Molina Healthcare, Inc. (MOH) Q4 2025 Earnings Call Transcript
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Overview
The earnings call reveals disappointing financial results with a significant EPS guidance cut, increased medical cost trends, and operating cash outflow. Despite optimistic guidance for 2026, uncertainties in Medicaid margins, high utilization costs, and unclear management responses in the Q&A session raise concerns. The revised guidance and potential negative dynamics overshadow the positive outlook, leading to a negative sentiment prediction.
Key Financial Performance
Adjusted Loss Per Share (Q4 2025) $2.75 on $10.7 billion of premium revenue. The loss was due to strong trend pressure in Medicare and Marketplace, and retroactive items in Medicaid totaling $2 per share.
Medicaid MCR (Q4 2025) 93.5%. Impacted by unfavorable retroactive premium rate actions in California. Adjusted for these items, the MCR was favorable to prior guidance.
Medicare MCR (Q4 2025) 97.5%. Elevated utilization for LTSS and high-cost drugs, and slower-than-expected margin improvement in MAPD product.
Marketplace MCR (Q4 2025) 99%. Impacted by elevated utilization and prior period provider claim settlements.
Premium Revenue (Full Year 2025) $43.1 billion, representing 11% year-over-year growth. Growth attributed to top-line initiatives, though performance fell below guidance due to trend pressures.
Adjusted Earnings Per Share (Full Year 2025) $11.03. Below initial guidance of $24.50 due to unprecedented trend and increased acuity in Marketplace, rate and trend imbalance in Medicaid, and higher utilization in Medicare.
Medicaid MCR (Full Year 2025) 91.8%. Pretax margin of 2.8%. Rates increased to 6% but medical cost trend rose to 7.5%, driven by acuity shift from membership declines.
Medicare MCR (Full Year 2025) 92.4%. Elevated utilization of LTSS and high-cost drugs among high-acuity dual populations.
Marketplace MCR (Full Year 2025) 90.6%. Elevated utilization across services and prior period claim settlements.
Operating Cash Flow (Full Year 2025) Outflow of $535 million. Driven by Medicaid risk corridor settlements, tax payment timing, and lower operating performance.
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Operating Highlights
New Integrated Medicare Products: Transitioning members to new integrated product designs in Medicare, expected to produce lower margins in the first year but reach full margin potential in subsequent years.
Florida CMS Contract: Secured a historic RFP win in Florida for the sole Children's Medical Services contract, expected to yield $6 billion in annual premium revenue starting late 2026.
Medicaid RFP Success: Achieved a 90% win rate on renewal contracts and 80% on new contracts, representing $14 billion in retained revenue and $20 billion in new revenue.
M&A Pipeline: Actively pursuing acquisitions, leveraging the challenging operating environment to acquire Medicaid revenue from smaller health plans.
Medicaid Cost Trends: Medical cost trends in Medicaid increased to 7.5% in 2025, driven by acuity shifts and membership declines, but expected to moderate to 5% in 2026.
Marketplace Segment Reduction: Conscious decision to reduce exposure in the Marketplace segment, leading to a 50% decline in annual premium revenue for 2026.
Exit from MAPD Product: Strategic decision to exit the traditional Medicare Advantage Prescription Drug (MAPD) product by 2027 to focus exclusively on dual-eligible members.
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Risk or Challenges
Medicare and Marketplace Trend Pressure: Continued strong trend pressure in Medicare and Marketplace segments led to underperformance in Q4 2025, with elevated utilization of LTSS, high-cost drugs, and slower-than-expected margin improvement in MAPD products.
Medicaid Retroactive Premium Adjustments: Unfavorable retroactive premium rate actions in California negatively impacted Medicaid MCR, contributing to a $2 per share loss in Q4 2025.
Medical Cost Trend in Medicaid: Medical cost trend in Medicaid increased from 4.5% to 7.5% in 2025, driven by acuity shifts from membership declines during redeterminations, creating a significant financial strain.
Marketplace Segment Volatility: The Marketplace segment experienced elevated utilization, behavioral health service costs, and prior period claim settlements, leading to a 99% MCR in Q4 2025 and a 50% planned reduction in exposure for 2026.
Medicaid Underfunding: Medicaid plans are underfunded by 300-400 basis points, with rates failing to keep up with medical cost trends over the past six quarters.
New Contract Performance Risks: The new Florida CMS contract is expected to run at higher MCRs initially, creating a $1.50 per share burden in 2026.
