241.84 |
| | 88.1 |
| | 353 |
|
| | 55.2 |
| | $ | 18,854 |
| | $ | 341.39 |
| | $ | 17,073 |
| | $ | 309.14 |
| | 90.6 | % | | $ | 1,781 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2016 |
| | Member Months (1) | | Premium Revenue | | Medical Care Costs | | MCR (2) | | Medical Margin |
| | | Total | | PMPM | | Total | | PMPM | | |
| TANF and CHIP | 30.2 |
| | $ | 5,403 |
| | $ | 179.21 |
| | $ | 4,950 |
| | $ | 164.18 |
| | 91.6 | % | | $ | 453 |
|
| Medicaid Expansion | 7.8 |
| | 2,952 |
| | 378.58 |
| | 2,475 |
| | 317.37 |
| | 83.8 |
| | 477 |
|
| ABD | 4.7 |
| | 4,666 |
| | 991.24 |
| | 4,277 |
| | 908.39 |
| | 91.6 |
| | 389 |
|
| Total Medicaid | 42.7 |
| | 13,021 |
| | 305.28 |
| | 11,702 |
| | 274.33 |
| | 89.9 |
| | 1,319 |
|
| MMP | 0.6 |
| | 1,321 |
| | 2,160.94 |
| | 1,141 |
| | 1,866.93 |
| | 86.4 |
| | 180 |
|
| Medicare | 0.5 |
| | 558 |
| | 1,063.44 |
| | 515 |
| | 981.36 |
| | 92.3 |
| | 43 |
|
| Total Medicare | 1.1 |
| | 1,879 |
| | 1,653.73 |
| | 1,656 |
| | 1,457.67 |
| | 88.1 |
| | 223 |
|
| Total Medicaid and Medicare | 43.8 |
| | 14,900 |
| | 340.28 |
| | 13,358 |
| | 305.03 |
| | 89.6 |
| | 1,542 |
|
| Marketplace | 6.7 |
| | 1,545 |
| | 231.38 |
| | 1,416 |
| | 212.17 |
| | 91.7 |
| | 129 |
|
| | 50.5 |
| | $ | 16,445 |
| | $ | 325.87 |
| | $ | 14,774 |
| | $ | 292.75 |
| | 89.8 | % | | $ | 1,671 |
|
_______________________
| |
(1) | A member month is defined as the aggregate of each month’s ending membership for the period presented. |
| |
(2) | “MCR” represents medical costs as a percentage of premium revenue. |
Medicaid Program
2018 vs. 2017
Our Medicaid Medical Margin improved $174 million, or 15%,premium revenue increased $6.2 billion in 20182021, when compared with 2017. This improvement2020, mainly due to the impact from the Magellan Complete Care, and other acquisitions closed in the second half of 2020, the Affinity acquisition that closed in the fourth quarter of 2021, and organic membership growth. Excluding acquisitions, membership growth occurred across nearly all our states and was mainly driven by the extension of the PHE period and the associated suspension of membership redeterminations. Also contributing to the overall premium revenue increase was a lower impact of COVID-related risk corridors in 2021 compared to 2020.
As described in “Item 1. Business—COVID-19 Pandemic,” we recognized approximately $323 million in 2021, for the impact of COVID-related risk corridors enacted in most states in 2020, mainly related to Medicaid, in response
Molina Healthcare, Inc. 2021 Form 10-K | 38
to the lower utilization of medical services resulting from COVID-19. We recognized $564 million related to COVID-related risk corridors in 2020, mainly related to Medicaid.
The Medical Margin of our Medicaid program increased $518 million, or 29%, in 2021 when compared with 2020. The increase was driven by increased premium revenues and margin associated with the membership growth discussed above, partially offset by the MCR increase discussed below.
The Medicaid MCR increased to 88.7% in 2021, from 87.4% in 2020, or 130 basis points. The increase in the Medicaid MCR in 2021 was mainly due to an improvement in the MCR from 91.4% to 90.0%,business mix changes, partially offset by a slight decline in premiums. Medicaid premiums declined slightly, mainly due to a carve-out of pharmacy benefits for all Medicaid membership in Washington effective July 1, 2018, $81 million in retroactive California Medicaid Expansion risk corridor adjustments,continued medical cost management and a declineyear-over-year decrease in TANF and CHIP membership, partially offset by the net effect of COVID. The year-over-year change in impact of rate increasesthe net effect of COVID reflects the decrease in certain markets and increased quality incentive premium revenue.
Excluding recognition of the retroactive California Medicaid ExpansionCOVID-related risk corridor adjustments, the Medicaid MCR would have been 89.4% in 2018, or 200 basis points lower compared with 2017. The improvement in MCR was mainly attributable to improvements in the MCR for TANF and CHIP, primarily at our Illinois, California and Texas health plans, and improvement in the MCR for ABD, due to several actions, including improved network contracting and our management of high acuity members. We also benefited from net favorable prior year claims development in 2018, compared with net unfavorable claims development in 2017. Partially offsetting these improvements was an increase in the MCR for Medicaid Expansion. The increase was due to the retroactive California risk corridor adjustments and the premium reduction we received in California in July 2017. Despite an increase in MCR in 2018, Medicaid Expansion has generally performed well because rate adequacy has trended favorably, and membership is concentrated in our higher performing health plans, particularly California, Michigan, and Washington.
2017 vs. 2016
Medicaid Medical Margin decreased $128 million, or 10%, in 2017 when compared with 2016, mainly due to an increase in the MCR from 89.9% to 91.4%,corridors discussed above, partially offset by an increase in premiums.COVID-related inpatient costs, and lower COVID-related utilization curtailment. The Medicaid premiumsMCR is consistent with our long-term target despite the net effect of COVID.
Medicare
Medicare premium revenue increased $818$849 million or 6%, in 20172021, when compared with 2016,2020, primarily due to the impact of higher membership, mainly from the Magellan Complete Care acquisition, and higher premium revenue PMPM.
The Medical Margin for Medicare increased $79 million, or 23%, in 2021 when compared with 2020. The year-over-year increase in margin is driven by the increase in premium revenue from higher volume, partially offset by the MCR increase discussed below.
The Medicare MCR increased to 87.2% in 2021, from 86.0% in 2020, or 120 basis points. The increase was primarily driven by the net effect of COVID, including higher direct COVID medical costs, resulting from higher infection rates in our Medicare population. The net effect of COVID had a negligible impact on the MCR in 2020. The Medicare MCR is in line with our long-term target despite the net effect of COVID.
Marketplace
Marketplace premium revenue increased $1.5 billion in 2021, when compared with 2020, mainly due to higher membership, partially offset by a decrease in premium revenue PMPM. Our Marketplace membership as of December 31, 2021, amounted to 728,000 members, representing growth of 410,000 members year over year, and substantially exceeding our expectations. This improvement resulted from several factors, including strong product design and competitive pricing, better than expected natural attrition rates, and the extended special enrollment growthperiod. The decrease in Medicaid Expansion and ABD, and higher average premium revenue PMPM was mainly driven by changes in TANF, CHIP and ABD.business mix, with an increase of members in the bronze metal tier.
The increase in the Medicaid MCR was mainly attributed to a deterioration in ABD medical costs most notably in Michigan, New Mexico and Texas, and an increase in Expansion MCR, principally driven by reduced premium rates in California.
Medicare Program
2018 vs. 2017
The MedicareMarketplace Medical Margin increased $85$75 million in 2018, or 36%, when compared with 2017 due mainly to an improvement in the MCR.
The overall MCR for the combined Medicare programs decreased to 84.5% in 2018, from 88.4% in 2017. The improvement in 2018 was2021, primarily due to improved medical management of high-acuity members and long-term services and supports benefits, in addition to increased premium revenue tied to risk scores that is more commensurate with the acuity of our population.
2017 vs. 2016
The Medicare Medical Margin increased slightly in 2017 when compared with 2016, due mainly to an increase in membership and premiums, partiallymostly offset by an increase in the MCR. MMP and Medicare enrollment and premium combined grew by approximately 9% in 2017 compared with 2016. The MCR for this membership increased 30 basis points from 2016 to 2017.
Marketplace Program
2018 vs. 2017
The Marketplace Medical Margin increased $435 million in 2018, or 123%, when compared to 2017, due mainly to an improvement in the MCR, partially offset by a $1,053 million decrease in premiums. The lower Marketplace premium revenue was driven by a nearly 60% decrease in membership, partially offset by premium rate increases. As previously disclosed, we increased premium rates and reduced our Marketplace presence effective January 1, 2018, as part of our overall program to improve profitability.
The MCR for the Marketplace program improved to 58.9% in 2018, from 88.1% in 2017. Excluding the combined benefit of the 2017 Marketplace risk adjustment and CSR benefit recognized in 2018, the MCR in 2018 would have been 65.0%. Excluding the changes in Marketplace premium deficiency reserves for 2017 dates of service, the MCR would have been 89.1% for 2017. The year over year improvement is mainly due to the overall program to improve profitability, as discussed above, as well as increased premium revenue tied to risk scores more that is commensurate with the acuity of our population.
2017 vs. 2016
The Marketplace Medical Margin increased by $224 million in 2017, almost double that of 2016, due to an increase in premiums and a reduction in the MCR. The increase in Marketplace premium revenue was driven by a 60% increase in membership in 2017 compared with 2016.2020.
The Marketplace MCR improvedincreased to 88.1%86.9% in 20172021, compared with 91.7%to 78.7% in 2016. Excluding2020, or 820 basis points. The increase in MCR resulted mainly from a higher net effect of COVID, due to continued COVID utilization pressure in our largest Marketplace geographies, and increased non-COVID medical costs by members enrolled through the changes in Marketplace premium deficiency reserves for 2017 datesspecial enrollment period. Special Enrollment Period membership grew to almost 40% of service, the MCR would have been 89.1% for 2017. Despite a decrease in the MCR in 2017 compared with 2016, our Marketplace program still failedbook by the fourth quarter, and many of the new members that we attracted in 2021 were in regions disproportionately affected by COVID, particularly in Texas. Moreover, we attracted a large number of members through the special enrollment period, and those members experienced higher non-COVID utilization in addition to meet expectations in 2017.COVID-related costs.
FINANCIAL PERFORMANCE BY HEALTH PLANOther
The following tables summarize member months, premium revenue, medical careOther segment includes service revenues and costs MCR,associated with the long-term services and medical margin by health plan for the periods indicated (PMPM amounts aresupports consultative services we now provide in whole dollars; member months and other dollar amounts are in millions):
Health Plans Segment Financial Data — Medicaid and Medicare
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2018 |
| | Member Months | | Premium Revenue | | Medical Care Costs | | MCR | | Medical Margin |
| | | Total | | PMPM | | Total | | PMPM | | |
| California | 7.1 |
| | $ | 1,931 |
| | $ | 273.59 |
| | $ | 1,724 |
| | $ | 244.21 |
| | 89.3 | % | | $ | 207 |
|
| Florida | 4.2 |
| | 1,517 |
| | 360.98 |
| | 1,414 |
| | 336.43 |
| | 93.2 |
| | 103 |
|
| Illinois | 2.5 |
| | 793 |
| | 322.87 |
| | 670 |
| | 272.61 |
| | 84.4 |
| | 123 |
|
| Michigan | 4.5 |
| | 1,550 |
| | 344.42 |
| | 1,303 |
| | 289.53 |
| | 84.1 |
| | 247 |
|
| New Mexico | 2.6 |
| | 1,241 |
| | 474.10 |
| | 1,140 |
| | 435.65 |
| | 91.9 |
| | 101 |
|
| Ohio | 3.7 |
| | 2,277 |
| | 608.29 |
| | 2,001 |
| | 534.59 |
| | 87.9 |
| | 276 |
|
| Puerto Rico | 3.7 |
| | 696 |
| | 186.59 |
| | 636 |
| | 170.45 |
| | 91.4 |
| | 60 |
|
| South Carolina | 1.4 |
| | 495 |
| | 351.38 |
| | 429 |
| | 304.85 |
| | 86.8 |
| | 66 |
|
| Texas | 2.7 |
| | 2,296 |
| | 839.70 |
| | 2,092 |
| | 765.12 |
| | 91.1 |
| | 204 |
|
| Washington | 9.1 |
| | 2,178 |
| | 240.42 |
| | 1,999 |
| | 220.72 |
| | 91.8 |
| | 179 |
|
Other (1) | 2.2 |
| | 723 |
| | 329.06 |
| | 602 |
| | 273.55 |
| | 83.1 |
| | 121 |
|
| | 43.7 |
| | $ | 15,697 |
| | $ | 359.14 |
| | $ | 14,010 |
| | $ | 320.53 |
| | 89.2 | % | | $ | 1,687 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2017 |
| | Member Months | | Premium Revenue | | Medical Care Costs | | MCR | | Medical Margin |
| | Total | | PMPM | | Total | | PMPM | | |
| California | 7.4 |
| | $ | 2,392 |
| | $ | 321.46 |
| | $ | 2,117 |
| | $ | 284.53 |
| | 88.5 | % | | $ | 275 |
|
| Florida | 4.3 |
| | 1,522 |
| | 350.15 |
| | 1,461 |
| | 335.97 |
| | 96.0 |
| | 61 |
|
| Illinois | 2.1 |
| | 593 |
| | 286.69 |
| | 638 |
| | 308.41 |
| | 107.6 |
| | (45 | ) |
| Michigan | 4.6 |
| | 1,545 |
| | 334.22 |
| | 1,360 |
| | 294.15 |
| | 88.0 |
| | 185 |
|
| New Mexico | 2.9 |
| | 1,258 |
| | 439.95 |
| | 1,166 |
| | 407.94 |
| | 92.7 |
| | 92 |
|
| Ohio | 3.9 |
| | 2,130 |
| | 544.98 |
| | 1,894 |
| | 484.66 |
| | 88.9 |
| | 236 |
|
| Puerto Rico | 3.8 |
| | 732 |
| | 190.13 |
| | 691 |
| | 179.65 |
| | 94.5 |
| | 41 |
|
| South Carolina | 1.4 |
| | 445 |
| | 328.41 |
| | 412 |
| | 304.04 |
| | 92.6 |
| | 33 |
|
| Texas | 2.8 |
| | 2,150 |
| | 769.82 |
| | 1,978 |
| | 708.20 |
| | 92.0 |
| | 172 |
|
| Washington | 8.9 |
| | 2,445 |
| | 275.64 |
| | 2,143 |
| | 241.55 |
| | 87.6 |
| | 302 |
|
Other (1) | 2.3 |
| | 674 |
| | 292.92 |
| | 598 |
| | 259.85 |
| | 88.7 |
| | 76 |
|
| | 44.4 |
| | $ | 15,886 |
| | $ | 357.68 |
| | $ | 14,458 |
| | $ | 325.53 |
| | 91.0 | % | | $ | 1,428 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2016 |
| | Member Months | | Premium Revenue | | Medical Care Costs | | MCR | | Medical Margin |
| | Total | | PMPM | | Total | | PMPM | | |
| California | 7.4 |
| | $ | 2,247 |
| | $ | 304.83 |
| | $ | 1,900 |
| | $ | 257.72 |
| | 84.5 | % | | $ | 347 |
|
| Florida | 4.1 |
| | 1,348 |
| | 329.58 |
| | 1,227 |
| | 299.94 |
| | 91.0 |
| | 121 |
|
| Illinois | 2.3 |
| | 603 |
| | 258.72 |
| | 568 |
| | 243.71 |
| | 94.2 |
| | 35 |
|
| Michigan | 4.7 |
| | 1,517 |
| | 324.18 |
| | 1,339 |
| | 286.00 |
| | 88.2 |
| | 178 |
|
| New Mexico | 2.8 |
| | 1,245 |
| | 440.63 |
| | 1,162 |
| | 411.30 |
| | 93.3 |
| | 83 |
|
| Ohio | 3.9 |
| | 1,927 |
| | 490.71 |
| | 1,718 |
| | 437.56 |
| | 89.2 |
| | 209 |
|
| Puerto Rico | 4.0 |
| | 726 |
| | 180.65 |
| | 694 |
| | 172.57 |
| | 95.5 |
| | 32 |
|
| South Carolina | 1.3 |
| | 378 |
| | 296.58 |
| | 320 |
| | 250.97 |
| | 84.6 |
| | 58 |
|
| Texas | 2.9 |
| | 2,182 |
| | 744.65 |
| | 1,926 |
| | 657.38 |
| | 88.3 |
| | 256 |
|
| Washington | 8.1 |
| | 2,146 |
| | 263.50 |
| | 1,936 |
| | 237.66 |
| | 90.2 |
| | 210 |
|
Other (1) | 2.3 |
| | 581 |
| | 264.52 |
| | 568 |
| | 258.77 |
| | 97.8 |
| | 13 |
|
| | 43.8 |
| | $ | 14,900 |
| | $ | 340.28 |
| | $ | 13,358 |
| | $ | 305.03 |
| | 89.6 | % | | $ | 1,542 |
|
_____________________
| |
(1) | “Other” includes the Idaho, Mississippi, New York, Utah and Wisconsin health plans, which are not individually significant to our consolidated operating results. |
Health Plans Segment Financial Data — Marketplace
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2018 |
| | Member Months | | Premium Revenue | | Medical Care Costs | | MCR | | Medical Margin |
| | | Total | | PMPM | | Total | | PMPM | | |
| California | 0.6 |
| | $ | 219 |
| | $ | 325.84 |
| | $ | 125 |
| | $ | 187.37 |
| | 57.5 | % | | $ | 94 |
|
| Florida | 0.6 |
| | 273 |
| | 498.66 |
| | 99 |
| | 181.52 |
| | 36.4 |
| | 174 |
|
| Michigan | 0.2 |
| | 51 |
| | 250.69 |
| | 31 |
| | 150.11 |
| | 59.9 |
| | 20 |
|
| New Mexico | 0.3 |
| | 115 |
| | 403.55 |
| | 74 |
| | 260.29 |
| | 64.5 |
| | 41 |
|
| Ohio | 0.3 |
| | 111 |
| | 477.03 |
| | 78 |
| | 334.32 |
| | 70.1 |
| | 33 |
|
| Texas | 2.7 |
| | 948 |
| | 356.06 |
| | 593 |
| | 222.89 |
| | 62.6 |
| | 355 |
|
| Washington | 0.2 |
| | 183 |
| | 664.48 |
| | 140 |
| | 506.07 |
| | 76.2 |
| | 43 |
|
Other (1) | — |
| | 15 |
| | NM |
| | (13 | ) | | NM |
| | NM |
| | 28 |
|
| | 4.9 |
| | $ | 1,915 |
| | $ | 392.97 |
| | $ | 1,127 |
| | $ | 231.33 |
| | 58.9 | % | | $ | 788 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2017 |
| | Member Months | | Premium Revenue | | Medical Care Costs | | MCR | | Medical Margin |
| | Total | | PMPM | | Total | | PMPM | | |
| California | 1.7 |
| | $ | 309 |
| | $ | 185.88 |
| | $ | 231 |
| | $ | 138.61 |
| | 74.6 | % | | $ | 78 |
|
| Florida | 3.6 |
| | 1,046 |
| | 293.35 |
| | 1,009 |
| | 283.17 |
| | 96.5 |
| | 37 |
|
| Michigan | 0.3 |
| | 51 |
| | 180.26 |
| | 38 |
| | 135.64 |
| | 75.2 |
| | 13 |
|
| New Mexico | 0.3 |
| | 110 |
| | 349.50 |
| | 84 |
| | 264.14 |
| | 75.6 |
| | 26 |
|
| Ohio | 0.2 |
| | 86 |
| | 363.24 |
| | 81 |
| | 340.44 |
| | 93.7 |
| | 5 |
|
| Texas | 2.6 |
| | 663 |
| | 250.08 |
| | 517 |
| | 195.20 |
| | 78.1 |
| | 146 |
|
| Washington | 0.5 |
| | 163 |
| | 317.39 |
| | 156 |
| | 304.74 |
| | 96.0 |
| | 7 |
|
Other (1) | 1.6 |
| | 540 |
| | 340.13 |
| | 499 |
| | 314.21 |
| | 92.4 |
| | 41 |
|
| | 10.8 |
| | $ | 2,968 |
| | $ | 274.47 |
| | $ | 2,615 |
| | $ | 241.84 |
| | 88.1 | % | | $ | 353 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2016 |
| | Member Months | | Premium Revenue | | Medical Care Costs | | MCR | | Medical Margin |
| | Total | | PMPM | | Total | | PMPM | | |
| California | 0.8 |
| | $ | 131 |
| | $ | 166.01 |
| | $ | 129 |
| | $ | 164.35 |
| | 99.0 | % | | $ | 2 |
|
| Florida | 2.6 |
| | 590 |
| | 228.65 |
| | 538 |
| | 208.53 |
| | 91.2 |
| | 52 |
|
| Michigan | — |
| | 10 |
| | 232.88 |
| | 6 |
| | 154.32 |
| | 66.3 |
| | 4 |
|
| New Mexico | 0.2 |
| | 60 |
| | 287.37 |
| | 47 |
| | 223.85 |
| | 77.9 |
| | 13 |
|
| Ohio | 0.1 |
| | 40 |
| | 348.06 |
| | 29 |
| | 254.78 |
| | 73.2 |
| | 11 |
|
| Texas | 1.4 |
| | 279 |
| | 208.48 |
| | 184 |
| | 137.13 |
| | 65.8 |
| | 95 |
|
| Washington | 0.3 |
| | 76 |
| | 272.48 |
| | 79 |
| | 284.87 |
| | 104.5 |
| | (3 | ) |
Other (1) | 1.3 |
| | 359 |
| | 271.04 |
| | 404 |
| | 304.22 |
| | 112.2 |
| | (45 | ) |
| | 6.7 |
| | $ | 1,545 |
| | $ | 231.38 |
| | $ | 1,416 |
| | $ | 212.17 |
| | 91.7 | % | | $ | 129 |
|
_____________________
| |
(1) | “Other” includes the Utah and Wisconsin health plans, which are not individually significant to our consolidated operating results. We terminated Marketplace operations at these plans effective January 1, 2018, so the ratios for 2018 periods are not meaningful (NM).
|
Health Plans Segment Financial Data — Total
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2018 |
| | Member Months | | Premium Revenue | | Medical Care Costs | | MCR | | Medical Margin |
| | | Total | | PMPM | | Total | | PMPM | | |
| California | 7.7 |
| | $ | 2,150 |
| | $ | 278.13 |
| | $ | 1,849 |
| | $ | 239.28 |
| | 86.0 | % | | $ | 301 |
|
| Florida | 4.8 |
| | 1,790 |
| | 376.84 |
| | 1,513 |
| | 318.58 |
| | 84.5 |
| | 277 |
|
| Illinois | 2.5 |
| | 793 |
| | 322.87 |
| | 670 |
| | 272.61 |
| | 84.4 |
| | 123 |
|
| Michigan | 4.7 |
| | 1,601 |
| | 340.35 |
| | 1,334 |
| | 283.47 |
| | 83.3 |
| | 267 |
|
| New Mexico | 2.9 |
| | 1,356 |
| | 467.17 |
| | 1,214 |
| | 418.44 |
| | 89.6 |
| | 142 |
|
| Ohio | 4.0 |
| | 2,388 |
| | 600.62 |
| | 2,079 |
| | 522.89 |
| | 87.1 |
| | 309 |
|
| Puerto Rico | 3.7 |
| | 696 |
| | 186.59 |
| | 636 |
| | 170.45 |
| | 91.4 |
| | 60 |
|
| South Carolina | 1.4 |
| | 495 |
| | 351.38 |
| | 429 |
| | 304.85 |
| | 86.8 |
| | 66 |
|
| Texas | 5.4 |
| | 3,244 |
| | 601.23 |
| | 2,685 |
| | 497.75 |
| | 82.8 |
| | 559 |
|
| Washington | 9.3 |
| | 2,361 |
| | 252.92 |
| | 2,139 |
| | 229.13 |
| | 90.6 |
| | 222 |
|
Other (1) | 2.2 |
| | 738 |
| | 336.86 |
| | 589 |
| | 268.17 |
| | 79.6 |
| | 149 |
|
| | 48.6 |
| | $ | 17,612 |
| | $ | 362.54 |
| | $ | 15,137 |
| | $ | 311.59 |
| | 85.9 | % | | $ | 2,475 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2017 |
| | Member Months | | Premium Revenue | | Medical Care Costs | | MCR | | Medical Margin |
| | Total | | PMPM | | Total | | PMPM | | |
| California | 9.1 |
| | $ | 2,701 |
| | $ | 296.68 |
| | $ | 2,348 |
| | $ | 257.86 |
| | 86.9 | % | | $ | 353 |
|
| Florida | 7.9 |
| | 2,568 |
| | 324.56 |
| | 2,470 |
| | 312.18 |
| | 96.2 |
| | 98 |
|
| Illinois | 2.1 |
| | 593 |
| | 286.69 |
| | 638 |
| | 308.41 |
| | 107.6 |
| | (45 | ) |
| Michigan | 4.9 |
| | 1,596 |
| | 325.43 |
| | 1,398 |
| | 285.11 |
| | 87.6 |
| | 198 |
|
| New Mexico | 3.2 |
| | 1,368 |
| | 430.97 |
| | 1,250 |
| | 393.67 |
| | 91.3 |
| | 118 |
|
| Ohio | 4.1 |
| | 2,216 |
| | 534.56 |
| | 1,975 |
| | 476.39 |
| | 89.1 |
| | 241 |
|
| Puerto Rico | 3.8 |
| | 732 |
| | 190.13 |
| | 691 |
| | 179.65 |
| | 94.5 |
| | 41 |
|
| South Carolina | 1.4 |
| | 445 |
| | 328.41 |
| | 412 |
| | 304.04 |
| | 92.6 |
| | 33 |
|
| Texas | 5.4 |
| | 2,813 |
| | 516.84 |
| | 2,495 |
| | 458.50 |
| | 88.7 |
| | 318 |
|
| Washington | 9.4 |
| | 2,608 |
| | 277.93 |
| | 2,299 |
| | 245.01 |
| | 88.2 |
| | 309 |
|
Other (1) | 3.9 |
| | 1,214 |
| | 312.20 |
| | 1,097 |
| | 282.06 |
| | 90.3 |
| | 117 |
|
| | 55.2 |
| | $ | 18,854 |
| | $ | 341.39 |
| | $ | 17,073 |
| | $ | 309.14 |
| | 90.6 | % | | $ | 1,781 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2016 |
| | Member Months | | Premium Revenue | | Medical Care Costs | | MCR | | Medical Margin |
| | Total | | PMPM | | Total | | PMPM | | |
| California | 8.2 |
| | $ | 2,378 |
| | $ | 291.41 |
| | $ | 2,029 |
| | $ | 248.70 |
| | 85.3 | % | | $ | 349 |
|
| Florida | 6.7 |
| | 1,938 |
| | 290.56 |
| | 1,765 |
| | 264.60 |
| | 91.1 |
| | 173 |
|
| Illinois | 2.3 |
| | 603 |
| | 258.72 |
| | 568 |
| | 243.71 |
| | 94.2 |
| | 35 |
|
| Michigan | 4.7 |
| | 1,527 |
| | 323.36 |
| | 1,345 |
| | 284.82 |
| | 88.1 |
| | 182 |
|
| New Mexico | 3.0 |
| | 1,305 |
| | 430.15 |
| | 1,209 |
| | 398.49 |
| | 92.6 |
| | 96 |
|
| Ohio | 4.0 |
| | 1,967 |
| | 486.66 |
| | 1,747 |
| | 432.36 |
| | 88.8 |
| | 220 |
|
| Puerto Rico | 4.0 |
| | 726 |
| | 180.65 |
| | 694 |
| | 172.57 |
| | 95.5 |
| | 32 |
|
| South Carolina | 1.3 |
| | 378 |
| | 296.58 |
| | 320 |
| | 250.97 |
| | 84.6 |
| | 58 |
|
| Texas | 4.3 |
| | 2,461 |
| | 576.69 |
| | 2,110 |
| | 494.41 |
| | 85.7 |
| | 351 |
|
| Washington | 8.4 |
| | 2,222 |
| | 263.80 |
| | 2,015 |
| | 239.21 |
| | 90.7 |
| | 207 |
|
Other (1) | 3.6 |
| | 940 |
| | 266.98 |
| | 972 |
| | 275.92 |
| | 103.3 |
| | (32 | ) |
| | 50.5 |
| | $ | 16,445 |
| | $ | 325.87 |
| | $ | 14,774 |
| | $ | 292.75 |
| | 89.8 | % | | $ | 1,671 |
|
____________________________
| |
(1) | “Other” includes the Idaho, New York, Utah and Wisconsin health plans, which are not individually significant to our consolidated operating results. |
OTHER
Molina Medicaid Solutions. We closed on the sale of Molina Medicaid Solutions (“MMS”) to DXC Technology Company on September 30, 2018. The net cash selling price for the equity interests of MMS was $233 million. AsWisconsin as a result of this transaction, we recognized a pretax gain, net of transaction costs, of $37 million. The gain, net of income tax expense, was $28 million.
Pathways. We closed onour Magellan Complete Care acquisition, and also includes certain corporate amounts not allocated to the sale of our Pathways behavioral health subsidiary to Pyramid Health Holdings, LLC on October 19, 2018, for a nominal purchase price. As a result of this transaction, we recognized a pretax loss of $52 million. The loss, net of income tax benefit, was $32 million.
FINANCIAL OVERVIEW
The year over year changes in service margin in 2018 and 2017Medicaid, Medicare, or Marketplace segments. Such amounts were insignificantimmaterial to our consolidated results of operations.operations for 2021 and 2020.
As discussed further in the Notes to Consolidated Financial Statements, Note 8, “Goodwill and Intangible Assets, Net,” in the year ended December 31, 2017, we recorded goodwill impairment losses of $162 million for Pathways, and $28 million for MMS, and intangible assets, net impairment losses of $11 million for Pathways.
LIQUIDITY AND FINANCIAL CONDITION
LIQUIDITY
We manage our cash, investments, and capital structure to meet the short- and long-term obligations of our business while maintaining liquidity and financial flexibility. We forecast, analyze, and monitor our cash flows to enable prudent investment management and financing within the confines of our financial strategy.
Molina Healthcare, Inc. 2021 Form 10-K | 39
We maintain liquidity at two levels: 1) the regulated health plan subsidiaries; and 2) the parent company.
Our regulated health plan subsidiaries’ primary liquidity requirements include payment of medical claims and other health care services; payment of certain settlements with our state and federal customers, such as MLR and risk corridors and Marketplace risk transfers on behalf of CMS; general and administrative costs directly incurred or paid through an administrative services agreement to the parent company; and federal tax payments to the parent company under an intercompany tax sharing agreement. Our regulated health plan subsidiaries generate significantmeet their liquidity needs by generating cash flows from operating activities, primarily from premium revenue. Suchrevenue; cash flows arefrom investing activities, including investment income and sales of investments; and capital contributions received from our primary sourceparent company.
Our regulated health plan subsidiaries generally receive premiums in advance of liquidity. Thus, any futurepayments of claims for medical and other health care services; however, cash and cash equivalents in regulated health plan subsidiaries can fluctuate significantly in a particular period depending on the timing of receipts for premiums from our government partners. Any decline or delay in our profitability mayreceipt of premium revenue could have a negative impact on our liquidity. We generally receivedid not experience noticeable delays to, or changes in, the timing or level of premium revenuereceipts in 2021 as a short time before we pay for the related health care services. A majorityresult of the assets held byCOVID-19 pandemic, but there can be no assurance that we will not experience such delays in the future. See further discussion below in “Future Sources and Uses of Liquidity—Future Uses—Potential Impact of COVID-19 Pandemic.”
Our regulated health plan subsidiaries are each subject to applicable state regulations that, among other things, require the maintenance of minimum levels of capital and surplus. We continue to maintain appropriate levels of aggregate excess statutory capital and surplus in our regulated health plan subsidiaries is in the form of cash, cash equivalents,subsidiaries. See further discussion under “Regulatory Capital and investments.
Dividend Restrictions” below. When available and as permitted by applicable regulations, cash in excess of the capital needs of our regulated health plan subsidiaries is generally paid in the form of dividends to our parent company to be used for general corporate purposes. The regulated health plan subsidiaries paid $288 million, $245 million, and $100 million in such dividends to the parent company in 2018, 2017 and 2016, respectively. Additionally, our unregulated subsidiaries paid $10 million, $41 million, and $1amounting to $564 million in dividends2021 and $635 million in 2020.
Parent company liquidity requirements generally consist of payment of administrative costs not directly incurred by our regulated operations, including, but not limited to, the parent in 2018, 2017staffing costs, lease payments, branding and 2016, respectively. Conversely, thecertain information technology services; capital contributions paid to our regulated health plan subsidiaries, including funding for newer health plans; capital expenditures; debt service; funding for common stock purchases, acquisitions and other growth-related activities; and federal tax payments. The parent company contributed capital of $145 million, $370$440 million and $338$107 million in 2018, 20172021 and 2016,2020, respectively, to our regulated health plan subsidiaries to satisfy statutory net worthcapital and surplus requirements. The increased contributions in 2021 were mainly attributed to fund growth in our New York and Kentucky health plans. Our parent company normally meets its liquidity requirements by earning administrative services fees under administrative services agreements; dividends received from our regulated subsidiaries; collecting federal tax payments from the regulated subsidiaries; proceeds from issuance of debt and equity securities; and cash flows from investing activities, including investment income and sales of investments.
Cash, cash equivalents and investments at the parent company amounted to $170$348 million and $696$644 million as of December 31, 20182021, and 2017,2020, respectively. The decrease in 20182021 was mainly attributeddue to cash paid to reduce the principal amount of outstanding debt,used for acquisitions and share repurchases, partially offset by net cash dividends received from ourregulated health plan subsidiaries. In the first quarter of 2021, we purchased an aggregate of approximately 577,000 shares for $122 million, and we also paid $6 million to settle shares purchased in late December 2020.
Investments
After considering expected cash flows from operating activities, we generally invest cash of regulated subsidiaries that exceeds our expected short-term obligations in longer term, investment-grade, and marketable debt securities to improve our overall investment return. These investments are made pursuant to board approvedboard-approved investment policies which conform to applicable state laws and regulations.
Our investment policies are designed to provide liquidity, preserve capital, and maximize total return on invested assets, all in a manner consistent with state requirements that prescribe the types of instruments in which our subsidiaries may invest. These investment policies require that our investments have final maturities of less than 10 years, or less (excluding variable rate securities,than 10 years average life for which interest rates are periodically reset) and that the average maturity be three years or less.structured securities. Professional portfolio managers operating under documented guidelines manage our investments and a portion of our cash equivalents. Our portfolio managers must obtain our prior approval before selling investments where the loss position of those investments exceeds certain levels.
Molina Healthcare, Inc. 2021 Form 10-K | 40
We believe that the risks of the COVID-19 pandemic, as they relate to our investments, are minimal. The overall rating of our portfolio is AA. Our investment policy has directives in conjunction with state guidelines to minimize risks and exposures in volatile markets. Additionally, our portfolio managers assist us in navigating the current volatility in the capital markets.
Our restricted investments are invested principally in certificates of depositcash, cash equivalents, and U.S. Treasury securities; we have the ability to hold such restricted investments until maturity. All of our unrestricted investments are classified as current assets and are presented in the table below.assets.
Cash Flow Activities
Our cash flows are summarized as follows: |
| | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2018 | | 2017 | | 2016 | | 2017 to 2018 Change | | 2016 to 2017 Change |
| | (In millions) |
| Net cash (used in) provided by operating activities | $ | (314 | ) | | $ | 804 |
| | $ | 673 |
| | $ | (1,118 | ) | | $ | 131 |
|
| Net cash provided by (used in) investing activities | 1,143 |
| | (1,062 | ) | | (206 | ) | | 2,205 |
| | (856 | ) |
| Net cash (used in) provided by financing activities | (1,193 | ) | | 636 |
| | 19 |
| | (1,829 | ) | | 617 |
|
| Net (decrease) increase in cash, cash equivalents, and restricted cash and cash equivalents | $ | (364 | ) | | $ | 378 |
| | $ | 486 |
| | $ | (742 | ) | | $ | (108 | ) |
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | Change |
| | | | | |
| (In millions) |
| Net cash provided by operating activities | $ | 2,119 | | | $ | 1,898 | | | $ | 221 | |
| Net cash used in investing activities | (1,653) | | | (400) | | | (1,253) | |
| Net cash (used in) provided by financing activities | (183) | | | 217 | | | (400) | |
| Net increase (decrease) in cash, cash equivalents, and restricted cash and cash equivalents | $ | 283 | | | $ | 1,715 | | | $ | (1,432) | |
Operating Activities
We typically receive capitation payments monthly, in advance of payments for medical claims; however, state or federalgovernment payors may decide to adjust their payment schedules, which could positively or negatively impactimpacting our reported cash flows from operating activities in any given period. State or federalFor example, government payors may delay our premium payments, or they may prepay the following month’s premium payment.
2018 vs. 2017
Net cash usedprovided by operations was $2.1 billion in operating activities was $314 million in 20182021, compared with $804 million$1.9 billion of net cash provided in 2017, a decrease2020. The $221 million increase in cash of $1,118 million,flow was due to the following factors:growth in operations and the net impact of timing differences in government receivables and payables.
The timing effect of premium receipts and other revenues negatively impacted our cash flows from operating activities by $633 million on a year-over-year comparative basis. This impact was mainly related to the timing of premiums received at our California, Illinois, Michigan, Ohio, and Washington health plans.
The decline in medical claims and benefits payable, mainly resulting from reduced Marketplace membership in Florida, Utah, Washington and Wisconsin decreased cash flows from operations by $489 million.
Settlements with government agencies decreased our cash flows by $915 million on a year-over-year comparative basis, primarily due to payments in the third quarter of 2018, including risk transfer payments associated with our Marketplace health plans.
The declines discussed above were partially offset by the improved operating performance in our health plans, driven mainly by lower medical care costs.
2017 vs. 2016
Net cash provided by operating activities was $804 million in 2017, compared with $673 million of net cash provided in 2016, an increase in cash of $131 million, due to the following factors:
The timing effect of premium receipts and other revenues, mainly in our California, Florida, Illinois, and Washington health plans, favorably impacted our cash flows from operating activities by $325 million on a year-over-year comparative basis.
This improvement was partially offset by: 1) a decrease in cash flows associated with the settlements with government agencies of approximately $132 million, mainly related to provisions that mandate medical cost floors or medical corridors; and 2) a decline in our operating performance.
Investing Activities
2018 vs. 2017
Net cash provided by investing activities was $1,143 million in 2018, compared with $1,062 million of net cash used in 2017, an increase in cash of $2,205 million. The year over year improvement was primarily due to higher proceeds from sales and maturities of investments, net of purchases, in 2018, largely driven by cash flow needs associated with our financing activities, as described below.
2017 vs. 2016
Net cash used in investing activities was $1,062 million$1.7 billion in 2017,2021, compared with $206$400 million of net cash used in 2016,2020, a decrease in year-over-year cash flow of $856 million. More$1.3 billion. This change in cash flow was used in investing activities in 2017 primarily due to $768 million of increased purchases of investments asin 2021, after a resulttemporarily higher allocation in shorter-term invested assets during the COVID-19 pandemic was rescinded in the second quarter of the 2017 financing transactions described below, and $207 million decreased proceeds from sales and maturities of investments.2021.
Financing Activities
2018 vs. 2017
Net cash used in financing activities was $1,193$183 million in 2018,2021, compared with $636$217 million of net cash provided in 2017,by 2020, a decrease in year-over-year cash flow of $1,829$400 million. In 2021, cash inflows included $740 million due to the following factors:
$300 million repayment of the Credit Facility in 2018;
$847 million net payments for partial repayment of the 1.125% Convertible Notes, and partial settlements of the related 1.125% Conversion Option, 1.125% Call Option and 1.125% Warrants in 2018; and
$64 million principal repayment of 1.625% Convertible Notes in 2018; partially offset by
$625 million of proceeds from the issuance of the 4.875%3.875% Notes due 2032, and borrowings under the Credit Facility in 2017.
2017 vs. 2016
Cash provided by financing activities was $636cash outflows included $723 million in 2017, compared with $19repayment of the 5.375% Notes due 2022, common stock purchases of $128 million and $53 million for common stock withheld to settle employee tax obligations. Additionally, we paid $23 million to settle contingent consideration liabilities relating to our Kentucky Passport acquisition that closed in 2020, $20 million of netwhich has been presented as a financing cash provided in 2016, an increase in cash of $617 million.outflow. In 2017,the year ended December 31, 2020, financing cash inflows included $325$1,429 million forfrom the net proceeds from our issuance of the 4.875%4.375% Notes due 2028 and borrowings3.875% Notes due 2030 and $380 million borrowed under our Credit Facility, with no comparable activitythe term loan facility. Cash outflows included the $600 million repayment of the term loan facility, common stock purchases of $606 million, which included $7 million to settle shares purchased in 2016.late December 2019, and net cash paid for the senior notes-related transactions amounting to $380 million.
FINANCIAL CONDITION
We believe that our cash resources, borrowing capacity available under our Credit Agreement as discussed further below in “Future Sources and Uses of Liquidity—Future Sources,” and internally generated funds will be sufficient to support our operations, regulatory requirements, debt repayment obligations and capital expenditures for at least the next 12 months.
On a consolidated basis, atas of December 31, 2018,2021, our working capital was $2,216 million$3.0 billion compared with $1,954 million at$2.9 billion as of December 31, 2017.2020. At December 31, 2018,2021, our cash and investments amounted to $4,629 million,$7.9 billion, compared with $6,000 million$6.2 billion of cash and investments at December 31, 2017.2020.
Molina Healthcare, Inc. 2021 Form 10-K | 41
Because of the statutory restrictions that inhibit the ability of our health plansplan subsidiaries to transfer net assets to us, the amount of retained earnings readily available to pay dividends to our stockholders is generally limited to cash, cash equivalents and investments held by our unregulated parent and subsidiaries.parent. For more information, see the Liquidity “Liquidity”discussion presented earlierabove.
Regulatory Capital and Dividend Restrictions
Each of our regulated, wholly owned subsidiaries must maintain a minimum amount of statutory capital determined by statute or regulations. Such statutes, regulations and capital requirements also restrict the timing, payment and amount of dividends and other distributions, loans or advances that may be paid to us as the sole stockholder. To the extent our subsidiaries must comply with these regulations, they may not have the financial flexibility to transfer funds to us. Based upon current statutes and regulations, the minimum capital and surplus requirement for these subsidiaries was estimated to be approximately $2.1 billion at December 31, 2021, compared with $1.5 billion at December 31, 2020. The aggregate capital and surplus of our wholly owned subsidiaries was in excess of these minimum capital requirements as of both dates.
Under applicable regulatory requirements, the amount of dividends that may be paid by our wholly owned subsidiaries without prior approval by regulatory authorities as of December 31, 2021, was approximately $197 million in the aggregate. The subsidiaries may pay dividends over this sectionamount, but only after approval is granted by the regulatory authorities.
Based on our cash and investments balances as of December 31, 2021, management believes that our regulated wholly owned subsidiaries remain well capitalized and exceed their regulatory minimum requirements. We have the MD&A.ability, and have committed to provide, additional capital to each of our health plans as necessary to ensure compliance with statutory capital and surplus requirements.
Capital Structure
In September 2021, our board of directors authorized the purchase of up to $500 million, in the aggregate, of our common stock. This new program immediately supersedes the stock purchase program previously approved by our board of directors in September 2020. This new program will be funded with cash on hand and extends through December 31, 2022.
As debt held by the parent company comes due, we typically engage in a new private offering of debt to retire and replace the prior issuance. Over the last several years we have seen a continued decline in interest rates, which has benefited our overall cost of capital during that time. There is no guarantee that the interest rate environment will continue to see declines in interest rates in the future, and future refinancing may occur at a higher rate than those we have achieved historically. This could increase our cost of capital in the future or cause us to pursue alternative financing sources, should the need arise.
We are not a party to any off-balance sheet financing arrangements.
Debt Ratings
Our 5.375% Notes and 4.875% Notes areEach of our senior notes is rated “BB-” by Standard & Poor’s, and “B3”“Ba3” by Moody’s Investor Service, Inc. A downgrade in our ratings could adversely affect our borrowing capacity and increase our borrowing costs.
Financial Covenants
OurThe Credit Agreement contains customary non-financial and financial covenants, including a net leverage ratio and an interest coverage ratio. Such ratios presented below, are computed as defined by the terms of the Credit Agreement.
|
| | | |
Credit Agreement Financial Covenants | Required Per Agreement | | As of December 31, 2018 |
| | | |
Net leverage ratio | <4.0x | | 1.1x |
Interest coverage ratio | >3.5x | | 13.6x |
In addition, the termsindentures governing each of our 4.875% Notes, 5.375% Notes and the 1.125% Convertible Notesoutstanding senior notes contain cross-default provisions that are triggered upon default by us or any of our subsidiaries on any indebtedness in excess of the amount specified in the applicable indenture. As of December 31, 2018,2021, we were in compliance with all financial and non-financial covenants under the Credit Agreement and the indentures governing our outstanding notes.other long-term debt.
Capital Plan Progress
In the year ended December 31, 2018, we have reduced the principal amount of our outstanding debt by $759 million.
In the fourth quarter of 2018, we repaid $62 million aggregate principal amount of our 1.125% Convertible Notes and entered into privately negotiated termination agreements to partially terminate the related 1.125% Call Option and 1.125% Warrants.
In the third quarter of 2018, we repaid $140 million aggregate principal amount of our 1.125% Convertible Notes and entered into privately negotiated termination agreements to partially terminate the related 1.125% Call Option and 1.125% Warrants. In addition, we converted the remaining $64 million aggregate principal amount of our 1.625% Convertible Notes for cash and 0.6 million shares of our common stock. We also terminated our bridge credit agreement in the third quarter of 2018.
In the second quarter of 2018, we repaid $300 million outstanding under our Credit Facility. In addition, we repaid $96 million aggregate principal amount of our 1.125% Convertible Notes, and entered into privately negotiated termination agreements to partially terminate the related 1.125% Call Option and 1.125% Warrants.
