After two years of the media and government gushing over their success, Obamacare darling Molina is having a rough 2017. How rough? Well...
- In February Molina announced losses from the 4th quarter of 2016 to be $110 million. They also report a profit of $52 million. This is a huge fall from their 2015 record profits of $143 million coupled with 2014 profits of $62 million.
- On May 2nd they fired CEO J. Mario Molina and CFO John Molina. The move came as a surprise and the board claimed it was due to poor financial performance.
- The following day they announced 1st quarter 2017 earnings that actually beat Wall Street expectations. Coupling this with the ouster of Brothers Molina and speculation began of a possible sale of the company.
- On May 4th Mario Molina went on record suggesting that the board ousted him due to his political views. Mario Molina has been a vocal critic of President Trump and a significant supporter of the Democratic party contributing well over $70,000 to various campaigns and PAC's in 2016 alone. Shoot, he gave the Hillary Victory Fund $33,400! Talk about lighting money on fire. But, I digress.
- On May 15th the board voted to retain Brothers Molina on their board of directors. This is an interesting twist based on their abrupt departure.
- July 24th, Molina slashes 1400 jobs - 10% of their workforce - in what the interim CEO calls "Project Nickel".
- The latest, on August 2nd, Molina announces a 2nd quarter of 2017 loss of $230 million. They also announced that they will be leaving individual markets in two states - Wisconsin and Utah. Piling on, they stated that 2018 rates will increase on average of 30% (I'm assuimg CSR's will be funded).
Back in 2013 Molina insured nearly 2 million Medicaid patients in 9 states. Managing Medicaid was their core business but they saw a need within the individual market. The need was to serve the low income population that Molina felt big insurers weren't interested in. They went on a hiring frenzy to help with their enrollment efforts as they entered the new individual Obamacare market. Molina's individual market offerings included very narrow networks, limited geographic availability, low premiums, and razor thin profit margins.
Membership has grown in all of their business. Medicaid, their core business, jumped approximately 1.7 million new members from 2014 to the end of 2016. Almost half (673,000) came from Medicaid Expansion. For their new endeavor into the individual insurance market, at the end of 2014 they had 15,000 individual customers. By the end of 2015 that number had exploded to 205,000 then catapulting to 526,000 at the end of 2016.
Profitability for Molina in the early Obamacare years is likely attributed to Medicaid growth with their individual Marketplace participation being limited. This is where the tide has changed. Over the last two years Molina's growth in Medicaid has slowed while growth in their individual market has risen exponentially. This is the inverse of what is happening to overall markets. Medicaid has continued to accelerate and the individual market has flatlined.
With competition exiting the markets due to losses and uncertainty, this leaves Molina to take on the risk. It's well known that the higher risk population gravitated towards health plans that had broader networks. Molina thrived because of their limited networks where by not having major high cost specialty facilities in their network led to a healthier risk pool.
Molina's "competitive" advantage was tied to avoiding high dollar risks (adverse selection) and that advantage is now gone.