MAPD Product Exit: The decision to exit the traditional MAPD product by 2027 reflects its misalignment with strategic goals and underperformance, contributing to a $1 per share headwind in 2026.
Debt and Financial Covenants: Debt levels at 3.7x trailing 12-month EBITDA and adjustments to debt covenants indicate financial strain, with operating cash flow showing a $535 million outflow in 2025.
Medicaid Rate and Trend Imbalance: Medicaid rates are projected to grow at 4% in 2026, failing to offset a 5% medical cost trend, continuing the rate and trend imbalance.
Marketplace Risk Pool Acuity Shifts: The expiration of enhanced subsidies and new program integrity initiatives are expected to shift the risk pool in the Marketplace segment, increasing volatility.
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Guidance & Outlook
2026 Premium Revenue: Projected to be approximately $42 billion, slightly lower than 2025 due to planned reduction in the Marketplace segment, offset by growth in Medicaid and Medicare segments.
2026 Adjusted Earnings Per Share (EPS): Guidance is at least $5, burdened by $1.50 from new contract performance of the Florida CMS contract and $1 due to underperformance of the traditional MAPD product. Underlying earnings adjusted for these items are approximately $7.50 per share.
Medicaid Cost Trend and Rates: 2026 rates are expected to average approximately 4%, with medical cost trend projected at 5%. This trend outlook is comparable to 2025 but excludes the 250 basis point impact of redetermination-related acuity shift.
Medicaid Margins: Expected to produce a low single-digit margin in 2026, with the market underfunded by 300 to 400 basis points. Rates and trends are expected to eventually reach equilibrium.
Medicare Segment: Members are transitioning to new integrated product designs, expected to produce lower margins in their first year before reaching full margin potential. The traditional MAPD product will be exited in 2027.
Marketplace Segment: Exposure is being reduced, with a 50% decline in annual premium expected. Early enrollment results indicate a larger mix of renewal members, improving stability and predictability of member acuity profile.
Florida CMS Contract: Expected to yield $6 billion in annual run rate premium and go live in late 2026, contributing to Medicaid growth.
Embedded Earnings: Now exceed $11 per share, representing future contract revenue at average target margins. This includes the addition of the Florida CMS contract and the exit of the MAPD product.
Earnings Seasonality: Two-thirds of earnings are expected in the first half of 2026, reflecting the Medicaid rate cycle and the implementation of the Florida CMS contract in the second half.
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Shareholder Return Plan
The selected topic was not discussed during the call.
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Key Q&A
Q:Is there a large variance that remains across your states with regard to Medicaid margins? Are you at the point in any state where you're contemplating a potential exit?
A:No, rates are generally underfunded across the portfolio, but there is no state where the regulatory environment is so unfriendly that an exit is being contemplated. Management believes these will come back into equilibrium over time.
Q:What were the drivers of the negative retro adjustments in California?
A:The issues in California were situational and event-driven. The undocumented population did not use services as priced, leading to a retroactive corridor clawback. Additionally, churn in L.A. County membership caused a disequilibrium in the risk profile, leading to a risk adjustment update and a $135 million impact.
Q:Are states working with you to allow adjustments to benefit design in Medicaid?
A:Some states are allowing adjustments, such as reintroducing tighter utilization controls and requiring diabetes diagnoses for GLP-1s. However, these changes are sporadic and not a wholesale shift.
Q:Why are you assuming only 2% membership attrition in 2026 compared to higher attrition rates seen by peers?
A:Management believes redetermination effects are largely over, and the remaining attrition is due to program integrity. They have conducted exhaustive cohort analysis and believe low and no users have mostly exited the system, minimizing risk pool impact.
Q:What is the size of your Medicaid expansion enrollment, and how much attrition came from this population in 2025?
A:Medicaid expansion enrollment is about 1.3 million members and $8 billion in premiums. Management predicts losing 15-20% of this population over three years, but the annual impact is not expected to be meaningful.
Q:Are there any negative dynamics you are watching for 2026 guidance?
A:Management believes rates are at a floor with upside potential. They acknowledge medical cost trends could be a risk but believe their assumptions are reasonable and conservative.
Q:Why do you have confidence in a 5% medical cost trend for 2026?
A:The 5% trend is based on 2025 data, which includes a 20% increase in baseline costs over three years. Key components include behavioral health services trending at 9%, pharmacy at 13%, and professional office visits up 16%. Management believes these trends are fully loaded into their assumptions.