In the first quarter of 2018, we exchanged $97 million aggregate principal amount and accrued interest of our 1.625% Convertible Notes for 1.8 million shares of our common stock.
FUTURE SOURCES AND USES OF LIQUIDITY
Future Sources
Our Health Plans segment regulated subsidiaries generate significant cash flows from premium revenue, which weis generally receivereceived a short time before we pay for the related health care services. Such cash flowshealthcare services are paid. Premium revenue is our primary source of liquidity. Thus, any future decline in the receipt of premium revenue, and our profitability, maycould have a negative impact on our liquidity.
Molina Healthcare, Inc. 2021 Form 10-K | 42
Potential Impact of COVID-19 Pandemic. Excluding acquisitions and our exit from Puerto Rico, we have added approximately 750,000 new Medicaid members since March 31, 2020, when we first began to report on the impacts of the pandemic. We believe this membership increase was mainly due to the suspension of redeterminations for Medicaid eligibility. We expect Medicaid enrollment to continue to benefit from the extension of the PHE period, and the associated pause on membership redeterminations, at least through mid-April 2022.
Dividends from Subsidiaries. When available and as permitted by applicable regulations, cash in excess of the capital needs of our regulated health plans is generally paid in the form of dividends to our unregulated parent company to be used for general corporate purposes. As a result of the COVID-19 pandemic, state regulators could restrict the ability of our regulated health plan subsidiaries to pay dividends to the parent company, which could reduce the liquidity of the parent company. For more information on our regulatory capital requirements and dividend restrictions, refer to Notes to Consolidated Financial Statements, Note 17,15, “Commitments and Contingencies—Regulatory Capital Requirements and Dividend Restrictions,” and Note 20,17, “Condensed Financial Information of Registrant—Note C - Dividends and Capital Contributions.”
Borrowing Capacity and Debt Financing. On January 31, 2019, we entered into a Sixth Amendment to the Credit Agreement that provides for a delayed draw term loan facility in an aggregate principal amountBorrowing Capacity. As of $600 million (the “Term Loan”), under whichDecember 31, 2021, we may request up to ten advances, each in a minimum principal amount of $50 million,
until 18 months after January 31, 2019. In addition, we havehad available borrowing capacity of $493 million$1 billion under the revolving credit facility of our Credit Facility.Agreement. In addition, the Credit Agreement provides for a $15 million swingline sub-facility and a $100 million letter of credit sub-facility, as well as incremental term loans available to finance certain acquisitions up to $500 million, plus an unlimited amount of such term loans as long as we maintain a minimum consolidated net leverage ratio. See further discussion in the Notes to Consolidated Financial Statements, Note 11, “Debt.”
Savings from Restructuring Plans. Our new executive team has focused on a margin recovery plan that includes identification and implementation of various profit improvement initiatives. To that end, we implemented a plan to restructure our information technology department (the “IT Restructuring Plan”) in the third quarter of 2018. As a part of that plan, on February 4, 2019, we entered into a master services agreement with Infosys Limited pursuant to which Infosys will manage certain of our information technology infrastructure services including, among other things, our information technology operations, end-user services, and data centers. We expect the IT Restructuring Plan to be completed by the end of 2019. We currently estimate that the IT Restructuring Plan will reduce annualized run-rate expenses by approximately $15 million to $20 million in the first full year, increasing up to approximately $30 million to $35 million by the end of the fifth full year. Such savings, if achieved, would reduce Other segment “General and administrative expenses” in our consolidated statements of operations.
Under the restructuring plan we implemented in 2017 (the “2017 Restructuring Plan”), we achieved savings in our Health Plans and Other segments, which have reduced both “General and administrative expenses” and “Medical care costs” reported in our consolidated statements of operations. The following table illustrates the run-rate savings realized under the 2017 Restructuring Plan:
|
| | | | | | | | | | | |
| Run-Rate Savings Realized by Reportable Segment | Health Plans | | Other | | Total |
| | (In millions) |
| General and administrative expenses | $ | 60 |
| | $ | 93 |
| | $ | 153 |
|
| Medical care costs | 168 |
| | 23 |
| | 191 |
|
| | $ | 228 |
| | $ | 116 |
| | $ | 344 |
|
Further details of the restructuring plans, including costs associated with such plans, are described in the Notes to Consolidated Financial Statements, Note 15, “Restructuring and Separation Costs.”
Shelf Registration Statement. We have a shelf registration statement on file with the Securities and Exchange Commission to register an unlimited amount of any combination of debt or equity securities in one or more offerings. Specific information regarding the terms and securities being offered will be provided at the time of an offering.
Future Uses
Common Stock Purchases. In September 2021, our board of directors authorized the purchase of up to $500 million, in the aggregate, of our common stock. This new program immediately supersedes the stock purchase program previously approved by our board of directors in September 2020. This new program will be funded with cash on hand and extends through December 31, 2022. The exact timing and amount of any repurchase is determined by management based on market conditions and share price, in addition to other factors, and subject to the restrictions relating to volume, price, and timing under applicable law. As of February 14, 2022, $500 million remained available to purchase our common stock under this program through December 31, 2022. See further information in the Notes to Consolidated Financial Statements, Note 13, “Stockholders' Equity.”
Acquisitions. We have a disciplined and steady approach to growth. Organic growth, which includes leveraging our existing health plan portfolio and winning new territories, is our highest priority. In addition to organic growth, we will consider targeted acquisitions that are a strategic fit that we believe will leverage operational synergies, and lead to incremental earnings accretion. For further information on our acquisitions, refer to the Notes to Consolidated Financial Statements, Note 4, “Business Combinations.”
On October 7, 2021, we announced a definitive agreement to acquire the Medicaid Managed Long Term Care business of AgeWell New York. As of August 31, 2021, AgeWell served approximately 13,000 managed long-term services and supports members, with full-year 2020 premium revenue of approximately $700 million. The purchase price for the transaction is approximately $106 million, net of certain tax benefits and target allocation of required regulatory capital, which we intend to fund with cash on hand. The transaction is subject to applicable federal and state regulatory approvals and the satisfaction of other customary closing conditions. We currently expect the transaction to close by the third quarter of 2022.
Potential Impact of COVID-19 Pandemic. As described in “Item 1. Business—COVID-19 Pandemic,” we have been subject to Medicaid risk corridors as a result of the pandemic. Beginning in 2020, through December 31, 2021, various states enacted temporary risk corridors in response to the reduced demand for medical services stemming from COVID-19, which have resulted in a reduction of our medical margin, primarily in the Medicaid segment. In some cases, these risk corridors were retroactive to earlier periods in 2020, or as early as the beginning of the states’ fiscal years in 2019. Beginning in the second quarter of 2020, we have recognized retroactive risk corridors that we believe to be probable, and where the ultimate premium amount is reasonably estimable. We recognized approximately $323 million, in the aggregate, related to such risk corridors, in 2021, and approximately $564 million, in the aggregate, was recognized in 2020.
It is possible that certain states could change the structure of existing risk corridors, implement new risk corridors in the future or discontinue existing risk corridors. Due to these uncertainties, the ultimate outcomes could differ materially from our estimates as a result of changes in facts or further developments, which could have an adverse effect on our consolidated financial position, results of operations, or cash flows.
Molina Healthcare, Inc. 2021 Form 10-K | 43
Regulatory Capital Requirements and Dividend Restrictions. We have the ability, and have committed to provide, additional capital to each of our health plans as necessary to ensure compliance with minimum statutory capital requirements.
1.125% Convertible Notes.The fair valueMolina Healthcare Charitable Foundation. In August 2020, we announced our commitment of $150 million to fund The Molina Healthcare Charitable Foundation (the “Foundation”), an independent not-for-profit charitable foundation. We contributed $15 million to the 1.125% Convertible Notes was $732 million asFoundation in the fourth quarter of December 31, 2018, which includes both2020.
Contractual Obligations. We are party to various contractual obligations that we will be required to satisfy over the principal amount outstandingshort and the fair value of the 1.125% Conversion Option. Refer tolong term. The majority are discussed in the Notes to Consolidated Financial Statements Note 11, “Debt,” forand primarily include the following: medical claims and benefits payable, amounts due to government agencies, principal and interest on our debt and leases. Some items are based on management’s estimates and assumptions about obligations, including duration, the possibility of renewal, anticipated actions by third parties, and other factors. Because these estimates and assumptions are necessarily subjective, the contractual obligations we will actually pay in future periods may vary. Additionally, we have a detailed discussionvariety of other contractual agreements related to acquiring services used in our convertible notes, including recent transactions. The 1.125% Convertible Notes are convertible by the holders within one year of December 31, 2018, until they mature; therefore, they are reported in current portion of long-term debt. If conversion requests are received, the settlement of the notes must be paid in cash pursuant to the terms of the applicable indenture. We have sufficient available cash, combined with borrowing capacity available under our Credit Agreement (including the Term Loan described above), to fund conversions should they occur.operations. However, we believe these other agreements do not contain material non-cancelable commitments.
CRITICAL ACCOUNTING ESTIMATES
When we prepare our consolidated financial statements, we use estimates and assumptions that may affect reported amounts and disclosures. Actual results could differ from these estimates.estimates, and some differences could be material. Our most significant accounting estimates, relate to:which include a higher degree of judgment and/or complexity, include the following:
•Medical claims and benefits payable. See discussion below, and refer to the Notes to Consolidated Financial Statements, Notes 2, “Significant“Significant Accounting Policies,,” and 10, “Medical“Medical Claims and Benefits Payable”Payable” for more information.
•Contractual provisions that may adjust or limit revenue or profit. For a discussion of this topic, including amounts recorded in our consolidated financial statements, refer to the Notes to Consolidated Financial Statements, Note 2, “Significant Accounting Policies.”
•Quality incentives. For a discussion of this topic, refer to the Notes to Consolidated Financial Statements, Note 2, “Significant Accounting Policies.”
•Business Combinations, and Goodwill and intangible assets, net. For a comprehensive discussion of this topic, including amounts recorded in our consolidated financial statements, refer to the Notes to Consolidated Financial Statements, Note 2, “Significant“Significant Accounting Policies,.”
Quality incentives. For a comprehensive discussion of this topic, including amounts recorded in our consolidated financial statements, refer to the Notes to Consolidated Financial Statements, Note 2, “Significant Accounting Policies.”
Goodwill and intangible assets, net. At December 31, 2018, goodwill and intangible assets, net, represented approximately 3% of total assets and 12% of total stockholders’ equity, compared with 3% and 19%, respectively, at December 31, 2017. For a comprehensive discussion of this topic, including amounts recorded in our consolidated financial statements, refer to the Notes to Consolidated Financial Statements, Note 2, “Significant Accounting Policies,4, “Business Combinations,” and Note 8, “Goodwill9, “Goodwill and Intangible Assets, Net.Net.”
MEDICAL CARE COSTS,
MEDICAL CLAIMS AND BENEFITS PAYABLE
Medical care costs are recognized in the period in which services are provided and include amounts that have been paid by us through the reporting date, as well as estimated medical claims and benefits payable for costs that have been incurred but not paid by us as of the reporting date. Medical care costs include, among other items, fee-for-service claims, pharmacy benefits, capitation payments to providers, and various other medically-related costs. We use judgment to determine the appropriate assumptions for determining the required estimates.
Under fee-for-service claims arrangements with providers, we retain the financial responsibility for medical care provided and incur costs based on actual utilization of hospital and physician services. Such medical care costs include amounts paid by us as well as estimated medical claims and benefits payable for costs that were incurred but not paid as of the reporting date (“IBNP”). Pharmacy benefits represent payments for members' prescription drug costs, net of rebates from drug manufacturers. We estimate pharmacy rebates earned based on historical and current utilization of prescription drugs and contract terms.contractual provisions. Capitation payments represent monthly contractual fees paid to physicians and other providers, on a per-member, per-month basis, who are responsible for providing medical care to members, which could include medical or ancillary costs like dental, vision and other supplemental health benefits. Such capitation costs are fixed in advance of the periods covered and are not subject to significant accounting estimates. Due to insolvency or other circumstances, such providers may be unable to pay claims they have incurred with third parties in connection with referral services provided to our members. Depending on states’ laws, we may be held liable for such unpaid referral claims even though the delegated provider has contractually assumed such risk. Based on our current assessment, such losses have not been and are not expected to be significant. Other medical care costs include all medically-related administrative costs, certain provideramounts due to providers pursuant to risk-sharing or other incentive costs,arrangements, provider claims, and other health carehealthcare expenses. See further discussionExamples of provider claims in Notes to Consolidated Financial Statements, Note 17, “Commitments and Contingencies.” Medically relatedmedically-related administrative costs include for example, expenses relating to health education, quality assurance, case management, care coordination, disease management, and 24-hour on-call nurses. Salary and benefit costs are a substantial portion of these expenses. Additionally, we include an estimate for the cost of settling claims incurred through the reporting date in our medical claims and benefits payable liability.liability.
Molina Healthcare, Inc. 2021 Form 10-K | 44
The following table providesillustrates consolidated medical care costs by type for the details of our medicalperiods indicated:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2021 | | 2020 |
| Amount | | PMPM | | % of
Total | | Amount | | PMPM | | % of
Total |
| | | | | | | | | | | |
| (In millions, except PMPM amounts) |
| Fee-for-service | $ | 17,433 | | | $ | 303.80 | | | 73.5 | % | | $ | 11,590 | | | $ | 261.30 | | | 73.3 | % |
| Pharmacy | 3,831 | | | 66.77 | | | 16.2 | | | 2,012 | | | 45.37 | | | 12.7 | |
| Capitation | 1,471 | | | 25.64 | | | 6.2 | | | 1,459 | | | 32.88 | | | 9.2 | |
| Other | 969 | | | 16.88 | | | 4.1 | | | 759 | | | 17.10 | | | 4.8 | |
| Total | $ | 23,704 | | | $ | 413.09 | | | 100.0 | % | | $ | 15,820 | | | $ | 356.65 | | | 100.0 | % |
Medical claims and benefits payable asconsist mainly of fee-for-service IBNP, unpaid pharmacy claims, capitation costs, other medical costs, including amounts payable to providers pursuant to risk-sharing or other incentive arrangements and amounts payable to providers on behalf of certain state agencies for certain state assessments in which we assume no financial risk. IBNP includes the dates indicated.
|
| | | | | | | | | | | |
| | December 31, |
| | 2018 | | 2017 | | 2016 |
| | (In millions) |
| Fee-for-service claims incurred but not paid (“IBNP”) | $ | 1,562 |
| | $ | 1,717 |
| | $ | 1,352 |
|
| Pharmacy payable | 115 |
| | 112 |
| | 112 |
|
| Capitation payable | 52 |
| | 67 |
| | 37 |
|
| Other | 232 |
| | 296 |
| | 428 |
|
| | $ | 1,961 |
| | $ | 2,192 |
| | $ | 1,929 |
|
_____________________
| |
(1) | “Other” medical claims and benefits payable include amounts payable to certain providers for which we act as an intermediary on behalfcosts of various state agencies without assuming financial risk. Such receipts and payments do not impact our consolidated statements of operations. As of December 31, 2018, 2017, and 2016, we recorded non-risk provider payables relating to such intermediary arrangements of approximately $107 million, $122 million and $225 million, respectively. |
The determination of our liability for fee-for-service claims incurred but not paid (“IBNP”) is particularly important to the determination of our financial position and results of operations in any given period and requires the application of a significant degree of judgment by our management.
As a result, the determination of IBNP is subject to an inherent degree of uncertainty. Our IBNP claims reserve represents our best estimate of the total amount we will ultimately pay with respect to claims incurred as of the balance sheet date.date which have been reported to us, and our best estimate of the cost of claims incurred but not yet reported to us. We estimatealso include an additional reserve to ensure that our overall IBNP monthly usingliability is sufficient under moderately adverse conditions. We reflect changes in these estimates in the consolidated results of operations in the period in which they are determined.
The estimation of the IBNP liability requires a significant degree of judgment in applying actuarial methods, based on severaldetermining the appropriate assumptions and considering numerous factors.
The Of those factors, we consider when estimating our IBNPestimated completion factors (measures the cumulative percentage of claims expense that will ultimately be paid for a given month of service based on historical payment patterns) and the assumed healthcare cost trend (the year-over-year change in per-member per-month medical care costs) to be the most critical assumptions. Other relevant factors also include, without limitation:
claims receipt and payment experience (and variations in that experience),
but are not limited to, healthcare service utilization trends, claim inventory levels, changes in membership,
provider billing practices,
health care service utilization trends,
prior authorization of medical services,
known outbreaks of disease or increased incidence of illness such as influenza,
changes in fee schedules, provider contract changes,
changes to Medicaid fee schedules, prior authorizations and
the incidence of high dollarcatastrophic or catastrophic claims.
pandemic cases.Our assessment of these factors is then translated into an estimate of our IBNP liability at the relevant measuring point through the calculation of a base estimate of IBNP, a further provision for adverse claims development, and an estimate of the administrative costs of settling allFor claims incurred throughmore than three months before the reporting date. The base estimate of IBNP is derived through application of claims paymentfinancial statement date, we mainly use estimated completion factors and trended PMPMto estimate the ultimate cost estimates.
For the fourth month of service prior to the reporting date and earlier, we estimate our outstanding claims liability based on actual claims paid, adjusted for estimated completion factors.those claims. Completion factors seek to measure the cumulative percentage of claims expense that will have beenultimately be paid for a given month of service based on historical claims payment patterns. We analyze historical claims payment patterns by comparing claim incurred dates to claim payment dates to estimate completion factors. The estimated completion factors are then applied to claims paid through the financial statement date to estimate the ultimate claims cost for a given month’s incurred claim activity. The difference between the estimated ultimate claims cost and the claims paid through the financial statement date represents our estimate of claims remaining to be paid as of the reportingfinancial statement date and is included in our IBNP liability.
For claims incurred within three months before the financial statement date, actual claims paid are a less reliable measure of our ultimate cost since a large portion of medical claims are not submitted to us until several months after services have been submitted. Accordingly, we estimate our IBNP liability for claims incurred during these months based on historical payment patterns.a blend of estimated completion factors and assumed medical care cost trend. The assumed medical care cost trend represents the year-over-year change in per-member per-month medical care costs, which can be affected by many factors including, but not limited to, our ability and practices to manage medical and pharmaceutical costs, changes in level and mix of services utilized, mix of benefits offered, including the impact of co-pays and deductibles, changes in medical practices, changes in member demographics, catastrophes and epidemics, and other relevant factors.
Actuarial standards of practice generally require a level of confidence such that our overall best estimate of the IBNP liability has a greater probability of being adequate versus being insufficient, where the liability is sufficient to account for moderately adverse conditions. Adverse conditions are situations that may cause actual claims to be higher than the otherwise estimated value of such claims at the time of the estimate, such as changes in the magnitude or severity of claims, uncertainties related to our entry into new geographical markets or provision of services to new populations, changes in state-controlled fee schedules, and modifications or upgrades to our claims processing systems and practices. Therefore, in many situations, the claim amounts ultimately settled will be less than the estimate that satisfies the actuarial standards of practice.
Molina Healthcare, Inc. 2021 Form 10-K | 45
When subsequent actual claims payments are less than we estimated, we recognize a benefit for favorable prior period development that is reported as part of “Components of medical care costs related to: “Prior years” in the table presented in Note 10, “Medical Claims and Benefits Payable.” Our reserving practice is to consistently recognize the actuarial best estimate including a provision for moderately adverse conditions for each current period. This provision is reported as part of “Components of medical care costs related to: Current year” in the table presented in Note 10. Assuming stability in the size of our membership, the use of this consistent methodology, during any given period, usually results in the replenishment of reserves at a level that generally offsets the benefit of favorable prior period development in that period. In the case of material growth or decline of membership, replenishment can exceed or fall short of the favorable development, assuming all other factors remain unchanged.
Because of the significant degree of judgment involved in estimation of our IBNP liability, there is considerable variability and uncertainty inherent in such estimates. The following table reflects the hypothetical change in our estimate of claims liability as of December 31, 20182021 that would result if we change our completion factors for the fourth through the twelfth months preceding December 31, 2018,2021, by the percentages indicated. A reduction in the completion factor results in an increase in medical claims liabilities. Dollar amounts are in millions.
|
| | | |
| Increase (Decrease) in Estimated Completion Factors | Increase
(Decrease)
in Medical Claims
and
Benefits Payable |
| (6)% | $ | 554 |
|
| (4)% | 369 |
|
| (2)% | 185 |
|
| 2% | (185 | ) |
| 4% | (369 | ) |
| 6% | (554 | ) |
For the three months of service immediately prior to the reporting date, actual claims paid are a less reliable measure of our ultimate liability, given the inherent delay between the patient/physician encounter and the actual submission of a claim for payment. For these months of service, we estimate our claims liability based on a blend of estimated completion factors and trended PMPM cost estimates. The PMPM costs estimates are designed to reflect recent trends in payments and expense, utilization patterns, authorized services, pharmacy utilization and other relevant factors. | | | | | |
| Increase (Decrease) in Estimated Completion Factors | Increase
(Decrease)
in Medical Claims
and
Benefits Payable |
| (6)% | $ | 811 | |
| (4)% | 541 | |
| (2)% | 270 | |
| 2% | (270) | |
| 4% | (541) | |
| 6% | (811) | |
The following table reflects the hypothetical change in our estimate of claims liability as of December 31, 20182021 that would result if we alter our assumed medical care cost trend factors by the percentages indicated. An increase in the PMPM costs results in an increase in medical claims liabilities. Dollar amounts are in millions.
|
| | | |
| (Decrease) Increase in Trended Per Member Per Month Cost Estimates | (Decrease) Increase in Medical Claims and Benefits Payable |
| (6)% | $ | (185 | ) |
| (4)% | (124 | ) |
| (2)% | (62 | ) |
| 2% | 62 |
|
| 4% | 124 |
|
| 6% | 185 |
|
The following per-share amounts are based on a combined federal and state statutory tax rate of 22%, and 67 million diluted shares outstanding for the year ended December 31, 2018. Assuming a hypothetical 1% change in completion factors from those used in our calculation of IBNP at December 31, 2018, net income for the year ended December 31, 2018 would increase or decrease by approximately $72 million, or $1.08 per diluted share. Assuming a hypothetical 1% change in PMPM cost estimates from those used in our calculation of IBNP at December 31, 2018, net income for the year ended December 31, 2018 would increase or decrease by approximately $24 million, or $0.36 per diluted share. The corresponding figures for a 5% change in completion factors and PMPM cost estimates would be $360 million, or $5.41 per diluted share, and $121 million, or $1.81 per diluted share, respectively.
It is important to note that any change in the estimate of either completion factors or trended PMPM costs would usually be accompanied by a change in the estimate of the other component, and that a change in one component would almost always compound rather than offset the resulting distortion to net income. When completion factors are overestimated, trended PMPM costs tend to be underestimated. Both circumstances will create an overstatement of net income. Likewise, when completion factors are underestimated, trended PMPM costs tend to be overestimated, creating an understatement of net income. In other words, changes in estimates involving both completion factors and trended PMPM costs will usually act to drive estimates of claims liabilities and medical care costs in the same direction. If completion factors were overestimated by 1%, resulting in an overstatement of net income by approximately $72 million, it is likely that trended PMPM costs would be underestimated, resulting in an additional overstatement of net income.
After we have established our base IBNP reserve through the application of completion factors and trended PMPM cost estimates, we then compute an additional liability, once again using actuarial techniques, to account for adverse development in our claim payments for which the base actuarial model is not intended to and does not account. We refer to this additional liability as the provision for adverse claims development. The provision for adverse claims development is a component of our overall determination of the adequacy of our IBNP, and averages between 8% to 10% of IBNP. It is intended to capture the potential inadequacy of our IBNP estimate as a result of our inability to adequately assess the impact of factors such as changes in the speed of claims receipt and payment, the relative magnitude or severity of claims, known outbreaks of disease such as influenza, our entry into new geographical markets, our provision of services to new populations such as the aged, blind or disabled, changes to state-controlled fee schedules upon which a large proportion of our provider payments are based, modifications and upgrades to our claims processing systems and practices, and increasing medical costs. Because of the complexity of our business, the number of states in which we operate, and the need to account for different health care benefit packages among those states, we make an overall assessment of IBNP after considering the base actuarial model reserves and the provision for adverse claims development.
Assuming that our initial estimate of IBNP is accurate, we believe that amounts ultimately paid would generally be between 8% and 10% less than the IBNP liability recorded at the end of the period as a result of the inclusion in that liability of the provision for adverse claims development and the accrued cost of settling those claims. Because the amount of our initial liability is an estimate (and therefore not perfectly accurate), we will always experience variability in that estimate as new information becomes available with the passage of time. Therefore, there can be no assurance that amounts ultimately paid out will fall within the range of 8% to 10% lower than the liability that was initially recorded.
The use of a consistent methodology (including a consistent provision for adverse claims development) in estimating our liability for medical claims and benefits payable minimizes the degree to which the estimate of that liability at the close of one period may materially differ compared to our actual experience and affect consolidated
results of operations in subsequent periods. In particular, the use of a consistent methodology should result in the replenishment of reserves during any given period in a manner that generally offsets the benefit of favorable prior period development in that period. Facts and circumstances unique to the estimation process at any single date, however, may still lead to a material impact on consolidated results of operations in subsequent periods. For example, any absence of adverse claims development (as well as the expensing through general and administrative expense of the costs to settle claims held at the start of the period) will lead to the recognition of a benefit from prior period claims development in the period subsequent to the date of the original estimate, to the extent that replenishment of reserves is not equal to the benefit recognized due to the absence of adverse development. Conversely, in the presence of adverse claims development, the financial impact of recording claims expense in the current period that is related to dates of service in the prior period will be compounded by the need to replenish the provision for adverse development.
The development of our IBNP estimate is a continuous process that we monitor and update monthly as additional claims payment information becomes available. As additional information becomes known to us, we adjust our actuarial model accordingly. Any adjustments, if appropriate, are reflected in the period known. While we believe our current estimates are adequate, we have in the past been required to increase significantly our claims reserves for periods previously reported and may be required to do so again in the future. Any significant increases to prior period claim reserves would materially decrease reported earnings for the period in which the adjustment is made. | | | | | |
| (Decrease) Increase in Trended Per Member Per Month Cost Estimates | (Decrease)
Increase
in Medical Claims
and
Benefits Payable |
| (6)% | $ | (285) | |
| (4)% | (190) | |
| (2)% | (95) | |
| 2% | 95 | |
| 4% | 190 | |
| 6% | 285 | |
There are many related factors working in conjunction with one another that determine the accuracy of our estimates, some of which are qualitative in nature rather than quantitative. Therefore, we are seldom able to quantify the impact that any single factor has on a change in estimate. Given the variability inherent in the reserving process, we will only be able to identify specific factors if they represent a significant departure from expectations. As a result, we do not expect to be able to fully quantify the impact of individual factors on changes in estimates.
In our judgment, the estimates for completion factors will likely prove to be more accurate than trended PMPM cost estimates because estimated completion factors are subject to fewer variables in their determination. Specifically, completion factors are developed over long periods of time, and are most likely to be affected by changes in claims receipt and payment experience and by provider billing practices. Trended PMPM cost estimates, while affected by the same factors, will also be influenced by health care service utilization trends, cost trends, product mix, seasonality, prior authorization of medical services, benefit changes, outbreaks of disease or increased incidence of illness, provider contract changes, changes to Medicaid fee schedules, and the incidence of high dollar or catastrophic claims. As discussed above, however, changes in estimates involving trended PMPM costs will almost always be accompanied by changes in estimates involving completion factors, and vice versa. In such circumstances, changes in estimation involving both completion factors and trended PMPM costs will act to drive estimates of claims liabilities (and therefore medical care costs) in the same direction.
We limit our risk of catastrophic losses by maintaining high deductible reinsurance coverage. Such reinsurance coverage does not relieve us of our primary obligation to our policyholders. We report reinsurance premiums as a reduction to premium revenue, while related reinsurance recoveries are reported as a reduction to medical care costs.RECENTLY ISSUED ACCOUNTING STANDARDS
Refer to the Notes to Consolidated Financial Statements, Note 2, “Significant Accounting Policies,” and Note 10, “Medical Claims and Benefits Payable,” for additional information regarding the specific factors used to determine our changes in estimatesa discussion of IBNP, as well as a table presenting the components of the change in our medical claims and benefits payable, for all periods presented in the accompanying consolidated financial statements. recent accounting pronouncements that affect us.
CONTRACTUAL OBLIGATIONS
In the table below, we present our contractual obligations as of December 31, 2018. Some of the amounts included in this table are based on management’s estimates and assumptions about these obligations, including their duration, the possibility of renewal, anticipated actions by third parties, and other factors. Because these estimates and assumptions are necessarily subjective, the contractual obligations we will actually pay in future periods may vary from those reflected in the table.
Additionally, we have a variety of other contractual agreements related to acquiring services used in our operations. However, we believe these other agreements do not contain material non-cancelable commitments.
Molina Healthcare, Inc. 2021 Form 10-K | 46
|
| | | | | | | | | | | | | | | | | | | |
| | Total (1) | | 2019 | | 2020-2021 | | 2022-2023 | | 2024 and after |
| | (In millions) |
| Medical claims and benefits payable | $ | 1,961 |
| | $ | 1,961 |
| | $ | — |
| | $ | — |
| | $ | — |
|
Principal amount of debt (2) | 1,282 |
| | — |
| | 252 |
| | 700 |
| | 330 |
|
| Amounts due government agencies | 967 |
| | 967 |
| | — |
| | — |
| | — |
|
| Lease financing obligations | 411 |
| | 19 |
| | 39 |
| | 42 |
| | 311 |
|
| Interest on long-term debt | 253 |
| | 57 |
| | 108 |
| | 65 |
| | 23 |
|
| Operating leases | 147 |
| | 46 |
| | 58 |
| | 28 |
| | 15 |
|
| Purchase commitments | 8 |
| | 5 |
| | 3 |
| | — |
| | — |
|
| | $ | 5,029 |
| | $ | 3,055 |
| | $ | 460 |
| | $ | 835 |
| | $ | 679 |
|
| |
(1) | As of December 31, 2018, we have recorded approximately $20 million of unrecognized tax benefits. The table does not contain this amount because we cannot reasonably estimate when or if such amount may be settled. For further information, refer to Notes to Consolidated Financial Statements, Note 13, “Income Taxes.” |
| |
(2) | Represents the principal amounts due on our 1.125% Convertible Notes due 2020, 5.375% Notes due 2022, and our 4.875% Notes due 2025. |
Commitments and Contingencies. We are not a party to off-balance sheet financing arrangements, except for operating leases which are disclosed in the Notes to Consolidated Financial Statements, Note 17, “Commitments and Contingencies.”
INFLATION
We use various strategies to mitigate the negative effects of health care cost inflation. Specifically, our health plans try to control medical and hospital costs through contracts with independent providers of health care services. Through these contracted providers, our health plans emphasize preventive health care and appropriate use of specialty and hospital services. There can be no assurance, however, that our strategies to mitigate health care cost inflation will be successful. Competitive pressures, new health care and pharmaceutical product introductions, demands from health care providers and customers, applicable regulations, or other factors may affect our ability to control health care costs.
COMPLIANCE COSTS
Our health plans are regulated by both state and federal government agencies. Regulation of managed care products and health care services is an evolving area of law that varies from jurisdiction to jurisdiction. Regulatory agencies generally have discretion to issue regulations and interpret and enforce laws and rules. Changes in applicable laws and rules occur frequently. Compliance with such laws and rules may lead to additional costs related to the implementation of additional systems, procedures and programs that we have not yet identified.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our earnings and financial position are exposed to financial market risk relating to changes in interest rates, and the resulting impact on investment income and interest expense.
Substantially all of our investments and restricted investments are subject to interest rate risk and will decrease in value if market interest rates increase. Assuming a hypothetical and immediate 1% increase in market interest rates at December 31, 2018,2021, the fair value of our fixed income investments would decrease by approximately $14$69 million. Declines in interest rates over time will reduce our investment income.
For further information on fair value measurements and our investment portfolio, please refer to the Notes to Consolidated Financial Statements, Note 4,5, “Fair Value Measurements,” Note 5, “Investments,” and Note 9, “Restricted Investments.6, “Investments.”
Borrowings under ourthe Credit Agreement including both the Credit Facility and the Term Loan, bear interest based, at our election, on a base rate or other defined rate, plus, in each case, the applicable margin. As of December 31, 2018, no amounts were outstanding under the Credit Facility. SeeFor further information, see Notes to Consolidated Financial Statements, Note 11, “Debt,“Debt.” for more information.
Molina Healthcare, Inc. 2021 Form 10-K | 47
MOLINA HEALTHCARE, INC.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Molina Healthcare, Inc. 2021 Form 10-K | 48
CONSOLIDATED STATEMENTS OF OPERATIONSINCOME
| | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2021 | | 2020 | | 2019 |
| | | | | |
| | (In millions, except per-share data) |
| Revenue: | | | | | |
| Premium revenue | $ | 26,855 | | | $ | 18,299 | | | $ | 16,208 | |
| Premium tax revenue | 787 | | | 649 | | | 489 | |
| Health insurer fees reimbursed | — | | | 271 | | | — | |
| Marketplace risk corridor judgment | — | | | 128 | | | — | |
| Investment income | 52 | | | 59 | | | 115 | |
| Other revenue | 77 | | | 17 | | | 17 | |
| Total revenue | 27,771 | | | 19,423 | | | 16,829 | |
| Operating expenses: | | | | | |
| Medical care costs | 23,704 | | | 15,820 | | | 13,905 | |
| General and administrative expenses | 2,068 | | | 1,480 | | | 1,296 | |
| Premium tax expenses | 787 | | | 649 | | | 489 | |
| Health insurer fees | — | | | 277 | | | — | |
| Depreciation and amortization | 131 | | | 88 | | | 89 | |
| Other | 61 | | | 31 | | | 6 | |
| Total operating expenses | 26,751 | | | 18,345 | | | 15,785 | |
| Operating income | 1,020 | | | 1,078 | | | 1,044 | |
| Other expenses, net: | | | | | |
| Interest expense | 120 | | | 102 | | | 87 | |
| Other expenses (income), net | 25 | | | 15 | | | (15) | |
| Total other expenses, net | 145 | | | 117 | | | 72 | |
| Income before income tax expense | 875 | | | 961 | | | 972 | |
| Income tax expense | 216 | | | 288 | | | 235 | |
| Net income | $ | 659 | | | $ | 673 | | | $ | 737 | |
| | | | | |
| Net income per share: | | | | | |
| Basic | $ | 11.40 | | | $ | 11.40 | | | $ | 11.85 | |
| Diluted | $ | 11.25 | | | $ | 11.23 | | | $ | 11.47 | |
| Weighted average shares outstanding: | | | | | |
| Basic | 57.8 | | | 59.0 | | | 62.2 | |
| Diluted | 58.6 | | | 59.9 | | | 64.2 | |
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2018 | | 2017 | | 2016 |
| | (In millions, except per-share data) |
| Revenue: | | | | | |
| Premium revenue | $ | 17,612 |
| | $ | 18,854 |
| | $ | 16,445 |
|
| Service revenue | 407 |
| | 521 |
| | 539 |
|
| Premium tax revenue | 417 |
| | 438 |
| | 468 |
|
| Health insurer fees reimbursed | 329 |
| | — |
| | 292 |
|
| Investment income and other revenue | 125 |
| | 70 |
| | 38 |
|
| Total revenue | 18,890 |
| | 19,883 |
| | 17,782 |
|
| Operating expenses: | | | | | |
| Medical care costs | 15,137 |
| | 17,073 |
| | 14,774 |
|
| Cost of service revenue | 364 |
| | 492 |
| | 485 |
|
| General and administrative expenses | 1,333 |
| | 1,594 |
| | 1,393 |
|
| Premium tax expenses | 417 |
| | 438 |
| | 468 |
|
| Health insurer fees | 348 |
| | — |
| | 217 |
|
| Depreciation and amortization | 99 |
| | 137 |
| | 139 |
|
| Restructuring and separation costs | 46 |
| | 234 |
| | — |
|
| Impairment losses | — |
| | 470 |
| | — |
|
| Total operating expenses | 17,744 |
| | 20,438 |
| | 17,476 |
|
| Loss on sales of subsidiaries, net of gain | (15 | ) | | — |
| | — |
|
| Operating income (loss) | 1,131 |
| | (555 | ) | | 306 |
|
| Other expenses, net: | | | | | |
| Interest expense | 115 |
| | 118 |
| | 101 |
|
| Other expenses (income), net | 17 |
| | (61 | ) | | — |
|
| Total other expenses, net | 132 |
| | 57 |
| | 101 |
|
| Income (loss) before income tax expense (benefit) | 999 |
| | (612 | ) | | 205 |
|
| Income tax expense (benefit) | 292 |
| | (100 | ) | | 153 |
|
| Net income (loss) | $ | 707 |
| | $ | (512 | ) | | $ | 52 |
|
| | | | | | |
| Net income (loss) per share: | | | | | |
| Basic | $ | 11.57 |
| | $ | (9.07 | ) | | $ | 0.93 |
|
| Diluted | $ | 10.61 |
| | $ | (9.07 | ) | | $ | 0.92 |
|
| | | | | | |
| Weighted average shares outstanding: | | | | | |
| Basic | 61 |
| | 56 |
| | 55 |
|
| Diluted | 67 |
| | 56 |
| | 56 |
|
See accompanying notes.
MOLINA HEALTHCARE, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
| | | | | | | | | | Year Ended December 31, |
| | Year Ended December 31, | | 2021 | | 2020 | | 2019 |
| | 2018 | | 2017 | | 2016 | | | | | | |
| | (In millions) | | (In millions) |
| Net income (loss) | $ | 707 |
| | $ | (512 | ) | | $ | 52 |
| |
| Net income | | Net income | $ | 659 | | | $ | 673 | | | $ | 737 | |
| Other comprehensive (loss) income: | | | | | | Other comprehensive (loss) income: | |
| Unrealized investment (loss) gain | (3 | ) | | (5 | ) | | 3 |
| |
| Unrealized investment (loss) income | | Unrealized investment (loss) income | (55) | | | 44 | | | 16 | |
| Less: effect of income taxes | (1 | ) | | (2 | ) | | 1 |
| Less: effect of income taxes | (13) | | | 11 | | | 4 | |
| Other comprehensive (loss) income, net of tax | (2 | ) | | (3 | ) | | 2 |
| Other comprehensive (loss) income, net of tax | (42) | | | 33 | | | 12 | |
| Comprehensive income (loss) | $ | 705 |
| | $ | (515 | ) | | $ | 54 |
| |
| Comprehensive income | | Comprehensive income | $ | 617 | | | $ | 706 | | | $ | 749 | |
See accompanying notes.
Molina Healthcare, Inc. 2021 Form 10-K | 49
CONSOLIDATED BALANCE SHEETS
| | | | | | | | | | | |
| December 31, |
| 2021 | | 2020 |
| | | |
| (Dollars in millions,
except per-share amounts) |
| ASSETS |
| Current assets: | | | |
| Cash and cash equivalents | $ | 4,438 | | | $ | 4,154 | |
| Investments | 3,202 | | | 1,875 | |
| Receivables | 2,177 | | | 1,672 | |
| Prepaid expenses and other current assets | 247 | | | 175 | |
| Total current assets | 10,064 | | | 7,876 | |
| Property, equipment, and capitalized software, net | 396 | | | 391 | |
| Goodwill and intangible assets, net | 1,252 | | | 941 | |
| Restricted investments | 212 | | | 136 | |
| Deferred income taxes | 106 | | | 69 | |
| Other assets | 179 | | | 119 | |
| Total assets | $ | 12,209 | | | $ | 9,532 | |
| | | |
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
| Current liabilities: | | | |
| Medical claims and benefits payable | $ | 3,363 | | | $ | 2,696 | |
| Amounts due government agencies | 2,472 | | | 1,253 | |
| Accounts payable, accrued liabilities and other | 842 | | | 641 | |
| Deferred revenue | 370 | | | 375 | |
| Total current liabilities | 7,047 | | | 4,965 | |
| Long-term debt | 2,173 | | | 2,127 | |
| Finance lease liabilities | 219 | | | 225 | |
| Other long-term liabilities | 140 | | | 119 | |
| Total liabilities | 9,579 | | | 7,436 | |
| Stockholders’ equity: | | | |
| Common stock, $0.001 par value per share; 150 million shares authorized; outstanding: 58 million shares at December 31, 2021, and 59 million at December 31, 2020 | — | | | — | |
| Preferred stock, $0.001 par value per share; 20 million shares authorized, no shares issued and outstanding | — | | | — | |
| Additional paid-in capital | 236 | | | 199 | |
| Accumulated other comprehensive (loss) income | (5) | | | 37 | |
| Retained earnings | 2,399 | | | 1,860 | |
| Total stockholders’ equity | 2,630 | | | 2,096 | |
| Total liabilities and stockholders’ equity | $ | 12,209 | | | $ | 9,532 | |
|
| | | | | | | |
| | December 31, |
| | 2018 | | 2017 |
| | (In millions, except per-share data) |
| ASSETS |
| Current assets: | | | |
| Cash and cash equivalents | $ | 2,826 |
| | $ | 3,186 |
|
| Investments | 1,681 |
| | 2,524 |
|
| Restricted investments | — |
| | 169 |
|
| Receivables | 1,330 |
| | 871 |
|
| Prepaid expenses and other current assets | 149 |
| | 239 |
|
| Derivative asset | 476 |
| | 522 |
|
| Total current assets | 6,462 |
| | 7,511 |
|
| Property, equipment, and capitalized software, net | 241 |
| | 342 |
|
| Goodwill and intangible assets, net | 190 |
| | 255 |
|
| Restricted investments | 120 |
| | 119 |
|
| Deferred income taxes | 117 |
| | 103 |
|
| Other assets | 24 |
| | 141 |
|
| | $ | 7,154 |
| | $ | 8,471 |
|
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
| Current liabilities: | | | |
| Medical claims and benefits payable | $ | 1,961 |
| | $ | 2,192 |
|
| Amounts due government agencies | 967 |
| | 1,542 |
|
| Accounts payable and accrued liabilities | 390 |
| | 366 |
|
| Deferred revenue | 211 |
| | 282 |
|
| Current portion of long-term debt | 241 |
| | 653 |
|
| Derivative liability | 476 |
| | 522 |
|
| Total current liabilities | 4,246 |
| | 5,557 |
|
| Long-term debt | 1,020 |
| | 1,318 |
|
| Lease financing obligations | 197 |
| | 198 |
|
| Other long-term liabilities | 44 |
| | 61 |
|
| Total liabilities | 5,507 |
| | 7,134 |
|
| Stockholders’ equity: | | | |
| Common stock, $0.001 par value per share; 150 million shares authorized; outstanding: 62 million shares at December 31, 2018 and 60 million shares at December 31, 2017 | — |
| | — |
|
| Preferred stock, $0.001 par value per share; 20 million shares authorized, no shares issued and outstanding | — |
| | — |
|
| Additional paid-in capital | 643 |
| | 1,044 |
|
| Accumulated other comprehensive loss | (8 | ) | | (5 | ) |
| Retained earnings | 1,012 |
| | 298 |
|
| Total stockholders’ equity | 1,647 |
| | 1,337 |
|
| | $ | 7,154 |
| | $ | 8,471 |
|
See accompanying notes.
Molina Healthcare, Inc. 2021 Form 10-K | 50
MOLINA HEALTHCARE, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
|
| | | | | | | | | | | | | | | | | | | | | | |
| | Common Stock | | Additional Paid-in Capital | | Accumulated Other Comprehensive Loss | | Retained Earnings | | Total |
| | Outstanding | | Amount | | | | |
| | (In millions) |
| Balance at January 1, 2016 | 56 |
| | $ | — |
| | $ | 803 |
| | $ | (4 | ) | | $ | 758 |
| | $ | 1,557 |
|
| Net income | — |
| | — |
| | — |
| | — |
| | 52 |
| | 52 |
|
| Other comprehensive income, net | — |
| | — |
| | — |
| | 2 |
| | — |
| | 2 |
|
| Share-based compensation | 1 |
| | — |
| | 36 |
| | — |
| | — |
| | 36 |
|
| Tax benefit from share-based compensation | — |
| | — |
| | 2 |
| | — |
| | — |
| | 2 |
|
| Balance at December 31, 2016 | 57 |
| | — |
| | 841 |
| | (2 | ) | | 810 |
| | 1,649 |
|
| Net loss | — |
| | — |
| | — |
| | — |
| | (512 | ) | | (512 | ) |
| Exchange of 1.625% Convertible Notes | 3 |
| | — |
| | 161 |
| | — |
| | — |
| | 161 |
|
| Other comprehensive loss, net | — |
| | — |
| | — |
| | (3 | ) | | — |
| | (3 | ) |
| Share-based compensation | — |
| | — |
| | 42 |
| | — |
| | — |
| | 42 |
|
| Balance at December 31, 2017 | 60 |
| | — |
| | 1,044 |
| | (5 | ) | | 298 |
| | 1,337 |
|
| Net income | — |
| | — |
| | — |
| | — |
| | 707 |
| | 707 |
|
| Adoption of Topic 606 | — |
| | — |
| | — |
| | — |
| | 6 |
| | 6 |
|
| Adoption of ASU 2018-02 | — |
| | — |
| | — |
| | (1 | ) | | 1 |
| | — |
|
| Partial termination of 1.125% Warrants | — |
| | — |
| | (550 | ) | | — |
| | — |
| | (550 | ) |
| Exchange of 1.625% Convertible Notes | 2 |
| | — |
| | 108 |
| | — |
| | — |
| | 108 |
|
| Conversion of 1.625% Convertible Notes | — |
| | — |
| | 4 |
| | — |
| | — |
| | 4 |
|
| Other comprehensive loss, net | — |
| | — |
| | — |
| | (2 | ) | | — |
| | (2 | ) |
| Share-based compensation | — |
| | — |
| | 37 |
| | — |
| | — |
| | 37 |
|
| Balance at December 31, 2018 | 62 |
| | $ | — |
| | $ | 643 |
| | $ | (8 | ) | | $ | 1,012 |
| | $ | 1,647 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | Additional
Paid-in
Capital | | Accumulated
Other
Comprehensive (Loss) Income | | Retained
Earnings | | Total |
| Outstanding | | Amount | | | | |
| | | | | | | | | | | |
| (In millions) |
| Balance at December 31, 2018 | 62 | | | $ | — | | | $ | 643 | | | $ | (8) | | | $ | 1,012 | | | $ | 1,647 | |
| Net income | — | | | — | | | — | | | — | | | 737 | | | 737 | |
| Common stock purchases | — | | | — | | | (1) | | | — | | | (53) | | | (54) | |
| Adoption of new accounting standards | — | | | — | | | — | | | — | | | 85 | | | 85 | |
| Partial termination of warrants | — | | | — | | | (514) | | | — | | | — | | | (514) | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Other comprehensive income, net | — | | | — | | | — | | | 12 | | | — | | | 12 | |
| Share-based compensation | — | | | — | | | 47 | | | — | | | — | | | 47 | |
| Balance at December 31, 2019 | 62 | | | — | | | 175 | | | 4 | | | 1,781 | | | 1,960 | |
| Net income | — | | | — | | | — | | | — | | | 673 | | | 673 | |
| Common stock purchases | (4) | | | — | | | (11) | | | — | | | (594) | | | (605) | |
| Termination of warrants | — | | | — | | | (30) | | | — | | | — | | | (30) | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Other comprehensive income, net | — | | | — | | | — | | | 33 | | | — | | | 33 | |
| Share-based compensation | 1 | | | — | | | 65 | | | — | | | — | | | 65 | |
| Balance at December 31, 2020 | 59 | | | — | | | 199 | | | 37 | | | 1,860 | | | 2,096 | |
| Net income | — | | | — | | | — | | | — | | | 659 | | | 659 | |
| Common stock purchases | (1) | | | — | | | (2) | | | — | | | (120) | | | (122) | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Other comprehensive loss, net | — | | | — | | | — | | | (42) | | | — | | | (42) | |
| Share-based compensation | — | | | — | | | 39 | | | — | | | — | | | 39 | |
| Balance at December 31, 2021 | 58 | | | $ | — | | | $ | 236 | | | $ | (5) | | | $ | 2,399 | | | $ | 2,630 | |
See accompanying notes.
Molina Healthcare, Inc. 2021 Form 10-K | 51
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2018 | | 2017 | | 2016 |
| | (In millions) |
| Operating activities: | | | | | |
| Net income (loss) | $ | 707 |
| | $ | (512 | ) | | $ | 52 |
|
| Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities: | | | | | |
| Depreciation and amortization | 127 |
| | 178 |
| | 182 |
|
| Deferred income taxes | (6 | ) | | (94 | ) | | 22 |
|
| Share-based compensation | 27 |
| | 46 |
| | 26 |
|
| Non-cash restructuring charges | 17 |
| | 60 |
| | — |
|
| Amortization of convertible senior notes and lease financing obligations | 22 |
| | 32 |
| | 31 |
|
| Loss on sales of subsidiaries, net of gain | 15 |
| | — |
| | — |
|
| Loss on debt extinguishment | 22 |
| | 14 |
| | — |
|
| Impairment losses | — |
| | 470 |
| | — |
|
| Other, net | 4 |
| | 21 |
| | 16 |
|
| Changes in operating assets and liabilities: | | | | | |
| Receivables | (530 | ) | | 103 |
| | (348 | ) |
| Prepaid expenses and other current assets | 6 |
| | (56 | ) | | (69 | ) |
| Medical claims and benefits payable | (226 | ) | | 263 |
| | 226 |
|
| Amounts due government agencies | (574 | ) | | 341 |
| | 473 |
|
| Accounts payable and accrued liabilities | 45 |
| | (12 | ) | | (4 | ) |
| Deferred revenue | (21 | ) | | (34 | ) | | 92 |
|
| Income taxes | 51 |
| | (16 | ) | | (26 | ) |
| Net cash (used in) provided by operating activities | (314 | ) | | 804 |
| | 673 |
|
| Investing activities: | | | | | |
| Purchases of investments | (1,444 | ) | | (2,697 | ) | | (1,929 | ) |
| Proceeds from sales and maturities of investments | 2,445 |
| | 1,759 |
| | 1,966 |
|
| Purchases of property, equipment and capitalized software | (30 | ) | | (86 | ) | | (176 | ) |
| Net cash received from sale of subsidiaries | 190 |
| | — |
| | — |
|
| Net cash paid in business combinations | — |
| | — |
| | (48 | ) |
| Other, net | (18 | ) | | (38 | ) | | (19 | ) |
| Net cash provided by (used in) investing activities | 1,143 |
| | (1,062 | ) | | (206 | ) |
| Financing activities: | | | | | |
| Repayment of credit facility | (300 | ) | | — |
| | — |
|
| Repayment of principal amount of 1.125% Convertible Notes | (298 | ) | | — |
| | — |
|
| Cash paid for partial settlement of 1.125% Conversion Option | (623 | ) | | — |
| | — |
|
| Cash received for partial settlement of 1.125% Call Option | 623 |
| | — |
| | — |
|
| Cash paid for partial termination of 1.125% Warrants | (549 | ) | | — |
| | — |
|
| Repayment of principal amount of 1.625% Convertible Notes | (64 | ) | | — |
| | — |
|
| Proceeds from senior notes offerings, net of issuance costs | — |
| | 325 |
| | — |
|
| Proceeds from borrowings under credit facility | — |
| | 300 |
| | — |
|
| Other, net | 18 |
| | 11 |
| | 19 |
|
| Net cash (used in) provided by financing activities | (1,193 | ) | | 636 |
| | 19 |
|
| Net (decrease) increase in cash, cash equivalents, and restricted cash and cash equivalents | (364 | ) | | 378 |
| | 486 |
|
| Cash, cash equivalents, and restricted cash and cash equivalents at beginning of period | 3,290 |
| | 2,912 |
| | 2,426 |
|
| Cash, cash equivalents, and restricted cash and cash equivalents at end of period | $ | 2,926 |
| | $ | 3,290 |
| | $ | 2,912 |
|
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
| | | | | |
| (In millions) |
| Operating activities: | | | | | |
| Net income | $ | 659 | | | $ | 673 | | | $ | 737 | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | | | |
| Depreciation and amortization | 131 | | | 88 | | | 89 | |
| Deferred income taxes | (24) | | | (19) | | | 10 | |
| Share-based compensation | 72 | | | 57 | | | 39 | |
| Loss (gain) on debt repayment | 25 | | | 15 | | | (15) | |
| Other, net | 33 | | | 12 | | | — | |
| Changes in operating assets and liabilities, net of the effect of acquisitions: | | | | | |
| Receivables | (415) | | | (100) | | | (76) | |
| Prepaid expenses and other current assets | (19) | | | (16) | | | 28 | |
| Medical claims and benefits payable | 471 | | | 544 | | | (107) | |
| Amounts due government agencies | 1,046 | | | 446 | | | (303) | |
| Accounts payable, accrued liabilities and other | 138 | | | 86 | | | 9 | |
| Deferred revenue | (5) | | | 126 | | | 38 | |
| Income taxes | 7 | | | (14) | | | (15) | |
| Net cash provided by operating activities | 2,119 | | | 1,898 | | | 434 | |
| Investing activities: | | | | | |
| Purchases of investments | (2,713) | | | (670) | | | (2,536) | |
| Proceeds from sales and maturities of investments | 1,329 | | | 1,097 | | | 2,302 | |
| Net cash paid in business combinations | (129) | | | (755) | | | — | |
| Purchases of property, equipment and capitalized software | (77) | | | (74) | | | (57) | |
| Other, net | (63) | | | 2 | | | (2) | |
| Net cash used in investing activities | (1,653) | | | (400) | | | (293) | |
| Financing activities: | | | | | |
| Proceeds from senior notes offerings, net of issuance costs | 740 | | | 1,429 | | | — | |
| Repayment of senior notes | (723) | | | (338) | | | — | |
| Common stock purchases | (128) | | | (606) | | | (47) | |
| Common stock withheld to settle employee tax obligations | (53) | | | (8) | | | (7) | |
| Contingent consideration liabilities settled | (20) | | | — | | | — | |
| Repayment of term loan facility | — | | | (600) | | | — | |
| Proceeds from borrowings under term loan facility | — | | | 380 | | | 220 | |
| Cash paid for partial termination of warrants | — | | | (30) | | | (514) | |
| Cash paid for partial settlement of conversion option | — | | | (27) | | | (578) | |
| Cash received for partial settlement of call option | — | | | 27 | | | 578 | |
| Repayment of principal amount of convertible senior notes | — | | | (12) | | | (240) | |
| Other, net | 1 | | | 2 | | | 29 | |
| Net cash (used in) provided by financing activities | (183) | | | 217 | | | (559) | |
| Net increase (decrease) in cash and cash equivalents, and restricted cash and cash equivalents | 283 | | | 1,715 | | | (418) | |
| Cash and cash equivalents, and restricted cash and cash equivalents at beginning of period | 4,223 | | | 2,508 | | | 2,926 | |
| Cash and cash equivalents, and restricted cash and cash equivalents at end of period | $ | 4,506 | | | $ | 4,223 | | | $ | 2,508 | |
See accompanying notes.
Molina Healthcare, Inc. 2021 Form 10-K | 52
MOLINA HEALTHCARE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued)
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2018 | | 2017 | | 2016 |
| | (In millions) |
| | |
| Supplemental cash flow information: | | | | | |
| | | | | | |
| Cash paid during the period for: | | | | | |
| Income taxes | $ | 240 |
| | $ | 7 |
| | $ | 153 |
|
| Interest | $ | 93 |
| | $ | 78 |
| | $ | 66 |
|
| | | | | | |
| Schedule of non-cash investing and financing activities: | | | | | |
| | | | | | |
| 1.625% Convertible Notes exchange transaction: | | | | | |
| Common stock issued in exchange for 1.625% Convertible Notes | $ | 131 |
| | $ | 193 |
| | $ | — |
|
| Component of 1.625% Convertible Notes allocated to additional paid-in capital, net of income taxes | (23 | ) | | (32 | ) | | — |
|
| Net increase to additional paid-in capital | $ | 108 |
| | $ | 161 |
| | $ | — |
|
| | | | | | |
| Common stock used for stock-based compensation | $ | (6 | ) | | $ | (22 | ) | | $ | (8 | ) |
| | | | | | |
| Details of sales of subsidiaries: | | | | | |
| Decrease in carrying amount of assets | $ | (327 | ) | | $ | — |
| | $ | — |
|
| Decrease in carrying amount of liabilities | 85 |
| | — |
| | — |
|
| Transaction costs | (15 | ) | | — |
| | — |
|
| Cash received from buyers | 242 |
| | — |
| | — |
|
| Loss on sale of subsidiaries, net of gain | $ | (15 | ) | | $ | — |
| | $ | — |
|
| | | | | | |
| Details of business combinations: | | | | | |
| Fair value of assets acquired | $ | — |
| | $ | — |
| | $ | (186 | ) |
| Fair value of liabilities assumed | — |
| | — |
| | 28 |
|
| Payable to seller | — |
| | — |
| | 8 |
|
| Amounts advanced for acquisitions | — |
| | — |
| | 102 |
|
| Net cash paid in business combinations | $ | — |
| | $ | — |
| | $ | (48 | ) |
| | | | | | |
| Details of change in fair value of derivatives, net: | | | | | |
| Gain (loss) on 1.125% Call Option | $ | 577 |
| | $ | 255 |
| | $ | (107 | ) |
| (Loss) gain on 1.125% Conversion Option | (577 | ) | | (255 | ) | | 107 |
|
| Change in fair value of derivatives, net | $ | — |
| | $ | — |
| | $ | — |
|
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
| | | | | |
| (In millions) |
| Supplemental cash flow information: | | | | | |
| Cash paid during the period for: | | | | | |
| Income taxes | $ | 235 | | | $ | 321 | | | $ | 239 | |
| Interest | $ | 127 | | | $ | 112 | | | $ | 78 | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
See accompanying notes.
Molina Healthcare, Inc. 2021 Form 10-K | 53
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Basis of Presentation
Organization and Operations
Molina Healthcare, Inc. provides managed health carehealthcare services under the Medicaid and Medicare programs, and through the state insurance marketplaces (the “Marketplace”). We currently have two reportable segments: our Health Plans segment and our Other segment. We manageIn the vast majority of our operations through our Health Plans segment. Our Other segment includes the historical results of the Pathways behavioral health subsidiary, which we sold in the fourthfirst quarter of 2018,2021, we realigned our reportable operating segments to reflect recent changes in our internal operating and certain corporate amounts not allocatedreporting structure, which is now organized by government program. These reportable segments consist of: 1) Medicaid; 2) Medicare; 3) Marketplace; and 4) Other. For further information, refer to the Health Plans segment. Effective in the fourth quarter of 2018, we reclassified the historical results relating to our Molina Medicaid Solutions (“MMS”) segment, which we sold in the third quarter of 2018, to the Other segment. Previously, results for MMS were reported in a stand-alone segment.Note 16, “Segments.”
We operate health plans in 14 states and the Commonwealth of Puerto Rico. As of December 31, 2018, these health plans2021, we served approximately 3.85.2 million members eligible for Medicaid, Medicare, and other government-sponsored health carehealthcare programs, for low-income families and individuals. This membership includes Affordable Care Act Marketplace members, most of whom receive government premium subsidies. The health plans are operated by our respective wholly owned subsidiaries in those states, each of which is licensed as a health maintenance organization (“HMO”).located across 18 states.
Our state Medicaid contracts generallytypically have terms of three to five years. These contracts typicallyyears, contain renewal options exercisable by the state Medicaid agency, and allow either the state or the health plan to terminate the contract with or without cause. Such contracts are subject to risk of loss in states that issue requests for proposal (“RFP”) open to competitive bidding by other health plans. If one of our health plans is not a successful responsive bidder to a state RFP, its contract may not be renewed.
In addition to contract renewal, our state Medicaid contracts may be periodically amended to include or exclude certain health benefits (such as pharmacy services, behavioral health services, or long-term care services); populations such as the aged, blind or disabled;disabled (“ABD”); and regions or service areas.
Recent Developments –
Texas Acquisition — Medicaid and Medicare. On January 1, 2022, we closed on our acquisition of Cigna Corporation’s Texas Medicaid and Medicare-Medicaid Plan (“MMP”) contracts, along with certain operating assets. See Note 4, “Business Combinations,” for further information.
New York Acquisition — Medicaid.On October 25, 2021, we closed on our acquisition of substantially all of the assets of Affinity Health Plans Segment
Mississippi Health Plan. Our MississippiPlan, Inc., a Medicaid health plan commenced operations onin New York. As a result, we added approximately 310,000 members in New York. See Note 4, “Business Combinations,” for further information.
New York Acquisition—Medicaid. On October 1, 2018 and7, 2021, we announced a definitive agreement to acquire the Medicaid Managed Long Term Care business of AgeWell New York (“AgeWell”). As of August 31, 2021, AgeWell served approximately 26,000 Medicaid13,000 managed long-term services and supports members, aswith full-year 2020 premium revenue of December 31, 2018. In December 2018,approximately $700 million. The purchase price for the transaction is approximately $106 million, net of certain tax benefits and target allocation of required regulatory capital, which we intend to fund with cash on hand. The transaction is subject to applicable federal and state regulatory approvals and the satisfaction of other customary closing conditions. We currently expect the transaction to close by the third quarter of 2022.
Nevada Procurement—Medicaid. On August 17, 2021, we announced that our MississippiNevada health plan subsidiary was awardedselected as an awardee in Clark and Washoe Counties. This new contract commenced on January 1, 2022, and offers health coverage to TANF, CHIP and Medicaid Expansion beneficiaries. The four year contract with a contractpossible two year extension was ratified in September 2021.
Ohio Procurement—Medicaid. On April 13, 2021, we announced that our Ohio health plan subsidiary was selected as an awardee in all three regions across the state pursuant to the Medicaid managed care request for award issued on September 30, 2020, by the Mississippi DivisionOhio Department of Medicaid for the Children’s Health Insurance Program (“CHIP”). Services under theMedicaid. This new three-year contract were initially setis expected to begin July 1, 2019; however,2022, and will offer health care coverage to Medicaid beneficiaries through the start date is now pending the outcomestate of a protest of the contract awards.
Puerto Rico Health Plan. In July 2018, our Puerto Rico health plan was selected by the Puerto Rico Health Insurance Administration to be one of the organizations to administer the Commonwealth’s new Medicaid Managed Care contract. As of December 31, 2018, we served approximately 252,000 members under the new contract, which represents a reduction in membership compared with 320,000 members served as of September 30, 2018. The new contract commenced on November 1, 2018Ohio’s Covered Family and has a three-year term with an optional one year extension. The Puerto Rico health plan’s premium revenue amounted to $696 million in the year ended December 31, 2018.
Florida Health Plan. In June 2018, our Florida health plan was awarded comprehensive Medicaid Managed Care contracts by the Florida Agency for Health Care Administration in Regions 8Children, Expansion, and 11 of the Florida Statewide Medicaid Managed Care Invitation to Negotiate. Under the new contracts, effective January 1, 2019, we serve approximately 98,000 Medicaid members in those regions, which represented premium revenue of approximately $462 million in the year ended December 31, 2018. As of December 31, 2018, we served a total of 272,000 Medicaid members in Florida, which represented premium revenue of approximately $1,479 million in the year ended December 31, 2018.
Washington Health Plan. In May 2018, our Washington health plan was selected by the Washington State Health Care Authority to enter into a managed care contract for the eight remaining regions of the state’s Apple Health Integrated Managed Care program, in addition to the two regions previously awarded to us. As of December 31, 2018, we served approximately 751,000 Medicaid members in Washington, which represented premium revenue of approximately $2,035 million in the year ended December 31, 2018.
New Mexico Health Plan. In January 2018, we were notified by the New Mexico Medicaid agency that we had not been selected for a tentative award of a 2019 Medicaid contract. A hearing was held on our judicial protest on
October 17, 2018, and our protest was rejected. We filed an appeal with the New Mexico Court of Appeals on January 28, 2019.We are continuing to manage the business in run-off until the determination of these further appeals or our decision not to pursue our appeal rights. As of December 31, 2018, we served approximately 196,000 Medicaid members in New Mexico, and Medicaid premium revenue amounted to $1,181 million in the year ended December 31, 2018. Our New Mexico health plan continues to serve Medicare and Marketplace members, but, effective January 1, 2019, no longer has Medicaid members.
Recent Developments – Other
Molina Medicaid Solutions. We closed on the sale of Molina Medicaid Solutions (“MMS”) to DXC Technology Company on September 30, 2018. The net cash selling price for the equity interests of MMS was $233 million. As a result of this transaction, we recognized a pretax gain, net of transaction costs, of $37 million. The gain, net of income tax expense, was $28 million.
Pathways. We closed on the sale of our Pathways behavioral health subsidiary to Pyramid Health Holdings, LLC on October 19, 2018, for a nominal purchase price. As a result of this transaction, we recognized a pretax loss of $52 million. The loss, net of income tax benefit, was $32 million.
Presentation and Reclassification
We have reclassified certain amounts in the 2017 and 2016 consolidated statements of cash flows to conform to the 2018 presentation, relating to the presentation of restricted cash and cash equivalents. The reclassification is a result of our adoption of Accounting Standards Update (“ASU”) 2016-18, Restricted Cash effective January 1, 2018. See Note 2, “Significant Accounting Policies,” for further information, including the amount reclassified.
We have combined certain line items in the accompanying consolidated balance sheets. For all periods presented, we have combined the presentation of:
Income taxes refundable with “Prepaid expenses and other current assets;”
Income taxes payable with “Accounts payable and accrued liabilities;” and
Goodwill, and intangible assets, net to a single line.ABD programs.
Consolidation and Presentation
The consolidated financial statements include the accounts of Molina Healthcare, Inc., and its subsidiaries. As of December 31, 2018, we were no longer a party to any variable interest entities following the termination of certain agreements earlier in the year and in the fourth quarter of 2018. Such variable interest entities were insignificant. All significant inter-company balances and transactions have been eliminated in consolidation. Financial information related to subsidiaries acquired during any year is included only for periods subsequent to their acquisition. In the opinion of management, all adjustments considered necessary for a fair presentation of the results as of the date and for the periods presented have been included; such adjustments consist of normal recurring adjustments.
Molina Healthcare, Inc. 2021 Form 10-K | 54
Reclassifications
Consistent with the change in reportable segments described above, certain prior year disclosures in Note 9, “Goodwill and Intangible Assets, Net,” Note 10, “Medical Claims and Benefits Payable,” and Note 16, “Segments,” have been recast to conform to the current year presentation.
Certain immaterial amounts presented in the accompanying consolidated statement of cash flows for the years ended December 31, 2020 and 2019, have been reclassified to conform to the current year presentation.
Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities. Estimates also affect the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Principal areas requiring the use of estimates include:
The determination of medical claims and benefits payable of our Health Plans segment;
Health plans’ contractual provisions that may limit revenue recognition based upon the costs incurred or the profits realized under a specific contract;
Health plans’ quality incentives that allow us to recognize incremental revenue if certain quality standards are met;
Settlements under risk or savings sharing programs;
The assessment of long-lived and intangible assets, and goodwill, for impairment;
The determination of reserves for potential absorption of claims unpaid by insolvent providers;
The determination of reserves for the outcome of litigation;
The determination of valuation allowances for deferred tax assets; and
The determination of unrecognized tax benefits.
2. Significant Accounting Policies
Certain of our significant accounting policies are discussed within the note to which they specifically relate.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash and short-term, highly liquid investments that are both readily convertible into known amounts of cash and have a maturity of three months or less on the date of purchase. The following table provides a reconciliation of cash, cash equivalents, and restricted cash and cash equivalents reported within the accompanying consolidated balance sheets that sum to the total of the same such amounts presented in the accompanying consolidated statements of cash flows. The restricted cash and cash equivalents presented below are included in “Restricted investments” in the accompanying consolidated balance sheets.
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2018 | | 2017 | | 2016 |
| | (In millions) |
| Cash and cash equivalents | $ | 2,826 |
| | $ | 3,186 |
| | $ | 2,819 |
|
| Restricted cash and cash equivalents, non-current | 100 |
| | 95 |
| | 93 |
|
| Restricted cash and cash equivalents, current | — |
| | 9 |
| | — |
|
| Total cash, cash equivalents, and restricted cash and cash equivalents presented in the consolidated statements of cash flows | $ | 2,926 |
| | $ | 3,290 |
| | $ | 2,912 |
|
| | | | | | | | | | | | | | | | | |
| December 31, |
| 2021 | | 2020 | | 2019 |
| | | | | |
| (In millions) |
| Cash and cash equivalents | $ | 4,438 | | | $ | 4,154 | | | $ | 2,452 | |
| Restricted cash and cash equivalents | 68 | | | 69 | | | 56 | |
| Total cash and cash equivalents, and restricted cash and cash equivalents presented in the consolidated statements of cash flows | $ | 4,506 | | | $ | 4,223 | | | $ | 2,508 | |
Investments
Our investments are principally held in debt securities, which are grouped into two separate categories for accounting and reporting purposes: available-for-sale securities, and held-to-maturity securities. Available-for-sale (“AFS”) securities are recorded at fair value and unrealized gains and losses, if any, are recorded in stockholders’ equity as other comprehensive income, net of applicable income taxes. Held-to-maturity (“HTM”) securities are recorded at amortized cost, which approximates fair value, and unrealized holding gains or losses are not generally recognized. Realized gains and losses and unrealized losses judged to be other than temporaryarising from credit-related factors with respect to available-for-saleAFS and held-to-maturityHTM securities are included in the determination of net income (loss).income. The cost of securities sold is determined using the specific-identification method.
Our investment policy requires that all of our investments have final maturities of less than 10 years, or less (excluding variable rate securities where interest rates may be periodically reset), and that thethan 10 years average maturity be three years or less.life for structured securities. Investments and restricted investments are subject to interest rate risk and will decrease in value if market rates increase. Declines in interest rates over time will reduce our investment income.
In general, our available-for-saleAFS securities are classified as current assets without regard to the securities’ contractual maturity dates because they may be readily liquidated. We monitor our investments for other-than-temporarycredit-related impairment. For comprehensive discussions of the fair value and classification of our investments, see Note 4,5, “Fair Value Measurements,” and Note 5, “Investments,6, “Investments.”
Accrued interest receivable relating to our AFS and HTM securities is presented within “Prepaid expenses and other current assets” in the accompanying consolidated balance sheets, and amounted to $11 million and $10 million at December 31, 2021, and 2020, respectively. We do not measure an allowance for credit losses on accrued interest receivable. Instead, we write off accrued interest receivable that has not been collected within 90 days of the interest payment due date. We recognize such write offs as a reversal of interest income. No accrued interest was written off during the year ended December 31, 2021.
Molina Healthcare, Inc. 2021 Form 10-K | 55
Receivables
Receivables consist primarily of premium amounts due from government agencies, which are subject to potential retroactive adjustments. Because substantially all of our receivable amounts are readily determinable and substantially all of our creditors are governmental authorities, our allowance for credit losses is insignificant. Any amounts determined to be uncollectible are charged to expense when such determination is made.
| | | | | | | | | | | |
| December 31, |
| 2021 | | 2020 |
| | | |
| (In millions) |
| Government receivables | $ | 1,566 | | | $ | 969 | |
| Pharmacy rebate receivables | 276 | | | 178 | |
| Health insurer fee reimbursement receivables | — | | | 104 | |
| Other | 335 | | | 255 | |
| Magellan Complete Care acquisition opening balance | — | | | 166 | |
| Total | $ | 2,177 | | | $ | 1,672 | |
Business Combinations
We account for business combinations using the acquisition method of accounting, which requires us to recognize the assets acquired and the liabilities assumed at their acquisition date fair values. As discussed below, the excess of the purchase consideration transferred over the fair value of the net tangible and intangible assets acquired is recorded as goodwill. While we use our best estimates and assumptions to accurately value assets acquired and liabilities assumed at the acquisition date, our estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, which may be up to one year from the acquisition date, we may record adjustments to the assets acquired and liabilities assumed with the corresponding offset to goodwill. Upon the conclusion of the final determination of the values of assets acquired or liabilities assumed, or one year after the date of acquisition, whichever comes first, any subsequent adjustments are recorded within our consolidated results of operations.
The purchase price for the acquisition of certain assets of Passport Health Plan, Inc. in 2020 included contingent consideration payable to seller relating to guarantees for minimum operating income in the post-acquisition period in 2020 and minimum membership targets in 2021. The liabilities are recorded at fair value on a recurring basis, which totaled $47 million as of December 31, 2021. The contingent purchase consideration paid is presented primarily in “Financing activities” in the accompanying consolidated statements of cash flows for the year ended December 31, 2021, with the balance reflected in “Operating activities.” We expect to pay the remaining balance of the liabilities, reported in “Accounts payable, accrued liabilities and other” in the accompanying consolidated balance sheets, in 2022.
Refer to Note 4, “Business Combinations,” and Note 9, “Restricted Investments.“Goodwill and Intangible Assets, Net,” for further details.
Long-Lived Assets, including Intangible Assets
Long-lived assets consist primarily of property, equipment, capitalized software (see Note 7, “Property, Equipment, and Capitalized Software, Net”), and intangible assets resulting from acquisitions. Finite-lived, separately-identified intangible assets acquired in business combinations are assets that represent future expected benefits but lack physical substance (such as purchased contract rights and provider contracts). Intangible assets are initially recorded at fair value and are then amortized on a straight-line basis over their expected useful lives, generally between five and 1516 years.
Determining the fair value of identifiable assets acquired, particularly intangible assets, and liabilities assumed, requires management to make estimates, which are based on all available information and in some cases assumptions with respect to the timing and amount of future revenues and expenses associated with an asset. Determining the useful life of an intangible asset also requires judgment, as different types of intangible assets will have different useful lives. The most significant intangible asset we typically record in a business combination is contract rights associated with membership assumed. In determining the estimated fair value of the intangible assets, we typically apply the income approach, which discounts the projected future net cash flows using an appropriate discount rate that reflects the risk associated with such projected future cash flows. The most critical assumptions used in determining the fair value of contract rights include forecasted operating margins and the weighted average cost of capital.
Molina Healthcare, Inc. 2021 Form 10-K | 56
Our intangible assets are subject to impairment tests when events or circumstances indicate that a finite-lived intangible asset’s (or asset group’s) carrying value may not be recoverable. Consideration is given to a number of potential impairment indicators, including the ability of our health plan subsidiaries to obtain the renewal by amendment of their contracts in each state prior to the actual expiration of their contracts. However, there can be no assurance that these contracts will continue to be renewed. Following the identification of any potential impairment indicators, to determine whether an impairment exists, we would compare the carrying amount of a finite-lived intangible asset with the greater of the undiscounted cash flows that are expected to result from the use of the asset or related group of assets, or its value under the asset liquidation method. If it is determined that the carrying amount of the asset is not recoverable, the amount by which the carrying value exceeds the estimated fair value is recorded as an impairment. Refer to Note 8,9, “Goodwill and Intangible Assets, Net”,Net,” for further details.
Goodwill
Goodwill and Business Combinations
Goodwill represents the excess of the purchase priceconsideration over the fair value of net assets acquired in business combinations. Goodwill is not amortized but is tested for impairment on an annual basis and more frequently if impairment indicators are present. Such events or circumstancesImpairment indicators may include experienced or expected operating cash-flow deterioration or losses, significant losses of membership, loss of state funding, loss of state contracts, and other factors. Goodwill is impaired if the carrying amount of the reporting unit exceeds its estimated fair value. This excess is recorded as an impairment loss and adjusted if necessary for the impact of tax-deductible goodwill. The loss recognized may not exceed the total goodwill allocated to the reporting unit. Our reporting units consist of our individual health plans.
During the fourth quarter of 2018, we changed the date of our annual impairment testing of goodwill from December 31 to October 1. When testing goodwill for impairment, we may first assess qualitative factors, such as industry and market factors, the dynamic economic and political environments in which we operate, cost factors, and changes in overall performance, to determine if it is more likely than not that the carrying value of aour reporting unit exceeds itsunits exceed their estimated fair value.values. If our qualitative assessment indicates that it is more likely than not that the carrying value of a reporting unit exceeds its estimated fair value, we perform the quantitative assessment.
We may also elect to bypass the qualitative assessment and proceed directly to the quantitative assessment. The dynamic economic and political environmentsWe performed a qualitative goodwill assessment of our reporting units, which resulted in which we operate may necessitateno goodwill impairment losses in the performance of a quantitative test to prove that goodwill is not impaired. year ended December 31, 2021.
If performing a quantitative assessment, we generally estimate the fair values of our reporting units by applying the income approach, using discounted cash flows. For the annual impairment test, theThe base year in the reporting units’ discounted cash flows is derived from the annual financial budgetingplanning cycle, for which the planning process commences in the fourth quarter of the year. When computing discounted cash flows, we make assumptions about a wide variety of internal and external factors, and consider what the reporting unit’s selling price would be in an orderly transaction between market participants at the measurement date. Significant assumptions include financial projections of free cash flow (including significant assumptions about membership, premium rates, health care and operating cost trends, contract renewal and the procurement of new contracts, capital requirements and income taxes), long-term growth rates for determining terminal value beyond the discretely forecasted periods, and discount rates. When determining the discount rate, we consider the overall level of inherent risk of the reporting unit, and the expected rate an outside investor would expect to earn. As part of a quantitative assessment, we may also apply the asset liquidation method to estimate the fair value of individual reporting units, which is computed as total assets minus total liabilities, excluding intangible assets and deferred taxes. Finally, we apply a market approach to reconcile the value of our reporting units to our consolidated market value. Under the market approach, we consider publicly traded comparable company information to determine revenue and earnings multiples which are used to estimate our reporting units’ fair values. The assumptions used are consistent with those used in our long-range business plan and annual planning process. However, if these assumptions differ from actual results, the outcome of our goodwill impairment tests could be adversely affected.
AccountingLeases
Right-of-use (“ROU”) assets represent our right to use the underlying assets over the lease term, and lease liabilities represent our obligation for acquisitions requires uslease payments arising from the related leases. ROU assets and lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. Lease terms may include options to recognize separately from goodwillextend or terminate the assets acquiredlease when we believe it is reasonably certain that we will exercise such options. If applicable, we account for lease and non-lease components within a lease as a single lease component.
Because most of our leases do not provide an implicit interest rate, we generally use our incremental borrowing rate to determine the present value of lease payments. Lease expenses for operating lease payments are recognized on a straight-line basis over the lease term, and the related ROU assets and liabilities assumedare reduced to the present value of the remaining lease payments at their acquisitionthe end of each period. Finance lease payments reduce finance lease liabilities, the related ROU assets are amortized on a straight-line basis over the lease term, and interest expense is recognized using the effective interest method.
The significant majority of our operating leases consist of long-term operating leases for office space. Short-term leases (those with terms of 12 months or less) are not recorded as ROU assets or liabilities in the consolidated balance sheets. For certain leases that represent a portfolio of similar assets, such as a fleet of vehicles, we apply a portfolio approach to account for the related ROU assets and liabilities, rather than account for such assets and the related liabilities individually. A nominal number of our lease agreements include rental payments that adjust
Molina Healthcare, Inc. 2021 Form 10-K | 57
periodically for inflation. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.
For further information, including the amount and location of the ROU assets and lease liabilities recognized in the accompanying consolidated balance sheets, see Note 8, “Leases.”
Medical Claims and Benefits Payable
Medical care costs are recognized in the period in which services are provided and include fee-for-service claims, pharmacy benefits, capitation payments to providers, and various other medically-related costs. Under fee-for-service claims arrangements with providers, we retain the financial responsibility for medical care provided and incur costs based on actual utilization of hospital and physician services. Such medical care costs include amounts paid by us as well as estimated medical claims and benefits payable for costs that were incurred but not paid as of the reporting date fair values. While(“IBNP”). Pharmacy benefits represent payments for members' prescription drug costs, net of rebates from drug manufacturers. We estimate pharmacy rebates based on historical and current utilization of prescription drugs and contractual provisions. Capitation payments represent monthly contractual fees paid to providers, who are responsible for providing medical care to members, which could include medical or ancillary costs like dental, vision and other supplemental health benefits. Such capitation costs are fixed in advance of the periods covered and are not subject to significant accounting estimates. Other medical care costs include all medically-related administrative costs, amounts due to providers pursuant to risk-sharing or other incentive arrangements, provider claims, and other healthcare expenses. Examples of medically-related administrative costs include expenses relating to health education, quality assurance, case management, care coordination, disease management, and 24-hour on-call nurses. Additionally, we useinclude an estimate for the cost of settling claims incurred through the reporting date in our medical claims and benefits payable liability.
Medical claims and benefits payable consist mainly of fee-for-service IBNP, unpaid pharmacy claims, capitation costs, other medical costs, including amounts payable to providers pursuant to risk-sharing or other incentive arrangements and amounts payable to providers on behalf of certain state agencies for certain state assessments in which we assume no financial risk. IBNP includes the costs of claims incurred as of the balance sheet date which have been reported to us, and our best estimate of the cost of claims incurred but not yet reported to us. We also include an additional reserve to ensure that our overall IBNP liability is sufficient under moderately adverse conditions. We reflect changes in these estimates in the consolidated results of operations in the period in which they are determined.
The estimation of the IBNP liability requires a significant degree of judgment in applying actuarial methods, determining the appropriate assumptions and assumptionsconsidering numerous factors. Of those factors, we consider estimated completion factors and the assumed healthcare cost trend to accurately value assets acquiredbe the most critical assumptions. Other relevant factors also include, but are not limited to, healthcare service utilization trends, claim inventory levels, changes in membership, product mix, seasonality, benefit changes or changes in Medicaid fee schedules, provider contract changes, prior authorizations and liabilities assumed at the acquisitionincidence of catastrophic or pandemic cases.
Because of the significant degree of judgment involved in estimation of our IBNP liability, there is considerable variability and uncertainty inherent in such estimates. Each reporting period, the recognized IBNP liability represents our best estimate of the total amount of unpaid claims incurred as of the balance sheet date using a consistent methodology in estimating our IBNP liability. We believe our current estimates are inherently uncertainreasonable and subject to refinement. Asadequate; however, the development of our estimate is a result, during the measurement period, whichcontinuous process that we monitor and update as more complete claims payment information and healthcare cost trend data becomes available. Actual medical care costs may be up to one year from the acquisition date,less than we may recordpreviously estimated (favorable development) or more than we previously estimated (unfavorable development), and any differences could be material. Any adjustments to reflect favorable development would be recognized as a decrease to medical care costs, and any adjustments to reflect unfavorable development would be recognized as an increase to medical care costs, in the assets acquired and liabilities assumed withperiod in which the corresponding offset to goodwill. Upon the conclusion of the final determination of the values of assets acquired or liabilities assumed, or one year after the date of acquisition, whichever comes first, any subsequent adjustments are recorded within our consolidated statements of operations. determined.
Refer to Note 8, “Goodwill10, “Medical Claims and Intangible Assets, Net”,Benefits Payable,” for further details.
Revenue Recognition
We adopted ASU 2014-09, Revenue from Contracts with Customers (Topic 606) effective January 1, 2018, usinga table presenting the modified retrospective approach. The insurance contractscomponents of the change in our Health Plans segment are excluded from the scope of Topic 606 because the recognition of revenue under these contracts is dictated by other accounting standards governing insurance contracts. The cumulative effect of initially applying the guidance, relating entirely to the contracts of our recently divested MMS subsidiary, resulted in an immaterial impact to beginning retained earnings as of January 1, 2018. Such impact ismedical claims and benefits payable, for all periods presented in the accompanying consolidated statement of stockholders’ equity.financial statements.
Premium Revenue Recognition and Amounts Due Government Agencies
Premium revenue is generated from our Health Plans segment contracts including agreements with other managed care organizations for which we operate as a subcontractor.state and federal agencies, in connection with our participation in the Medicaid, Medicare, and Marketplace programs. Premium revenue is generally received based on per
member per month (“PMPM”) rates established in advance of the periods covered. These premium revenues are recognized in the month that members are entitled to receive health carehealthcare services, and premiums collected in advance are deferred. The stateState Medicaid programs and the federal Medicare program periodically adjust premiums. Additionally, manypremium
Molina Healthcare, Inc. 2021 Form 10-K | 58
rates.
Certain components of premium revenue are subject to accounting estimates and are described below, under “Contractual Provisions That May Adjust or Limit Revenue or Profit,” and “Quality Incentives.”
Contractual Provisions That May Adjust or Limit Revenue or Profit
Many of our contracts contain provisions that may adjust or limit revenue or profit, as described below. Consequently, we recognize premium revenue as it is earned under such provisions. Liabilities accrued for premiums to be returned under such provisions are reported in the aggregate as “Amounts due government agencies” in the accompanying consolidated balance sheets. Categorized by program, such amounts due government agencies included the following:
The following table summarizes premium revenue by geography for the periods indicated:
|
| | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2018 | | 2017 | | 2016 |
| | Amount | | % of Total | | Amount | | % of Total | | Amount | | % of Total |
| | (Dollars in millions) |
| California | $ | 2,150 |
| | 12.2 | % | | $ | 2,701 |
| | 14.3 | % | | $ | 2,378 |
| | 14.4 | % |
| Florida | 1,790 |
| | 10.2 |
| | 2,568 |
| | 13.6 |
| | 1,938 |
| | 11.8 |
|
| Illinois | 793 |
| | 4.5 |
| | 593 |
| | 3.1 |
| | 603 |
| | 3.7 |
|
| Michigan | 1,601 |
| | 9.1 |
| | 1,596 |
| | 8.5 |
| | 1,527 |
| | 9.3 |
|
| New Mexico | 1,356 |
| | 7.7 |
| | 1,368 |
| | 7.3 |
| | 1,305 |
| | 7.9 |
|
| Ohio | 2,388 |
| | 13.6 |
| | 2,216 |
| | 11.8 |
| | 1,967 |
| | 12.0 |
|
| Puerto Rico | 696 |
| | 3.9 |
| | 732 |
| | 3.9 |
| | 726 |
| | 4.4 |
|
| South Carolina | 495 |
| | 2.8 |
| | 445 |
| | 2.4 |
| | 378 |
| | 2.3 |
|
| Texas | 3,244 |
| | 18.4 |
| | 2,813 |
| | 14.9 |
| | 2,461 |
| | 15.0 |
|
| Washington | 2,361 |
| | 13.4 |
| | 2,608 |
| | 13.8 |
| | 2,222 |
| | 13.5 |
|
Other (1) | 738 |
| | 4.2 |
| | 1,214 |
| | 6.4 |
| | 940 |
| | 5.7 |
|
| | $ | 17,612 |
| | 100.0 | % | | $ | 18,854 |
| | 100.0 | % | | $ | 16,445 |
| | 100.0 | % |
_______________________
| |
(1) | “Other” includes the Idaho, Mississippi, New York, Utah and Wisconsin health plans, which are not individually significant to our consolidated operating results.
|
Certain components of premium revenue are subject to accounting estimates and fall into the following categories:
Contractual Provisions That May Adjust or Limit Revenue or Profit | | | | | | | | | | | |
| December 31, |
| 2021 | | 2020 |
| | | |
| (In millions) |
| Medicaid program: | | | |
| Minimum MLR and profit sharing | $ | 1,016 | | | $ | 513 | |
| Other | 263 | | | 76 | |
| Medicare program: | | | |
| Risk adjustment and Part D risk sharing | 89 | | | 45 | |
| Minimum MLR and profit sharing | 101 | | | 62 | |
| Other | 35 | | | 30 | |
| Marketplace program: | | | |
| Risk adjustment | 902 | | | 326 | |
| Minimum MLR | 18 | | | 37 | |
| Other | 48 | | | 21 | |
| Magellan Complete Care acquisition opening balance | — | | | 143 | |
| Total amounts due government agencies | $ | 2,472 | | | $ | 1,253 | |
Medicaid Program
Medical Cost Floors (Minimums),Minimum MLR and Medical Cost Corridors. A portion of our premium revenue may be returned if certain minimum amounts are not spent on defined medical care costs. In the aggregate, we recorded a liability under the terms of such contractUnder certain medical cost corridor provisions, of $103 million and $135 million at December 31, 2018 and December 31, 2017, respectively, to amounts due government agencies. Approximately $87 million and $96 million of the liability accrued at December 31, 2018 and December 31, 2017, respectively, relates to our participation in Medicaid Expansion programs.
In the third and fourth quarters of 2018, we recognized adjustments of $57 million and $24 million, respectively, mainly related to the retroactive reinstatement of the Medicaid Expansion risk corridor requirement by the California Department of Health Care Services, mainly for the state fiscal years ended June 2017 and 2018. The risk corridor provision mandates a minimum loss ratio (“MLR”) of 85% and a maximum MLR of 95%. The total impact of these adjustments resulted in a reduction to premium revenue totaling approximately $81 million in the year ended December 31, 2018.
In certain circumstances, the health plans may receive additional premiums if amounts spent on medical care costs exceed a defined maximum threshold. Receivables relating to such provisions were insignificant at December 31, 2018 and December 31, 2017.
Profit Sharing and Profit Ceiling.Sharing. Our contracts with certain states contain profit-sharing or profit ceilingsharing provisions under which we refund amounts to the states if our health plans generate profit above a certain specified percentage. In some cases, we are limited in the amount of administrative costs that we may deduct in calculating the refund, if any. Liabilities for profits in excess of the amount we are allowed to retain under these provisions were insignificant at December 31, 2018 and December 31, 2017.
Retroactive Premium Adjustments. State Medicaid programs periodically adjust premium rates on a retroactive basis. In these cases, we must adjust our premium revenue in the period in which we learndetermine that the adjustment is probable and reasonably estimable, based on our best estimate of the adjustment, rather thanultimate premium we expect to realize for the period being adjusted.
Beginning in 2020, through December 31, 2021, various states enacted temporary risk corridors in response to the reduced demand for medical services stemming from COVID-19, which have resulted in a reduction of our medical margin, primarily in the monthsMedicaid segment. In some cases, these risk corridors were retroactive to earlier periods in 2020, or as early as the beginning of servicethe states’ fiscal years in 2019. Beginning in the second quarter of 2020, we have recognized retroactive risk corridors that we believe to be probable, and where the ultimate premium amount is reasonably estimable. We recognized approximately $323 million related to such risk corridors in 2021, primarily in the Medicaid segment. Approximately $564 million related to these COVID-related risk corridors, in the aggregate, were recognized in 2020, including $37 million related to MMP plans.
It is possible that certain states could change the structure of existing risk corridors, implement new risk corridors in the future or discontinue existing risk corridors. Due to these uncertainties, the ultimate outcomes could differ materially from our estimates as a result of changes in facts or further developments, which the retroactive adjustment applies.could have an adverse effect on our consolidated financial position, results of operations, or cash flows.
Molina Healthcare, Inc. 2021 Form 10-K | 59
Medicare Program
Risk Adjusted Premiums:Adjustment. Our Medicare premiums are subject to retroactive increase or decrease based on the health status of our Medicare members (as measured by member risk score). We estimate our members’ risk scores and the related amount of Medicare revenue that will ultimately be realized for the periods presented based on our knowledge of our members’ health status, risk scores and CMSCenters for Medicare & Medicaid Services (“CMS”) practices. Consolidated balance sheet amounts related to anticipated Medicare risk adjusted premiums and Medicare Part D settlements were insignificant at December 31, 2018 and December 31, 2017.
Minimum MLR: Additionally, federal regulations haveMLR. The Affordable Care Act (“ACA”) established a minimum annual medical loss ratio (Minimum MLR)(“Minimum MLR”) of 85% for Medicare. The medical loss ratio represents medical costs as a percentage of premium revenue. Federal regulations define what constitutes medical costs and premium revenue. If the Minimum MLR is not met, we may be required to pay rebates to the federal government. We recognize estimated rebates under the Minimum MLR as an adjustment to premium revenue in our consolidated statements of operations. Aggregate balance sheet amounts related to the Medicare Minimum MLR were insignificant at December 31, 2018 and December 31, 2017.income.