Q:How did January ACA open enrollment track relative to expectations?
A:Management expects 280,000 members at the end of Q1 2026, declining to 220,000 by year-end. Effectuation rates for new members are about 60%, lower than historical averages, and renewal retention is about 30%.
Q:What happened with ACA MCR in Q4, and what is the outlook for 2026?
A:There was no pull-forward of utilization in Q4. The MCR increase was due to normal seasonality and out-of-period provider settlements. For 2026, management expects normal seasonality but notes metallic mix changes may have some impact.
Q:How are you approaching new business development and M&A in the current environment?
A:Management is actively pursuing new contracts and M&A opportunities, focusing on acquiring revenue at book value. They believe this is a favorable time to acquire long-dated revenue streams in stable states.
Q:What assumptions are embedded in your 2026 guide regarding hospital risk and procedural disenrollment?
A:The 2% attrition assumption is based on bottoms-up analysis with state customers. Management believes most low and no users have already exited, minimizing margin impact from further disenrollment.
Q:What is the earnings growth profile into 2027 and beyond?
A:Management expects rate versus trend to improve over the next few years, potentially adding 50-100 basis points annually to Medicaid MCR. They will provide more details at their Investor Day.
Q:Review of Unclear Management Responses
A:Management avoided directly addressing specific negative dynamics for 2026 guidance, providing only general assurances about rate floors and trend assumptions. Additionally, they did not provide a clear projection for earnings growth into 2027 and beyond, deferring detailed updates to their Investor Day.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
CMS RFP
CMS contract
California item
Children Medical
Day event
Florida CMS
Florida Georgia
Florida contract
Florida state
Friday measure
Friday term
Full today
GA credit
Healthcare Full
Landmark
MAPD product
MCR utilization
Marketplace segment
Medicare Marketplace
RFP win
Wisconsin
acuity shift
balance Medicaid
cost drug
decline
equilibrium
flagship
point Medicaid
potential
premium rate
product design
rate cost
rate restoration
redetermination
renewal
trend acuity
trough
underperformance
win Florida
MOH Transcript
Molina Healthcare, Inc. (MOH) Q4 2025 Earnings Call Transcript
Unknown2-6
The earnings call reveals disappointing financial results with a significant EPS guidance cut, increased medical cost trends, and operating cash outflow. Despite optimistic guidance for 2026, uncertainties in Medicaid margins, high utilization costs, and unclear management responses in the Q&A session raise concerns. The revised guidance and potential negative dynamics overshadow the positive outlook, leading to a negative sentiment prediction.
Molina Healthcare, Inc. (MOH) Q3 2025 Earnings Call Transcript
Unknown10-23
The earnings call summary reflects challenges in financial guidance with a reduction in EPS and increased MCR, indicating higher costs. While the revenue guidance remains unchanged, the company's competitive position is weak, and Medicaid enrollment is declining. The Q&A session reveals concerns about medical cost trends and potential downside risks. Despite some optimism in Medicaid rate adjustments and M&A opportunities, the overall sentiment suggests a negative outlook due to financial pressures and uncertainties, leading to a predicted stock price decrease of -2% to -8% over the next two weeks.
Molina Healthcare, Inc. (MOH) Q2 2025 Earnings Call Transcript
Unknown7-24
The earnings call presents a mixed outlook. While there are positive aspects like strong embedded earnings, M&A focus, and maintained guidance, concerns about elevated trends, potential market enrollment decline, and unclear management responses create uncertainty. The Q&A revealed cautious optimism but highlighted risks in achieving target margins and market dynamics. Without a market cap, the stock's reaction is uncertain, but the balanced positives and negatives suggest a neutral sentiment overall.
Molina Healthcare, Inc. (MOH) Q1 2025 Earnings Call Transcript
Positive4-24
The earnings call reflects strong financial performance with an 8% increase in EPS and robust premium revenue. The company has retained key contracts and secured new ones, supporting future growth. Share repurchases positively impact EPS guidance. While the loss of the Virginia contract and higher MCR in the marketplace pose risks, management's optimistic guidance and strategic focus on Medicaid and marketplace segments indicate resilience. The Q&A reveals confidence in Medicaid RFPs and stable rate discussions. Overall, positive sentiment is driven by growth prospects and strategic initiatives.
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