Marketplace Program
Risk adjustment:Adjustment. Under this program, our health plans’ composite risk scores are compared with the overall average risk score for the relevant state and market pool. Generally, our health plans will make a risk adjustment payment into the pool if their composite risk scores are below the average risk score (risk adjustment payable), and will receive a risk adjustment payment from the pool if their composite risk scores are above the average risk score.score (risk adjustment receivable). We estimate our ultimate premium based on insurance policy year-to-date experience, and recognize estimated premiums relating to the risk adjustment program as an adjustment to premium revenue in our consolidated statements of operations.income. As of December 31, 2018, and December 31, 2017, the2021, Marketplace risk adjustment payablepayables amounted to $466$902 million and $917related receivables amounted to $7 million, respectively.for a net payable of $895 million. As of December 31, 2020, Marketplace risk adjustment payables amounted to $326 million and related receivables amounted to $20 million, for a net payable of $306 million.
Minimum MLR:MLR. The ACA has established a Minimum MLR of 80% for the Marketplace. If the Minimum MLR is not met, we may be required to pay rebates to our Marketplace policyholders. The Marketplace risk adjustment program is taken into consideration when computing the Minimum MLR. We recognize estimated rebates under the Minimum MLR as an adjustment to premium revenue in our consolidated statements of operations. Aggregate balance sheet amounts related to the Marketplace Minimum MLR were insignificant at December 31, 2018 and December 31, 2017.income.
Quality Incentives
At many of our health plans, revenue ranging from approximately 1% to 3%4% of certain health plan premiums is earned only if certain performance measures are met.
The following table quantifies the Such performance measures are generally found in our Medicaid and MMP contracts. Recognition of quality incentive premium revenue recognized for the periods presented, including the amounts earned in the periods presented and prior periods. Although the reasonably possible effects of a change in estimate related to quality incentive premium revenue as of December 31, 2018 are not known, we have no reason to believe that the adjustments to prior periods noted below are not indicative of the potential future changes in our estimates as of December 31, 2018.
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2018 | | 2017 | | 2016 |
| | (In millions) |
| Maximum available quality incentive premium - current period | $ | 182 |
| | $ | 150 |
| | $ | 147 |
|
| | | | | | |
| Amount of quality incentive premium revenue recognized in current period: | | | | | |
| Earned current period | $ | 133 |
| | $ | 97 |
| | $ | 104 |
|
| Earned prior periods | 31 |
| | 10 |
| | 47 |
|
| Total | $ | 164 |
| | $ | 107 |
| | $ | 151 |
|
| | | | | | |
| Quality incentive premium revenue recognized as a percentage of total premium revenue | 0.9 | % | | 0.6 | % | | 0.9 | % |
A summary of the categories of amounts due government agencies is as follows:
|
| | | | | | | |
| | December 31, |
| | 2018 | | 2017 |
| | (In millions) |
| Medicaid program: | | | |
| Medical cost floors and corridors | $ | 103 |
| | $ | 135 |
|
| Other amounts due to states | 81 |
| | 71 |
|
| Marketplace program: | | | |
| Risk adjustment | 466 |
| | 917 |
|
| Cost sharing reduction | 183 |
| | 275 |
|
| Other | 134 |
| | 144 |
|
| | $ | 967 |
| | $ | 1,542 |
|
Medical Care Costs and Medical Claims and Benefits Payable
Medical care costs are recognized in the period in which services are provided and include amounts that have been paid by us through the reporting date, as well as estimated medical claims and benefits payable for costs that have been incurred but not paid by us as of the reporting date. Medical care costs include, among other items, fee-for-service claims, pharmacy benefits, capitation payments to providers, and various other medically-related costs. We use judgment to determine the appropriate assumptions for determining the required estimates.
Under fee-for-service claims arrangements, we retain the financial responsibility for medical care provided and incur costs based on actual utilization of hospital and physician services. Pharmacy benefits represent payments for members' prescription drug costs, net of rebates from drug manufacturers. We estimate pharmacy rebates earned based on historical and current utilization of prescription drugs and contract terms. Capitation payments represent monthly contractual fees paid to physicians and other providers on a per-member, per-month basis, who are responsible for providing medical care to members, which could include medical or ancillary costs like dental, vision and other supplemental health benefits. Such capitation costs are fixed in advance of the periods covered and are not subject to significant accounting estimates. Due to insolvency or other circumstances, such providers may be unable to pay claims they have incurred with third parties in connection with referral services provided to our members. Depending on states’ laws, we may be held liable for such unpaid referral claims even though the delegated provider has contractually assumed such risk. Based on our current assessment, such losses have not been and are not expected to be significant. Other medical care costs include all medically-related administrative costs, certain provider incentive costs, provider claims, and other health care expenses. See further discussion of provider claims in Note 17, “Commitments and Contingencies.” Medically related administrative costs include, for example, expenses relating to health education, quality assurance, case management, care coordination, disease management, and 24-hour on-call nurses. Salary and benefit costs are a substantial portion of these expenses. Additionally, we include an estimate for the cost of settling claims incurred through the reporting date in our medical claims and benefits payable liability.
The following table provides the details of our consolidated medical care costs for the periods indicated:
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2018 | | 2017 | | 2016 |
| | Amount | | PMPM | | % of Total | | Amount | | PMPM | | % of Total | | Amount | | PMPM | | % of Total |
| | (In millions, except PMPM amounts) |
| Fee-for-service | $ | 11,278 |
| | $ | 232.15 |
| | 74.5 | % | | $ | 12,682 |
| | $ | 229.63 |
| | 74.3 | % | | $ | 10,993 |
| | $ | 217.84 |
| | 74.4 | % |
| Pharmacy | 2,138 |
| | 44.01 |
| | 14.1 |
| | 2,563 |
| | 46.40 |
| | 15.0 |
| | 2,213 |
| | 43.84 |
| | 15.0 |
|
| Capitation | 1,184 |
| | 24.38 |
| | 7.8 |
| | 1,360 |
| | 24.63 |
| | 8.0 |
| | 1,218 |
| | 24.13 |
| | 8.2 |
|
| Other | 537 |
| | 11.05 |
| | 3.6 |
| | 468 |
| | 8.48 |
| | 2.7 |
| | 350 |
| | 6.94 |
| | 2.4 |
|
| Total | $ | 15,137 |
| | $ | 311.59 |
| | 100.0 | % | | $ | 17,073 |
| | $ | 309.14 |
| | 100.0 | % | | $ | 14,774 |
| | $ | 292.75 |
| | 100.0 | % |
The determination of our liability for fee-for-service claims incurred but not paid (“IBNP”) is particularly important to the determination of our financial position and results of operations in any given period and requires the application of a significant degree of judgment by our management.
As a result, the determination of IBNP is subject to an inherent degreethe use of uncertainty. Our IBNP claims reserve representsestimates.
Reinsurance
We bear underwriting and reserving risks associated with our best estimate of the total amounthealth plan subsidiaries. In certain cases, we will ultimately pay with respect to claims incurred as of the balance sheet date. We estimate our IBNP monthly using actuarial methods based on several factors. The factors we consider when estimating our IBNP include, without limitation:
claims receipt and payment experience (and variations in that experience),
provider billing practices,
health care service utilization trends,
prior authorization of medical services,
known outbreaks of disease or increased incidence of illness such as influenza,
provider contract changes,
changes to Medicaid fee schedules, and
the incidence of high dollar or catastrophic claims.
Our assessment of these factors is then translated into an estimate of our IBNP liability at the relevant measuring point through the calculation of a base estimate of IBNP, a further provision for adverse claims development, and an estimate of the administrative costs of settling all claims incurred through the reporting date. The base estimate of IBNP is derived through application of claims payment completion factors and trended PMPM cost estimates.
For the fourth month of service prior to the reporting date and earlier, we estimate our outstanding claims liability based on actual claims paid, adjusted for estimated completion factors. Completion factors seek to measure the cumulative percentage of claims expense that will have been paid for a given month of service as of the reporting date, based on historical payment patterns.
For the three months of service immediately prior to the reporting date, actual claims paid are a less reliable measure of our ultimate liability, given the inherent delay between the patient/physician encounter and the actual submission of a claim for payment. For these months of service, we estimate our claims liability based on a blend of estimated completion factors and trended PMPM cost estimates. The PMPM costs estimates are designed to reflect recent trends in payments and expense, utilization patterns, authorized services, pharmacy utilization and other relevant factors.
After we have established our base IBNP reserve through the application of completion factors and trended PMPM cost estimates, we then compute an additional liability, once again using actuarial techniques, to account for adverse development in our claim payments for which the base actuarial model is not intended to and does not account. We refer to this additional liability as the provision for adverse claims development. The provision for adverse claims development is a component of our overall determination of the adequacy of our IBNP, and averages between 8% to 10% of IBNP. It is intended to capture the potential inadequacy of our IBNP estimate as a result of our inability to adequately assess the impact of factors such as changes in the speed of claims receipt and payment, the relative magnitude or severity of claims, known outbreaks of disease such as influenza, our entry into new geographical markets, our provision of services to new populations such as the aged, blind or disabled, changes to state-controlled fee schedules upon which a large proportion of our provider payments are based, modifications and upgrades to our claims processing systems and practices, and increasing medical costs. Because of the complexity of our business, the number of states in which we operate, and the need to account for different health care benefit packages among those states, we make an overall assessment of IBNP after considering the base actuarial model reserves and the provision for adverse claims development.
The development of our IBNP estimate is a continuous process that we monitor and update monthly as additional claims payment information becomes available. As additional information becomes known to us, we adjust our actuarial model accordingly. Any adjustments, if appropriate, are reflected in the period known. While we believe our current estimates are adequate, we have in the past been required to increase significantly our claims reserves for periods previously reported and may be required to do so again in the future. Any significant increases to prior period claim reserves would materially decrease reported earnings for the period in which the adjustment is made.
There are many related factors working in conjunction with one another that determine the accuracy of our estimates, some of which are qualitative in nature rather than quantitative. Therefore, we are seldom able to quantify the impact that any single factor has on a change in estimate. Given the variability inherent in the reserving
process, we will only be able to identify specific factors if they represent a significant departure from expectations. As a result, we do not expect to be able to fully quantify the impact of individual factors on changes in estimates.
We limit our risk of significant catastrophic losses by maintaining high deductible reinsurance coverage. Such reinsurance coverage does not relieve uswith a highly-rated, unaffiliated insurance company (the “third-party reinsurer”).Because we remain liable for losses in the event the third-party reinsurer is unable to pay its portion of the losses, we continually monitor the third-party reinsurer’s financial condition, including its ability to maintain high credit ratings. Intercompany transactions with our primary obligation to our policyholders. captive are eliminated in consolidation.
We report reinsurance premiums as a reduction to premium revenue, while related reinsurance recoveries are reported as a reduction to medical care costs. Reinsurance premiums amounted to $16$2 million, $20$9 million, and $30$17 million for the years ended December 31, 2018, 2017,2021, 2020, and 2016,2019, respectively. Reinsurance recoveries amounted to $33 million, $24$23 million, and $65$18 million for the years ended December 31, 2018, 2017,2021, 2020, and 2016,2019, respectively. Reinsurance recoverable of $31$51 million, $16$30 million, and $61$21 million, as of December 31, 2018, 2017,2021, 2020, and 2016,2019, respectively, is included in “Receivables” in the accompanying consolidated balance sheets.
Marketplace Cost Share Reduction (“CSR”)
In the year ended December 31, 2018, we recognized a benefit of approximately $81 million in reduced medical care costs related to 2017 dates of service, as a result of the federal government’s confirmation that the reconciliation of 2017 Marketplace CSR subsidies would be performed on an annual basis. In the fourth quarter of 2017, we had assumed a nine-month reconciliation of this item pending confirmation of the time period to which the 2017 reconciliation would be applied.
Premium Deficiency Reserves on Loss Contracts
We assess the profitability of our contracts to determine if it is probable that a loss will be incurred in the future by reviewing current results and forecasts. For purposes of this assessment, contracts are grouped in a manner consistent with our method of acquiring, servicing and measuring the profitability of such contracts. A premium deficiency reserve (“PDR”) is recognized if anticipated future medical care policies to identify groups of contracts where current operating results or forecasts indicate probable future losses. If anticipated future variableand administrative costs exceed anticipated future premiums andpremium revenue, investment income a premium deficiency reserveand reinsurance recoveries.
Molina Healthcare, Inc. 2021 Form 10-K | 60
Income Taxes
We account for income taxes under the asset and liability method. Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates expected to be in effect during the year in which the basis differences reverse. Valuation allowances are established when management determines it is recognized. No premium deficiency reserves were recorded asmore likely than not that some portion, or all, of December 31, 2018the deferred tax assets will not be realized. For further discussion and 2017.disclosure, see Note 12, “Income Taxes.”
Taxes Based on Premiums
Health Insurer Fee (“HIF”). TheUnder the Affordable Care Act, the federal government under the ACA imposesimposed an annual fee, or excise tax, on health insurers for each calendar year.year (the “HIF”). The HIF is based on a company’s share of the industry’s net premiums written during the preceding calendar year and is non-deductible for income tax purposes. We recognize expense for the HIF over the year on a straight-line basis. Within our Medicaid program, we must secure additional reimbursement from our state partners for this added cost. We recognize the related revenue when we have obtained a contractual commitment or payment from a state to reimburse us for the HIF, and such HIF revenue is recognized ratably throughout the year. TheFurther Consolidated Appropriations Act, of 2016 provided2020 repealed the HIF effective for a HIF moratorium in 2017. Therefore, there were no health insurer fees reimbursed, nor health insurer fees incurred, in 2017.years after 2020.
Premium and Use Tax. Certain of our health plans are assessed a tax based on premium revenue collected. The premium revenues we receive from these states include reimbursement for the premium tax assessment. We have reported these taxes on a gross basis, as premium tax revenue and as premium tax expenses in the consolidated statements of operations.income.
Concentrations of Credit Risk
Financial instruments that potentially subject us to concentrations of credit risk consist primarily of cash and cash equivalents, investments, receivables, and restricted investments. Our investments and a portion of our cash equivalents are managed by professional portfolio managers operating under documented investment guidelines. Our portfolio managers must obtain our prior approval before selling investments where the loss position of those investments exceeds certain levels. Our investments consist primarily of investment-grade debt securities with a maximum maturityfinal maturities of less than 10 years, and anor less than 10 years average duration of three years or less.life for structured securities. Restricted investments are invested principally in certificates of depositcash, cash equivalents and U.S. Treasury securities. Concentration of credit risk with respect to accounts receivable is limited because our payors consist principally of the federal government, and governments of each state in which our health plan subsidiaries operate.
Risks and Uncertainties
Our profitability depends in large part on our ability to accurately predict and effectively manage medical care costs. We continually review our medical costs in light of our underlying claims experience and revised actuarial data. However, several factors could adversely affect medical care costs. These factors, which include changes in health carehealthcare practices, inflation, new technologies, major epidemics, natural disasters, and malpractice litigation, are beyond our control and may have an adverse effect on our ability to accurately predict and effectively control medical care costs. Costs in excess of those anticipated could have a material adverse effect on our financial condition, results of operations, or cash flows.
We operate health plans primarily as a direct contractor with the states, (or Commonwealth), and in Los Angeles County, California, as a subcontractor to another health plan holding a direct contract with the state. We are therefore dependent upon a relatively small number of contracts to support our revenue. The loss of any one of those contracts could have a material adverse effect on our financial position, results of operations, or cash flows. OurIn addition, our ability to arrange for the provision of medical services to our members is dependent upon our ability to develop and maintain adequate provider networks. Our inability to develop or maintain such networks might, in certain circumstances, have a material adverse effect on our financial position, results of operations, or cash flows.
Recent Accounting Pronouncements AdoptedMolina Healthcare, Inc. 2021 Form 10-K | 61
Revenue Recognition (Topic 606). See discussion above, in “Revenue Recognition.”
Comprehensive Income. In February 2018, the Financial Accounting Standards Board (“FASB”) issued ASU 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. ASU 2018-02allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act (“TCJA”), which was enacted on December 22, 2017. ASU 2018-02 is effective beginning January 1, 2019; we early adopted this ASU effective January 1, 2018. The effect of applying the guidance resulted in an immaterial impact to beginning retained earnings, as presented in the accompanying consolidated statements of stockholders’ equity.
Restricted Cash. In November 2016, the FASB issued ASU 2016-18, Restricted Cash, which requires us to include in our consolidated statements of cash flows the changes in the balances of cash, cash equivalents, restricted cash and restricted cash equivalents. We adopted ASU 2016-18 on January 1, 2018. We have applied the guidance retrospectively to all periods presented. Such retrospective adoption resulted in a $104 million and $93 million reclassification of restricted cash and cash equivalents from “Investing activities,” to the beginning and ending balances of cash and cash equivalents in our consolidated statements of cash flowsfollowing table summarizes premium revenue by state health plan for the years ended December 31, 2017periods presented:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
| Amount | | % of Total | | Amount | | % of Total | | Amount | | % of Total |
| | | | | | | | | | | |
| (Dollars in millions) |
| California | $ | 2,402 | | | 8.9 | % | | $ | 2,109 | | | 11.5 | % | | $ | 2,266 | | | 14.0 | % |
| Florida | 970 | | | 3.6 | | | 643 | | | 3.5 | | | 734 | | | 4.5 | |
| Illinois | 1,860 | | | 6.9 | | | 1,328 | | | 7.3 | | | 1,002 | | | 6.2 | |
| Kentucky | 1,977 | | | 7.4 | | | 654 | | | 3.6 | | | — | | | — | |
| Michigan | 1,915 | | | 7.1 | | | 1,587 | | | 8.7 | | | 1,624 | | | 10.0 | |
| New York | 1,429 | | | 5.3 | | | 309 | | | 1.7 | | | 179 | | | 1.1 | |
| Ohio | 3,172 | | | 11.8 | | | 2,962 | | | 16.2 | | | 2,553 | | | 15.8 | |
| Texas | 3,959 | | | 14.8 | | | 3,085 | | | 16.9 | | | 2,991 | | | 18.5 | |
| Washington | 4,420 | | | 16.5 | | | 3,169 | | | 17.3 | | | 2,695 | | | 16.6 | |
Other (1) | 4,751 | | | 17.7 | | | 2,453 | | | 13.3 | | | 2,164 | | | 13.3 | |
| Total | $ | 26,855 | | | 100.0 | % | | $ | 18,299 | | | 100.0 | % | | $ | 16,208 | | | 100.0 | % |
_______________________
(1)“Other” includes the Idaho, Mississippi, New Mexico, Puerto Rico, South Carolina, Utah and 2016, respectively. There was no impactWisconsin health plans, which were individually immaterial to our consolidated statementsresults of operations, balance sheets, or stockholders’ equity. The reconciliation of cash and cash equivalents to cash, cash equivalents, and restricted cash and cash equivalents is presented at the beginning of this note.operations.
Recent Accounting Pronouncements Not Yet Adopted
Software Licenses. In August 2018,Recent accounting pronouncements issued by the FASB issued ASU 2018-15, Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, which aligns(including its Emerging Issues Task Force), the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. ASU 2018-15 is effective beginning January 1, 2020 and can be applied either retrospectively or prospectively to all implementation costs incurred after the dateAmerican Institute of adoption; early adoption is permitted. We are evaluating the effect of this guidance.
Credit Losses. In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments. Rather than generally recognizing credit losses when it is probable that the loss has been incurred, the revised guidance requires companies to recognize an allowance for credit losses for the difference between the amortized cost basis of a financial instrumentCertified Public Accountants, and the amount of amortized cost that the company expectsSecurities and Exchange Commission (“SEC”) did not have, nor does management expect such pronouncements to collect over the instrument’s contractual life. ASU 2016-13 is effective beginning January 1, 2020 and must be adopted ashave, a cumulative effect adjustment to retained earnings; early adoption is permitted. We are in the early stages of evaluating the effect of this guidance.significant impact on our present or future consolidated financial statements.
Leases. In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), as modified by:
ASU 2017-03, Transition and Open Effective Date Information;
ASU 2018-01, Leases (Topic 842): Land Easement Practical Expedient for Transition to Topic 842;
ASU 2018-10, Codification Improvements to Topic 842, Leases; and
ASU 2018-11, Leases (Topic 842): Targeted Improvements.
Under Topic 842, an entity will be required to recognize assets and liabilities for the rights and obligations created by leases on the entity’s balance sheet for both financing and operating leases. Topic 842 also requires new disclosures that depict the amount, timing, and uncertainty of cash flows pertaining to an entity’s leases. We will adopt Topic 842 effective January 1, 2019, using the modified retrospective method. Under this method, we will recognize the cumulative effect of initially applying the standard as an adjustment to the opening balance of retained earnings on January 1, 2019. In addition, we have elected the transition option provided under ASU 2018-11, which allows entities to continue to apply the legacy guidance in Topic 840, Leases, including its disclosure requirements, in the comparative periods presented in the year of adoption.
Under Topic 842, we will record right-of-use assets and liabilities relating primarily to leases of office space for administrative and health plan operations. Specifically, on January 1, 2019, we expect to record operating lease right-of-use assets of approximately $80 million to $90 million, and operating lease liabilities of approximately $90 million to $100 million. In addition, in connection with the transition provisions relating to failed sale-leaseback transactions, we expect to record finance lease right-of-use assets of approximately $230 million to $240 million; record finance lease liabilities of approximately $230 million to $240 million; reduce property, equipment, and capitalized software net, by approximately $75 million to $95 million; reduce lease financing obligations by approximately $195 million to $205 million; and record an increase of approximately $80 million to $100 million to opening retained earnings.
3. Net Income (Loss) Per Share
The following table sets forth the calculation of basic and diluted net income (loss) per share:
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2018 | | 2017 | | 2016 |
| | (In millions, except net income (loss) per share) |
| Numerator: | | | | | |
| Net income (loss) | $ | 707 |
| | $ | (512 | ) | | $ | 52 |
|
| Denominator: | | | | | |
| Shares outstanding at the beginning of the period | 59.3 |
| | 55.8 |
| | 55.1 |
|
| Weighted-average number of shares issued: | | | | | |
Exchange of 1.625% Convertible Notes (1) | 1.4 |
| | 0.1 |
| | — |
|
Conversion of 1.625% Convertible Notes (1) | 0.2 |
| | — |
| | — |
|
| Stock-based compensation | 0.2 |
| | 0.5 |
| | 0.3 |
|
| Denominator for basic net income (loss) per share | 61.1 |
| | 56.4 |
| | 55.4 |
|
| Effect of dilutive securities: | | | | | |
1.125% Warrants (1) | 4.8 |
| | — |
| | 0.5 |
|
1.625% Convertible Notes (1) | 0.4 |
| | — |
| | — |
|
| Stock-based compensation | 0.3 |
| | — |
| | 0.3 |
|
| Denominator for diluted net income (loss) per share | 66.6 |
| | 56.4 |
| | 56.2 |
|
| | | | | | |
Net income (loss) per share: (2) | | | | | |
| Basic | $ | 11.57 |
| | $ | (9.07 | ) | | $ | 0.93 |
|
| Diluted | $ | 10.61 |
| | $ | (9.07 | ) | | $ | 0.92 |
|
| | | | | | |
Potentially dilutive common shares excluded from calculations: (1) | | | | | |
1.125% Warrants (1) | — |
| | 1.9 |
| | — |
|
1.625% Convertible Notes (1) | — |
| | 0.4 |
| | — |
|
| Stock-based compensation | — |
| | 0.3 |
| | — |
|
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
| | | | | |
| (In millions, except net income per share) |
| Numerator: | | | | | |
| Net income | $ | 659 | | | $ | 673 | | | $ | 737 | |
| Denominator: | | | | | |
| Shares outstanding at the beginning of the period | 58.0 | | | 61.9 | | | 62.1 | |
| Weighted-average number of shares issued: | | | | | |
| Stock purchases | (0.5) | | | (3.0) | | | — | |
| Stock-based compensation | 0.3 | | | 0.1 | | | 0.1 | |
| Denominator for basic net income per share | 57.8 | | | 59.0 | | | 62.2 | |
Effect of dilutive securities: (1) | | | | | |
| Stock-based compensation | 0.8 | | | 0.9 | | | 0.6 | |
| Warrants | — | | | — | | | 1.4 | |
| Denominator for diluted net income per share | 58.6 | | | 59.9 | | | 64.2 | |
| | | | | |
Net income per share - Basic (2) | $ | 11.40 | | | $ | 11.40 | | | $ | 11.85 | |
Net income per share - Diluted (2) | $ | 11.25 | | | $ | 11.23 | | | $ | 11.47 | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
_______________________________
Molina Healthcare, Inc. 2021 Form 10-K | 62
(1) The dilutive effect of all potentially dilutive common shares is calculated using the treasury stock method. Certain potentially dilutive common shares issuable are not included in the computation of diluted net income per share because to do so would have been anti-dilutive.
(2) Source data for calculations in thousands.
4. Business Combinations
In the fourth quarter of 2021, we closed on 1 business combination in the Medicaid segment, consistent with our strategy to grow in our existing markets. For this transaction, we applied the acquisition method of accounting, where the total purchase price was allocated, or preliminarily allocated, to the tangible and intangible assets acquired and liabilities assumed, based on their fair values as of the acquisition date. We expect to complete the final determination of the purchase price allocation as soon as practicable, but no later than one year following the acquisition’s closing date in accordance with Accounting Standards Codification Topic 805, Business Combinations. Measurement period adjustments will be recorded in the period in which they are determined, as if they had been completed at the acquisition date.
Acquisition costs amounted to $34 million in the aggregate for the year ended December 31, 2021, and were recorded as “General and administrative expenses” in the accompanying consolidated statements of income.
Affinity. On October 25, 2021, we closed on our acquisition of substantially all of the assets of Affinity Health Plan, Inc., a Medicaid health plan in New York, for initial purchase consideration of approximately $176 million. Finalization of purchase price adjustments as provided in the asset purchase agreement is expected to occur in the second half of 2022.
Goodwill is calculated as the excess of the consideration transferred over the net assets recognized and represents the estimated future economic benefits arising from other assets acquired that could not be individually identified and separately recognized. Such assets include synergies we expect to achieve, such as the use of our existing infrastructure to support the added membership, and future economic benefits arising from the assembled workforce. Approximately 100% of the goodwill is deductible for income tax purposes. The following table summarizes the provisional fair values assigned to assets acquired and liabilities assumed, in millions.
| | | | | |
| |
(1) | For more information regarding the 1.625% Convertible Notes, refer to Note 11, “Debt.” For more information and definitions regarding the 1.125% Warrants, refer to Note 14, “Stockholders' Equity.” The dilutive effect of all potentially dilutive common shares is calculated using the treasury stock method. Certain potentially dilutive common shares issuable are not included in the computation of diluted net income (loss) per share because to do so would have been anti-dilutive. |
| |
(2)Assets acquired: | Source data for calculations in thousands. |
| Current assets | $ | 234 | |
| Goodwill | 280 | |
| Intangible assets | 69 | |
| Other long-term assets | 8 | |
| Liabilities assumed: | |
| Medical claims and benefits payable | (224) | |
| Amounts due government agencies | (155) | |
| Accounts payable, accrued and other long-term liabilities | (36) | |
| Net consideration transferred | $ | 176 | |
| |
The table below presents intangible assets acquired, by major class, for the Affinity acquisition. The weighted-average amortization period, in the aggregate, is 5.4 years. 4. | | | | | | | | | | | |
| Fair Value | | Life |
| | | |
| | (In millions) | | (Years) |
| Contract rights - member list | $ | 56 | | | 5 |
| Provider network | 9 | | | 10 |
| Trade name | 4 | | | 1.5 |
| $ | 69 | | | |
| | | |
Magellan Complete Care. On December 31, 2020, we closed on our acquisition of 100% of the outstanding equity interests of the Magellan Complete Care line of business of Magellan Health, Inc., for initial purchase consideration of approximately $1,037 million. In the fourth quarter of 2021, we paid additional purchase consideration of $28 million as a result of final purchase price adjustments as provided in the stock and asset purchase agreement. In the year ended December 31, 2021, we recorded various measurement period adjustments, including a decrease
Molina Healthcare, Inc. 2021 Form 10-K | 63
of $7 million to “Receivables,” a decrease of $27 million to “Medical claims and benefits payable,” and an increase of $18 million to “Amounts due government agencies.” In the aggregate, we recorded a net increase of $10 million to goodwill for these measurement period adjustments and purchase price adjustments, which has been finalized as of December 31, 2021.
Cigna. As described in Note 1, “Organization and Basis of Presentation,” we announced this acquisition closed on January 1, 2022. Because the closing date fell on a holiday, the $58 million purchase price was paid on December 31, 2021 and was recorded to prepaid expenses and other assets. Such amounts are reported in investing activities in the accompanying consolidated statements of cash flows. The initial accounting for this transaction is incomplete.
5. Fair Value Measurements
We consider the carrying amounts of current assets and current liabilities (not including derivatives and the current portion of long-term debt) to approximate their fair values because of the relatively short period of time between the origination of these instruments and their expected realization or payment. For our financial instruments measured at fair value on a recurring basis, we prioritize the inputs used in measuring fair value according to a three-tier fair value hierarchy as follows:
Level 1 — Observable Inputs.Level 1 financial instruments are actively traded and therefore the fair value for these securities is based on quoted market prices for identical securities in active markets.
Level 2 — Directly or Indirectly Observable Inputs. Fair value for these investments is determined using a market approach based on quoted prices for similar securities in active markets or quoted prices for identical securities in inactive markets.
Level 3 — Unobservable Inputs. Level 3 financial instruments are valued using unobservable inputs that represent management’s best estimate of what market participants would use in pricing the financial instrument at the measurement date. OurAs of December 31, 2021 and 2020, our Level 3 financial instruments consist primarilyconsisted of derivative financial instruments.
The derivatives include the 1.125% Call Option derivative asset and the 1.125% Conversion Option derivative liability. These derivatives are not actively traded and are valued based on an option pricing model that uses observable and unobservable market data for inputs. Significant market data inputs used to determine fair value as of December 31, 2018, included the price of our common stock, the time to maturity of the derivative instruments, the risk-free interest rate, and the implied volatility of our common stock. As described further in Note 12, “Derivatives,” the 1.125% Call Option asset and the 1.125% Conversion Option liability were designed such that changes in their fair values offset, with minimal impact to the consolidated statements of operations. Therefore, the sensitivity of changes in the unobservable inputs to the option pricing model for such instruments is mitigated.contingent consideration liabilities.
The net changes in fair value of Level 3 financial instruments were insignificant toare reported in “Other” operating expenses in our resultsconsolidated statements of operations forincome. In the years ended December 31, 2018,2021 and 2017.2020, we recognized a loss of $24 million and $6 million, respectively, primarily for the increase in the fair value of the contingent consideration liability described below.
Our financial instruments measured at fair value on a recurring basis at December 31, 2018,2021, were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Total | | Level 1 | | Level 2 | | Level 3 |
| | | | | | | |
| | (In millions) |
| Corporate debt securities | $ | 1,833 | | | $ | — | | | $ | 1,833 | | | $ | — | |
| Mortgage-backed securities | 614 | | | — | | | 614 | | | — | |
| U.S. Treasury notes | 353 | | | — | | | 353 | | | — | |
| Asset-backed securities | 247 | | | — | | | 247 | | | — | |
| Municipal securities | 123 | | | — | | | 123 | | | — | |
| | | | | | | |
| | | | | | | |
| Other | 32 | | | — | | | 32 | | | — | |
| Total assets | $ | 3,202 | | | $ | — | | | $ | 3,202 | | | $ | — | |
| | | | | | | |
| Contingent consideration liabilities | $ | 47 | | | $ | — | | | $ | — | | | $ | 47 | |
| Total liabilities | $ | 47 | | | $ | — | | | $ | — | | | $ | 47 | |
Molina Healthcare, Inc. 2021 Form 10-K | 64
|
| | | | | | | | | | | | | | | |
| | Total | | Level 1 | | Level 2 | | Level 3 |
| | (In millions) |
| Corporate debt securities | $ | 1,123 |
| | $ | — |
| | $ | 1,123 |
| | $ | — |
|
| U.S. Treasury notes | 181 |
| | — |
| | 181 |
| | — |
|
| Government-sponsored enterprise securities (GSEs) | 163 |
| | — |
| | 163 |
| | — |
|
| Municipal securities | 114 |
| | — |
| | 114 |
| | — |
|
| Asset-backed securities | 82 |
| | — |
| | 82 |
| | — |
|
| Certificates of deposit | 14 |
| | — |
| | 14 |
| | — |
|
| Other | 4 |
| | — |
| | 4 |
| | — |
|
| Subtotal - current investments | 1,681 |
| | — |
| | 1,681 |
| | — |
|
| 1.125% Call Option derivative asset | 476 |
| | — |
| | — |
| | 476 |
|
| Total assets | $ | 2,157 |
| | $ | — |
| | $ | 1,681 |
| | $ | 476 |
|
| | | | | | | | |
| 1.125% Conversion Option derivative liability | $ | 476 |
| | $ | — |
| | $ | — |
| | $ | 476 |
|
| Total liabilities | $ | 476 |
| | $ | — |
| | $ | — |
| | $ | 476 |
|
Our financial instruments measured at fair value on a recurring basis at December 31, 2017,2020, were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Total | | Level 1 | | Level 2 | | Level 3 |
| | | | | | | |
| | (In millions) |
| Corporate debt securities | $ | 1,256 | | | $ | — | | | $ | 1,256 | | | $ | — | |
| Mortgage-backed securities | 392 | | | — | | | 392 | | | — | |
| U.S. Treasury notes | 27 | | | — | | | 27 | | | — | |
| Asset-backed securities | 132 | | | — | | | 132 | | | — | |
| Municipal securities | 68 | | | — | | | 68 | | | — | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Total assets | $ | 1,875 | | | $ | — | | | $ | 1,875 | | | $ | — | |
| | | | | | | |
| Contingent consideration liabilities | $ | 46 | | | $ | — | | | $ | — | | | $ | 46 | |
| Total liabilities | $ | 46 | | | $ | — | | | $ | — | | | $ | 46 | |
|
| | | | | | | | | | | | | | | |
| | Total | | Level 1 | | Level 2 | | Level 3 |
| | (In millions) |
| Corporate debt securities | $ | 1,588 |
| | $ | — |
| | $ | 1,588 |
| | $ | — |
|
| U.S. Treasury notes | 388 |
| | — |
| | 388 |
| | — |
|
| GSEs | 253 |
| | — |
| | 253 |
| | — |
|
| Municipal securities | 141 |
| | — |
| | 141 |
| | — |
|
| Asset-backed securities | 117 |
| | — |
| | 117 |
| | — |
|
| Certificates of deposit | 37 |
| | — |
| | 37 |
| | — |
|
| Subtotal - current investments | 2,524 |
| | — |
| | 2,524 |
| | — |
|
| Corporate debt securities | 101 |
| | — |
| | 101 |
| | — |
|
| U.S. Treasury notes | 68 |
| | — |
| | 68 |
| | — |
|
| Subtotal - current restricted investments | 169 |
| | — |
| | 169 |
| | — |
|
| 1.125% Call Option derivative asset | 522 |
| | — |
| | — |
| | 522 |
|
| Total assets | $ | 3,215 |
| | $ | — |
| | $ | 2,693 |
| | $ | 522 |
|
| | | | | | | | |
| 1.125% Conversion Option derivative liability | $ | 522 |
| | $ | — |
| | $ | — |
| | $ | 522 |
|
| Total liabilities | $ | 522 |
| | $ | — |
| | $ | — |
| | $ | 522 |
|
Our Level 3 financial instruments at December 31, 2021 are comprised solely of contingent consideration liabilities of $47 million, in connection with our 2020 acquisition of certain assets of Passport Health Plan, Inc., a Medicaid health plan in Kentucky. Refer to Note 2, “Significant Accounting Policies—Business Combinations”, for further details. The liabilities are recorded at fair value on a recurring basis. In 2021, the estimated fair value of contingent purchase consideration increased by approximately $24 million, mainly relating to an operating income guarantee, and was essentially offset by $23 million paid to the seller for half the consideration due for minimum member enrollment targets in 2021. In January 2022, we paid the remaining half of the consideration due for minimum member enrollment targets of $23 million.
Fair Value Measurements – Disclosure Only
The carrying amounts and estimated fair values of our senior notes payable are classified as Level 2 financial instruments. Fair value for these securities is determined using a market approach based on quoted market prices for similar securities in active markets or quoted prices for identical securities in inactive markets. |
| | | | | | | | | | | | | | | |
| | December 31, 2018 | | December 31, 2017 |
| | Carrying | | Fair Value | | Carrying | | Fair Value |
| | Amount | | | Amount | |
| | (In millions) |
| 5.375% Notes | $ | 694 |
| | $ | 674 |
| | $ | 692 |
| | $ | 730 |
|
| 4.875% Notes | 326 |
| | 301 |
| | 325 |
| | 329 |
|
1.125% Convertible Notes (1),(2) | 240 |
| | 732 |
| | 496 |
| | 1,052 |
|
Credit Facility (2) | — |
| | — |
| | 300 |
| | 300 |
|
1.625% Convertible Notes (2) | — |
| | — |
| | 157 |
| | 220 |
|
| | $ | 1,260 |
| | $ | 1,707 |
| | $ | 1,970 |
| | $ | 2,631 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2021 | | December 31, 2020 |
| | Carrying
Amount | | Fair Value | | Carrying
Amount | | Fair Value |
| | | | | | | |
| | (In millions) |
5.375% Notes due 2022 (1) | $ | — | | | $ | — | | | $ | 697 | | | $ | 742 | |
| 4.375% Notes due 2028 | 791 | | | 829 | | | 789 | | | 843 | |
| 3.875% Notes due 2030 | 642 | | | 675 | | | 641 | | | 691 | |
| 3.875% Notes due 2032 | 740 | | | 760 | | | — | | | — | |
| Total | $ | 2,173 | | | $ | 2,264 | | | $ | 2,127 | | | $ | 2,276 | |
_______________________________
| |
(1) | The fair value of the 1.125% Conversion Option derivative liability (the embedded cash conversion option), which is included in the fair value amounts presented above, amounted to $476 million and $522 million as of December 31, 2018 and 2017, respectively. See further discussion at Note 11, “Debt,” and Note 12, “Derivatives.” |
| |
(2) | (1) For more information on debt repayments, in the year ended December 31, 2018, refer to Note 11, “Debt.” |
5.Molina Healthcare, Inc. 2021 Form 10-K | 65
6. Investments
Available-for-Sale
We consider all of our investments classified as current assets to be available-for-sale. The following tables summarize our current investments as of the dates indicated:
| | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 |
| Amortized
Cost | | Gross
Unrealized | | Estimated
Fair Value |
| | Gains | | Losses | |
| | | | | | | |
| (In millions) |
| Corporate debt securities | $ | 1,836 | | | $ | 9 | | | $ | 12 | | | $ | 1,833 | |
| Mortgage-backed securities | 616 | | | 2 | | | 4 | | | 614 | |
| U.S. Treasury notes | 353 | | | — | | | — | | | 353 | |
| Asset-backed securities | 248 | | | — | | | 1 | | | 247 | |
| Municipal securities | 123 | | | 1 | | | 1 | | | 123 | |
| | | | | | | |
| | | | | | | |
| Other | 32 | | | — | | | — | | | 32 | |
| Total | $ | 3,208 | | | $ | 12 | | | $ | 18 | | | $ | 3,202 | |
|
| | | | | | | | | | | | | | | |
| | December 31, 2018 |
| | Amortized | | Gross Unrealized | | Estimated |
| | Cost | | Gains | | Losses | | Fair Value |
| | (In millions) |
| Corporate debt securities | $ | 1,131 |
| | $ | — |
| | $ | 8 |
| | $ | 1,123 |
|
| U.S. Treasury notes | 181 |
| | — |
| | — |
| | 181 |
|
| GSEs | 164 |
| | — |
| | 1 |
| | 163 |
|
| Municipal securities | 115 |
| | — |
| | 1 |
| | 114 |
|
| Asset-backed securities | 83 |
| | — |
| | 1 |
| | 82 |
|
| Certificates of deposit | 14 |
| | — |
| | — |
| | 14 |
|
| Other | 4 |
| | — |
| | — |
| | 4 |
|
| Total current investments | $ | 1,692 |
| | $ | — |
| | $ | 11 |
| | $ | 1,681 |
|
| | | | | | | | | | | | December 31, 2020 |
| | December 31, 2017 | | Amortized
Cost | | Gross
Unrealized | | Estimated
Fair Value |
| | Amortized Cost | | Gross Unrealized | | Estimated Fair Value | | Gains | | Losses | |
| | | Gains | | Losses | | | | | | | | | |
| | (In millions) | | (In millions) |
| Corporate debt securities | $ | 1,591 |
| | $ | 1 |
| | $ | 4 |
| | $ | 1,588 |
| Corporate debt securities | $ | 1,220 | | | $ | 36 | | | $ | — | | | $ | 1,256 | |
| Mortgage-backed securities | | Mortgage-backed securities | 383 | | | 10 | | | 1 | | | 392 | |
| U.S. Treasury notes | 389 |
| | — |
| | 1 |
| | 388 |
| U.S. Treasury notes | 27 | | | — | | | — | | | 27 | |
| GSEs | 255 |
| | — |
| | 2 |
| | 253 |
| |
| Asset-backed securities | | Asset-backed securities | 130 | | | 2 | | | — | | | 132 | |
| Municipal securities | 142 |
| | — |
| | 1 |
| | 141 |
| Municipal securities | 66 | | | 2 | | | — | | | 68 | |
| Asset-backed securities | 117 |
| | — |
| | — |
| | 117 |
| |
| Certificates of deposit | 37 |
| | — |
| | — |
| | 37 |
| |
| Subtotal - current investments | 2,531 |
| | 1 |
| | 8 |
| | 2,524 |
| |
| Corporate debt securities | 101 |
| | — |
| | — |
| | 101 |
| |
| U.S. Treasury notes | 68 |
| | — |
| | — |
| | 68 |
| |
| Subtotal - current restricted investments | 169 |
| | — |
| | — |
| | 169 |
| |
| | $ | 2,700 |
| | $ | 1 |
| | $ | 8 |
| | $ | 2,693 |
| |
| | Total | | Total | $ | 1,826 | | | $ | 50 | | | $ | 1 | | | $ | 1,875 | |
The contractual maturities of our current investments as of December 31, 20182021 are summarized below:
|
| | | | | | | |
| | Amortized Cost | | Estimated Fair Value |
| | (In millions) |
| Due in one year or less | $ | 1,000 |
| | $ | 997 |
|
| Due after one year through five years | 692 |
| | 684 |
|
| | $ | 1,692 |
| | $ | 1,681 |
|
As discussed further in Note 11, “Debt,” the 4.875% Notes’ indenture required us to hold a portion of the net proceeds from their issuance in a segregated account to be used to settle the conversion of the 1.625% Convertible Notes. Prior to September 30, 2018, this account was reported as a current asset, entitled “Restricted investments,” in the accompanying consolidated balance sheets. Because this account was used to settle the conversion of the 1.625% Convertible Notes in the third quarter of 2018, current restricted investments, as of December 31, 2018, was reduced to zero. | | | | | | | | | | | |
| Amortized
Cost | | Estimated
Fair Value |
| | | |
| (In millions) |
| Due in one year or less | $ | 665 | | | $ | 667 | |
| Due after one year through five years | 1,667 | | | 1,662 | |
| Due after five years through ten years | 335 | | | 335 | |
| Due after ten years | 541 | | | 538 | |
| Total | $ | 3,208 | | | $ | 3,202 | |
Gross realized gains and losses from sales of available-for-sale securities are calculated under the specific identification method and are included in investment income. Gross realized investment gains amounted to $10 million, $6 million and losses for$13 million in the years ended December 31, 2018, 20172021, 2020 and 20162019, respectively. Gross realized investment losses were insignificant.insignificant in the years ended December 31, 2021, 2020 and 2019.
We have determined that unrealized losses at December 31, 20182021 and 2017 are temporary in nature, because the change in market value for these securities2020 primarily resulted from fluctuating interest rates, rather than a deterioration of the creditworthiness of the issuers. Therefore, we determined that an allowance for credit losses was not necessary. So long as we maintain the intent and ability to hold these securities to maturity, we are unlikely to experience losses. In the event that we dispose of these securities before maturity, we expect that realized losses, if any, will be insignificant.
Molina Healthcare, Inc. 2021 Form 10-K | 66
The following table segregatessummarizes those available-for-sale investments that have been in a continuous loss position for less than 12 months, and those thatmonths. No investments have been in a continuous loss position for 12 months or more as of December 31, 2018.
|
| | | | | | | | | | | | | | | | | | | | | |
| | In a Continuous Loss Position for Less than 12 Months | | In a Continuous Loss Position for 12 Months or More |
| | Estimated Fair Value | | Unrealized Losses | | Total Number of Positions | | Estimated Fair Value | | Unrealized Losses | | Total Number of Positions |
| | (Dollars in millions) |
| Corporate debt securities | $ | 509 |
| | $ | 3 |
| | 285 |
| | $ | 412 |
| | $ | 5 |
| | 298 |
|
| GSEs | — |
| | — |
| | — |
| | 127 |
| | 1 |
| | 76 |
|
| Municipal securities | — |
| | — |
| | — |
| | 87 |
| | 1 |
| | 90 |
|
| Asset backed securities | — |
| | — |
| | — |
| | 68 |
| | 1 |
| | 52 |
|
| | $ | 509 |
| | $ | 3 |
| | 285 |
| | $ | 694 |
| | $ | 8 |
| | 516 |
|
The following table segregates those available-for-sale investments that have been in a continuous loss position for less than 12 months, and those that have been in a continuous loss position for 12 months or more as of December 31, 2017.
|
| | | | | | | | | | | | | | | | | | | | | |
| | In a Continuous Loss Position for Less than 12 Months | | In a Continuous Loss Position for 12 Months or More |
| | Estimated Fair Value | | Unrealized Losses | | Total Number of Positions | | Estimated Fair Value | | Unrealized Losses | | Total Number of Positions |
| | (Dollars in millions) |
| Corporate debt securities | $ | 1,297 |
| | $ | 3 |
| | 561 |
| | $ | 94 |
| | $ | 1 |
| | 69 |
|
| U.S. Treasury notes | 470 |
| | 1 |
| | 89 |
| | — |
| | — |
| | — |
|
| GSEs | 173 |
| | 1 |
| | 69 |
| | 95 |
| | 1 |
| | 47 |
|
| Municipal securities | — |
| | — |
| | — |
| | 38 |
| | 1 |
| | 48 |
|
| | $ | 1,940 |
| | $ | 5 |
| | 719 |
| | $ | 227 |
| | $ | 3 |
| | 164 |
|
6. Receivables
Receivables consist primarily of amounts due from government agencies, which may be subject to potential retroactive adjustments. Because all of our receivable amounts are readily determinable and substantially all of our creditors are governmental authorities, our allowance for doubtful accounts is insignificant. Any amounts determined to be uncollectible are charged to expense when such determination is made.
|
| | | | | | | |
| | December 31, |
| | 2018 | | 2017 |
| | (In millions) |
| Premiums and other receivables | 855 |
| | 695 |
|
| Pharmacy administrative services receivables | 179 |
| | — |
|
| Pharmacy rebate receivables | 155 |
| | 154 |
|
| Health insurer fee reimbursement receivables | 141 |
| | 22 |
|
| | $ | 1,330 |
| | $ | 871 |
|
7. Property, Equipment, and Capitalized Software, Net
Property and equipment are stated at historical cost. Replacements and major improvements are capitalized, and repairs and maintenance are charged to expense as incurred. Furniture and equipment are generally depreciated using the straight-line method over estimated useful lives ranging from three to seven years. Software developed for internal use is capitalized. Software is generally amortized over its estimated useful life of three years.
Leasehold improvements are amortized over the term of the lease, or over their useful lives from five to 10 years, whichever is shorter. Buildings are depreciated over their estimated useful lives of 31.5 to 40 years.
A summary of property, equipment, and capitalized software is as follows:
|
| | | | | | | |
| | December 31, |
| | 2018 | | 2017 |
| | (In millions) |
| Capitalized software | $ | 373 |
| | $ | 417 |
|
| Furniture and equipment | 231 |
| | 289 |
|
| Building and improvements | 154 |
| | 161 |
|
| Land | 16 |
| | 16 |
|
| Total cost | 774 |
| | 883 |
|
| Less: accumulated amortization - capitalized software | (320 | ) | | (308 | ) |
| Less: accumulated depreciation and amortization - building and improvements, furniture and equipment | (213 | ) | | (233 | ) |
| Total accumulated depreciation and amortization | (533 | ) | | (541 | ) |
| Property, equipment, and capitalized software, net | $ | 241 |
| | $ | 342 |
|
The following table presents all depreciation and amortization recognized in our consolidated statements of operations, whether the item appears as depreciation and amortization, or as cost of service revenue. |
| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2018 | | 2017 | | 2016 |
| | (In millions) |
| Recorded in depreciation and amortization: | | | | | |
| Amortization of capitalized software | $ | 42 |
| | $ | 64 |
| | $ | 62 |
|
| Depreciation of property and equipment | 36 |
| | 42 |
| | 45 |
|
| Amortization of intangible assets | 21 |
| | 31 |
| | 32 |
|
| Subtotal | 99 |
| | 137 |
| | 139 |
|
| Recorded in cost of service revenue: | | | | | |
| Amortization of capitalized software | 19 |
| | 28 |
| | 22 |
|
| Amortization of deferred contract costs | 9 |
| | 13 |
| | 21 |
|
| Subtotal | 28 |
| | 41 |
| | 43 |
|
| Total depreciation and amortization recognized | $ | 127 |
| | $ | 178 |
| | $ | 182 |
|
8. Goodwill and Intangible Assets, Net
Goodwill
The following table presents the changes in the carrying amounts of goodwill, by segment, for the year ended December 31, 2018. The 2017 goodwill impairment losses were reported as “Impairment losses” in the accompanying consolidated statements of operations. See Note 18, “Segments,” for a discussion of the change in our reportable segments in 2018.
|
| | | | | | | | | | | |
| | Health Plans | | Other | | Total |
| | (In millions) |
| Historical goodwill, gross | $ | 445 |
| | $ | 233 |
| | $ | 678 |
|
| Accumulated impairment losses at December 31, 2017 | (302 | ) | | (190 | ) | | (492 | ) |
| Balance, December 31, 2017 | 143 |
| | 43 |
| | 186 |
|
| Sale of subsidiary | — |
| | (43 | ) | | (43 | ) |
| Balance, December 31, 2018 | $ | 143 |
| | $ | — |
| | $ | 143 |
|
| | | | | | |
| Accumulated impairment losses at December 31, 2018 | $ | 302 |
| | $ | 190 |
| | $ | 492 |
|
Impairment Analysis Results
2018. We performed a qualitative goodwill assessment of our reporting units, which resulted in no goodwill impairment losses in the year ended December 31, 2018.
2017 – Health Plans Segment. We performed quantitative goodwill assessments using the discounted cash flows and asset liquidation methods, which resulted in Health Plans segment goodwill impairment losses of $244 million in the year ended December 31, 2017, primarily due to the following:
Medicaid contract terminations announced in early 2018 at our Florida and New Mexico health plans; and
Future cash flow projections insufficient to produce an estimated fair value in excess of the Illinois health plan’s carrying amount.
2017 – Other Segment. Our recently divested Molina Medicaid Solutions and Pathways businesses are reported in the Other segment. The quantitative goodwill assessments of these reporting units, using the discounted cash flows method, resulted in goodwill impairment losses of $190 million in the year ended December 31, 2017, primarily due to the following:
Management’s conclusion that Molina Medicaid Solutions would provide fewer future benefits for its support of the Health Plans segment; and
Management’s conclusion that Pathways would not provide future benefits relating to the integration of its operations with the Health Plans segment to the extent previously expected.
2016. We performed a quantitative goodwill assessment of our reporting units using the discounted cash flows method, which resulted in no impairment losses in the year ended December 31, 2016.
Intangible Assets, Net
The following table provides the details of identified intangible assets, by major class, for the periods indicated:
|
| | | | | | | | | | | |
| | Cost | | Accumulated
Amortization | | Carrying Amount |
| | (In millions) |
| Intangible assets: | | | | | |
| Contract rights and licenses | $ | 201 |
| | $ | 162 |
| | $ | 39 |
|
| Provider networks | 20 |
| | 12 |
| | 8 |
|
| Balance at December 31, 2018 | $ | 221 |
| | $ | 174 |
| | $ | 47 |
|
| Intangible assets: | | | | | |
| Contract rights and licenses | $ | 201 |
| | $ | 141 |
| | $ | 60 |
|
| Provider networks | 20 |
| | 11 |
| | 9 |
|
| Balance at December 31, 2017 | $ | 221 |
| | $ | 152 |
| | $ | 69 |
|
Based on the balances of our identifiable intangible assets as of December 31, 2018, we estimate that our intangible asset amortization will be approximately $18 million in 2019, $14 million in 2020, $5 million in 2021, and $3 million in 2022 and 2023. For a presentation of our intangible assets by reportable segment, refer to Note 18, “Segments.”2020.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| In a Continuous Loss Position for Less than 12 Months as of December 31, 2021 | | In a Continuous Loss Position for Less than 12 Months as of December 31, 2020 |
| Estimated
Fair Value | | Unrealized
Losses | | Total Number of Positions | | Estimated
Fair Value | | Unrealized
Losses | | Total Number of Positions |
| | | | | | | | | | | |
| | (Dollars in millions) |
| Corporate debt securities | $ | 1,063 | | | $ | 12 | | | 395 | | | $ | — | | | $ | — | | | — | |
| Mortgage-backed securities | 408 | | | 4 | | | 146 | | | 77 | | | 1 | | | 21 | |
| Asset-backed securities | 166 | | | 1 | | | 75 | | | — | | | — | | | — | |
| | | | | | | | | | | |
| Municipal securities | 69 | | | 1 | | | 61 | | | — | | | — | | | — | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Total | $ | 1,706 | | | $ | 18 | | | 677 | | | $ | 77 | | | $ | 1 | | | 21 | |
Impairment Analysis Results
2018. No impairment charges relating to intangible assets were recorded in the year ended December 31, 2018. See Note 15, “Restructuring and Separation Costs,” for a description of certain long-lived assets written off in 2018, in connection with our 2017 Restructuring Plan.
2017 – Health Plans Segment. As a result of the impairment indicators described above for the Florida and New Mexico reporting units of the Health Plans segment in 2017, we performed undiscounted cash flows analyses of the reporting units, which resulted in Health Plans segment intangible asset impairment losses of $25 million in the year ended December 31, 2017.
2017 – Other Segment. As a result of management’s conclusion that Pathways would not provide future benefits relating to the integration of its operations with the Health Plans segment to the extent previously expected, we computed an undiscounted cash flows analysis of reporting units, which resulted in Other segment intangible asset impairment losses of $11 million.
2016. No significant impairment charges relating to long-lived assets, including intangible assets, were recorded in the year ended December 31, 2016.
9. Restricted Investments Held-to-Maturity
Pursuant to the regulations governing our Health Plans segmentstate health plan subsidiaries, we maintain statutory deposits and deposits required by government authorities primarily in certificates of depositcash, cash equivalents, and U.S. Treasury securities. We also maintain restricted investments as protection against the insolvency of certain capitated providers. The use of these funds is limited as required by regulationregulations in the various states in which we operate, or as needed in the event of insolvency of capitated providers. Therefore, such investments are reported as “Restricted investments” in the accompanying consolidated balance sheets.
We have the ability to hold these restricted investments until maturity, and as a result, we would not expect the value of these investments to decline significantly due to a sudden change in market interest rates. Our held-to-maturity restricted investments are carried at amortized cost, which approximates fair value, of which $142 million will mature in one year or less, and $70 million will mature in one through five years.
The following table presents the balances of restricted investments:
| | | | | | | | | | | |
| December 31, |
| 2021 | | 2020 |
| | | |
| (In millions) |
| Cash and cash equivalents | $ | 68 | | | $ | 63 | |
| U.S. Treasury notes | 144 | | | 24 | |
| Magellan Complete Care acquisition opening balance | — | | | 49 | |
| Total restricted investments | $ | 212 | | | $ | 136 | |
7. Property, Equipment, and Capitalized Software, Net
Property and equipment are stated at historical cost. Replacements and major improvements are capitalized, and repairs and maintenance are charged to expense as incurred. Software developed for internal use is capitalized. Furniture and equipment are generally depreciated using the straight-line method over estimated useful lives ranging from three to seven years. Software is generally amortized over its estimated useful life of three years. Leasehold improvements are amortized over the term of the lease, or over their useful lives from five to 10 years, whichever is shorter. Buildings are depreciated over their estimated useful lives of 31.5 to 40 years.
Molina Healthcare, Inc. 2021 Form 10-K | 67
|
| | | | | | | |
| | December 31, |
| | 2018 | | 2017 |
| | (In millions) |
| Florida | $ | 32 |
| | $ | 31 |
|
| New Mexico | 43 |
| | 43 |
|
| Ohio | 12 |
| | 12 |
|
| Puerto Rico | 10 |
| | 10 |
|
| Other | 23 |
| | 23 |
|
| Total Health Plans segment | $ | 120 |
| | $ | 119 |
|
| | | | | | | | | | | |
| | December 31, |
| | 2021 | | 2020 |
| | | |
| | (In millions) |
| Capitalized software | $ | 547 | | | $ | 475 | |
| Furniture and equipment | 237 | | | 221 | |
| Building and improvements | 37 | | | 49 | |
| Land | 1 | | | 4 | |
| Magellan Complete Care acquisition opening balance | — | | | 3 | |
| Total cost | 822 | | | 752 | |
| Less: accumulated amortization - capitalized software | (427) | | | (385) | |
| Less: accumulated depreciation and amortization - furniture, equipment, building, and improvements | (205) | | | (192) | |
| Total accumulated depreciation and amortization | (632) | | | (577) | |
| ROU assets - finance leases | 206 | | | 216 | |
| Property, equipment, and capitalized software, net | $ | 396 | | | $ | 391 | |
The contractual maturitiesfollowing table presents all depreciation and amortization recognized in our consolidated statements of income:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
| | | | | |
| (In millions) |
| Recorded in depreciation and amortization: | | | | | |
| Amortization of intangible assets | $ | 49 | | | $ | 15 | | | $ | 18 | |
| Amortization of capitalized software | 41 | | | 38 | | | 33 | |
| Amortization of finance leases | 25 | | | 19 | | | 17 | |
| Depreciation and amortization of furniture, equipment, building, and improvements | 16 | | | 16 | | | 21 | |
| Total depreciation and amortization recognized | $ | 131 | | | $ | 88 | | | $ | 89 | |
8. Leases
We are a party to operating and finance leases primarily for our held-to-maturity restricted investments,corporate and health plan offices. Our operating leases have remaining lease terms up to 14 years, some of which include options to extend the leases for up to 10 years. As of December 31, 2021, the weighted average remaining operating lease term is 8 years.
Our finance leases have remaining lease terms up to 17 years, some of which include options to extend the leases for up to 25 years. As of December 31, 2021, the weighted average remaining finance lease term is 14 years.
As of December 31, 2021, the weighted-average discount rate used to compute the present value of lease payments was 4.3% for operating lease liabilities, and 6.4% for finance lease liabilities. The components of lease expense for the years ended December 31, 2021, and 2020, are carried at amortized cost, which approximates fair value,presented in the following table.
| | | | | | | | | | | | | |
| | | Year Ended December 31, |
| | | 2021 | | 2020 |
| | | | | |
| | | (In millions) |
| Operating lease expense | | | $ | 34 | | | $ | 28 | |
| | | | | |
| Finance lease expense: | | | | | |
| Amortization of ROU assets | | | $ | 25 | | | $ | 19 | |
| Interest on lease liabilities | | | 15 | | | 15 | |
| Total finance lease expense | | | $ | 40 | | | $ | 34 | |
Molina Healthcare, Inc. 2021 Form 10-K | 68
Supplemental consolidated cash flow information related to leases follows:
| | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 |
| | | |
| (In millions) |
| Cash used in operating activities: | | | |
| Operating leases | $ | 33 | | | $ | 30 | |
| Finance leases | 15 | | | 15 | |
| Cash used in financing activities: | | | |
| Finance leases | 18 | | | 9 | |
| ROU assets recognized in exchange for lease obligations: | | | |
| Operating leases | 86 | | | 28 | |
| Finance leases | $ | 18 | | | $ | 7 | |
Supplemental information related to leases, including location of amounts reported in the accompanying consolidated balance sheets, follows:
| | | | | | | | | | | |
| December 31, |
| 2021 | | 2020 |
| | | |
| (In millions) |
| Operating leases: | | | |
| ROU assets | | | |
| Other assets | $ | 128 | | | $ | 58 | |
| Other assets - Magellan Complete Care acquisition opening balance | — | | | 13 | |
| Total other assets | $ | 128 | | | $ | 71 | |
| Lease liabilities | | | |
| Accounts payable and accrued liabilities (current) | $ | 35 | | | $ | 21 | |
| Other long-term liabilities (non-current) | 99 | | | 42 | |
| Magellan Complete Care acquisition opening balance | — | | | 13 | |
| Total operating lease liabilities | $ | 134 | | | $ | 76 | |
| Finance leases: | | | |
| ROU assets | | | |
| Property, equipment, and capitalized software, net | $ | 206 | | | $ | 216 | |
| Lease liabilities | | | |
| Accounts payable and accrued liabilities (current) | $ | 15 | | | $ | 12 | |
| Finance lease liabilities (non-current) | 219 | | | 225 | |
| Total finance lease liabilities | $ | 234 | | | $ | 237 | |
Molina Healthcare, Inc. 2021 Form 10-K | 69
Maturities of lease liabilities as of December 31, 2018 are summarized below.2021, were as follows:
| | | | | | | | | | | |
| Operating | | Finance |
| Leases | | Leases |
| | | |
| (In millions) |
| 2022 | $ | 30 | | | $ | 29 | |
| 2023 | 26 | | | 27 | |
| 2024 | 20 | | | 24 | |
| 2025 | 16 | | | 22 | |
| 2026 | 10 | | | 23 | |
| Thereafter | 61 | | | 243 | |
| Subtotal - undiscounted lease payments | 163 | | | 368 | |
| Less imputed interest | (29) | | | (134) | |
| Total | $ | 134 | | | $ | 234 | |
9. Goodwill and Intangible Assets, Net
Goodwill
The following table presents the changes in the carrying amounts of goodwill by segment, for the periods presented.
| | | | | | | | | | | | | | | | | | | | | | | |
| Medicaid | | Medicare | | Other | | Consolidated |
| | | | | | | |
| (In millions) |
| Balance, December 31, 2019 | $ | 143 | | | $ | — | | | $ | — | | | $ | 143 | |
| Acquisitions and measurement period adjustments | 346 | | | 161 | | | 42 | | | 549 | |
| Dispositions | — | | | — | | | — | | | — | |
| Impairment | — | | | — | | | — | | | — | |
| Balance, December 31, 2020 | 489 | | | 161 | | | 42 | | | 692 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Acquisitions and measurement period adjustments | 280 | | | 8 | | | 2 | | | 290 | |
| Dispositions | — | | | — | | | — | | | — | |
| Impairment | — | | | — | | | — | | | — | |
| Balance, December 31, 2021 | 769 | | | 169 | | | 44 | | | 982 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
The changes in the carrying amounts of both goodwill and intangible assets, net, in 2021, were due to the purchase price adjustments and acquisitions described in Note 4, “Business Combinations.”
Intangible Assets, Net
The following table provides the details of identified intangible assets, by major class, for the periods presented.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 | | December 31, 2020 |
| Cost | | Accumulated
Amortization | | Carrying Amount | | Cost | | Accumulated
Amortization | | Carrying Amount |
| | | | | | | | | | | |
| | (In millions) |
| Contract rights and licenses | $ | 426 | | | $ | 210 | | | $ | 216 | | | $ | 370 | | | $ | 168 | | | $ | 202 | |
| Provider networks | 56 | | | 19 | | | 37 | | | 47 | | | 15 | | | 32 | |
| Trade name | 19 | | | 2 | | | 17 | | | 15 | | | — | | | 15 | |
| Total | $ | 501 | | | $ | 231 | | | $ | 270 | | | $ | 432 | | | $ | 183 | | | $ | 249 | |
As of December 31, 2021, we estimate that our intangible asset amortization will be approximately $59 million in 2022, $57 million in 2023, $56 million in 2024, $55 million in 2025, and $15 million in 2026.
Molina Healthcare, Inc. 2021 Form 10-K | 70
|
| | | | | | | |
| | Amortized Cost | | Estimated Fair Value |
| | (In millions) |
| Due in one year or less | $ | 105 |
| | $ | 105 |
|
| Due after one year through five years | 15 |
| | 15 |
|
| | $ | 120 |
| | $ | 120 |
|
10. Medical Claims and Benefits Payable
The following table provides the details of our medical claims and benefits payable as of the dates indicated.
| | | | | | | | | | December 31, |
| | December 31, | | 2021 | | 2020 | | 2019 |
| | 2018 | | 2017 | | 2016 | | | | | | |
| | (In millions) | | (In millions) |
| Fee-for-service claims incurred but not paid (“IBNP”) | $ | 1,562 |
| | $ | 1,717 |
| | $ | 1,352 |
| Fee-for-service claims incurred but not paid (“IBNP”) | $ | 2,486 | | | $ | 1,647 | | | $ | 1,406 | |
| Pharmacy payable | 115 |
| | 112 |
| | 112 |
| Pharmacy payable | 219 | | | 157 | | | 126 | |
| Capitation payable | 52 |
| | 67 |
| | 37 |
| Capitation payable | 82 | | | 70 | | | 55 | |
| Other | 232 |
| | 296 |
| | 428 |
| Other | 576 | | | 528 | | | 267 | |
| | $ | 1,961 |
| | $ | 2,192 |
| | $ | 1,929 |
| |
| Magellan Complete Care acquisition opening balance | | Magellan Complete Care acquisition opening balance | — | | | 294 | | | — | |
| Total | | Total | $ | 3,363 | | | $ | 2,696 | | | $ | 1,854 | |
“Other” medical claims and benefits payable include amounts payable to certain providers for which we act as an intermediary on behalf of various government agencies without assuming financial risk. Such receipts and payments do not impact our consolidated statements of operations.income. Non-risk provider payables amounted to $107$226 million, $122$235 million and $225$132 million, as of December 31, 2018, 2017,2021, 2020, and 2016,2019, respectively.
The following table presentstables present the components of the change in our medical claims and benefits payable for the periods indicated. indicated, with the prior periods recast to conform to current year presentation.
| | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2021 |
| Medicaid | | Medicare | | Marketplace | | Consolidated |
| | | | | | | |
| | (In millions) |
| Medical claims and benefits payable, beginning balance | $ | 2,129 | | | $ | 392 | | | $ | 175 | | | $ | 2,696 | |
| Components of medical care costs related to: | | | | | | | |
| Current year | 18,321 | | | 2,970 | | | 2,652 | | | 23,943 | |
| Prior years | (182) | | | (39) | | | (18) | | | (239) | |
| Total medical care costs | 18,139 | | | 2,931 | | | 2,634 | | | 23,704 | |
| Payments for medical care costs related to: | | | | | | | |
| Current year | 16,284 | | | 2,573 | | | 2,291 | | | 21,148 | |
| Prior years | 1,601 | | | 340 | | | 139 | | | 2,080 | |
| Total paid | 17,885 | | | 2,913 | | | 2,430 | | | 23,228 | |
| Acquired balances, net of post-acquisition adjustments | 205 | | | (8) | | | — | | | 197 | |
| Change in non-risk and other provider payables | (8) | | | 2 | | | — | | | (6) | |
| Medical claims and benefits payable, ending balance | $ | 2,580 | | | $ | 404 | | | $ | 379 | | | $ | 3,363 | |
| | | | | | | |
Molina Healthcare, Inc. 2021 Form 10-K | 71
| | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2020 |
| Medicaid | | Medicare | | Marketplace | | Consolidated |
| | | | | | | |
| | (In millions) |
| Medical claims and benefits payable, beginning balance | $ | 1,465 | | | $ | 267 | | | $ | 122 | | | $ | 1,854 | |
| Components of medical care costs related to: | | | | | | | |
| Current year | 12,545 | | | 2,189 | | | 1,205 | | | 15,939 | |
| Prior years | (84) | | | (28) | | | (7) | | | (119) | |
| Total medical care costs | 12,461 | | | 2,161 | | | 1,198 | | | 15,820 | |
| Payments for medical care costs related to: | | | | | | | |
| Current year | 10,940 | | | 1,884 | | | 1,047 | | | 13,871 | |
| Prior years | 1,176 | | | 233 | | | 98 | | | 1,507 | |
| Total paid | 12,116 | | | 2,117 | | | 1,145 | | | 15,378 | |
| Acquired balances, net of post-acquisition adjustments | 215 | | | 79 | | | — | | | 294 | |
| Change in non-risk and other provider payables | 104 | | | 2 | | | — | | | 106 | |
| Medical claims and benefits payable, ending balance | $ | 2,129 | | | $ | 392 | | | $ | 175 | | | $ | 2,696 | |
| | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2019 |
| Medicaid | | Medicare | | Marketplace | | Consolidated |
| | | | | | | |
| | (In millions) |
| Medical claims and benefits payable, beginning balance | $ | 1,554 | | | $ | 253 | | | $ | 154 | | | $ | 1,961 | |
| Components of medical care costs related to: | | | | | | | |
| Current year | 11,191 | | | 1,934 | | | 1,051 | | | 14,176 | |
| Prior years | (222) | | | (21) | | | (28) | | | (271) | |
| Total medical care costs | 10,969 | | | 1,913 | | | 1,023 | | | 13,905 | |
| Payments for medical care costs related to: | | | | | | | |
| Current year | 9,936 | | | 1,676 | | | 942 | | | 12,554 | |
| Prior years | 1,145 | | | 224 | | | 113 | | | 1,482 | |
| Total paid | 11,081 | | | 1,900 | | | 1,055 | | | 14,036 | |
| Acquired balances, net of post-acquisition adjustments | — | | | — | | | — | | | — | |
| Change in non-risk and other provider payables | 23 | | | 1 | | | — | | | 24 | |
| Medical claims and benefits payable, ending balance | $ | 1,465 | | | $ | 267 | | | $ | 122 | | | $ | 1,854 | |
| | | | | | | |
The amounts presented for “Components of medical care costs related to: Prior periods”years” represent the amount by which our original estimate of medical claims and benefits payable at the beginning of the period were (more) less thanyear varied from the actual amount of the liabilityliabilities, based on information (principally the payment of claims) developed since that liability wasthose liabilities were first reported.
Our estimates of medical claims and benefits payable recorded at December 31, 2021, 2020 and 2019 developed favorably by approximately $239 million, $119 million and $271 million in 2021, 2020 and 2019, respectively. The favorable prior year development recognized in 2021 was primarily due to lower than expected utilization of medical services by our Medicaid members, and to a lesser extent our Medicare and Marketplace members, and improved operating performance. Consequently, the ultimate costs recognized in 2021 were lower than our original estimates in 2020, which was not discernible until additional information was provided, and as claims payments were processed.
The favorable prior year development recognized in 2020 was primarily due to lower than expected utilization of medical services by our Medicaid members, and improved operating performance. Consequently, the ultimate costs recognized in 2020 were lower than our original estimates in 2019, which was not discernible until additional information was provided, and as claims payments were processed.
The favorable prior year development recognized in 2019 was primarily due to lower than expected utilization of medical services by our Medicaid members, and improved operating performance. Consequently, the ultimate costs recognized in 2019 were lower than our original estimates in 2018, which was not discernible until additional information was provided, and as claims payments were processed.
Molina Healthcare, Inc. 2021 Form 10-K | 72
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2018 | | 2017 | | 2016 |
| | (In millions) |
| Medical claims and benefits payable, beginning balance | $ | 2,192 |
| | $ | 1,929 |
| | $ | 1,685 |
|
| Components of medical care costs related to: | | | | | |
| Current period | 15,478 |
| | 17,037 |
| | 14,966 |
|
Prior periods (1) | (341 | ) | | 36 |
| | (192 | ) |
| Total medical care costs | 15,137 |
| | 17,073 |
| | 14,774 |
|
| | | | | | |
| Change in non-risk provider payables | 13 |
| | (106 | ) | | 58 |
|
| | | | | | |
| Payments for medical care costs related to: | | | | | |
| Current period | 13,671 |
| | 15,130 |
| | 13,304 |
|
| Prior periods | 1,710 |
| | 1,574 |
| | 1,284 |
|
| Total paid | 15,381 |
| | 16,704 |
| | 14,588 |
|
| Medical claims and benefits payable, ending balance | $ | 1,961 |
| | $ | 2,192 |
| | $ | 1,929 |
|
________________
| |
(1) | Includes the 2018 benefit of the 2017 Marketplace CSR reimbursement of $81 million. |
The following tables provide information about our consolidated incurred and paid claims development as of December 31, 2018,2021, as well as cumulative claims frequency and the total of incurred but not paid claims liabilities. The pattern of incurred and paid claims development is consistent across each of our segments. The cumulative claim frequency is measured by claim event, and includes claims covered under capitated arrangements. |
| | | | | | | | | | | | | | | | | | | |
| Incurred Claims and Allocated Claims Adjustment Expenses | | Total IBNP | | Cumulative number of reported claims |
| Benefit Year | | 2016 | | 2017 | | 2018 | |
| | | | | | | | | | | |
| | | (Unaudited) | | (Unaudited) | | | | | | |
| | | (In millions) |
| 2016 | | $ | 15,064 |
| | $ | 15,093 |
| | $ | 15,057 |
| | $ | 18 |
| | 105 |
|
| 2017 | | | | 17,037 |
| | 16,728 |
| | 57 |
| | 119 |
|
| 2018 | | | | | | 15,478 |
| | 1,477 |
| | 105 |
|
| | | | | | | $ | 47,263 |
| | $ | 1,552 |
| | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Incurred Claims and Allocated Claims Adjustment Expenses | | Total IBNP | | Cumulative number of reported claims |
| Benefit Year | | 2019 | | 2020 | | 2021 | |
| | | | | | | | | | |
| | (Unaudited) | | (Unaudited) | | | | | | |
| | (In millions) |
| 2019 | | $ | 14,176 | | | $ | 14,083 | | | $ | 14,040 | | | $ | 12 | | | 105 | |
| 2020 | | | | 16,233 | | | 16,056 | | | 52 | | | 140 | |
| 2021 | | | | | | 23,943 | | | 2,416 | | | 181 | |
| | | | | | $ | 54,039 | | | $ | 2,480 | | | |
|
| | | | | | | | | | | | | |
| Cumulative Paid Claims and Allocated Claims Adjustment Expenses | |
| Benefit Year | | 2016 | | 2017 | | 2018 | |
| | | | | | | | |
| | | (Unaudited) | | (Unaudited) | | | |
| | | (In millions) | |
| 2016 | | $ | 13,403 |
| | $ | 14,952 |
| | $ | 15,039 |
| |
| 2017 | | | | 15,130 |
| | 16,752 |
| |
| 2018 | | | | | | 13,671 |
| |
| | | | | | | $ | 45,462 |
| |
| | | | | | | | | | | | | | | | | | | | | | | |
| Cumulative Paid Claims and Allocated Claims Adjustment Expenses | |
| Benefit Year | | 2019 | | 2020 | | 2021 | |
| | | | | | | |
| | (Unaudited) | | (Unaudited) | | | |
| | (In millions) | |
| 2019 | | $ | 12,554 | | | $ | 14,056 | | | $ | 14,028 | | |
| 2020 | | | | 13,871 | | | 16,004 | | |
| 2021 | | | | | | 21,148 | | |
| | | | | | $ | 51,180 | | |
The following table represents a reconciliation of claims development to the aggregate carrying amount of the liability for medical claims and benefits payable.
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | 2021 | |
| | | | | | | |
| | | | | | (In millions) | |
| Incurred claims and allocated claims adjustment expenses | | $ | 54,039 | | |
| Less: cumulative paid claims and allocated claims adjustment expenses | | (51,180) | | |
| All outstanding liabilities before 2019 | | 6 | | |
| Acquired balances | | 224 | | |
| Non-risk and other provider payables | | 274 | | |
| Medical claims and benefits payable | | $ | 3,363 | | |
|
| | | | | | | | | |
| | | | | | | 2018 | |
| | | | | | | (In millions) | |
| Incurred claims and allocated claims adjustment expenses | | $ | 47,263 |
| |
| Less: cumulative paid clams and allocated claims adjustment expenses | | (45,462 | ) | |
| All outstanding liabilities before 2016 | | 10 |
| |
| Non-risk provider payables and other | | 150 |
| |
| Medical claims and benefits payable | | $ | 1,961 |
| |
Our estimates of medical claims and benefits payable recorded at December 31, 2017, 2016 and 2015 developed favorably (unfavorably) by approximately $341 million, $(36) million and $192 million in 2018, 2017 and 2016, respectively.
The favorable prior year development recognized in 2018 includes a benefit of approximately $81 million in reduced medical care costs relating to Marketplace CSR subsidies for 2017 dates of service. The remainder of the favorable prior period development was primarily due to lower than expected utilization of medical services by our Medicaid and Marketplace members and improved operating performance. The differences between our original estimates in 2017 and the ultimate costs in 2018 were not discernable until additional information was provided to us in 2018 and the effect became clearer over time as claim payments were processed.
The unfavorable prior year development in 2017 was primarily due to higher than expected costs for settling certain claims with certain providers in states where we had recently commenced operations, such as in Illinois and Puerto Rico, or had instituted significant changes due to provider contract changes, such as in Florida and New Mexico. The differences between our original estimates in 2016 and the ultimate costs in 2017 were not discernable until additional information was provided to us in 2017 and the effect became clearer over time as claim payments were processed.
The favorable prior year development we recognized in 2016 was primarily due to reprocessing a significant number of claims in 2016 for provider submission of claims that were not compliant with new diagnostic coding requirements instituted in late 2015; several high-dollar claims at our New Mexico health plan that were settled for amounts lower than we initially estimated; recoveries on certain outpatient facility claims at our Washington health plan; and lower than expected claims costs for Medicaid Expansion members that were new to our California health plan in 2015. The differences between our original estimates in 2015 and the ultimate costs in 2016 were not discernable until additional information was provided to us in 2016 and the effect became clearer over time as claim payments were processed.
11. Debt
AsContractual maturities of debt, as of December 31, 2018, contractual maturities of debt for2021, are illustrated in the years ending December 31 were as follows.following table. All amounts represent the principal amounts of the debt instruments outstanding.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Total | | 2022 | | 2023 | | 2024 | | 2025 | | 2026 | | Thereafter |
| | | | | | | | | | | | | |
| (In millions) |
| 4.375% Notes due 2028 | $ | 800 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 800 | |
| 3.875% Notes due 2030 | 650 | | | — | | | — | | | — | | | — | | | — | | | 650 | |
| 3.875% Notes due 2032 | 750 | | | — | | | — | | | — | | | — | | | — | | | 750 | |
| Total | $ | 2,200 | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 2,200 | |
Molina Healthcare, Inc. 2021 Form 10-K | 73
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Total | | 2019 | | 2020 | | 2021 | | 2022 | | 2023 | | Thereafter |
| | | | | | | | | | | | | | |
| | (In millions) |
| 5.375% Notes | $ | 700 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 700 |
| | $ | — |
| | $ | — |
|
| 4.875% Notes | 330 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 330 |
|
| 1.125% Convertible Notes | 252 |
| | — |
| | 252 |
| | — |
| | — |
| | — |
| | — |
|
| | $ | 1,282 |
| | $ | — |
| | $ | 252 |
| | $ | — |
| | $ | 700 |
| | $ | — |
| | $ | 330 |
|
All of our debt is held at the parent which is reported for segment purposes, in “Other.”the Other segment. The following table summarizes our outstanding debt obligations, and their classification inall of which are non-current as of the accompanying consolidated balance sheets:dates reported below:
| | | | | | | | | | | |
| December 31, |
| 2021 | | 2020 |
| | | |
| (In millions) |
| | | |
| | | |
| | | |
| | | |
| Non-current portion of long-term debt: | | | |
| 5.375% Notes due 2022 | $ | — | | | $ | 700 | |
| 4.375% Notes due 2028 | 800 | | | 800 | |
| 3.875% Notes due 2030 | 650 | | | 650 | |
| 3.875% Notes due 2032 | 750 | | | — | |
| Less: debt issuance costs | (27) | | | (23) | |
| Total | $ | 2,173 | | | $ | 2,127 | |
|
| | | | | | | |
| | December 31, |
| | 2018 | | 2017 |
| | (In millions) |
| Current portion of long-term debt: | | | |
| 1.125% Convertible Notes, net of unamortized discount | $ | 241 |
| | $ | 499 |
|
| 1.625% Convertible Notes, net of unamortized discount | — |
| | 157 |
|
| Lease financing obligations | 1 |
| | 1 |
|
| Debt issuance costs | (1 | ) | | (4 | ) |
| | 241 |
| | 653 |
|
| Non-current portion of long-term debt: | | | |
| 5.375% Notes | 700 |
| | 700 |
|
| 4.875% Notes | 330 |
| | 330 |
|
| Credit Facility | — |
| | 300 |
|
| Debt issuance costs | (10 | ) | | (12 | ) |
| | 1,020 |
| | 1,318 |
|
| Lease financing obligations | 197 |
| | 198 |
|
| | $ | 1,458 |
| | $ | 2,169 |
|
Interest cost recognized relating to our convertible senior notes, the 1.125% Convertible Notes and the 1.625% Convertible Notes, was as follows:
|
| | | | | | | | | | | |
| | Years Ended December 31, |
| | 2018 | | 2017 | | 2016 |
| | (In millions) |
| Contractual interest at coupon rate | $ | 6 |
| | $ | 11 |
| | $ | 11 |
|
| Amortization of the discount | 21 |
| | 32 |
| | 30 |
|
| | $ | 27 |
| | $ | 43 |
| | $ | 41 |
|
Credit Agreement
In January 2017, weentered into an amended Credit Agreement,We are party to a credit agreement (the “Credit Agreement”) which provides for an unsecured $500 millionincludes a revolving credit facility (the “Credit(“Credit Facility”). of $1.0 billion, among other provisions. The Credit FacilityAgreement has a term of five years, and all amounts outstanding (other than the Term Loan, as described below) will be due and payable on January 31, 2022. In May 2018, we repaid the $300 million outstanding borrowingsJune 8, 2025. Borrowings under the Credit Facility. As of December 31, 2018, no amounts were outstanding under the Credit Facility, and outstanding letters of credit amounting to $7 million reduced our remaining borrowing capacity under the Credit Facility to $493 million.
Borrowings under our Credit Agreement including both the Credit Facility and the Term Loan, bear interest based, at our election, on a base rate or other defined rate, plus in each case, the applicable margin. In addition to interest
payable on the principal amount of indebtedness outstanding from time to time under the Credit Agreement, we are required to pay a quarterly commitment fee.
Subsequent Event
On January 31, 2019, we entered into a Sixth Amendment to the Credit Agreement that provides for the following:
A delayed draw term loan facility in an aggregate principal amount of $600 million (the “Term Loan”), under which we may request up to ten advances, each in a minimum principal amount of $50 million, until 18 months after January 31, 2019 (“Delayed Draw Commitment Period”). The Term Loan will amortize in quarterly installments, commencing on the last day of the first fiscal quarter after the Delayed Draw Commitment Period, equal to the principal amount of the Term Loan outstanding on the last day of the Delayed Draw Commitment Period multiplied by an amortization payment percentage ranging from 1.25% to 2.50% (depending on the applicable fiscal quarter) for each fiscal quarter. We will pay a delayed draw ticking fee in an amount equal to 37.5 basis points (0.375%) per annum of the undrawn amount of the Term Loancommencing on January 31, 2019, and continuing until the last day of the Delayed Draw Commitment Period, payable quarterly. All amounts outstanding under the Term Loan will be due and payable on January 31, 2024;
Addition of definitions for various terms that apply to the Term Loan; and
Various other amendments relating to the administration of the Credit Agreement.
In addition, effective as of January 31, 2019, Molina Pathways, LLC was automatically and unconditionally released as a guarantor under the Credit Agreement. As a result, as of January 31, 2019, no guarantors were parties to the Credit Agreement.
The Credit Agreement contains customary non-financial and financial covenants, including a net leverage ratio and an interest coverage ratio.covenants. As of December 31, 2018,2021, we were in compliance with all financial and non-financial covenants under the Credit Agreement and other long-term debt.
5.375% Notes due 2022
We have $700 million aggregate principal amount of senior notes (the “5.375% Notes”) outstanding as As of December 31, 2018, which2021, no amounts were outstanding under the Credit Facility.
Senior Notes
Our senior notes are due November 15, 2022, unless earlier redeemed. Interest on the 5.375% Notes is payable semiannually in arrears on May 15 and November 15. As noted above, effective January 31, 2019, nonedescribed below. Each of our subsidiaries is a guarantor of the 5.375% Notes.
The 5.375% Notesthese notes are senior unsecured obligations of Molina and rank equally in right of payment with all existing and future senior debt, and senior to all existing and future subordinated debt of Molina. The 5.375% Notes contain customary non-financial covenants and change in control provisions.
4.875% Notes due 2025
We have $330 million aggregate principal amount of senior notes (the “4.875% Notes”) outstanding as of December 31, 2018, which are due June 15, 2025, unless earlier redeemed. Interest on the 4.875% Notes is payable semiannually in arrears on June 15 and December 15. As noted above, effective January 31, 2019, none of our subsidiaries is a guarantorIn addition, each of the 4.875% Notes.
The 4.875% Notes are senior unsecured obligations of Molina, respectively, and rank equally in right of payment with all existing and future senior debt, and senior to all existing and future subordinated debt of Molina. The 4.875% Notesnotes contain customary non-financial covenants and change of control provisions.
1.125% Cash Convertible Senior Notes due 2020
In the second, third and fourth quarters of 2018, we entered into privately negotiated note purchase agreements with certain holders of our outstanding 1.125% cash convertible senior notes due January 15, 2020 (the “1.125% Convertible Notes”). In each case, the difference between the principal amount extinguished and our cash payments primarily represented the settlement of the 1.125% Convertible Notes’ embedded cash conversion option feature at fair value (which is a derivative liability we refer to as the 1.125% Conversion Option). Activity during the year was as follows:
In the fourth quarter of 2018, we repaid $62 million aggregate principal amount of the 1.125% Convertible Notes, plus accrued interest, for a total cash payment of $202 million.
In the third quarter of 2018, we repaid $140 million aggregate principal amount of the 1.125% Convertible Notes, plus accrued interest, for a total cash payment of $483 million.
In the second quarter of 2018, we repaid $96 million aggregate principal amount of the 1.125% Convertible Notes, plus accrued interest, for a total cash payment of $228 million.
In the year ended December 31, 2018, we have recorded an aggregate net loss on debt extinguishment of $12 million for the 1.125% Convertible Notes purchases, primarily relating to the acceleration of the debt discount. This loss is reported in “Other expenses (income), net” in the accompanying consolidated statements of operations. No common shares were issued in connection with these transactions.
In connection with each of the 1.125% Convertible Notes purchases, we also entered into privately negotiated termination agreements with each of the counterparties in 2018, to partially terminate the Call Spread Overlay, defined and further discussed in Notes 12, “Derivatives,” and 14, “Stockholders' Equity.” The net cash proceeds from the Call Spread Overlay partial termination transactions partially offset the cash paid to settle the 1.125% Convertible Notes.
Following the transactions described above, we have $252 million aggregate principal amount of 1.125% Convertible Notes outstanding at December 31, 2018. Interest is payable semiannually in arrears on January 15 and July 15. The 1.125% Convertible Notes are senior unsecured obligations and rank senior in right of payment to any of our indebtedness that is expressly subordinated in right of payment to the 1.125% Convertible Notes; equal in right of payment to any of our unsecured indebtedness that is not subordinated; effectively junior in right of payment to any of our secured indebtedness to the extent of the value of the assets securing such indebtedness; and structurally junior to all indebtedness and other liabilities of our subsidiaries.
The 1.125% Convertible Notes are convertible only into cash, and not into shares of our common stock or any other securities. The initial conversion rate for the 1.125% Convertible Notes is 24.5277 shares of our common stock per $1,000 principal amount, or approximately $40.77 per share of our common stock. Upon conversion, in lieu of receiving shares of our common stock, a holder will receive an amount in cash, per $1,000 principal amount of 1.125% Convertible Notes, equal to the settlement amount, determined in the manner set forth in the indenture. We may not redeem the 1.125% Convertible Notes prior to the maturity date. Holders may convert their 1.125% Convertible Notes only under the following circumstances:
During any calendar quarter commencing after the calendar quarter ending on June 30, 2013 (and only during such calendar quarter), if the last reported sale price of the common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day;
During the five business day period immediately after any five consecutive trading day period (the measurement period) in which the trading price per $1,000 principal amount of 1.125% Convertible Notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of our common stock and the conversion rate on each such trading day;
Upon the occurrence of specified corporate events; or
At any time on or after July 15, 2019 until the close of business on the second scheduled trading day immediately preceding the maturity date.
The 1.125% Convertible Notes are convertible by the holders within one year of December 31, 2018, until they mature; therefore, they are reported in current portion of long-term debt.
Concurrent with the issuance of the 1.125% Convertible Notes, the 1.125% Conversion Option was separated from the 1.125% Convertible Notes and accounted for separately as a derivative liability, with changes in fair value reported in our consolidated statements of operations until the 1.125% Conversion Option settles or expires. This initial liability simultaneously reduced the carrying value of the 1.125% Convertible Notes’ principal amount (effectively an original issuance discount), which is amortized to the principal amount through the recognition of non-cash interest expense over the expected life of the debt. The effective interest rate approximating what we would have incurred had nonconvertible debt with otherwise similar terms been issued is approximately 6%. As of December 31, 2018, the 1.125% Convertible Notes have a remaining amortization period of one year, and their ‘if-converted’ value exceeded their principal amount by approximately $581 million and $406 million as of December 31, 2018 and 2017, respectively.
1.625% Convertible Senior Notes due 2044
Conversion. On July 11, 2018, we announced notice of our election to redeem the remaining $64 million aggregate principal amount of the 1.625% convertible senior notes due 2044 (the “1.625% Convertible Notes”) on August 20, 2018 (the “Redemption Date”), pursuant to the terms of the indenture. Also pursuant to the indenture, the 1.625% Convertible Notes were convertible until August 17, 2018, at a conversion rate of 17.2157 shares of our common stock per $1,000 principal amount equal to the settlement amount (as defined in the related indenture), or approximately $58.09 per share of our common stock. At December 31, 2017, the equity component of the 1.625% Convertible Notes, including the impact of deferred taxes, was $12 million.
Through August 17, 2018, we received conversion notices from substantially all of the remaining holders of the 1.625% Convertible Notes outstanding. Under the conversions, we paid cash for the remaining $64 million aggregate principal amount and delivered 0.6 million shares of our common stock to the converting holders on the settlement dates in September 2018.
Exchange. In March 2018, we entered into separate, privately negotiated, synthetic exchange agreements with certain holders of our outstanding 1.625% Convertible Notes, under which we exchanged $97 million aggregate principal amount and accrued interest for 1.8 million shares of our common stock. We recorded a loss on debt extinguishment, including transaction fees, of $10 million, primarily relating to the inducement premium paid to the bondholders, which is recorded in “Other expenses (income), net” in the accompanying consolidated statements of operations. We did not receive any proceeds from the transaction.
In December 2017, we entered into separate, privately negotiated, synthetic exchange agreements with certain holders of our outstanding 1.625% Convertible Notes, under which we exchanged $141 million aggregate principal amount and accrued interest for 2.6 million shares of our common stock. We recorded a loss on debt extinguishment, including transaction fees, of $14 million, primarily relating to the inducement premium paid to the bondholders, which is recorded in “Other expenses (income), net” in the accompanying consolidated statements of operations. We did not receive any proceeds from the transaction.
Cross-Default Provisions
The indentures governing the 4.875% Notes, the 5.375% Notes and the 1.125% Convertible Notessenior notes contain cross-default provisions that are triggered upon default by us or any of our subsidiaries on any indebtedness in excess of the amount specified in the applicable indenture.
Bridge Credit Agreement
5.375% Notes due 2022. In January 2018,December 2021, we entered into a bridge credit agreement with several banks, which was subsequently terminated in August 2018.
Lease Financing Obligations
Molina Center and Ohio Exchange. In 2013, we entered into a sale-leaseback transaction forcompleted the Molina Center and our Ohio health plan office building located in Columbus, Ohio, also known as the Ohio Exchange. Based on certain lease terms, we retained continuing involvement with these leased properties. Rent increases 3% per year through the initial term, which expires in 2038. The lease provides for six five-year renewal options, with renewal rent to be the higherearly redemption of the 3% annual escalator orentire $700 million aggregate principal amount of senior notes (the “5.375% Notes”) that would have been due November 15, 2022. In accordance with the then-fair market value.indenture governing such notes, the 5.375% Notes were settled at 100% of par, plus an early redemption premium which amounted to $23 million, plus accrued and unpaid interest. In conjunction with the redemption we wrote off $2 million in unamortized deferred issuance costs directly related to the 5.375% Notes.
6th and Pine. Also in 2013, we entered into a construction and lease transaction for two office buildings in Long Beach, California (“6th and Pine”). Due to our participation in the construction project, we retained continuing involvement in the properties. Rent increases 3.4% per year through the initial term, which expires in 2029. The lease provides for two five-year renewal options, with renewal rent to be determined based on the then-fair market value.
Because4.375% Notes due 2028. We have $800 million aggregate principal amount of our continuing involvement in the leasing transactions, as noted above, the sale of these properties did not qualify for sales recognition and we remain the owner of the properties under these leases for accounting purposessenior notes (the “4.375% Notes”) outstanding as of December 31, 2018.2021, which are due June 15, 2028, unless earlier redeemed. Interest, at a rate of 4.375% per annum, is payable semiannually in arrears on June 15 and December 15.
3.875% Notes due 2030. We have $650 million aggregate principal amount of senior notes (the “3.875% Notes due 2030”) outstanding as of December 31, 2021, which are due November 15, 2030, unless earlier redeemed. Interest, at a rate of 3.875% per annum, is payable semiannually in arrears on May 15 and November 15.
3.875% Notes due 2032. On November 16, 2021, we completed the private offering of $750 million aggregate principal amount of senior notes (the “3.875% Notes due 2032”) due May 15, 2032, unless earlier redeemed. The assets are therefore included3.875% Notes due 2032 contain optional early redemption provisions, with redemption prices in our consolidated balance sheets,excess of par. Interest, at a rate of 3.875% per annum, is payable semiannually in arrears on May 15 and are depreciated over their remaining useful lives. The lease financing obligations are amortized overNovember 15 of each year, commencing on May 15, 2022. A large majority of the initial lease terms, such that there will be no gain or loss recorded ifnet proceeds from the leases are not extended beyond their expiration dates. Payments3.875% Notes due 2032 offering was used to repay $700 million principal amount outstanding under the leases adjust the lease financing obligations,5.375% Notes, and the imputed interestbalance is recordedintended to interest expensebe used for general corporate purposes. Deferred issuance costs amounted to $10 million.
In 2021, we recognized an aggregate loss on debt repayment of $25 million including costs incurred in the early redemption of the 5.375% Notes described above. In 2020, we recognized an aggregate loss on debt repayment of $15 million including costs incurred in repayment of the term loan facility, the early redemption of the entire
Molina Healthcare, Inc. 2021 Form 10-K | 74
$330 million aggregate principal amount of our senior notes that would have been due in June 2025, and other financing transactions. These costs are located within other expenses (income), net within our consolidated statements of operations. Aggregate interest expense under these leases amounted to $17 million in each of the years ended December 31, 2018, 2017 and 2016. For information regarding the future minimum lease obligations, refer to Note 17, “Commitments and Contingencies” and Note 2, “Significant Accounting Policies,” Recent Accounting Pronouncements Not Yet Adopted, Leases.income.
12. Derivatives
The following table summarizes the fair values and the presentation of our derivative financial instruments (defined and discussed individually below) in the consolidated balance sheets: |
| | | | | | | | | |
| | | | December 31, |
| | Balance Sheet Location | | 2018 | | 2017 |
| | | | (In millions) |
| Derivative asset: | | | | | |
| 1.125% Call Option | Current assets: Derivative asset | | $ | 476 |
| | $ | 522 |
|
| | | | | | |
| Derivative liability: | | | | | |
| 1.125% Conversion Option | Current liabilities: Derivative liability | | $ | 476 |
| | $ | 522 |
|
Our derivative financial instruments do not qualify for hedge treatment; therefore, the change in fair value of these instruments is recognized immediately in our consolidated statements of operations, and reported in “Other expenses (income), net.” Gains and losses for our derivative financial instruments are presented individually in the accompanying consolidated statements of cash flows, “Supplemental cash flow information.”
1.125% Convertible Notes Call Spread Overlay.Concurrent with the issuance of the 1.125% Convertible Notes in 2013, we entered into privately negotiated hedge transactions (collectively, the “1.125% Call Option”) and warrant transactions (collectively, the “1.125% Warrants”), with certain of the initial purchasers of the 1.125% Convertible Notes (the “Counterparties”). We refer to these transactions collectively as the Call Spread Overlay. Under the Call Spread Overlay, the cost of the 1.125% Call Option we purchased to cover the cash outlay upon conversion of the 1.125% Convertible Notes was reduced by proceeds from the sale of the 1.125% Warrants. Assuming full performance by the Counterparties (and 1.125% Warrants strike prices in excess of the conversion price of the 1.125% Convertible Notes), these transactions are intended to offset cash payments in excess of the principal amount of the 1.125% Convertible Notes due upon any conversion of such notes.
In the second, third and fourth quarters of 2018, in connection with the 1.125% Convertible Notes purchases (described in Note 11, “Debt”), we entered into privately negotiated termination agreements with each of the Counterparties to partially terminate the Call Spread Overlay, in notional amounts corresponding to the aggregate principal amount of the 1.125% Convertible Notes purchased.
In the fourth quarter of 2018, this resulted in our receipt of $146 million for the settlement of the 1.125% Call Option (which is a derivative asset), and the payment of $130 million for the partial termination of the 1.125% Warrants, for an aggregate net cash receipt of $16 million from the Counterparties.
In the third quarter of 2018, this resulted in our receipt of $343 million for the settlement of the 1.125% Call Option, and the payment of $306 million for the partial termination of the 1.125% Warrants, for an aggregate net cash receipt of $37 million from the Counterparties.
In the second quarter of 2018, this resulted in our receipt of $134 million for the settlement of the 1.125% Call Option, and the payment of $113 million for the partial termination of the 1.125% Warrants, for an aggregate net cash receipt of $21 million from the Counterparties.
1.125% Call Option.The 1.125% Call Option, which is indexed to our common stock, is a derivative asset that requires mark-to-market accounting treatment due to cash settlement features until the 1.125% Call Option settles or expires. For further discussion of the inputs used to determine the fair value of the 1.125% Call Option, refer to Note 4, “Fair Value Measurements.”
1.125% Conversion Option. The embedded cash conversion option within the 1.125% Convertible Notes is accounted for separately as a derivative liability, with changes in fair value reported in our consolidated statements of operations until the cash conversion option settles or expires. For further discussion of the inputs used to determine the fair value of the 1.125% Conversion Option, refer to Note 4, “Fair Value Measurements.”
As of December 31, 2018, the 1.125% Call Option and the 1.125% Conversion Option were classified as a current asset and current liability, respectively, because the 1.125% Convertible Notes may be converted within twelve months of December 31, 2018, as described in Note 11, “Debt.”
13. Income Taxes
Income tax expense (benefit) is determined using an estimated annual effective tax rate, which generally differs from the U.S. federal statutory rate primarily because of state taxes, nondeductible expenses such as the HIF, goodwill impairment, certain compensation, and other general and administrative expenses. The effective tax rate was not impacted by the HIF in 2017, given the 2017 HIF moratorium. The effective tax rate may be subject to fluctuations during the year, particularly as a result of the level of pretax earnings, and also as new information is obtained. Such information may affect the assumptions used to estimate the annual effective tax rate, including factors such as the mix of pretax earnings in the various tax jurisdictions in which we operate, valuation allowances against deferred tax assets, the recognition or the reversal of the recognition of tax benefits related to uncertain tax positions, and changes in or the interpretation of tax laws in jurisdictions where we conduct business. We recognize deferred tax assets and liabilities for temporary differences between the financial reporting basis and the tax basis of our assets and liabilities, along with net operating loss and tax credit carryovers.
The TCJA, in part, reduced the U.S. federal corporate tax rate from 35% to 21% effective January 1, 2018. TCJA’s change in the federal rate required that we revalue deferred tax assets and liabilities based on the rates at which they are expected to reverse in the future, which is generally the new 21% federal corporate tax rate plus applicable state tax rate. We applied the guidance in SEC Staff Accounting Bulletin No. 118 when accounting for the enactment-date effects of the TCJA in 2017 and throughout 2018.
As of December 31, 2017, we recorded a provisional amount of $54 million for the revaluation of deferred tax assets and liabilities because we had not yet completed our accounting for all of the enactment-date income tax effects of the TJCA under ASC 740, Income Taxes. Upon further analysis of certain aspects of the TCJA and refinement of our calculations in the year ended December 31, 2018, we reduced this provisional amount by $4 million, which is included as a component of income tax expense in the accompanying consolidated statement of operations. As of December 31, 2018, the accounting for all of the enactment-date income tax effects of the TCJA is complete.
Income tax expense (benefit)continuing operations consisted of the following:
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
| | | | | |
| (In millions) |
| Current: | | | | | |
| Federal | $ | 209 | | | $ | 281 | | | $ | 204 | |
| State | 31 | | | 26 | | | 12 | |
| Foreign | — | | | — | | | 9 | |
| Total current | 240 | | | 307 | | | 225 | |
| Deferred: | | | | | |
| Federal | (17) | | | (13) | | | 5 | |
| State | (7) | | | (7) | | | 6 | |
| Foreign | — | | | 1 | | | (1) | |
| Total deferred | (24) | | | (19) | | | 10 | |
| Income tax expense | $ | 216 | | | $ | 288 | | | $ | 235 | |
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2018 | | 2017 | | 2016 |
| | (In millions) |
| Current: | | | | | |
| Federal | $ | 272 |
| | $ | (9 | ) | | $ | 134 |
|
| State | 18 |
| | 3 |
| | 3 |
|
| Foreign | 8 |
| | — |
| | (6 | ) |
| Total current | 298 |
| | (6 | ) | | 131 |
|
| Deferred: | | | | | |
| Federal | (3 | ) | | (85 | ) | | 19 |
|
| State | (3 | ) | | (9 | ) | | 2 |
|
| Foreign | — |
| | — |
| | 1 |
|
| Total deferred | (6 | ) | | (94 | ) | | 22 |
|
| Income tax expense (benefit) | $ | 292 |
| | $ | (100 | ) | | $ | 153 |
|
A reconciliation of the U.S. federal statutory income tax rate to the combined effective income tax rate for continuing operations is as follows: |
| | | | | | | | |
| | Year Ended December 31, |
| | 2018 | | 2017 | | 2016 |
| Statutory federal tax (benefit) rate | 21.0 | % | | (35.0 | )% | | 35.0 | % |
| State income provision (benefit), net of federal | 1.2 |
| | (0.7 | ) | | 1.6 |
|
| Nondeductible health insurer fee (“HIF”) | 7.3 |
| | — |
| | 37.0 |
|
| Nondeductible compensation | 0.7 |
| | 2.8 |
| | 3.1 |
|
| Nondeductible goodwill impairment | — |
| | 6.6 |
| | — |
|
| Worthless stock deduction | (1.0 | ) | | — |
| | — |
|
| Revaluation of net deferred tax assets | (0.4 | ) | | 8.8 |
| | — |
|
| Change in purchase agreement that increased tax basis in assets | — |
| | — |
| | (2.2 | ) |
| Other | 0.4 |
| | 1.1 |
| | 0.3 |
|
| Effective tax (benefit) rate | 29.2 | % | | (16.4 | )% | | 74.8 | % |
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
| Statutory federal tax (benefit) rate | 21.0 | % | | 21.0 | % | | 21.0 | % |
| State income provision (benefit), net of federal benefit | 2.2 | | | 1.6 | | | 1.4 | |
| | | | | |
| Nondeductible health insurer fee (“HIF”) | — | | | 6.1 | | | — | |
| Nondeductible compensation | 1.5 | | | 1.1 | | | 1.2 | |
| | | | | |
| Other | — | | | 0.2 | | | 0.6 | |
| Effective tax expense rate | 24.7 | % | | 30.0 | % | | 24.2 | % |
The effective tax rate was not impacted by the HIF in 2019 given the HIF moratorium. HIF was repealed for years after 2020. Our effective tax rate is based on expected income, (loss), statutory tax rates, and tax planning opportunities available to us in the various jurisdictions in which we operate. Significant managementManagement estimates and judgments are required in determining our effective tax rate. We are routinely under audit by federal, state, or local authorities regarding the timing and amount of deductions, nexus of income among various tax jurisdictions, and compliance with federal, state, foreign, and local tax laws.
Molina Healthcare, Inc. 2021 Form 10-K | 75
Deferred tax assets and liabilities are classified as non-current. Significant components of our deferred tax assets and liabilities as of December 31,
20182021 and
20172020 were as follows:
| | | | | | | | December 31, |
| | December 31, | | 2021 | | 2020 |
| | 2018 | | 2017 | | | | |
| | (In millions) | | (In millions) |
| Accrued expenses | $ | 32 |
| | $ | 15 |
| |
| Reserve liabilities | 7 |
| | 11 |
| |
| Accrued expenses and reserve liabilities | | Accrued expenses and reserve liabilities | $ | 57 | | | $ | 52 | |
| Other accrued medical costs | 12 |
| | 16 |
| Other accrued medical costs | 23 | | | 15 | |
| Net operating losses | 16 |
| | 27 |
| Net operating losses | 13 | | | 11 | |
| Fixed assets and intangibles | 30 |
| | 23 |
| |
| | Unearned premiums | 9 |
| | 19 |
| Unearned premiums | 17 | | | 18 | |
| Lease financing obligation | 30 |
| | 30 |
| Lease financing obligation | 9 | | | 8 | |
| Tax credit carryover | 12 |
| | 15 |
| Tax credit carryover | 5 | | | 7 | |
| Other | 3 |
| | 3 |
| Other | 6 | | | 4 | |
| Valuation allowance | (28 | ) | | (41 | ) | Valuation allowance | (10) | | | (17) | |
| Total deferred income tax assets, net of valuation allowance | 123 |
| | 118 |
| Total deferred income tax assets, net of valuation allowance | 120 | | | 98 | |
| Fixed assets and intangibles | | Fixed assets and intangibles | (1) | | | (7) | |
| Prepaid expenses | (6 | ) | | (6 | ) | Prepaid expenses | (13) | | | (10) | |
| Basis in debt | — |
| | (9 | ) | |
| Unrealized gains and losses | | Unrealized gains and losses | — | | | (12) | |
| | Total deferred income tax liabilities | (6 | ) | | (15 | ) | Total deferred income tax liabilities | (14) | | | (29) | |
| Net deferred income tax asset | $ | 117 |
| | $ | 103 |
| Net deferred income tax asset | $ | 106 | | | $ | 69 | |
At December 31, 2018,2021, we had state net operating loss carryforwards of $332$177 million, which begin expiring in 2027.2036.
At December 31, 2018,2021, we had California research and development and enterprise zoneforeign net operating loss carryforwards of $9 million, which expire in 2032.
At December 31, 2021, we had foreign tax credit carryovers of $14$5 million, which will begin to expire in 2024.2030.
We evaluate the need for a valuation allowance taking into consideration the ability to carry back and carry forward tax credits and losses, available tax planning strategies and future income, including reversal of temporary differences. We have determined that as of December 31, 2018, $282021, $10 million of deferred tax assets did not satisfy the recognition criteria. Therefore, we decreased our valuation allowance by $13$7 million, from $41$17 million at December 31, 2017,2020, to $28$10 million as of December 31, 2018.2021.
We recognize tax benefits only if the tax position is more likely than not to be sustained. We are subject to income taxes in the United States, Puerto Rico, and numerous state jurisdictions. Significant judgment is required in evaluating our tax positions and determining our provision for income taxes. During the ordinary course of business, there are many transactions and calculations for which the ultimate tax determination is uncertain. We establish reserves for tax-related uncertainties based on estimates of whether, and the extent to which, additional taxes will
be due. These reserves are established when we believe that certain positions might be challenged despite our belief that our tax return positions are fully supportable. We adjust these reserves in light of changing facts and circumstances, such as the outcome of tax audits. The provision for income taxes includes the impact of reserve provisions and changes to reserves that are considered appropriate.
The roll forward of our unrecognized tax benefits is as follows: |
| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2018 | | 2017 | | 2016 |
| | (In millions) |
| Gross unrecognized tax benefits at beginning of period | $ | (13 | ) | | $ | (11 | ) | | $ | (9 | ) |
| Increases in tax positions for current year | (9 | ) | | (1 | ) | | (1 | ) |
| Increases in tax positions for prior years | — |
| | (4 | ) | | (1 | ) |
| Decreases in tax positions for prior years | — |
| | 3 |
| | — |
|
| Lapse in statute of limitations | 2 |
| | — |
| | — |
|
| Gross unrecognized tax benefits at end of period | $ | (20 | ) | | $ | (13 | ) | | $ | (11 | ) |
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
| | | | | |
| (In millions) |
| Gross unrecognized tax benefits at beginning of period | $ | (20) | | | $ | (20) | | | $ | (20) | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| Settlements | 5 | | | — | | | — | |
| | | | | |
| Gross unrecognized tax benefits at end of period | $ | (15) | | | $ | (20) | | | $ | (20) | |
The total amount of unrecognized tax benefits at December 31, 2018, 20172021, 2020 and 20162019 that, if recognized, would affect the effective tax rates is $18$15 million, $12$20 million, and $9$20 million, respectively. We expect that during the next 12 months it is reasonably possible that unrecognized tax benefit liabilities may decrease by as much as $3$10 million due toas a result of the expiration of statutes of limitation.limitations.
Molina Healthcare, Inc. 2021 Form 10-K | 76
Our continuing practice is to recognize interest and/or penalties related to unrecognized tax benefits in income tax expense. Amounts accrued for the payment of interest and penalties as of December 31, 2018,2021, 2020 and 2019 were insignificant.
The U.S. Internal Revenue Service (IRS) completed exams for years 2017 and 2016 were insignificant.
prior. We may be subject to federal examination by the IRS for calendar years 2015 throughafter 2017. With a few exceptions, which are immaterial in the aggregate, we no longer are subject to state, local, and Puerto Rico tax examinations for years before 2014. We are not aware2017.
13. Stockholders' Equity
Stock Purchase Programs
In September 2021, our board of directors authorized the purchase of up to $500 million, in the aggregate, of our common stock. This new program immediately supersedes the stock purchase program previously approved by our board of directors in September 2020, as described below. This new program will be funded with cash on hand and extends through December 31, 2022. The exact timing and amount of any material adjustments that may be proposed.repurchase is determined by management based on market conditions and share price, in addition to other factors, and subject to the restrictions relating to volume, price, and timing under applicable law. As of February 14, 2022, no shares had been purchased under this stock purchase program.
14. Stockholders' Equity
1.625% Convertible Notes
Conversion. As describedIn September 2020, our board of directors authorized the purchase of up to $500 million, in Note 11, “Debt,”the aggregate, of our common stock. This program was funded with cash on hand. Under this program, pursuant to a Rule 10b5-1 trading plan, we issued 0.6 millionpurchased approximately 577,000 shares of our common stock for $122 million in connection with the conversionJanuary and February 2021 (average cost of the 1.625% Convertible Notes in the third quarter of 2018.
Exchange. As described in Note 11, “Debt,”$211.65). In November and December 2020, we issued 1.8 million shares and 2.6 millionpurchased 766,000 shares of our common stock for $159 million (average cost of $208.37), including approximately 29,000 shares purchased for $6 million in connection with the exchange of the 1.625% Convertible Noteslate December 2020, and settled in March 2018 and December 2017, respectively.early January 2021.
1.125% Warrants
In connection with the Call Spread Overlay transaction described in Note 12, “Derivatives,” in 2013, we issued 13.5 million warrants with a strike price of $53.8475 per share. Under certain circumstances, beginning in April 2020, if the price of our common stock exceeds the strike price of the 1.125% Warrants, we will be obligated to issue shares of our common stock subject to a share delivery cap. The 1.125% Warrants could separately have a dilutive effect to the extent that the market value per share of our common stock exceeds the applicable strike price of the 1.125% Warrants. Refer to Note 3, “Net Income (Loss) Per Share,” for dilution information for the periods presented. We will not receive any additional proceeds if the 1.125% Warrants are exercised. Following the transactions described below, 6.2 million of the 1.125% Warrants remain outstanding.
As described in Note 12, “Derivatives,” in the second, third and fourth quarters of 2018, we entered into privately negotiated termination agreements with each of the Counterparties to terminate the respective portion of the Call Spread Overlay, in notional amounts corresponding to the aggregate principal amount of the 1.125% Convertible Notes repaid. In each case, additional paid-in capital was reduced for the same amount paid to the Counterparties for the termination of the 1.125% Warrants.
In the fourth quarter of 2018, we paid $130 million to the Counterparties for the termination of 1.5 million of the 1.125% Warrants outstanding.
In the third quarter of 2018, we paid $306 million to the Counterparties for the termination of 3.4 million of the 1.125% Warrants outstanding.
In the second quarter of 2018, we paid $113 million to the Counterparties for the termination of 2.4 million of the 1.125% Warrants outstanding.
Share-Based Compensation
At December 31, 2018, we had employee equity incentives outstanding under our 2011 Equity Incentive Plan (“2011 Plan”). The 2011 Plan provides for the award of restricted stock (“RSAs”), performance stock (“PSAs”), performance stock units (“PSUs”), stock options and stock bonuses to the company’s officers, employees, directors, consultants, advisers, and other service providers. The 2011 Plan provides for the issuance of up to 4.5 million shares of common stock.
In connection with the 2011 Plan andour employee stock purchase plan,plans, approximately 365,000429,000 shares and 857,000244,000 shares of common stock were purchased or vested,issued, net of shares used to settle employees’ income tax obligations, during the years ended December 31, 2018,2021, and 2017,2020, respectively.
Except as noted below, we record Total share-based compensation asexpense is reported in “General and administrative expenses” in the accompanying consolidated statements of operations. Total share-based compensation expense was as follows:income, and summarized below.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
| | | | | | | | | | | |
| (In millions) |
| Pretax
Charges | | Net-of-Tax
Amount | | Pretax
Charges | | Net-of-Tax
Amount | | Pretax
Charges | | Net-of-Tax
Amount |
| RSAs, PSAs and PSUs (defined below) | $ | 66 | | | $ | 62 | | | $ | 47 | | | $ | 44 | | | $ | 29 | | | $ | 28 | |
| Employee stock purchase plan and stock options | 6 | | | 6 | | | 10 | | | 9 | | | 10 | | | 9 | |
| Total | $ | 72 | | | $ | 68 | | | $ | 57 | | | $ | 53 | | | $ | 39 | | | $ | 37 | |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2018 | | 2017 | | 2016 |
| | (In millions) |
| | Pretax
Charges | | Net-of-Tax
Amount | | Pretax
Charges | | Net-of-Tax
Amount | | Pretax
Charges | | Net-of-Tax
Amount |
| RSAs, PSAs and PSUs | $ | 17 |
| | $ | 17 |
| | $ | 39 |
| | $ | 35 |
| | $ | 20 |
| | $ | 17 |
|
| Employee stock purchase plan and stock options | 10 |
| | 9 |
| | 7 |
| | 5 |
| | 6 |
| | 5 |
|
| | $ | 27 |
| | $ | 26 |
| | $ | 46 |
| | $ | 40 |
| | $ | 26 |
| | $ | 22 |
|
At December 31, 2021, we had employee equity incentives outstanding under our 2019 Equity Incentive Plan (the “2019 EIP”). The 2019 EIP provides for awards, in the form of restricted and performance stock awards (“RSAs” and “PSAs”), performance units (“PSUs”), stock options, and other stock– or cash–based awards, to eligible persons who perform services for us. The 2019 EIP provides for the issuance of up to 2.9 million shares of our common stock.
Stock-based awards. RSAs, PSAs and PSUs are granted with a fair value equal to the market price of our common stock on the date of grant, and generally vest in equal annual installments over periods up to four years from the date of grant. Certain PSUs may vest in their entirety at the end of three-year performance periods, if their performance conditions are met. We generally recognize expense for RSAs, PSAs and PSUs on a straight-line basis.
Activity for suchstock-based awards in the year ended December 31, 20182021, is summarized below:below.
Molina Healthcare, Inc. 2021 Form 10-K | 77
| | | | | | | | | | | | | RSAs | | Weighted
Average
Grant Date
Fair Value | | PSUs | | Weighted
Average
Grant Date
Fair Value |
| | RSAs | | PSAs | | PSUs | | Total Shares | | Weighted
Average
Grant Date
Fair Value | |
| Unvested balance as of December 31, 2017 | 401,804 |
| | 84,762 |
| | 91,828 |
| | 578,394 |
| | $ | 58.35 |
| |
| Unvested balance, December 31, 2020 | | Unvested balance, December 31, 2020 | 585,084 | | | $ | 118.07 | | | 471,909 | | | $ | 111.04 | |
| Granted | 363,740 |
| | — |
| | 214,952 |
| | 578,692 |
| | 75.38 |
| Granted | 289,227 | | | 224.63 | | | 160,670 | | | 74.52 | |
| Vested | (192,609 | ) | | (32,929 | ) | | — |
| | (225,538 | ) | | 59.08 |
| Vested | (232,896) | | | 112.62 | | | (321,340) | | | 74.52 | |
| Forfeited | (173,140 | ) | | (48,701 | ) | | (105,397 | ) | | (327,238 | ) | | 63.69 |
| Forfeited | (102,298) | | | 161.36 | | | (36,189) | | | 129.19 | |
| Unvested balance as of December 31, 2018 | 399,795 |
| | 3,132 |
| | 201,383 |
| | 604,310 |
| | $ | 71.50 |
| |
| Unvested balance, December 31, 2021 | | Unvested balance, December 31, 2021 | 539,117 | | | $ | 169.39 | | | 275,050 | | | $ | 129.99 | |
|
As of December 31, 2018, there was $35 million of2021, total unrecognized compensation expense related to unvested RSAs PSAs and PSUs was $55 million, and $12 million, respectively, which we expect to recognize over a remaining weighted-average period of 2.6 years, 0.22.1 years, and 2.00.8 years, respectively. This unrecognized compensation cost assumedassumes an estimated forfeiture rate of 16.1%11.3% for non-executive employees as of December 31, 2018,2021, based on actual forfeitures over the last 4 years.
During the year ended December 31, 2021, we granted 127,102 PSUs which vest in a range from 0% to 200% of the number of target units awarded, depending on the Company’s level of achievement with respect to the financial performance goal, after three years. We have not recognized stock compensation expense for these PSUs during the year ended December 31, 2021 as the complete performance conditions have not been determined as of December 31, 2021. We expect the performance conditions to be determined during the third year of vesting. At December 31, 2021, 116,172 PSUs were outstanding.
The total grant date fair value of awards granted and vested is presented in the following table:table.
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
| | | | | |
| (In millions) |
| Granted: | | | | | |
| RSAs | $ | 65 | | | $ | 44 | | | $ | 33 | |
| PSUs | — | | | 23 | | | 20 | |
| Total granted | $ | 65 | | | $ | 67 | | | $ | 53 | |
| Vested: | | | | | |
| RSAs | $ | 53 | | | $ | 22 | | | $ | 19 | |
| PSUs | 71 | | | 1 | | | 2 | |
| Total vested | $ | 124 | | | $ | 23 | | | $ | 21 | |
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2018 | | 2017 | | 2016 |
| | (In millions) |
| Granted: | | | | | |
| RSAs | $ | 28 |
| | $ | 20 |
| | $ | 19 |
|
| PSAs | — |
| | — |
| | 15 |
|
| PSUs | 16 |
| | 16 |
| | — |
|
| | $ | 44 |
| | $ | 36 |
| | $ | 34 |
|
| Vested: | | | | | |
| RSAs | $ | 15 |
| | $ | 23 |
| | $ | 22 |
|
| PSAs | 3 |
| | 15 |
| | — |
|
| PSUs | — |
| | 9 |
| | — |
|
| | $ | 18 |
| | $ | 47 |
| | $ | 22 |
|
During the year ended December 31, 2017, the vesting of 133,957 RSAs, 153,574 PSAs and 139,272 PSUs was accelerated in connection with the termination of our former Chief Executive Officer and former Chief Financial Officer in May 2017. The incremental charge relating to this acceleration, or $23 million, is reported in “Restructuring and separation costs” in the accompanying consolidated statements of operations. This amount is included in the 2017 “Pretax Charges” in the table above.
Stock Options.Stock option awards generally have an exercise price equal to the fair market value of our common stock on the date of grant, vest in equal annual installments over periods up to four years from the date of grant, and have a maximum term of ten years from the date of grant. Stock option activity for the year ended December 31, 20182021, is summarized below:below.
| | | | | | | | | | | | | | | | | | | | | | | |
| Number of Shares | | Weighted Average Exercise Price | | Aggregate Intrinsic Value | | Weighted Average Remaining Contractual term |
| | | | | | | |
| | | (Per share) | | (In millions) | | (Years) |
| Stock options outstanding as of December 31, 2020 | 405,000 | | | $ | 64.79 | | | | | |
| Exercised | (10,000) | | | 33.02 | | | | | |
| Stock options outstanding, vested, and exercisable as of December 31, 2021 | 395,000 | | | 65.59 | | | $ | 100 | | | 5.5 |
| | | | | | | |
| | | | | | | |
|
| | | | | | | | | | | | |
| | Shares | | Weighted Average Exercise Price | | Aggregate Intrinsic Value | | Weighted Average Remaining Contractual term |
| | | | | | (In millions) | | (Years) |
| Stock options outstanding as of December 31, 2017 | 405,000 |
| | $ | 64.79 |
| | | | |
| Granted | — |
| | — |
| | | | |
| Exercised | — |
| | — |
| | | | |
| Stock options outstanding as of December 31, 2018 | 405,000 |
| | 64.79 |
| | $ | 21 |
| | 8.5 |
| Stock options exercisable and expected to vest as of December 31, 2018 | 405,000 |
| | 64.79 |
| | $ | 21 |
| | 8.5 |
| Exercisable as of December 31, 2018 | 155,000 |
| | 60.69 |
| | $ | 9 |
| | 8.0 |
The weighted-average grant date fair value per share of stock options awarded in 2017 was $41.43. We estimate the fair value of each stock option award on the grant date using the Black-Scholes option pricing model. To determine the fair value of the stock options awarded in 2017 we applied a risk-free interest rate of 2.3%, expected volatility of 38.4%, dividend yield of 0% and expected life of 8.4 years. No stock options were granted in 20182021, 2020, or 2019, and 2016.
Also asno stock options were exercised in 2020, or 2019. As of December 31, 2018,2021, there was $9 million of totalno unrecognized compensation expense related to unvested stock options, which we expect to recognize over a weighted-average period of 1.8 years. The total intrinsic value of options exercised during the years ended December 31, 2017, and 2016 was $2 million, and $1 million, respectively. No stock options were exercised in 2018. The following is a summary of information about stock options outstanding and exercisable at December 31, 2018:options.
|
| | | | | | | | | | | | | | | |
| | Options Outstanding | | Options Exercisable |
| | Number Outstanding | | Weighted Average Remaining Contractual Life (Years) | | Weighted-Average Exercise Price | | Number Exercisable | | Weighted-Average Exercise Price |
| Range of Exercise Prices | | | | | | | | | |
| $33.02 | 30,000 |
| | 4.2 | | $ | 33.02 |
| | 30,000 |
| | $ | 33.02 |
|
| $67.33 | 375,000 |
| | 8.9 | | 67.33 |
| | 125,000 |
| | 67.33 |
|
| | 405,000 |
| | | | | | 155,000 |
| | |
Employee Stock Purchase Plan. Plans (“ESPP”)
Under our employee stock purchase plan (“ESPP”),ESPP, eligible employees may purchase common shares at 85% of the lower of the fair market value of our common stock on either the first or last trading day of each six-month offering period. Each participant is limited to a maximum purchase of $25,000 (as measured by the fair value of the stock acquired) per year through payroll
Molina Healthcare, Inc. 2021 Form 10-K | 78
deductions. We estimate the fair value of the stock issued using the Black-Scholesa standard option pricing model. For the years ended December 31, 2018, 2017,2021, 2020, and 2016,2019, the inputs to this model were as follows: risk-free interest rates of approximately 0.4%0.1% to 1.9%2.3%; expected volatilities ranging fromvolatility of approximately 31%35% to 44%54%, dividend yields of 0%, and an average expected life of 0.5 years. We issued approximately 216,000, 351,000 and 410,000 shares of our common stock under the ESPP during the years ended December 31, 2018, 2017, and 2016, respectively. The 2011 ESPP provides for the issuance of up to three million shares of common stock.
15. Restructuring and Separation Costs
Restructuring and separation costs are reported by the same name in the accompanying consolidated statements of operations.
IT Restructuring Plan
Following the 2017 Restructuring Plan noted below, our new executive team has focused on a margin recovery plan that includes identification and implementation of various profit improvement initiatives. To that end, we began the implementation of a plan to restructure our information technology department (the “IT Restructuring Plan”) in the third quarter of 2018. On February 4, 2019, we entered into a master services agreement with Infosys Limited pursuant to which Infosys will manage certain of our information technology infrastructure services including, among other things, our information technology operations, end-user services, and data centers.
Expected Costs
In addition to $9 million incurred in the last half of 2018, we expect to incur approximately $11 million for the IT Restructuring Plan in 2019. We expect such costs to consist primarily of one-time termination benefits and other costs in the Other segment. We expect the IT Restructuring Plan to be completed by the end of 2019.
Costs Incurred
We have incurred expenses under the IT Restructuring Plan as follows:
|
| | | | | | | | | | | |
| | Year Ended December 31, 2018 |
| | One-Time Termination Benefits | | Other Restructuring Costs | Total |
| | | Consulting Fees | |
| | (In millions) |
| Other | $ | 7 |
| | $ | 2 |
| | $ | 9 |
|
Reconciliation of Liability
For those restructuring costs that require cash settlement (such as one-time termination benefits and consulting fees), the following table presents a roll-forward of the accrued liability, which is reported in “Accounts payable and
accrued liabilities” in the accompanying consolidated balance sheets. |
| | | | | | | | | | | |
| | One-Time Termination Benefits | | Other Restructuring Costs | | Total |
| | (In millions) |
| Accrued as of December 31, 2017 | $ | — |
| | $ | — |
| | $ | — |
|
| Charges | 7 |
| | 2 |
| | 9 |
|
| Cash payments | (2 | ) | | (1 | ) | | (3 | ) |
| Accrued as of December 31, 2018 | $ | 5 |
| | $ | 1 |
| | $ | 6 |
|
2017 Restructuring Plan
Following a management-initiated, broad operational assessment in early 2017, our board of directors approved, and we committed to, a comprehensive restructuring and profitability improvement plan in June 2017 (the “2017 Restructuring Plan”). Key activities under this plan to date have included:
Streamlining of our organizational structure to eliminate redundant layers of management, consolidate regional support services, and other staff reductions to improve efficiency and the speed and quality of decision making;
Re-design of core operating processes such as provider payment, utilization management, quality monitoring and improvement, and information technology, to achieve more effective and cost-efficient outcomes;
Remediation of high-cost provider contracts and enhancement of high quality, cost-effective networks;
Restructuring, including selective exits, of direct delivery operations; and
Partnering with the lowest-cost, most effective vendors.
Costs Incurred
In our 2017 Annual Report on Form 10-K, we reported that we had incurred approximately $234 million of costs associated with the 2017 Restructuring Plan in 2017. In the year ended December 31, 2018, we incurred an additional $37 million in such costs, primarily resulting from a write-off of costs associated with a terminated utilization and care management project that was inconsistent with the goals of the 2017 Restructuring Plan. We also recorded nominal amounts for one-time termination benefits, and true-ups of certain lease contract termination costs recorded in 2017. As of December 31, 2018, we had incurred $271 million in total costs under the 2017 Restructuring Plan. We completed all activities under the 2017 Restructuring Plan in 2018, with the exception of the cash settlement of lease termination liabilities. We expect to continue to settle those liabilities through 2025, unless the leases are terminated sooner.
The following table presents the major types of such costs by segment. Current and long-lived assets include current and non-current capitalized project costs, and capitalized software determined to be unrecoverable.
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2018 |
| | Separation Costs - Former Executives | | One-Time Termination Benefits | | Other Restructuring Costs | | Total |
| | | | Write-offs of Current and Long-lived Assets | | Consulting Fees | | Contract Termination Costs | |
| | (In millions) |
| Health Plans | $ | — |
| | $ | — |
| | $ | (1 | ) | | $ | — |
| | $ | 12 |
| | $ | 11 |
|
| Other | — |
| | 5 |
| | 20 |
| | 1 |
| | — |
| | 26 |
|
| | $ | — |
| | $ | 5 |
| | $ | 19 |
| | $ | 1 |
| | $ | 12 |
| | $ | 37 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2017 |
| | Separation Costs - Former Executives | | One-Time Termination Benefits | | Other Restructuring Costs | | Total |
| | | | Write-offs of Long-lived Assets | | Consulting Fees | | Contract Termination Costs | |
| | (In millions) |
| Health Plans | $ | — |
| | $ | 33 |
| | $ | 16 |
| | $ | — |
| | $ | 24 |
| | $ | 73 |
|
| Other | 36 |
| | 34 |
| | 45 |
| | 44 |
| | 2 |
| | 161 |
|
| | $ | 36 |
| | $ | 67 |
| | $ | 61 |
| | $ | 44 |
| | $ | 26 |
| | $ | 234 |
|
As of December 31, 2018, we had incurred cumulative restructuring costs under the 2017 Restructuring Plan as follows: |
| | | | | | | | | | | | | | | | | | | | | | | |
| | Separation Costs - Former Executives | | One-Time Termination Benefits | | Other Restructuring Costs | | Total |
| | | | Write-offs of Current and Long-lived Assets | | Consulting Fees | | Contract Termination Costs | |
| | (In millions) |
| Health Plans | $ | — |
| | $ | 33 |
| | $ | 15 |
| | $ | — |
| | $ | 36 |
| | $ | 84 |
|
| Other | 36 |
| | 39 |
| | 65 |
| | 45 |
| | 2 |
| | 187 |
|
| | $ | 36 |
| | $ | 72 |
| | $ | 80 |
| | $ | 45 |
| | $ | 38 |
| | $ | 271 |
|
Reconciliation of Liability
For those restructuring and separation costs that require cash settlement (primarily separation costs not including equity incentives, termination benefits, consulting fees and contract termination costs), the following table presents a roll-forward of the accrued liability, which is reported primarily in “Accounts payable and accrued liabilities” in the accompanying consolidated balance sheets. Certain contract termination cost accruals are non-current, recorded in “Other long-term liabilities.”
|
| | | | | | | | | | | | | | | |
| | Separation Costs - Former Executives | | One-Time Termination Benefits | | Other Restructuring Costs | | Total |
| | (In millions) |
| Accrued as of December 31, 2017 | $ | 2 |
| | $ | 11 |
| | $ | 35 |
| | $ | 48 |
|
| Adjustments | — |
| | (1 | ) | | 11 |
| | 10 |
|
| Charges | — |
| | 6 |
| | 2 |
| | 8 |
|
| Cash payments | (2 | ) | | (15 | ) | | (31 | ) | | (48 | ) |
| Accrued as of December 31, 2018 | $ | — |
| | $ | 1 |
| | $ | 17 |
| | $ | 18 |
|
16.14. Employee BenefitsBenefit Plans
We sponsor defined contribution 401(k) plans that cover substantially all employees of our company and its subsidiaries. Eligible employees are permitted to contribute up to the maximum amount allowed by law. We generally match up to the first 4% of compensation contributed by employees. Expense recognized in connection with our contributions to the 401(k) plans amounted to $36$41 million, $43$28 million, and $36$28 million in the years ended December 31, 2018, 2017,2021, 2020, and 2016,2019, respectively.
We also have a non-qualified deferred compensation plan for certain key employees. Under this plan, eligible participants may defer up to 100%portions of their base salary and 100% of their bonus to provide tax-deferred growth for retirement.growth. The funds deferreddeferrals are invested in corporate-owned life insurance,distributable based upon termination of employment or other periods, as elected under a rabbi trust.the plan and were $23 million and $17 million as of December 31, 2021 and 2020, respectively.
17.15. Commitments and Contingencies
Regulatory Capital Requirements and Dividend Restrictions
Our health plans, which are generally operated by our respective wholly owned subsidiaries in those states in which our health plans operate, are subject to state laws and regulations that, among other things, require the maintenance of minimum levels of statutory capital, as defined by each state. The National Association of Insurance Commissioners (“NAIC”), has adopted rules which, if implemented by the states, set minimum capitalization requirements for insurance companies, HMOs, and other entities bearing risk for health carehealthcare coverage. The requirements take the form of risk-based capital (“RBC”) rules which may vary from state to state. All of the states in which our health plans operate, except California, Florida and New York, have adopted these rules. Such requirements, if adopted by California, Florida and New York, may increase the minimum capital required for those states. Regulators in some states may also enforce capital requirements that require the retention of net worth in excess of amounts formally required by statute or regulation. As
All of December 31, 2018,the states in which our health plans had aggregate statutory capitaloperate, except California, Florida, Massachusetts and surplus of approximately $2,388 million compared withNew York, have adopted the required minimum aggregate statutory capital and surplus of approximately $1,040 million. All of our health plans were in compliance withRBC rules. The RBC rules, if adopted by California, Florida, Massachusetts or New York, could increase the minimum capital requirements atrequired for those states. Our Massachusetts health plan maintains a $35 million performance bond, effective through December 31, 2018. We have the ability and commitment2022, to provide additional capital to each of our health plans when necessary to ensurepartially satisfy minimum net worth requirements in that statutory capital and surplus continue to meet regulatory requirements.state.
Such statutes,Statutes, regulations and informal capital requirements also restrict the timing, payment, and amount of dividends and other distributions that may be paid to us as the sole stockholder. To the extent our subsidiaries must comply with these regulations, they may not have the financial flexibility to transfer funds to us. Based on current statutes and regulations, the net assets in these subsidiaries, (after intercompany eliminations) which may not be transferable to us in the form of loans, advances, or cash dividends was approximately $2,262 million$2.7 billion at December 31, 2018, and $1,691 million at December 31, 2017.2021. Because of the statutory restrictions that inhibit the ability of our health plans to transfer net assets to us, the amount of retained earnings readily available to pay dividends to our stockholders is generally limited to cash, cash equivalents and investments held by the parent company – company—Molina Healthcare, Inc. Such cash, cash equivalents and investments amounted to $170$348 million and $696$644 million as of December 31, 20182021 and 2017,2020, respectively.
As of December 31, 2021, our health plans had aggregate statutory capital and surplus of approximately $2.9 billion, which was in excess of the required minimum aggregate statutory capital and surplus of approximately $2.1 billion. We have the ability and commitment to provide additional capital to each of our health plans when necessary to ensure that statutory capital and surplus continue to meet regulatory requirements.
COVID-19 Pandemic
We continue to monitor and assess the estimated operating and financial impact of the COVID-19 pandemic, and as it evolves, we continue to process, assemble, and assess member utilization information. We believe that our cash resources, borrowing capacity available under the Credit Agreement, and cash flow generated from operations will be sufficient to withstand the financial impact of the pandemic, and will enable us to continue to support our
Molina Healthcare, Inc. 2021 Form 10-K | 79
operations, regulatory requirements, debt repayment obligations, and capital expenditures for the foreseeable future.
Legal Proceedings
The health carehealthcare industry is subject to numerous laws and regulations of federal, state, and local governments. Compliance with these laws and regulations can be subject to government review and interpretation, as well as regulatory actions unknown and unasserted at this time. Penalties associated with violations of these laws and regulations include significant fines and penalties, exclusion from participating in publicly funded programs, and the repayment of previously billed and collected revenues.
We are involved in legal actions in the ordinary course of business someincluding, but not limited to, various employment claims, vendor disputes and provider claims. Some of whichthese legal actions seek monetary damages, including claims for punitive damages, which aremay not be covered by insurance. We review legal matters and update our estimates of reasonably possible losses and related disclosures, as necessary. We have accrued liabilities for certainlegal matters for which we deem the loss to be both probable and reasonably estimable. Although we believe that our estimates of such losses are reasonable, theseThese liability estimates could change as a result of further developments of thesethe matters. The outcome of legal actions is inherently uncertain and such pending matters for which accruals have not been established have not progressed sufficiently through discovery and/or development of important factual information and legal issues to enable us to estimate a range of possible loss, if any. While it is not possible to accurately predict or determine the eventual outcomes of these items, anuncertain. An adverse determination in one or more of these pending matters could have a materialan adverse effect on our consolidated financial position, results of operations, or cash flows.
Steamfitters Local 449 PensionKentucky RFP. On September 4, 2020, Anthem Kentucky Managed Care Plan, v.Inc. brought an action in Franklin County Circuit Court against the Kentucky Finance and Administration Cabinet, the Kentucky Cabinet for Health and Family Services, and all of the five winning bidder health plans, including our Kentucky health plan. This matter remains subject to additional legal and appellate proceedings, and no assurances can be given regarding the ultimate outcome. Under the Court’s June 16, 2021 final Order, our Kentucky health plan will continue to operate for the foreseeable future under its current Medicaid contract and provide care to Kentucky Medicaid members.
Puerto Rico. On August 13, 2021, Molina Healthcare of Puerto, Inc., et al. (“MHPR”) filed a complaint asserting, among other claims, breach of contract against Puerto Rico Health Insurance Administration (“ASES”). On September 13, 2021, in addition to filing its answer to MHPR’s complaint, ASES filed a counterclaim and a third-party complaint against MHPR and the Company. The counterclaim alleges that MHPR and the Company breached contractual obligations by failing to pay providers and, in addition to damages, seeks various equitable remedies. On October 5, 2018, the Steamfitters Local 449 Pension Plan8, 2021, MHPR filed its first amended class action securities complaint inreply to the Central District Courtcounterclaim, denying all the allegations, and on November 1, 2021, the Company filed its answer to the third-party complaint. On December 3, 2021, MHPR filed a request for disbursement of California againstillegally withheld funds, and ASES filed its opposition. At a status hearing on January 19, 2022, the Company and its former executive officers, J. Mario Molina, John C. Molina, Terry P. Bayer, and Rick Hopfer, Case 2:18-cv-03579.ASES both argued MHPR’s request for disbursement. The amended complaint purports to seek recovery on behalf of all persons or entities who purchased Molina common stock between October 31, 2014, and August 2, 2017, for alleged violations under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5 promulgated thereunder. The plaintiff alleges the defendants misled investors regarding the scalability of the Company’s administrative infrastructure during the identified class period. On December 13, 2018, the Court granted the Company’s motion to dismisscourt has not ruled. This matter is in its entiretyearly stages, and closed the case. On January 9, 2019, plaintiffs appealedno prediction can be made as to the United States Courtoutcome. No gain or loss is probable and reasonably estimable with regard to either MHPR’s complaint or the counterclaim of Appeals for the Ninth Circuit. Plaintiff’s opening brief is due April 10, 2019, the Company’s response is due May 10, 2019, and Plaintiff’s reply is due May 31, 2019. Oral argument will likely occur within 9-12 months after the briefing is completed. The Company believes it has meritorious defenses to the alleged claims and intends to defend the matter vigorously. At this time, we are not able to estimate a possible loss or range of loss that
may result from this matter or to determine whether such loss, if any, would have a material adverse effect on our financial condition, results of operations, or cash flows.
States’ Budgets
Nearly all of our premium revenues come from the joint federal and state funding of the Medicaid, Medicare, and CHIP programs. The states in which we operate our health plans regularly face significant budgetary pressures.
Lease Obligations
We lease administrative facilities and certain equipment under non-cancelable operating leases expiring at various dates through 2026. Facility lease terms generally range from five to 10 years with one to two renewal options for extended terms. In most cases, we are required to make additional payments under facility operating leases for taxes, insurance and other operating expenses incurred during the lease period. Certain of our leases contain rent escalation clauses or lease incentives, including rent abatements and tenant improvement allowances. Rent escalation clauses and lease incentives are taken into account in determining total rent expense to be recognized during the lease term.
Future minimum lease payments by year and in the aggregate under operating leases and lease financing obligations consist of the following amounts: |
| | | | | | | | | | | |
| | Lease Financing Obligations | | Operating Leases | | Total |
| | (In millions) |
| 2019 | $ | 19 |
| | $ | 46 |
| | $ | 65 |
|
| 2020 | 19 |
| | 34 |
| | 53 |
|
| 2021 | 20 |
| | 24 |
| | 44 |
|
| 2022 | 21 |
| | 16 |
| | 37 |
|
| 2023 | 21 |
| | 12 |
| | 33 |
|
| Thereafter | 311 |
| | 15 |
| | 326 |
|
| | $ | 411 |
| | $ | 147 |
| | $ | 558 |
|
Rental expense related to operating leases amounted to $62 million, $75 million, and $64 million for the years ended December 31, 2018, 2017, and 2016, respectively. The amounts reported in “Lease Financing Obligations” above represent our contractual lease commitments for the properties described in Note 11, “Debt” under the subheading “Lease Financing Obligations.”ASES.
Professional Liability Insurance
We carry medical professional liability insurance for health carehealthcare services rendered in the primary care institutions that we manage. In addition, we also carry managed care errors and omissions insurance for all Molina entities.
Provider Claims
Many of our medical contracts are complex in nature and may be subject to differing interpretations regarding amounts due for the provision of various services. Such differing interpretations have led certain medical providers to pursue us for additional compensation. The claims made by providers in such circumstances often involve issues of contract compliance, interpretation, payment methodology, and intent. These claims often extend tomanaged care services provided by the providers over a number of years.
Various providers have contacted us seeking additional compensation for claims that we believeprovide.
16. Segments
In the first quarter of 2021, we realigned our reportable operating segments to have been settled. These matters, when finally concluded and determined, will not,reflect recent changes in our opinion, have a material adverse effect oninternal operating and reporting structure, which is now organized by government program. The revised reporting structure reflects the reporting and review process used by our chief executive officer (who is our chief operating decision maker) to assess performance and allocate resources, and is consistent with how we currently manage the business and view the markets we serve. These reportable segments consist of: 1) Medicaid; 2) Medicare; 3) Marketplace; and 4) Other.
The Medicaid, Medicare, and Marketplace segments represent the government-funded or sponsored programs under which we offer managed healthcare services. The Other segment, which is insignificant to our consolidated financial position, results of operations, or cash flows.
18. Segments
We currently have two reportable segments: our Health Plans segment and our Other segment. We manage the vast majority of our operations through our Health Plans segment. Our Other segment includes the historical results of the Pathways behavioral health subsidiary, which we sold in the fourth quarter of 2018, and certain corporate amounts not associated with or allocated to the Health Plans segment. Effective in the fourth quarter of 2018, we reclassified the
historical results relating to our Molina Medicaid, Solutions (“MMS”) segment, which we sold in the third quarter of 2018, toMedicare, or Marketplace segments. Additionally, the Other segment. Previously, results for MMS were reportedsegment includes service revenues and service costs associated with the long-term services and supports consultative services we now provide in Wisconsin, as a stand-alone segment.result of the Magellan Complete Care acquisition on December 31, 2020.
ReferMolina Healthcare, Inc. 2021 Form 10-K | 80
The key metrics used to Note 1, “Organization and Basis of Presentation,” for further details onassess the sales of Pathways and MMS.
We regularly evaluate the appropriatenessperformance of our reportableMedicaid, Medicare, and Marketplace segments particularly in light of organizational changes, acquisitionare premium revenue, medical margin and divestiture activity, and changing laws and regulations. Therefore, these reportable segments may change in the future.
Description of Earnings Measures for Reportable Segments
Margin is the appropriate earnings measure for our reportable segments, based on how our chief operating decision maker currently reviews results, assesses performance, and allocates resources.
Margin for our Health Plans segment is referred to as “Medical margin,” which represents the amount earned by the segments after medical costs are deducted from premium revenue. The medical care ratioMCR. MCR represents the amount of medical care costs as a percentage of premium revenue, and is one of the key metrics used to assess the performance of the segments.revenue. Therefore, the underlying medical margin, isor the amount earned by the Medicaid, Medicare, and Marketplace segments after medical costs are deducted from premium revenue, represents the most important measure of earnings reviewed by management, and is used by our chief executive officer to review results, assess performance, and allocate resources. The key metric used to assess the chief operating decision maker.performance of our Other segment is service margin. The service margin is equal to service revenue minus cost of service revenue. We do not report total assets by segment since this is not a metric used to assess segment performance or allocate resources.
For all tables presented below, the prior period disclosures have been recast to conform to the current period segment presentation. |
| | | | | | | | | | | | |
| | | Health Plans | | Other | | Consolidated |
| | | (In millions) |
| 2018 | | | | | | |
| Total revenue | | $ | 18,471 |
| | $ | 419 |
| | 18,890 |
|
| Margin | | 2,475 |
| | 43 |
| | 2,518 |
|
| Goodwill, and intangible assets, net | | 190 |
| | — |
| | 190 |
|
| Total assets | | 6,165 |
| | 989 |
| | 7,154 |
|
| 2017 | | | | | | |
| Total revenue | | $ | 19,352 |
| | $ | 531 |
| | $ | 19,883 |
|
| Margin | | 1,781 |
| | 29 |
| | 1,810 |
|
| Goodwill, and intangible assets, net | | 212 |
| | 43 |
| | 255 |
|
| Total assets | | 6,347 |
| | 2,124 |
| | 8,471 |
|
| 2016 | | | | | | |
| Total revenue | | $ | 17,234 |
| | $ | 548 |
| | $ | 17,782 |
|
| Margin | | 1,671 |
| | 54 |
| | 1,725 |
|
| Goodwill, and intangible assets, net | | 513 |
| | 247 |
| | 760 |
|
| Total assets | | 5,897 |
| | 1,552 |
| | 7,449 |
|
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
| | | | | |
| (In millions) |
| Total revenue: | | | | | |
| Medicaid | $ | 21,231 | | | $ | 15,217 | | | $ | 13,026 | |
| Medicare | 3,379 | | | 2,529 | | | 2,265 | |
| Marketplace | 3,091 | | | 1,677 | | | 1,538 | |
| Other | 70 | | | — | | | — | |
| Consolidated | $ | 27,771 | | | $ | 19,423 | | | $ | 16,829 | |
The following table reconciles margin by segment to consolidated income
(loss) before income tax
expense (benefit):expense: | | | | | | | | | | Year Ended December 31, |
| | Year Ended December 31, | | 2021 | | 2020 | | 2019 |
| | 2018 | | 2017 | | 2016 | | | | | | |
| | (In millions) | | (In millions) |
| Margin: | | | | | | Margin: | |
| Health Plans | $ | 2,475 |
| | $ | 1,781 |
| | $ | 1,671 |
| |
| Medicaid | | Medicaid | $ | 2,322 | | | $ | 1,804 | | | $ | 1,496 | |
| Medicare | | Medicare | 430 | | | 351 | | | 331 | |
| Marketplace | | Marketplace | 399 | | | 324 | | | 476 | |
| Other | 43 |
| | 29 |
| | 54 |
| Other | 14 | | | — | | | — | |
| Total margin | 2,518 |
| | 1,810 |
| | 1,725 |
| Total margin | 3,165 | | | 2,479 | | | 2,303 | |
Add: other operating revenues (1) | 871 |
| | 508 |
| | 798 |
| Add: other operating revenues (1) | 846 | | | 1,124 | | | 621 | |
Less: other operating expenses (2) | (2,243 | ) | | (2,873 | ) | | (2,217 | ) | Less: other operating expenses (2) | (2,991) | | | (2,525) | | | (1,880) | |
| Less: loss on sales of subsidiaries, net of gain | (15 | ) | | — |
| | — |
| |
| Operating income (loss) | 1,131 |
| | (555 | ) | | 306 |
| |
| Operating income | | Operating income | 1,020 | | | 1,078 | | | 1,044 | |
| Less: other expenses, net | 132 |
| | 57 |
| | 101 |
| Less: other expenses, net | 145 | | | 117 | | | 72 | |
| Income (loss) before income tax expense (benefit) | $ | 999 |
| | $ | (612 | ) | | $ | 205 |
| |
| Income before income tax expense | | Income before income tax expense | $ | 875 | | | $ | 961 | | | $ | 972 | |
______________________
(1)Other operating revenues include premium tax revenue, health insurer fees reimbursed, Marketplace risk corridor judgment, investment income and other revenue.
| |
(1) | Other operating revenues include premium tax revenue, health insurer fees reimbursed, investment income and other revenue. |
| |
(2) | Other operating expenses include general and administrative expenses, premium tax expenses, health insurer fees, depreciation and amortization, impairment losses, and restructuring and separation costs. |
(2)Other operating expenses include general and administrative expenses, premium tax expenses, health insurer fees, depreciation and amortization, and other costs.
Molina Healthcare, Inc. 2021 Form 10-K | 81
19. Quarterly Results of Operations (Unaudited)
The following table summarizes quarterly unaudited results of operations for the years ended December 31, 2018 and 2017. |
| | | | | | | | | | | | | | | |
| | For The Quarter Ended |
| | March 31,
2018 | | June 30,
2018 | | Sept. 30, 2018 | | December 31,
2018 |
| | (In millions, except per-share data) |
| Total revenue | $ | 4,646 |
| | $ | 4,883 |
| | $ | 4,697 |
| | $ | 4,664 |
|
| Margin | 615 |
| | 673 |
| | 566 |
| | 664 |
|
| Gain (loss) on sales of subsidiaries | — |
| | — |
| | 37 |
| | (52 | ) |
| Restructuring and separation costs | 25 |
| | 8 |
| | 5 |
| | 8 |
|
| Net income | 107 |
| | 202 |
| | 197 |
| | 201 |
|
| | | | | | | | |
Net income per share (1): | | | | | | | |
| Basic | $ | 1.79 |
| | $ | 3.29 |
| | $ | 3.22 |
| | $ | 3.24 |
|
| Diluted | $ | 1.64 |
| | $ | 3.02 |
| | $ | 2.90 |
| | $ | 3.01 |
|
|
| | | | | | | | | | | | | | | |
| | For The Quarter Ended |
| | March 31,
2017 | | June 30,
2017 | | Sept. 30, 2017 | | December 31,
2017 |
| | (In millions, except per-share data) |
| Total revenue | $ | 4,904 |
| | $ | 4,999 |
| | $ | 5,031 |
| | $ | 4,949 |
|
| Margin | 546 |
| | 254 |
| | 564 |
| | 446 |
|
| Impairment losses | — |
| | 72 |
| | 129 |
| | 269 |
|
| Restructuring and separation costs | — |
| | 43 |
| | 118 |
| | 73 |
|
| Net income (loss) | 77 |
| | (230 | ) | | (97 | ) | | (262 | ) |
| | | | | | | | |
Net income (loss) per share (1): | | | | | | | |
| Basic | $ | 1.38 |
| | $ | (4.10 | ) | | $ | (1.70 | ) | | $ | (4.59 | ) |
| Diluted | $ | 1.37 |
| | $ | (4.10 | ) | | $ | (1.70 | ) | | $ | (4.59 | ) |
| |
(1) | The dilutive effect of all potentially dilutive common shares is calculated using the treasury stock method and is based on the weighted-average common share equivalents outstanding during each quarter. Accordingly, the sum of the quarterly net income (loss) per share may not agree to the total for the year. Certain potentially dilutive common shares issuable are not included in the computation of diluted net income (loss) per share because to do so would be anti-dilutive. |
20.17. Condensed Financial Information of Registrant
The condensed balance sheets as of December 31, 20182021 and 2017,2020, and the related condensed statements of operations,income, comprehensive income (loss) and cash flows for each of the three years in the period ended December 31, 20182021 for our parent company Molina Healthcare, Inc. (the “Registrant”), are presented below.
Condensed Balance Sheets
| | | | | | | | December 31, |
| | December 31, | | 2021 | | 2020 |
| | 2018 | | 2017 | | | | |
| | (In millions, except share data) | | (In millions, except per-share data) |
| ASSETS | ASSETS | ASSETS |
| Current assets: | |
| | | Current assets: | | |
| Cash and cash equivalents | $ | 70 |
| | $ | 504 |
| Cash and cash equivalents | $ | 274 | | | $ | 575 | |
| Investments | 100 |
| | 192 |
| Investments | 74 | | | 69 | |
| Restricted investments | — |
| | 169 |
| |
| Receivables | 2 |
| | 2 |
| Receivables | — | | | 2 | |
| Due from affiliates | 90 |
| | 148 |
| Due from affiliates | 74 | | | 114 | |
| Prepaid expenses and other current assets | 47 |
| | 103 |
| Prepaid expenses and other current assets | 142 | | | 65 | |
| Derivative asset | 476 |
| | 522 |
| |
| Total current assets | 785 |
| | 1,640 |
| Total current assets | 564 | | | 825 | |
| Property, equipment, and capitalized software, net | 176 |
| | 223 |
| Property, equipment, and capitalized software, net | 349 | | | 339 | |
| Goodwill and intangible assets, net | 13 |
| | 15 |
| Goodwill and intangible assets, net | 699 | | | 369 | |
| Investments in subsidiaries | 2,768 |
| | 2,306 |
| Investments in subsidiaries | 3,772 | | | 3,228 | |
| Deferred income taxes | 39 |
| | 17 |
| Deferred income taxes | (18) | | | 5 | |
| Advances to related parties and other assets | 40 |
| | 32 |
| Advances to related parties and other assets | 68 | | | 83 | |
| | $ | 3,821 |
| | $ | 4,233 |
| |
| Total assets | | Total assets | $ | 5,434 | | | $ | 4,849 | |
| LIABILITIES AND STOCKHOLDERS’ EQUITY | LIABILITIES AND STOCKHOLDERS’ EQUITY | LIABILITIES AND STOCKHOLDERS’ EQUITY |
| Current liabilities: | | | | Current liabilities: | | | |
| Medical claims and benefits payable | $ | 4 |
| | $ | 3 |
| |
| Accounts payable and accrued liabilities | 223 |
| | 178 |
| |
| Current portion of long-term debt | 241 |
| | 653 |
| |
| Derivative liability | 476 |
| | 522 |
| |
| Accounts payable, accrued liabilities and other | | Accounts payable, accrued liabilities and other | $ | 378 | | | $ | 338 | |
| Total current liabilities | 944 |
| | 1,356 |
| Total current liabilities | 378 | | | 338 | |
| Long-term debt | 1,020 |
| | 1,318 |
| Long-term debt | 2,173 | | | 2,127 | |
| Lease financing obligations | 197 |
| | 198 |
| |
| Finance lease liabilities | | Finance lease liabilities | 219 | | | 225 | |
| Other long-term liabilities | 13 |
| | 24 |
| Other long-term liabilities | 34 | | | 63 | |
| Total liabilities | 2,174 |
| | 2,896 |
| Total liabilities | 2,804 | | | 2,753 | |
| Stockholders’ equity: | | | | Stockholders’ equity: | | | |
| Common stock, $0.001 par value; 150 million shares authorized; outstanding: | | |
|
| |
| 62 million shares at December 31, 2018 and 60 million shares at December 31, 2017 | — |
| | — |
| |
| Common stock, $0.001 par value; 150 million shares authorized; outstanding: 58 million shares at December 31, 2021, and 59 million at December 31, 2020 | | Common stock, $0.001 par value; 150 million shares authorized; outstanding: 58 million shares at December 31, 2021, and 59 million at December 31, 2020 | — | | | — | |
| Preferred stock, $0.001 par value; 20 million shares authorized, no shares issued and outstanding | — |
| | — |
| Preferred stock, $0.001 par value; 20 million shares authorized, no shares issued and outstanding | — | | | — | |
| Additional paid-in capital | 643 |
| | 1,044 |
| Additional paid-in capital | 236 | | | 199 | |
| Accumulated other comprehensive loss | (8 | ) | | (5 | ) | |
| Accumulated other comprehensive (loss) income | | Accumulated other comprehensive (loss) income | (5) | | | 37 | |
| Retained earnings | 1,012 |
| | 298 |
| Retained earnings | 2,399 | | | 1,860 | |
| Total stockholders’ equity | 1,647 |
| | 1,337 |
| Total stockholders’ equity | 2,630 | | | 2,096 | |
| | $ | 3,821 |
| | $ | 4,233 |
| |
| Total liabilities and stockholders’ equity | | Total liabilities and stockholders’ equity | $ | 5,434 | | | $ | 4,849 | |
See accompanying notes.
Molina Healthcare, Inc. 2021 Form 10-K | 82
Condensed Statements of OperationsIncome
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2018 | | 2017 | | 2016 |
| | (In millions) |
| Revenue: | | | | | |
| Management fees | $ | 1,138 |
| | $ | 1,317 |
| | $ | 1,062 |
|
| Investment income and other revenue | 17 |
| | 16 |
| | 16 |
|
| Total revenue | 1,155 |
| | 1,333 |
| | 1,078 |
|
| Expenses: | | | | | |
|
| Medical care costs | 8 |
| | 16 |
| | 73 |
|
| General and administrative expenses | 1,007 |
| | 1,082 |
| | 899 |
|
| Depreciation and amortization | 69 |
| | 93 |
| | 95 |
|
| Restructuring and separation costs | 35 |
| | 153 |
| | — |
|
| Impairment losses | — |
| | 39 |
| | — |
|
| Total operating expenses | 1,119 |
| | 1,383 |
| | 1,067 |
|
| Gain on sale of subsidiary | 37 |
| | — |
| | — |
|
| Operating income (loss) | 73 |
| | (50 | ) | | 11 |
|
| Interest expense | 114 |
| | 117 |
| | 101 |
|
| Other expense (income) | 17 |
| | (61 | ) | | — |
|
| Loss before income tax (benefit) expense and equity in net earnings (losses) of subsidiaries | (58 | ) | | (106 | ) | | (90 | ) |
| Income tax (benefit) expense | (14 | ) | | 8 |
| | (24 | ) |
| Net loss before equity in net earnings (losses) of subsidiaries | (44 | ) | | (114 | ) | | (66 | ) |
| Equity in net earnings (losses) of subsidiaries | 751 |
| | (398 | ) | | 118 |
|
| Net income (loss) | $ | 707 |
| | $ | (512 | ) | | $ | 52 |
|
| | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2021 | | 2020 | | 2019 |
| | | | | |
| | (In millions) |
| Revenue: | | | | | |
| Administrative services fees | $ | 1,496 | | | $ | 1,208 | | | $ | 1,038 | |
| Investment income and other revenue | 11 | | | 13 | | | 18 | |
| Total revenue | 1,507 | | | 1,221 | | | 1,056 | |
| Expenses: | | | | | |
| General and administrative expenses | 1,424 | | | 1,089 | | | 937 | |
| Depreciation and amortization | 98 | | | 67 | | | 63 | |
| Other | 5 | | | 24 | | | 4 | |
| Total operating expenses | 1,527 | | | 1,180 | | | 1,004 | |
| Operating (loss) income | (20) | | | 41 | | | 52 | |
| Interest expense | 120 | | | 102 | | | 87 | |
| Other expenses (income), net | 25 | | | 15 | | | (15) | |
| Total other expenses, net | 145 | | | 117 | | | 72 | |
| Loss before income tax (benefit) expense and equity in net earnings of subsidiaries | (165) | | | (76) | | | (20) | |
| Income tax (benefit) expense | (21) | | | (5) | | | 9 | |
| Net loss before equity in net earnings of subsidiaries | (144) | | | (71) | | | (29) | |
| Equity in net earnings of subsidiaries | 803 | | | 744 | | | 766 | |
| Net income | $ | 659 | | | $ | 673 | | | $ | 737 | |
Condensed Statements of Comprehensive Income (Loss)
| | | | | | | | | | Year Ended December 31, |
| | Year Ended December 31, | | 2021 | | 2020 | | 2019 |
| | 2018 | | 2017 | | 2016 | | | | | | |
| | (In millions) | | (In millions) |
| Net income (loss) | $ | 707 |
| | $ | (512 | ) | | $ | 52 |
| |
| Net income | | Net income | $ | 659 | | | $ | 673 | | | $ | 737 | |
| Other comprehensive (loss) income: | | | | | | Other comprehensive (loss) income: | |
| Unrealized investment (loss) gain | (3 | ) | | (5 | ) | | 3 |
| |
| Unrealized investment (loss) income | | Unrealized investment (loss) income | (55) | | | 44 | | | 16 | |
| Less: effect of income taxes | (1 | ) | | (2 | ) | | 1 |
| Less: effect of income taxes | (13) | | | 11 | | | 4 | |
| Other comprehensive (loss) income, net of tax | (2 | ) | | (3 | ) | | 2 |
| Other comprehensive (loss) income, net of tax | (42) | | | 33 | | | 12 | |
| Comprehensive income (loss) | $ | 705 |
| | $ | (515 | ) | | $ | 54 |
| |
| Comprehensive income | | Comprehensive income | $ | 617 | | | $ | 706 | | | $ | 749 | |
See accompanying notes.
Molina Healthcare, Inc. 2021 Form 10-K | 83
Condensed Statements of Cash Flows
| | | | | | | | | | Year Ended December 31, |
| | Year Ended December 31, | | 2021 | | 2020 | | 2019 |
| | 2018 | | 2017 | | 2016 | | | | | | |
| | (In millions) | | (In millions) |
| Operating activities: | | | | | | Operating activities: | | | | | |
| Net cash provided by operating activities | $ | 118 |
| | $ | 166 |
| | $ | 55 |
| Net cash provided by operating activities | $ | 60 | | | $ | 67 | | | $ | 71 | |
| Investing activities: | | | | | |
| Investing activities: | | | | | |
| Capital contributions to subsidiaries | (145 | ) | | (370 | ) | | (386 | ) | Capital contributions to subsidiaries | (440) | | | (107) | | | (43) | |
| Dividends received from subsidiaries | 298 |
| | 286 |
| | 101 |
| Dividends received from subsidiaries | 564 | | | 635 | | | 1,373 | |
| Purchases of investments | (136 | ) | | (331 | ) | | (115 | ) | Purchases of investments | (27) | | | (188) | | | (152) | |
| Proceeds from sales and maturities of investments | 388 |
| | 156 |
| | 188 |
| Proceeds from sales and maturities of investments | 21 | | | 282 | | | 93 | |
| Purchases of property, equipment and capitalized software | (22 | ) | | (67 | ) | | (125 | ) | Purchases of property, equipment and capitalized software | (70) | | | (74) | | | (56) | |
| Net cash received from sale of subsidiaries | 242 |
| | — |
| | — |
| |
| Net cash paid in business combinations | | Net cash paid in business combinations | (263) | | | (1,028) | | | — | |
| Change in amounts due to/from affiliates | 6 |
| | (49 | ) | | (18 | ) | Change in amounts due to/from affiliates | 40 | | | (68) | | | 38 | |
| Other, net | — |
| | — |
| | 6 |
| Other, net | (3) | | | 3 | | | 1 | |
| Net cash provided by (used in) investing activities | 631 |
| | (375 | ) | | (349 | ) | |
| Net cash (used in) provided by investing activities | | Net cash (used in) provided by investing activities | (178) | | | (545) | | | 1,254 | |
| Financing activities: | | | | | |
| Financing activities: | | | | | |
| Repayment of credit facility | (300 | ) | | — |
| | — |
| |
| Repayment of principal amount of 1.125% Convertible Notes | (298 | ) | | — |
| | — |
| |
| Cash paid for partial settlement of 1.125% Conversion Option | (623 | ) | | — |
| | — |
| |
| Cash received for partial settlement of 1.125% Call Option | 623 |
| | — |
| | — |
| |
| Cash paid for partial termination of 1.125% Warrants | (549 | ) | | — |
| | — |
| |
| Repayment of principal amount of 1.625% Convertible Notes | (64 | ) | | — |
| | — |
| |
| Proceeds from senior notes offerings, net of issuance costs | — |
| | 325 |
| | — |
| |
| Proceeds from borrowings under credit facility | — |
| | 300 |
| | — |
| |
| Proceeds from senior notes offering, net of issuance costs | | Proceeds from senior notes offering, net of issuance costs | 740 | | | 1,429 | | | — | |
| Repayment of senior notes | | Repayment of senior notes | (723) | | | (338) | | | — | |
| Common stock purchases | | Common stock purchases | (128) | | | (606) | | | (47) | |
| Common stock withheld to settle employee tax obligations | | Common stock withheld to settle employee tax obligations | (53) | | | (8) | | | (7) | |
| Contingent consideration liabilities settled | | Contingent consideration liabilities settled | (20) | | | — | | | — | |
| Repayment of term loan facility | | Repayment of term loan facility | — | | | (600) | | | — | |
| Proceeds from borrowings under term loan facility | | Proceeds from borrowings under term loan facility | — | | | 380 | | | 220 | |
| Cash paid for partial termination of warrants | | Cash paid for partial termination of warrants | — | | | (30) | | | (514) | |
| Cash paid for partial settlement of conversion option | | Cash paid for partial settlement of conversion option | — | | | (27) | | | (578) | |
| Cash received for partial settlement of call option | | Cash received for partial settlement of call option | — | | | 27 | | | 578 | |
| Repayment of principal amount of convertible notes | | Repayment of principal amount of convertible notes | — | | | (12) | | | (240) | |
| Other, net | 19 |
| | 11 |
| | 20 |
| Other, net | 1 | | | 2 | | | 29 | |
| Net cash (used in) provided by financing activities | (1,192 | ) | | 636 |
| | 20 |
| Net cash (used in) provided by financing activities | (183) | | | 217 | | | (559) | |
| Net (decrease) increase in cash, cash equivalents, and restricted cash and cash equivalents | (443 | ) | | 427 |
| | (274 | ) | |
| Cash, cash equivalents, and restricted cash and cash equivalents at beginning of period | 513 |
| | 86 |
| | 360 |
| |
| Cash, cash equivalents, and restricted cash and cash equivalents at end of period | $ | 70 |
| | $ | 513 |
| | $ | 86 |
| |
| Net (decrease) increase in cash and cash equivalents | | Net (decrease) increase in cash and cash equivalents | (301) | | | (261) | | | 766 | |
| Cash and cash equivalents at beginning of period | | Cash and cash equivalents at beginning of period | 575 | | | 836 | | | 70 | |
| Cash and cash equivalents at end of period | | Cash and cash equivalents at end of period | $ | 274 | | | $ | 575 | | | $ | 836 | |
See accompanying notes.
Notes to Condensed Financial Information of Registrant
Note A - Basis of Presentation
The Registrant was incorporated in 2002. Prior to that date, Molina Healthcare of California (formerly known as Molina Medical Centers) operated as a California health plan and as the parent company for three other state health plans. In June 2003, the employees and operations of the corporate entity were transferred from Molina Healthcare of California to the Registrant.
The Registrant’s investment in subsidiaries is stated at cost plus equity in undistributed earnings of subsidiaries since the date of acquisition. The accompanying condensed financial information of the Registrant should be read in conjunction with the consolidated financial statements and accompanying notes.
Note B - Transactions with Subsidiaries
The Registrant provides certain centralized medical and administrative services to our subsidiaries pursuant to administrative services agreements that include, but are not limited to, information technology, product development
Molina Healthcare, Inc. 2021 Form 10-K | 84
and administration, underwriting, claims processing, customer service, certain care management services, human
resources, legal, marketing, purchasing, risk management, actuarial, underwriting, finance, accounting, compliance, legal and public relations. Fees are based on the fair market value of services rendered and are recorded as operating revenue. Payment is subordinated to the subsidiaries’ ability to comply with minimum capital and other restrictive financial requirements of the states in which they operate. Charges in 2018, 2017,2021, 2020, and 20162019 for these services amounted to $1,137$1,496 million, $1,317$1,208 million, and $1,062$1,038 million, respectively, and are included in operating revenue.
The Registrant and its subsidiaries are included in the consolidated federal and state income tax returns filed by the Registrant. Income taxes are allocated to each subsidiary in accordance with an intercompany tax allocation agreement. The agreement allocates income taxes in an amount generally equivalent to the amount which would be expensed by the subsidiary if it filed a separate tax return. Net operating loss benefits are paid to the subsidiary by the Registrant to the extent such losses are utilized in the consolidated tax returns.
Note C - Dividends and Capital Contributions
When the Registrant receives dividends from its subsidiaries, such amounts are recorded as a reduction to the investments in the respective subsidiaries.
For all periods presented, the Registrant made capital contributions to certain subsidiaries primarily to comply with minimum net worth requirements and to fund business combinations. Such amounts have been recorded as an increase in investment in the respective subsidiaries.
21. Supplemental Condensed Consolidating Financial Information
On November 10, 2015, the Parent issued $700 million aggregate principal amount of the 5.375% Notes in a private placement to institutional investors. The 5.375% Notes were registered with the SEC in September 2016. Pursuant to the terms of the indenture governing the 5.375% Notes (the “Indenture”), the 5.375% Notes are required to be guaranteed by each of the Parent’s existing and future direct and indirect domestic restricted subsidiaries that guarantee the Parent’s Credit Agreement. At the time of issuance, there were two subsidiaries of the Parent that guaranteed the Notes: MMS and Molina Medical Management, Inc. (“MMM”).
On November 1, 2015, the Parent acquired all of the outstanding ownership interests of Pathways Health and Community Support LLC (“Pathways”). As a result of that acquisition, and pursuant to the terms of the Indenture, effective February 16, 2016, Pathways and 15 of its subsidiaries were added as guarantors of the 5.375% Notes. Subsequently, effective January 3, 2017, MMM and 14 Pathways subsidiaries were released as guarantors of the 5.375% Notes, leaving MMS, Pathways, and Molina Pathways, LLC as the only subsidiary guarantors. MMS and Pathways were released as guarantors effective September 30, 2018, and October 19, 2018, respectively, in connection with their divestitures. Accordingly, as of December 31, 2018, Molina Pathways, LLC was the sole wholly owned subsidiary guarantor of the 5.375% Notes, on a full and unconditional basis. As discussed in Note 11, “Debt,” effective as of January 31, 2019, Molina Pathways, LLC was released as a guarantor of the 5.375% Notes.
For all periods presented, the following condensed consolidating financial statements present Molina Healthcare, Inc. (as “Parent Issuer”), Molina Pathways, LLC (as “Other Guarantor”), the subsidiary non-guarantors (as “Non-Guarantors”) and “Eliminations,” according to the guarantor structure as assessed as of and for the year ended December 31, 2018.2021 Form 10-K | 85
CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
|
| | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2018 |
| | Parent Issuer | | Other Guarantor | | Non-Guarantors | | Eliminations | | Consolidated |
| | (In millions) |
| Revenue: | | | | | | | | | |
| Total revenue | $ | 1,155 |
| | $ | 3 |
| | $ | 18,884 |
| | $ | (1,152 | ) | | $ | 18,890 |
|
| Expenses: | | | | | | | | | |
| Medical care costs | 8 |
| | — |
| | 15,129 |
| | — |
| | 15,137 |
|
| Cost of service revenue | — |
| | — |
| | 364 |
| | — |
| | 364 |
|
| General and administrative expenses | 1,007 |
| | 4 |
| | 1,474 |
| | (1,152 | ) | | 1,333 |
|
| Premium tax expenses | — |
| | — |
| | 417 |
| | — |
| | 417 |
|
| Health insurer fees | — |
| | — |
| | 348 |
| | — |
| | 348 |
|
| Depreciation and amortization | 69 |
| | — |
| | 30 |
| | — |
| | 99 |
|
| Restructuring and separation costs | 35 |
| | — |
| | 11 |
| | — |
| | 46 |
|
| Total operating expenses | 1,119 |
| | 4 |
| | 17,773 |
| | (1,152 | ) | | 17,744 |
|
| Gain (loss) on sales of subsidiaries | 37 |
|
| (52 | ) |
| — |
|
| — |
|
| (15 | ) |
| Operating income (loss) | 73 |
| | (53 | ) | | 1,111 |
| | — |
| | 1,131 |
|
| Interest expense | 114 |
| | — |
| | 1 |
| | — |
| | 115 |
|
| Other expense | 17 |
| | — |
| | — |
| | — |
| | 17 |
|
| (Loss) income before income tax (benefit) expense | (58 | ) | | (53 | ) | | 1,110 |
| | — |
| | 999 |
|
| Income tax (benefit) expense | (14 | ) | | (11 | ) | | 317 |
| | — |
| | 292 |
|
| Net (loss) income before equity in net earnings (losses) of subsidiaries | (44 | ) | | (42 | ) | | 793 |
| | — |
| | 707 |
|
| Equity in net earnings (losses) of subsidiaries | 751 |
| | (5 | ) | | — |
| | (746 | ) | | — |
|
| Net income (loss) | $ | 707 |
| | $ | (47 | ) | | $ | 793 |
| | $ | (746 | ) | | $ | 707 |
|
|
| | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2017 |
| | Parent Issuer | | Other Guarantor | | Non-Guarantors | | Eliminations | | Consolidated |
| | (In millions) |
| Revenue: | | | | | | | | | |
| Total revenue | $ | 1,333 |
| | $ | 2 |
| | $ | 19,904 |
| | $ | (1,356 | ) | | $ | 19,883 |
|
| Expenses: | | | | | | | | | |
| Medical care costs | 16 |
| | — |
| | 17,058 |
| | (1 | ) | | 17,073 |
|
| Cost of service revenue | — |
| | — |
| | 492 |
| | — |
| | 492 |
|
| General and administrative expenses | 1,082 |
| | 2 |
| | 1,865 |
| | (1,355 | ) | | 1,594 |
|
| Premium tax expenses | — |
| | — |
| | 438 |
| | — |
| | 438 |
|
| Depreciation and amortization | 93 |
| | — |
| | 44 |
| | — |
| | 137 |
|
| Restructuring and separation costs | 153 |
|
| — |
|
| 81 |
|
| — |
|
| 234 |
|
| Impairment losses | 39 |
|
| — |
|
| 431 |
|
| — |
|
| 470 |
|
| Total operating expenses | 1,383 |
| | 2 |
| | 20,409 |
| | (1,356 | ) | | 20,438 |
|
| Operating loss | (50 | ) | | — |
| | (505 | ) | | — |
| | (555 | ) |
| Total other expenses, net | 56 |
| | — |
| | 1 |
| | — |
| | 57 |
|
| Loss before income taxes | (106 | ) | | — |
| | (506 | ) | | — |
| | (612 | ) |
| Income tax expense (benefit) | 8 |
| | — |
| | (108 | ) | | — |
| | (100 | ) |
| Net loss before equity in net (losses) earnings of subsidiaries | (114 | ) | | — |
| | (398 | ) | | — |
| | (512 | ) |
| Equity in net (losses) earnings of subsidiaries | (398 | ) | | (164 | ) | | 8 |
| | 554 |
| | — |
|
| Net loss | $ | (512 | ) | | $ | (164 | ) | | $ | (390 | ) | | $ | 554 |
| | $ | (512 | ) |
|
| | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2016 |
| | Parent Issuer | | Other Guarantor | | Non-Guarantors | | Eliminations | | Consolidated |
| | (In millions) |
| Revenue: | | | | | | | | | |
| Total revenue | $ | 1,078 |
| | $ | — |
| | $ | 17,786 |
| | $ | (1,082 | ) | | $ | 17,782 |
|
| Expenses: | | | | | | | | | |
| Medical care costs | 73 |
| | — |
| | 14,702 |
| | (1 | ) | | 14,774 |
|
| Cost of service revenue | — |
| | — |
| | 485 |
| | — |
| | 485 |
|
| General and administrative expenses | 899 |
| | 2 |
| | 1,573 |
| | (1,081 | ) | | 1,393 |
|
| Premium tax expenses | — |
| | — |
| | 468 |
| | — |
| | 468 |
|
| Health insurer fees | — |
| | — |
| | 217 |
| | — |
| | 217 |
|
| Depreciation and amortization | 95 |
| | — |
| | 44 |
| | — |
| | 139 |
|
| Total operating expenses | 1,067 |
| | 2 |
| | 17,489 |
| | (1,082 | ) | | 17,476 |
|
| Operating income (loss) | 11 |
| | (2 | ) | | 297 |
| | — |
| | 306 |
|
| Total other expenses, net | 101 |
| | — |
| | — |
| | — |
| | 101 |
|
| (Loss) income before income taxes | (90 | ) | | (2 | ) | | 297 |
| | — |
| | 205 |
|
| Income tax (benefit) expense | (24 | ) | | (1 | ) | | 178 |
| | — |
| | 153 |
|
| Net (loss) income before equity in earnings of subsidiaries | (66 | ) | | (1 | ) | | 119 |
| | — |
| | 52 |
|
| Equity in net earnings of subsidiaries | 118 |
| | 2 |
| | — |
| | (120 | ) | | — |
|
| Net income | $ | 52 |
| | $ | 1 |
| | $ | 119 |
| | $ | (120 | ) | | $ | 52 |
|
CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
|
| | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2018 |
| | Parent Issuer | | Other Guarantor | | Non-Guarantors | | Eliminations | | Consolidated |
| | | | | | | | | | |
| | (In millions) |
| Net income (loss) | $ | 707 |
| | $ | (47 | ) | | $ | 793 |
| | $ | (746 | ) | | $ | 707 |
|
| Other comprehensive loss, net of tax | (2 | ) | | — |
| | (2 | ) | | 2 |
| | (2 | ) |
| Comprehensive income (loss) | $ | 705 |
| | $ | (47 | ) | | $ | 791 |
| | $ | (744 | ) | | $ | 705 |
|
|
| | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2017 |
| | Parent Issuer | | Other Guarantor | | Non-Guarantors | | Eliminations | | Consolidated |
| | | | | | | | | | |
| | (In millions) |
| Net loss | $ | (512 | ) | | $ | (164 | ) | | $ | (390 | ) | | $ | 554 |
| | $ | (512 | ) |
| Other comprehensive loss, net of tax | (3 | ) | | — |
| | (2 | ) | | 2 |
| | (3 | ) |
| Comprehensive loss | $ | (515 | ) | | $ | (164 | ) | | $ | (392 | ) | | $ | 556 |
| | $ | (515 | ) |
|
| | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2016 |
| | Parent Issuer | | Other Guarantor | | Non-Guarantors | | Eliminations | | Consolidated |
| | | | | | | | | | |
| | (In millions) |
| Net income | $ | 52 |
| | $ | 1 |
| | $ | 119 |
| | $ | (120 | ) | | $ | 52 |
|
| Other comprehensive income, net of tax | 2 |
| | — |
| | 1 |
| | (1 | ) | | 2 |
|
| Comprehensive income | $ | 54 |
| | $ | 1 |
| | $ | 120 |
| | $ | (121 | ) | | $ | 54 |
|
CONDENSED CONSOLIDATING BALANCE SHEETS
|
| | | | | | | | | | | | | | | | | | | |
| | December 31, 2018 |
| | Parent Issuer | | Other Guarantor | | Non-Guarantors | | Eliminations | | Consolidated |
| | (In millions) |
| ASSETS |
| Current assets: | | | | | | | | | |
| Cash and cash equivalents | $ | 70 |
| | $ | 2 |
| | $ | 2,754 |
| | $ | — |
| | $ | 2,826 |
|
| Investments | 100 |
| | — |
| | 1,581 |
| | — |
| | 1,681 |
|
| Receivables | 2 |
| | — |
| | 1,328 |
| | — |
| | 1,330 |
|
| Due from (to) affiliates | 90 |
| | 7 |
| | (97 | ) | | — |
| | — |
|
| Prepaid expenses and other current assets | 47 |
| | 29 |
| | 73 |
| | — |
| | 149 |
|
| Derivative asset | 476 |
| | — |
| | — |
| | — |
| | 476 |
|
| Total current assets | 785 |
| | 38 |
| | 5,639 |
| | — |
| | 6,462 |
|
| Property, equipment, and capitalized software, net | 176 |
| | — |
| | 65 |
| | — |
| | 241 |
|
| Goodwill and intangible assets, net | 13 |
| | — |
| | 177 |
| | — |
| | 190 |
|
| Restricted investments | — |
| | — |
| | 120 |
| | — |
| | 120 |
|
| Investment in subsidiaries, net | 2,768 |
| | (5 | ) | | — |
| | (2,763 | ) | | — |
|
| Deferred income taxes | 39 |
| | — |
| | 78 |
| | — |
| | 117 |
|
| Other assets | 40 |
| | — |
| | 5 |
| | (21 | ) | | 24 |
|
| | $ | 3,821 |
| | $ | 33 |
| | $ | 6,084 |
| | $ | (2,784 | ) | | $ | 7,154 |
|
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
| Current liabilities: | | | | | | | | | |
| Medical claims and benefits payable | $ | 4 |
| | $ | — |
| | $ | 1,957 |
| | $ | — |
| | $ | 1,961 |
|
| Amounts due government agencies | — |
| | — |
| | 967 |
| | — |
| | 967 |
|
| Accounts payable and accrued liabilities | 223 |
| | — |
| | 167 |
| | — |
| | 390 |
|
| Deferred revenue | — |
| | — |
| | 211 |
| | — |
| | 211 |
|
| Current portion of long-term debt | 241 |
| | — |
| | — |
| | — |
| | 241 |
|
| Derivative liability | 476 |
| | — |
| | — |
| | — |
| | 476 |
|
| Total current liabilities | 944 |
| | — |
| | 3,302 |
| | — |
| | 4,246 |
|
| Long-term debt and lease financing obligations | 1,217 |
| | — |
| | 20 |
| | (20 | ) | | 1,217 |
|
| Other long-term liabilities | 13 |
| | — |
| | 32 |
| | (1 | ) | | 44 |
|
| Total liabilities | 2,174 |
| | — |
| | 3,354 |
| | (21 | ) | | 5,507 |
|
| Total stockholders’ equity | 1,647 |
| | 33 |
| | 2,730 |
| | (2,763 | ) | | 1,647 |
|
| | $ | 3,821 |
| | $ | 33 |
| | $ | 6,084 |
| | $ | (2,784 | ) | | $ | 7,154 |
|
CONDENSED CONSOLIDATING BALANCE SHEETS
|
| | | | | | | | | | | | | | | | | | | |
| | December 31, 2017 |
| | Parent Issuer | | Other Guarantor | | Non-Guarantors | | Eliminations | | Consolidated |
| | (In millions) |
| ASSETS |
| Current assets: | | | | | | | | | |
| Cash and cash equivalents | $ | 504 |
| | $ | — |
| | $ | 2,682 |
| | $ | — |
| | $ | 3,186 |
|
| Investments | 192 |
| | — |
| | 2,332 |
| | — |
| | 2,524 |
|
| Restricted investments | 169 |
|
| — |
|
| — |
|
| — |
|
| 169 |
|
| Receivables | 2 |
| | — |
| | 869 |
| | — |
| | 871 |
|
| Due from (to) affiliates | 148 |
| | 2 |
| | (150 | ) | | — |
| | — |
|
| Prepaid expenses and other current assets | 103 |
| | 2 |
| | 150 |
| | (16 | ) | | 239 |
|
| Derivative asset | 522 |
| | — |
| | — |
| | — |
| | 522 |
|
| Total current assets | 1,640 |
| | 4 |
| | 5,883 |
| | (16 | ) | | 7,511 |
|
| Property, equipment, and capitalized software, net | 223 |
| | — |
| | 119 |
| | — |
| | 342 |
|
| Goodwill and intangible assets, net | 15 |
| | — |
| | 240 |
| | — |
| | 255 |
|
| Restricted investments | — |
| | — |
| | 119 |
| | — |
| | 119 |
|
| Investment in subsidiaries, net | 2,306 |
| | 75 |
| | — |
| | (2,381 | ) | | — |
|
| Deferred income taxes | 17 |
| | — |
| | 101 |
| | (15 | ) | | 103 |
|
| Other assets | 32 |
| | — |
| | 110 |
| | (1 | ) | | 141 |
|
| | $ | 4,233 |
| | $ | 79 |
| | $ | 6,572 |
| | $ | (2,413 | ) | | $ | 8,471 |
|
| LIABILITIES AND STOCKHOLDERS’ EQUITY |
| Current liabilities: | | | | | | | | | |
| Medical claims and benefits payable | $ | 3 |
| | $ | — |
| | $ | 2,189 |
| | $ | — |
| | $ | 2,192 |
|
| Amounts due government agencies | — |
| | — |
| | 1,542 |
| | — |
| | 1,542 |
|
| Accounts payable and accrued liabilities | 178 |
| | 1 |
| | 188 |
| | (1 | ) | | 366 |
|
| Deferred revenue | — |
| | — |
| | 282 |
| | — |
| | 282 |
|
| Current portion of long-term debt | 653 |
| | — |
| | 16 |
| | (16 | ) | | 653 |
|
| Derivative liability | 522 |
| | — |
| | — |
| | — |
| | 522 |
|
| Total current liabilities | 1,356 |
| | 1 |
| | 4,217 |
| | (17 | ) | | 5,557 |
|
| Long-term debt and lease financing obligations | 1,516 |
| | — |
| | — |
| | — |
| | 1,516 |
|
| Deferred income taxes | — |
| | — |
| | 15 |
| | (15 | ) | | — |
|
| Other long-term liabilities | 24 |
| | — |
| | 37 |
| | — |
| | 61 |
|
| Total liabilities | 2,896 |
| | 1 |
| | 4,269 |
| | (32 | ) | | 7,134 |
|
| Total stockholders’ equity | 1,337 |
| | 78 |
| | 2,303 |
| | (2,381 | ) | | 1,337 |
|
| | $ | 4,233 |
| | $ | 79 |
| | $ | 6,572 |
| | $ | (2,413 | ) | | $ | 8,471 |
|
CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
|
| | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2018 |
| | Parent Issuer | | Other Guarantor | | Non-Guarantors | | Eliminations | | Consolidated |
| | (In millions) |
| Operating activities: | | | | | | | | | |
| Net cash provided by (used in) operating activities | $ | 118 |
| | (2 | ) | | (430 | ) | | — |
| | $ | (314 | ) |
| Investing activities: | | | | | | | | | |
| Purchases of investments | (136 | ) | | — |
| | (1,308 | ) | | — |
| | (1,444 | ) |
| Proceeds from sales and maturities of investments | 388 |
| | — |
| | 2,057 |
| | — |
| | 2,445 |
|
| Purchases of property, equipment and capitalized software | (22 | ) | | — |
| | (8 | ) | | — |
| | (30 | ) |
| Net cash received from sales of subsidiaries | 242 |
| | — |
| | (52 | ) | | — |
| | 190 |
|
| Capital contributions to subsidiaries | (145 | ) | | — |
| | 145 |
| | — |
| | — |
|
| Dividends received from subsidiaries | 298 |
| | — |
| | (298 | ) | | — |
| | — |
|
| Change in amounts due to/from affiliates | 6 |
| | 4 |
| | (10 | ) | | — |
| | — |
|
| Other, net | — |
| | — |
| | (18 | ) | | — |
| | (18 | ) |
| Net cash provided by investing activities | 631 |
| | 4 |
| | 508 |
| | — |
| | 1,143 |
|
| Financing activities: | | | | | | | | | |
| Repayment of credit facility | (300 | ) | | — |
| | — |
| | — |
| | (300 | ) |
| Repayment of principal amount of 1.125% Convertible Notes | (298 | ) | | — |
| | — |
| | — |
| | (298 | ) |
| Cash paid for partial settlement of 1.125% Conversion Option | (623 | ) | | — |
| | — |
| | — |
| | (623 | ) |
| Cash received for partial settlement of 1.125% Call Option | 623 |
| | — |
| | — |
| | — |
| | 623 |
|
| Cash paid for partial termination of 1.125% Warrants | (549 | ) | | — |
| | — |
| | — |
| | (549 | ) |
| Repayment of principal amount of 1.625% Convertible Notes | (64 | ) | | — |
| | — |
| | — |
| | (64 | ) |
| Other, net | 19 |
| | — |
| | (1 | ) | | — |
| | 18 |
|
| Net cash used in financing activities | (1,192 | ) | | — |
| | (1 | ) | | — |
| | (1,193 | ) |
| Net (decrease) increase in cash, cash equivalents, and restricted cash and cash equivalents | (443 | ) | | 2 |
| | 77 |
| | — |
| | (364 | ) |
| Cash, cash equivalents, and restricted cash and cash equivalents at beginning of period | 513 |
| | — |
| | 2,777 |
| | — |
| | 3,290 |
|
| Cash, cash equivalents, and restricted cash and cash equivalents at end of period | $ | 70 |
| | $ | 2 |
| | $ | 2,854 |
| | $ | — |
| | $ | 2,926 |
|
|
| | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2017 |
| | Parent Issuer | | Other Guarantor | | Non-Guarantors | | Eliminations | | Consolidated |
| | (In millions) |
| Operating activities: | | | | | | | | | |
| Net cash provided by operating activities | $ | 166 |
| | — |
| | 638 |
| | — |
| | $ | 804 |
|
| Investing activities: | | | | | | | | | |
| Purchases of investments | (331 | ) | | — |
| | (2,366 | ) | | — |
| | (2,697 | ) |
| Proceeds from sales and maturities of investments | 156 |
| | — |
| | 1,603 |
| | — |
| | 1,759 |
|
| Purchases of property, equipment and capitalized software | (67 | ) | | — |
| | (19 | ) | | — |
| | (86 | ) |
| Capital contributions to subsidiaries | (370 | ) | | 2 |
| | 368 |
| | — |
| | — |
|
| Dividends received from subsidiaries | 286 |
| | — |
| | (286 | ) | | — |
| | — |
|
| Change in amounts due to/from affiliates | (49 | ) | | (2 | ) | | 51 |
| | — |
| | — |
|
| Other, net | — |
| | — |
| | (38 | ) | | — |
| | (38 | ) |
| Net cash used in investing activities | (375 | ) | | — |
| | (687 | ) | | — |
| | (1,062 | ) |
| Financing activities: | | | | | | | | | |
| Proceeds from senior notes offerings, net of issuance costs | 325 |
| | — |
| | — |
| | — |
| | 325 |
|
| Proceeds from borrowings under credit facility | 300 |
| | — |
| | — |
| | — |
| | 300 |
|
| Other, net | 11 |
| | — |
| | — |
| | — |
| | 11 |
|
| Net cash provided by financing activities | 636 |
| | — |
| | — |
| | — |
| | 636 |
|
| Net increase (decrease) in cash, cash equivalents, and restricted cash and cash equivalents | 427 |
| | — |
| | (49 | ) | | — |
| | 378 |
|
| Cash, cash equivalents, and restricted cash and cash equivalents at beginning of period | 86 |
| | — |
| | 2,826 |
| | — |
| | 2,912 |
|
| Cash, cash equivalents, and restricted cash and cash equivalents at end of period | $ | 513 |
| | $ | — |
| | $ | 2,777 |
| | $ | — |
| | $ | 3,290 |
|
|
| | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2016 |
| | Parent Issuer | | Other Guarantor | | Non-Guarantors | | Eliminations | | Consolidated |
| | (In millions) |
| Operating activities: | | | | | | | | | |
| Net cash provided by (used in) operating activities | $ | 55 |
| | (1 | ) | | 619 |
| | — |
| | $ | 673 |
|
| Investing activities: | | | | | | | | | |
| Purchases of investments | (115 | ) | | — |
| | (1,814 | ) | | — |
| | (1,929 | ) |
| Proceeds from sales and maturities of investments | 188 |
| | — |
| | 1,778 |
| | — |
| | 1,966 |
|
| Purchases of property, equipment and capitalized software | (125 | ) | | — |
| | (51 | ) | | — |
| | (176 | ) |
| Net cash paid in business combinations | — |
| | — |
| | (48 | ) | | — |
| | (48 | ) |
| Capital contributions to subsidiaries | (386 | ) | | 7 |
| | 379 |
| | — |
| | — |
|
| Dividends received from subsidiaries | 101 |
| | — |
| | (101 | ) | | — |
| | — |
|
| Change in amounts due to/from affiliates | (18 | ) | | (6 | ) | | 24 |
| | — |
| | — |
|
| Other, net | 6 |
| | — |
| | (25 | ) | | — |
| | (19 | ) |
| Net cash (used in) provided by investing activities | (349 | ) | | 1 |
| | 142 |
| | — |
| | (206 | ) |
| Financing activities: | | | | | | | | | |
| Other, net | 20 |
| | — |
| | (1 | ) | | — |
| | 19 |
|
| Net cash provided by (used in) financing activities | 20 |
| | — |
| | (1 | ) | | — |
| | 19 |
|
| Net increase (decrease) in cash, cash equivalents, and restricted cash and cash equivalents | (274 | ) | | — |
| | 760 |
| | — |
| | 486 |
|
| Cash, cash equivalents, and restricted cash and cash equivalents at beginning of period | 360 |
| | — |
| | 2,066 |
| | — |
| | 2,426 |
|
| Cash, cash equivalents, and restricted cash and cash equivalents at end of period | $ | 86 |
| | $ | — |
| | $ | 2,826 |
| | $ | — |
| | $ | 2,912 |
|
CONTROLS AND PROCEDURES
MANAGEMENT’S EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
We maintain disclosure controls and procedures, as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act)“Exchange Act”), that are designed to provide reasonable assurance that information required to be disclosed by us in reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to provide reasonable assurance that information required to be disclosed by us in reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of any possible controls and procedures.
Under the supervision and with the participation of our management, including our chief executive officer and our chief financial officer, we carried out an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Form 10-K pursuant to Rule 13a-15(b) and Rule 15d-15(b) of the Exchange Act. Based on this evaluation, our chief executive officer and our chief financial officer concluded that our disclosure controls and procedures were effective as of December 31, 2018,2021, at the reasonable assurance level. In addition, management concluded that our consolidated financial statements included in this Annual Report on Form 10-K are fairly stated in all material respects in accordance with U.S. generally accepted accounting principles (“GAAP”) for each of the periods presented herein.
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) under the Exchange Act. Our internal control over financial reporting includes those policies and procedures that (i)(1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets, (ii)assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors,directors; and (iii)(3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on our financial statements.
Internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements prepared for external purposes in accordance with GAAP. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of the effectiveness of our internal control over financial reporting to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management concluded that we maintained effective internal control over financial reporting as of December 31, 2018,2021, based on criteria described in Internal Control-Integrated Framework (2013)issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).
Ernst & Young, LLP, the independent registered public accounting firm who audited our Consolidated Financial Statements included in this Form 10-K, has issued a report on our internal control over financial reporting, which is included herein.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) during the quarter ended December 31, 2018,2021, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Molina Healthcare, Inc. 2021 Form 10-K | 86
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of Molina Healthcare, Inc.
Opinion on Internal Control overOver Financial Reporting
We have audited Molina Healthcare, Inc.’s internal control over financial reporting as of December 31, 2018,2021, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria)“COSO criteria”). In our opinion, Molina Healthcare, Inc. (the Company)“Company”) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2018,2021, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB)(“PCAOB”), the consolidated balance sheets of Molina Healthcare, Inc.the Company as of December 31, 20182021 and 2017 and2020, the related consolidated statements of operations,income, comprehensive income, (loss), stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2018,2021, and the related notes and our report dated February 19, 2019,14, 2022, expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ ERNSTErnst & YOUNGYoung LLP
Los Angeles, California
February 19, 201914, 2022
Molina Healthcare, Inc. 2021 Form 10-K | 87
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of Molina Healthcare, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Molina Healthcare, Inc. (the Company)“Company”) as of December 31, 20182021 and 2017, and2020, the related consolidated statements of operations,income, comprehensive income, (loss), stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2018,2021, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of at December 31, 20182021 and 2017,2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2018,2021, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB)(“PCAOB”), the Company'sCompany’s internal control over financial reporting as of December 31, 2018,2021, based on criteria established in Internal Control — IntegratedControl-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February 19, 2019,14, 2022, expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company‘s management. Our responsibility is to express an opinion on the Company‘s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures includeincluded examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing a separate opinion on the critical audit matters or on the accounts or disclosures to which they relate.
| | | | | | | | |
| | Valuation of incurred but not paid fee-for-service claims |
| | |
| Description of the matter | | As of December 31, 2021, the Company’s liability for fee-for-service claims incurred but not paid (“IBNP”), comprised $2,486 million of the $3,363 million of Medical Claims and Benefits Payable. As discussed in Note 10 to the consolidated financial statements, the Company’s IBNP liability is determined using actuarial methods that include a number of factors and assumptions, including completion factors, which seek to measure the cumulative percentage of claims expense that will have been paid for a given month of service as of the reporting date, based on historical payment patterns, and assumed health care cost trend factors, which represent an estimate of claims expense based on recent claims expense levels and healthcare cost levels. There is significant uncertainty inherent in determining management’s best estimate of completion and trend factors, which are used to calculate actuarial estimates of incurred but not paid claims. |
| | |
Molina Healthcare, Inc. 2021 Form 10-K | 88
| | | | | | | | |
| | Auditing management’s best estimate of the IBNP liability was complex and required the involvement of our actuarial specialists due to the highly judgmental nature of completion and trend factor assumptions used in the valuation process. These assumptions have a significant effect on the valuation of the IBNP liability. |
| | |
| How we addressed the matter in our audit | | We obtained an understanding, evaluated the design, and tested the operating effectiveness of the Company’s controls over the process for estimating the IBNP liability. This included testing management review controls over completion and trend factor assumptions, and management’s review and approval of actuarial methods used to calculate IBNP liability, including the data inputs and outputs of those models. |
| | |
| | To test IBNP liability, our audit procedures included, among others, testing the completeness and accuracy of data used in the calculation by testing reconciliations of underlying claims and membership data recorded in source systems to the actuarial reserving calculations, and comparing a sample of claims to source documentation. With the assistance of EY actuarial specialists, we evaluated the Company’s selection and weighting of actuarial methods by comparing the weightings used in the current estimate to those used in prior periods and those used in the industry for the specific types of insurance. To evaluate significant assumptions used by management in the actuarial methods, we compared assumptions to current and historical claims trends, to those used historically and to current industry benchmarks. We also compared management’s recorded IBNP liability to a range of reasonable IBNP estimates calculated independently by our EY actuarial specialists. Additionally, we performed a review of the prior period estimates using subsequent claims development, and we reviewed and evaluated management’s disclosures surrounding fee-for-service claims IBNP. |
/s/ ERNSTErnst & YOUNGYoung LLP
We have served as the Company’s auditor since 2000.
Los Angeles, California
February 19, 201914, 2022
Molina Healthcare, Inc. 2021 Form 10-K | 89
OTHER INFORMATION
Principal Accounting Officer DesignationNone.
Maurice S. Hebert was designated as our Principal Accounting Officer for purposes of the Securities Exchange Act of 1934, as amended, effective as of February 19, 2019. There is no family relationship between or among Mr. Hebert and any director, executive officer, or person nominated or chosen by the Company to become an executive officer of the Company, and there are no transactions that would be required to be reported pursuant to Item 404(a) of Regulation S-K. For further information, see “Directors, Executive Officers, and Corporate Governance” below.
Amendments to Certificate of Incorporation and Bylaws
On February 18, 2019, in response to feedback from our institutional stockholders, our Board of Directors approved amendments to the Company's Certificate of Incorporation, as amended, in order to declassify our Board of Directors over a three-year period. The amendments will be submitted for adoption by our stockholders at our 2019 annual meeting of stockholders.
In connection with the amendments, our Board of Directors approved an amendment and restatement of the Company’s Bylaws that affected a number of changes. The amendment and restatement deleted Section 3.3(c) of the Bylaws, which provided that any director may be removed at any time only for cause by an affirmative vote of the holders of two-thirds of the shares then entitled to vote in the election of directors. Delaware corporate law provides that, unless otherwise provided in the certificate of incorporation, members of a board that is classified may be removed only for cause. Accordingly, as long as our Board of Directors remains classified, members of the Board will be removable for cause by the holders of a majority of our outstanding shares entitled to vote at an election of directors. If the proposed amendments to the Certificate of Incorporation are adopted by our stockholders, when the Board has ceased to be classified after the three year phase-in period, members of the Board will be removable with or without cause by the holders of a majority of our outstanding shares entitled to vote at an election of directors.
The amendment and restatement also amended the following provisions of the Bylaws:
Section 2.4, which relates to making available a list of stockholders in connection with stockholder meetings, in order to conform to applicable provisions of the Delaware General Corporation Law; and
Section 5.1, in order to delete the requirement that the executive officers of the company include a Chief Operating Officer.
The Sixth Amended and Restated Bylaws of the company, which reflect the above amendments, became effective upon approval by our Board of Directors. A copy of the Sixth Amended and Restated Bylaws of the Company is included as Exhibit 3.3 hereto and is incorporated herein by reference.
Amended and Restated Change in Control Severance Plan
On February 18, 2019, our Board of Directors approved an amendment and restatement of the Company’s Change in Control Severance Plan (the “Original Plan”), as set forth in the Molina Healthcare, Inc. Amended and Restated Change in Control Severance Plan (the “Amended and Restated Plan”).
The Amended and Restated Plan provides that all employees with positions of vice president and above, including our named executive officers, are eligible to receive certain separation benefits in the event of a qualifying termination of employment within two years following a change in control of the Company. The Amended and Restated Plan left unchanged the provisions of the Original Plan providing that senior vice presidents and above would be entitled to receive two times (2x) their base salary, vice presidents would be entitled to receive one times (1x) their base salary, and all participants would be entitled to receive a prorated target bonus for the year of termination and accelerated vesting of all of their time-based equity awards.
The Amended and Restated Plan amends the accelerated vesting provision with respect to performance-based equity compensation that participants were eligible to receive under the Original Plan. Pursuant to the Original Plan, participants would have been entitled to full vesting of all performance-based equity compensation. The Amended and Restated Plan provides that the participant’s performance-based equity compensation shall become vested based upon the greater of: (1) target performance, based on the assumption that such target performance had been achieved, or (2) the projected final achievement of the performance metric through the measurement period, provided that where applicable, such projected final achievement shall be based on straight-line extrapolation of actual achievement (as of the termination date) through the end of the respective performance metric period; except
to the extent vesting is determined by reference to any completed fiscal year, then actual performance for such completed fiscal year shall be used.
In addition, the Amended and Restated Plan amends the post-termination continued healthcare and life insurance benefit that participants were eligible to receive under the Original Plan. The Original Plan provided that, in the event of a qualifying termination, participants would be entitled to continued health care, dental, and life insurance benefits under the Company’s applicable benefits programs for 24 months following the date of termination, and would be eligible for COBRA continuation coverage following such period. The Amended and Restated Plan provides that if the participant elects continued healthcare coverage under COBRA, the Company will, for a period of up to 18 months following the participant’s termination of employment, subsidize a portion of the participant’s COBRA premiums in an amount equal to the difference between the full cost for such COBRA coverage and the amount that the participant would be required to pay for such coverage as an active employee. The Amended and Restated Plan does not provide a continued life insurance benefit.
The Amended and Restated Plan makes certain additional changes to the Original Plan, including the addition of a clawback provision that would allow the Company to recoup severance benefits paid or provided to a participant who violates the nondisparagement, confidentiality, or nonsolicitation provisions set forth therein.
The named executive officers are entitled to receive such separation benefits under the Amended and Restated Plan only to the extent that such separation benefits would be in addition to or in excess of the benefits provided under their employment/change of control agreements.
The foregoing summary of the Amended and Restated Plan does not purport to be complete and is subject to, and qualified in its entirety by, the full text of the Amended and Restated Plan. A copy of the Amended and Restated Plan is included as Exhibit 10.1 hereto and is incorporated herein by reference.
DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
The following sets forth certain information regarding our executive officers, including the business experience of each executive officer during the past five years:
|
| | |
Name | Age | Position |
Joseph M. Zubretsky | 62 | President and Chief Executive Officer |
Thomas L. Tran | 62 | Chief Financial Officer |
Jeff D. Barlow | 56 | Chief Legal Officer and Corporate Secretary |
James E. Woys | 60 | Executive Vice President, Health Plan Services |
Mark L. Keim | 53 | Executive Vice President, Strategic Planning, Corporate Development & Transformation |
Pamela S. Sedmak | 57 | Executive Vice President, Health Plan Operations |
Maurice S. Hebert | 56 | Chief Accounting Officer |
Mr. Zubretsky has served as President and Chief Executive Officer since November 6, 2017. He served as the President and Chief Executive Officer of The Hanover Insurance Group, Inc. from June 2016 to October 2017. Prior to that, Mr. Zubretsky served almost nine years at Aetna, Inc., where he most recently served as Chief Executive Officer of Healthagen Holdings, a group of healthcare services and information technology companies at Aetna, from January 2015 to October 2015. Prior to that, he served as a Senior Executive Vice President leading Aetna’s National Businesses from 2013 to 2014, and served as Aetna’s Chief Financial Officer from 2007 to 2013. None of the entities where Mr. Zubretsky was previously employed is a parent, subsidiary, or other affiliate of the Company.
Mr. Tran has served as Chief Financial Officer since June 2018. He served as the Chief Financial Officer and Chief Operating Officer of Sentry Data Systems from 2014 to 2018. Prior to that, Mr. Tran served as Chief Financial Officer of WellCare Health Plans from 2008 to 2014. None of the entities where Mr. Tran was previously employed is a parent, subsidiary, or other affiliate of the Company.
Mr. Barlow has served as Chief Legal Officer and Corporate Secretary since 2010.
Mr. Woys has served as Executive Vice President, Health Plan Services since May 2018. Mr. Woys spent 30 years at Health Net where he most recently served as the Executive Vice President and Chief Financial and Operating
Officer. None of the entities where Mr. Woys was previously employed is a parent, subsidiary, or other affiliate of the Company.
Mr. Keim has served as Executive Vice President, Strategic Planning, Corporate Development and Transformation since January 2018. Most recently, he served as executive vice president of corporate development and strategy for The Hanover Insurance Group. Prior to The Hanover Insurance Group, Mr. Keim spent six years with Aetna where he led major strategic initiatives. Before Aetna, he was senior vice president of strategy and business development at GE Capital. None of the entities where Mr. Keim was previously employed is a parent, subsidiary, or other affiliate of the Company.
Ms. Sedmak has served as Executive Vice President, Health Plan Operations since February 2018. Ms. Sedmak brings more than 25 years of Medicaid managed care leadership experience in operations, strategy, and finance. Most recently, she was a senior adviser at McKinsey & Company, serving clients in the health care services and global corporate finance practice areas. Prior to McKinsey, she served as president and CEO for Aetna Medicaid/Dual Eligibles. Before Aetna, Ms. Sedmak held C-level leadership positions at Blue Cross and Blue Shield of Minnesota, CareSource and General Electric. None of the entities where Ms. Sedmak was previously employed is a parent, subsidiary, or other affiliate of the Company.
Mr. Hebert has served as Chief Accounting Officer since September 2018. He joins the Company from Tufts Health Plan, where he served as Senior Vice President of Finance from 2016 to 2018. Prior to that, Mr. Hebert served as Chief Accounting Officer at WellCare Health Plans from 2010 to 2016. None of the entities where Mr. Hebert was previously employed is a parent, subsidiary, or other affiliate of the Company.
Each executive officer serves at the pleasure of the board of directors.
The remaining information called forInformation required by Item 10 of Form 10-KPart III will be included in our Proxy Statement relating to our 2022 Annual Meeting of Stockholders (the “2022 Proxy Statement”), and is incorporated herein by reference to “Electionreference. This information will be included in the following sections of the 2022 Proxy Statement:
•PROPOSAL 1 - Election of Directors
•Information About Director Nominees
•Information About Directors Continuing in Office
•Additional Information About Directors
•Corporate Governance and Board of Directors Matters
•Information About the Executive Officers of the Company
•Section 16(a) Beneficial Ownership Reporting Compliance
Information relating to our Code of Business Conduct and Ethics and compliance with Section 16(a) of the Exchange Act will be set forth in the 2022 Proxy Statement and is incorporated herein by reference. To the extent permissible under NYSE rules, we intend to disclose amendments to our Code of Business Conduct and Ethics, as well as waivers of the provisions thereof, on our investor relations website under the heading “Investor Information—Corporate Governance” at molinahealthcare.com.
EXECUTIVE COMPENSATION
Information required by Item 11 of Part III will be included in the 2022 Proxy Statement in the section entitled “Executive Compensation,” and is incorporated herein by reference.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS
Information required by Item 12 of Part III will be included in the 2022 Proxy Statement in the section entitled “Security Ownership of Certain Beneficial Owners and Management,” and is incorporated herein by reference.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Information required by Item 13 of Part III will be included in the 2022 Proxy Statement in the sections entitled “Related Party Transactions,” and “Corporate Governance and Board of Directors Matters,Matters—Director Independence,” and “Section 16(a) Beneficial Ownership Reporting Compliance”is incorporated herein by reference.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
Our independent registered public accounting firm is Ernst & Young LLP, Los Angeles, CA, Auditor Firm ID: 42.
Information required by Item 14 of Part III will be included in our definitive proxy statement for our 2019 Annual Meeting of Stockholders.
the 2022 Proxy Statement in the section entitled “Fees Paid to Independent Registered Public Accounting Firm,” and is incorporated herein by reference.
Molina Healthcare, Inc. 2021 Form 10-K | 90
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
| |
(a) | The consolidated financial statements and exhibits listed below are filed as part of this Form 10-K. |
| |
(1) | The financial statements included in Financial Statements and Supplementary Data, above, are filed as part of this annual report. |
| |
(2) | Financial Statement Schedules |
NoneFINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
(1) The consolidated financial statements are included in this report in the section entitled “Financial Statements and Supplementary Data.”
(2) Financial Statement Schedules:
Schedules for which provision is made in the applicable accounting regulations of the schedules apply,SEC are not required under the related instructions, are inapplicable, or the required information required is included in the Notes to the Consolidated Financial Statements.consolidated financial statements, and therefore have been omitted.
EXHIBITS
Reference is made to the accompanying Index“Index to Exhibits.”
Molina Healthcare, Inc. 2021 Form 10-K | 91
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the undersigned registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 19th14th day of February, 2019.2022.
| | | | | | | | | | | |
| MOLINA HEALTHCARE, INC. |
| | | |
| MOLINA HEALTHCARE, INC. |
| By: | | | |
| By: | | /s/ Joseph M. Zubretsky |
| | | Joseph M. Zubretsky |
| | | Chief Executive Officer
(Principal Executive Officer)
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
as indicated, as of February 14, 2022. |
| | | | | | | |
| Signature | | Title | | Date |
| | | | |
| /s/ Joseph M. Zubretsky | | Chief Executive Officer, President and Director | | February 19, 2019 |
| Joseph M. Zubretsky | | (Principal Executive Officer) | | |
| | | | |
/s/ ThomasMark L. TranKeim | | Chief Financial Officer and Treasurer | | February 19, 2019 |
ThomasMark L. TranKeim | | (Principal Financial Officer) | | |
| | | | |
| /s/ Maurice S. Hebert | | Chief Accounting Officer | | February 19, 2019 |
| Maurice S. Hebert | | (Principal Accounting Officer) | | |
| | | | |
/s/ Garrey E. CarruthersBarbara L. Brasier | | Director | | February 19, 2019 |
Garrey E. Carruthers, Ph.D.Barbara L. Brasier | | | | |
| | | | |
| /s/ Daniel Cooperman | | Director | | February 19, 2019 |
| Daniel Cooperman | | | | |
| | | | |
/s/ Charles Z. FedakStephen H. Lockhart | | Director | | February 19, 2019 |
Charles Z. FedakStephen H. Lockhart | | | | |
| | | | |
| /s/ Steven J. Orlando | | Director | | February 19, 2019 |
| Steven J. Orlando | | | | |
| | | | |
| /s/ Ronna E. Romney | | Director | | February 19, 2019 |
| Ronna E. Romney | | | | |
| | | | |
| /s/ Richard M. Schapiro | | Director | | February 19, 2019 |
| Richard M. Schapiro | | | | |
| | | | |
| /s/ Dale B. Wolf | | Chairman of the Board | | February 19, 2019 |
| Dale B. Wolf | | | | |
| | | | |
| /s/ Richard C. Zoretic | | Director | | February 19, 2019 |
| Richard C. Zoretic | | | | |
| | | | |
Molina Healthcare, Inc. 2021 Form 10-K | 92
INDEX TO EXHIBITS
The following exhibits, which are furnished with this Annual Report on Form 10-K (this “Form 10-K”) or incorporated herein by reference, are filed as part of this annual report.
The agreements included or incorporated by reference as exhibits to this Form 10-K may contain representations and warranties by each of the parties to the applicable agreement. These representations and warranties were made solely for the benefit of the other parties to the applicable agreement and (i) were not intended to be treated as categorical statements of fact, but rather as a way of allocating the risk to one of the parties if those statements prove to be inaccurate; (ii) may have been qualified in such agreement by disclosures that were made to the other party in connection with the negotiation of the applicable agreement; (iii) may apply contract standards of “materiality” that are different from “materiality” under the applicable securities laws; and (iv) were made only as of the date of the applicable agreement or such other date or dates as may be specified in the agreement. The Company acknowledges that, notwithstanding the inclusion of the foregoing cautionary statements, it is responsible for considering whether additional specific disclosures of material information regarding material contractual provisions are required to make the statements in this Form 10-K not misleading.
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| | | | | | | | | | | | | |
| Number | | Description | | Method of Filing |
| | Membership Interest | | Filed as Exhibit 2.1 to registrant’s Form 8-K filed September 8, 2015.May 6, 2020 |
| | Amendment to Membership InterestAsset Purchase Agreement, dated as of October 30, 2015,September 28, 2020, by and among The Providence Service Corporation, Ross Innovative Employment Solutions Corp., and Molina Pathways, LLC, as assignee of all rights and obligations ofbetween Molina Healthcare, Inc. | | Filed as Exhibit 2.2 to registrant’s Form 10-K filed February 26, 2016.
|
| | Membership Interest Purchase Agreement, dated as of October 19, 2018, by and among Pyramid Health Holdings, LLC, Molina Pathways, LLC, and Molina Healthcare, Inc.** | | Filed as Exhibit 2.1 to registrant’s Form 10-Q filed November 1, 2018.
October 29, 2020 |
| 3.1 | | Purchase and Sale Agreement, dated as of June 26, 2018, by and between Molina Healthcare, Inc. and DXC Technology Company** | | Filed as Exhibit 2.1 to registrant’s Form 8-K filed June 27, 2018.
|
3.1 | | Certificate of Incorporation | | Filed as Exhibit 3.2 to registrant’s Registration Statement on Form S-1 filed December 30, 2002.2002 |
| | | | Filed as Appendix A to registrant’s Definitive Proxy Statement on Form DEF 14A filed March 25, 2013.2013 |
| 3.3 | | | | Filed as Appendix A to registrant’s Definitive Proxy Statement on Form DEF 14A filed March 25, 2019 |
| 3.4 | | | | Filed herewith.as Exhibit 3.3 to registrant’s Form 10-K filed February 19, 2019 |
| | | | Filed as Exhibit 4.1 to registrant’s Form 8-K filed February 15, 2013.June 2, 2020 |
| | | | Filed as Exhibit 4.2 to registrant’s Form 8-K filed June 2, 2020 | | Included (Included in Exhibit 4.1 to registrant’s Form 8-K filed February 15, 2013.June 2, 2020) |
| | | | Filed as Exhibit 4.1 to registrant’s Form 8-K filed September 8, 2014. |
| | Form of 1.625% Convertible Senior Note due 2044 | | Included in Exhibit 4.1 to registrant’s Form 8-K filed September 8, 2014. |
| | First Supplemental Indenture, dated as of September 16, 2014, by and between Molina Healthcare, Inc. and the U.S. Bank National Association | | Filed as Exhibit 4.1 to registrant’s Form 8-K filed
September 17, 2014.
|
| | Form of 1.625% Convertible Senior Note due 2044 | | Included in Exhibit 4.1 to registrant’s Form 8-K filed September 17, 2014. |
| | Indenture dated November 10, 2015, by and among Molina Healthcare, Inc., the guarantor parties thereto and U.S. Bank National Association, as Trustee | | Filed as Exhibit 4.1 to registrant’s Form 8-K filed November 10, 2015.17, 2020 |
| 4.4 | | | | Filed as Exhibit 4.2 to registrant’s Form 8-K filed November 17, 2020 (Included in Exhibit 4.1 to registrant’s Form 8-K filed November 17, 2020) |
| 4.5 | | | | Filed as Exhibit 4.1 to registrant’s Form 8-K filed November 10, 2015.16, 2021 |
| 4.6 | | | | Filed as Exhibit 4.2 to registrant’s Form 8-K filed November 16, 2021 (Included in Exhibit 4.1 to registrant’s Form 8-K filed November 10, 2015.16, 2021) |
| 4.7 | | | | Filed as Exhibit 4.9 to registrant’s Form 10-K filed February 16, 2021 |
| 10.1 | | | | Filed as Exhibit 10.1 to registrant’s Form 8-K filed June 8, 2020 |
| *10.2 | | | | Filed as Appendix C to registrant’s Definitive Proxy Statement on Form DEF 14A filed March 25, 2019 |
Molina Healthcare, Inc. 2021 Form 10-K | 93
|
| | | | | | | | | | | | | |
| Number | | Description | | Method of Filing |
| *10.3 | | First Supplemental Indenture, dated as of February 16, 2016, by and among Molina Healthcare, Inc., the guarantors party thereto and U.S. Bank National Association, as trustee | | Filed as Exhibit 4.1 to registrant’s Form 8-K filed February 18, 2016. |
| | Indenture, dated June 6, 2017, by and among Molina Healthcare, Inc., the Guarantors party thereto and U.S. Bank National Association, as Trustee. | | Filed as Exhibit 1.1 to registrant’s Form 8-K filed June 6, 2017. |
| | Form of Notes (included in Exhibit 4.1 to registrant’s Form 8-K filed June 6, 2017). | | Filed as Exhibit 1.1 to registrant’s Form 8-K filed June 6, 2017. |
| | Form of Guarantees (included in Exhibit 4.1 to registrant’s Form 8-K filed June 6, 2017). | | Filed as Exhibit 1.1 to registrant’s Form 8-K filed June 6, 2017. |
| | Molina Healthcare, Inc. Amended and Restated Change in Control Severance Plan | | Filed herewith. |
| | 20112019 Equity Incentive Plan | | Filed as Exhibit 10.8Appendix B to registrant’s Definitive Proxy Statement on Form 10-KDEF 14A filed February 26, 2014.March 25, 2019 |
| 10.4 | | 2011 Employee Stock Purchase Plan | | Filed as Exhibit 10.6 to registrant’s Form 10-K filed February 26, 2015. |
| | 2011 Equity Incentive Plan - Form of Stock Option Agreement (Director) | | Filed as Exhibit 10.2 to registrant’s Form 10-Q filed May 4, 2017. |
| | 20112019 Equity Incentive Plan - Form of Restricted Stock Award Agreement (Employee)(Employee/Officer with No Employment Agreement) | | Filed as Exhibit 10.1 to registrant’s Form 10-Q filed July 31, 2019 |
| *10.5 | | | | Filed as Exhibit 10.2 to registrant’s Form 10-Q filed July 31, 2019 |
| *10.6 | | | | Filed as Exhibit 10.3 to registrant’s Form 10-Q filed May 4, 2017.July 31, 2019 |
| 10.7 | | 2011 | | Filed as Exhibit 10.4 to registrant’s Form 10-Q filed May 4, 2017.July 31, 2019 |
| *10.8 | | | | 2011 Equity Incentive Plan - Form of Performance Unit Award Agreement 2 (Executive Officer) | | Filed as Exhibit 10.510.14 to registrant’s Form 10-Q10-K filed May 4, 2017.February 16, 2021 |
| *10.9 | | | | Filed as Exhibit 10.14 to registrant’s Form 10-K filed March 14, 2007 |
| *10.10 | | | | Filed herewith |
| *10.11 | | | | Filed as Exhibit 10.3 to registrant’s Form 8-K filed June 14, 2013.2013 |
| 10.12 | | | | Filed as Exhibit 10.16 to registrant’s Form 10-K filed February 28, 2013.2013 |
| 10.13 | | Form of Indemnification Agreement | | Filed as Exhibit 10.14 to registrant’s Form 10-K filed March 14, 2007. |
| | Amended and Restated Employment Agreement, dated October 9, 2017,September 8, 2021, by and between Molina Healthcare, Inc. and Joseph M. Zubretsky.Zubretsky | | Filed as Exhibit 10.1 to registrant’s Form 8-K filed October 10, 2017.September 9, 2021 |
| 10.14 | | Base Call Option Transaction Confirmation, | | Filed as Exhibit 10.1 to registrant’s Form 8-K filed February 15, 2013.November 17, 2020 |
| | Base Call Option Transaction Confirmation, dated as of February 11, 2013, between Molina Healthcare, Inc. and Bank of America, N.A. | | Filed as Exhibit 10.2 to registrant’s Form 8-K filed February 15, 2013. |
| | Base Warrants Confirmation, dated as of February 11, 2013, between Molina Healthcare, Inc. and JPMorgan Chase Bank, National Association, London Branch | | Filed as Exhibit 10.3 to registrant’s Form 8-K filed February 15, 2013. |
| | Base Warrants Confirmation, dated as of February 11, 2013, between Molina Healthcare, Inc. and Bank of America, N.A. | | Filed as Exhibit 10.4 to registrant’s Form 8-K filed February 15, 2013. |
| | Amendment to Base Call Option Transaction Confirmation, dated as of February 13, 2013, between Molina Healthcare, Inc. and JPMorgan Chase Bank, National Association, London Branch | | Filed as Exhibit 10.5 to registrant’s Form 8-K filed February 15, 2013. |
| | Amendment to Base Call Option Transaction Confirmation, dated as of February 13, 2013, between Molina Healthcare, Inc. and Bank of America, N.A. | | Filed as Exhibit 10.6 to registrant’s Form 8-K filed February 15, 2013. |
| | Additional Base Warrants Confirmation, dated as of February 13, 2013, between Molina Healthcare, Inc. and JPMorgan Chase Bank, National Association, London Branch | | Filed as Exhibit 10.7 to registrant’s Form 8-K filed February 15, 2013. |
| | Additional Base Warrants Confirmation, dated as of February 13, 2013, between Molina Healthcare, Inc. and Bank of America, N.A. | | Filed as Exhibit 10.8 to registrant’s Form 8-K filed February 15, 2013. |
| | Amended and Restated Base Warrants Confirmation, dated as of April 22, 2013, between Molina Healthcare, Inc. and JPMorgan Chase Bank, National Association, London Branch | | Filed as Exhibit 10.1 to registrant’s Form 10-Q filed May 3, 2013. |
| | Amended and Restated Base Warrants Confirmation, dated as of April 22, 2013, between Molina Healthcare, Inc. and Bank of America, N.A. | | Filed as Exhibit 10.2 to registrant’s Form 10-Q filed May 3, 2013. |
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| | | | |
Number | | Description | | Method of Filing |
| | Additional Amended and Restated Base Warrants Confirmation, dated as of April 22, 2013, between Molina Healthcare, Inc. and JPMorgan Chase Bank, National Association, London Branch | | Filed as Exhibit 10.3 to registrant’s Form 10-Q filed May 3, 2013. |
| | Additional Amended and Restated Base Warrants Confirmation, dated as of April 22, 2013, between Molina Healthcare, Inc. and Bank of America, N.A. | | Filed as Exhibit 10.4 to registrant’s Form 10-Q filed May 3, 2013. |
| | Settlement Agreement entered into on October 30, 2013, by and between the Department of Health Care Services and Molina Healthcare of California and Molina Healthcare of California Partner Plan, Inc. | | Filed as Exhibit 10.1 to registrant’s Form 10-Q filed October 30, 2013. |
| | Guarantor Joinder Agreement, dated February 16, 2016, by and among the guarantors party thereto and SunTrust Bank, as Administrative Agent | | Filed as Exhibit 10.1 to registrant’s Form 8-K filed February 18, 2016. |
| | Purchase Agreement, dated May 22, 2017, by and among the Company, the guarantors party thereto and SunTrust Robinson Humphrey, Inc., as representative of the several initial purchasers named in Schedule A thereto. | | Filed as Exhibit 1.1 to registrant’s Form 8-K filed May 23, 2017. |
| | Commitment Letter, dated December 4, 2017, by and among Molina Healthcare, Inc., SunTrust Bank and SunTrust Robinson Humphrey, Inc. | | Filed as Exhibit 10.1 to registrant’s Form 8-K filed December 7, 2017. |
| | Amended and Restated Commitment Letter, dated as of January 2, 2018, by and among Molina Healthcare, Inc., SunTrust Bank, SunTrust Robinson Humphrey, Inc., Barclays Bank PLC, MUFG, Bank of America, N.A., Merrill Lynch, Pierce, Fenner & Smith Incorporated, and Morgan Stanley Senior Funding, Inc. | | Filed as Exhibit 10.1 to registrant’s Form 8-K filed January 2, 2018. |
| | Bridge Credit Agreement, dated as of January 2, 2018, by and among Molina Healthcare, Inc., as the Borrower, Molina Information Systems, LLC, Molina Pathways LLC and Pathways Health and Community Support LLC, as the Guarantors, SunTrust Bank, Barclays Bank PLC, The Bank of Tokyo-Mitsubishi UFJ, Ltd., Bank of America, N.A., and Morgan Stanley Senior Funding, Inc., as Lenders, and SunTrust Bank, as Administrative Agent. | | Filed as Exhibit 10.2 to registrant’s Form 8-K filed January 2, 2018. |
| | Capitated Medical Group/IPA Provider Services Agreement, effective May 1, 2013, by and between Molina Healthcare of California and Pacific Healthcare IPA | | Filed as Exhibit 10.42 to registrant’s Form 10-K filed February 26, 2016. |
| | Regulatory Amendment for the Capitated Financial Alignment Demonstration Product to Molina Healthcare of California Group/IPA Provider Services Agreement(s), effective September 26, 2014, by and between Molina Healthcare of California and Pacific Healthcare IPA Associates, Inc. | | Filed as Exhibit 10.43 to registrant’s Form 10-K filed February 26, 2016. |
| | Capitated Financial Alignment Demonstration Amendment to Molina Healthcare of California Group/IPA Provider Services Agreement, effective as of July 1, 2014, by and between Molina Healthcare of California and Pacific Healthcare IPA Associates, Inc. | | Filed as Exhibit 10.44 to registrant’s Form 10-K filed February 26, 2016. |
| | Offer Letter, dated May 4, 2018, by and between Molina Healthcare, Inc. and Thomas L. Tran. | | Filed as Exhibit 10.1 to registrant’s Form 8-K filed May 24, 2018. |
| | Sixth Amendment to Credit Agreement, dated as of January 31, 2019, by and among Molina Healthcare, Inc., the Guarantors party thereto, the Lenders party thereto and SunTrust Bank, in its capacity as Administrative Agent, including the amended and restated Credit Agreement attached as Exhibit A thereto, the amended and restated Schedule I to the Credit Agreement attached as Exhibit B thereto and the amended and restated Exhibit 2.5 to the Credit Agreement attached as Exhibit C thereto. | | Filed as Exhibit 10.1 to registrant’s Form 8-K filed January 31, 2019.
|
| | Molina Healthcare, Inc. Amended and Restated Deferred Compensation Plan (2018) | | Filed as Exhibit 10.2 to registrant’s Form 10-Q filed August 1, 2018. |
| | Master Services Agreement for Information Technology Services, dated February 4, 2019, by and between Molina Healthcare, Inc. and Infosys Limited.Limited | | Filed herewith.as Exhibit 10.36 to registrant’s Form 10-K filed February 19, 2019
|
| 10.16 | | | | Filed as Exhibit 10.1 to registrant’s Form 10-Q filed October 30, 2019 |
| 21.1 | | | | Filed herewith.herewith |
| | | | Filed herewith. |
| herewith |
| 31.1 | | | | |
Number | | Description | | Method of Filing |
| | Section 302 Certification of Chief Executive Officer | | Filed herewith.herewith |
| | | | Filed herewith.herewith |
| | | | Filed herewith.herewith |
| | | | Filed herewith.herewith |
| 101.INS | | Inline XBRL Taxonomy Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the inline XBRL document. | | Filed herewith.herewith |
| 101.SCH | | Inline XBRL Taxonomy Extension Schema Document | | Filed herewith.herewith |
| 101.CAL | | Inline XBRL Taxonomy Extension Calculation Linkbase Document | | Filed herewith.herewith |
| 101.DEF | | Inline XBRL Taxonomy Extension Definition Linkbase Document | | Filed herewith.herewith |
| 101.LAB | | Inline XBRL Taxonomy Extension Label Linkbase Document | | Filed herewith.herewith |
| 101.PRE | | Inline XBRL Taxonomy Extension Presentation Linkbase Document | | Filed herewith.herewith |
| 104 | | Cover Page Interactive Data file (formatted as Inline XBRL and embedded within Exhibit 101) | | Filed herewith |
Molina Healthcare, Inc. 2021 Form 10-K | 94
|
| | | | |
| * | Management contract or compensatory plan or arrangement required to be filed (and/or incorporated by reference) as an exhibit to this Annual Report on Form 10-K pursuant to Item 15(b) of Form 10-K. |
**
| Certain schedules and exhibits toportions of this agreement have been omitted in accordance with Item 601(b)(2)(10) of Regulation S-K. A copy of any omitted schedule and/or exhibitportion will be furnished to the Securities and Exchange Commission upon request. |
| + | Portions of this exhibit have been omitted pursuant to a request for confidential treatment filed with the Securities and Exchange Commission under Rule 24b-2. The omitted confidential material has been filed separately. The location of the redacted confidential information is indicated in the exhibit as “[redacted]”. |
Molina Healthcare, Inc. 20182021 Form 10-K | 13195
