Long Beach-based managed care insurance giant Molina Healthcare Inc. is being hit harder than expected by the nationwide purging of Medicaid rolls.

In its third quarter earnings posting, Molina revised upward the number of members it will likely lose from states culling their Medicaid rolls to 480,000 from its previous estimate of 400,000. This higher number of of member losses could result in a revenue hit of up to $1.9 billion, before taking into account offsetting gains in members from Molina’s recent contract wins and acquisitions.

While these are huge numbers of member losses in absolute terms, the 480,000 figure is less than 10% of Molina’s total member base of about 5.2 million.

And while a $1.9 billion hit to revenue may at first appear catastrophic, Molina posted overall revenue last year of nearly $32 billion, making it the second-largest public company in Los Angeles County by revenue, trailing only Walt Disney Co.’s $83 billion.

These anticipated member losses and resulting revenue impact have already been partly offset by an acquisition earlier this year and Medicaid contract wins in a few states. And next year is expected to be a member growth bonanza for Molina with anywhere from 750,000 to 1 million new Medicaid members coming on board as of Jan. 1 thanks to Molina’s huge contract wins in California last year.

These contract and acquisition gains will more than offset the Medicaid member losses, which may help to explain why Molina shares experienced only a slight, temporary decline when third quarter earnings were announced before resuming their upward trajectory. The share price closed on Nov. 21 at $360.17, not far from a five-year record-high close of $365 reached three days earlier.

Short-term challenge

Nonetheless, the member losses from the culling of Medicaid rolls have posed the most significant short-term challenge for the health care insurance giant.

As of the end of the third quarter, approximately 4.76 million of Molina’s 5.2 million total covered members were enrolled in Medicaid programs, dwarfing the company’s two other business segments: Medicare and “marketplace,” the company’s definition for people enrolled in state-run health insurance exchanges commonly referred to as Obamacare programs.

With regard to the member losses, the company cited a higher-than-expected termination rate of Medicaid enrollees by state agencies. In effect, states are being more aggressive than initially expected in purging their Medicaid rolls.

“We originally said we would lose 400,000 of the 800,000 members we gained during the pandemic (with the easing of Medicaid eligibility requirements) and now that number has increased to 480,000,” Molina Chief Executive Joseph Zubretsky told analysts in the company’s earnings teleconference call last month.

Elaborating on these topline trends, Mark Keim, Molina’s chief financial officer, said approximately 70% of those members terminated have been for procedural reasons: members not meeting deadlines to return eligibility forms or not receiving those forms at all due to changed addresses, etc.

Once members are cut from the rolls, they have up to 120 days to submit the correct paperwork and in effect get reinstated. Molina has been able to help about 30% of members terminated for procedural reasons get reinstated.

Aiding the poor?

Under Medicaid, the federal government-subsidized health care program for the poor that was one of the key components of the late President Lyndon Johnson’s War on Poverty, states administer the benefits on behalf of the federal government. Low-income residents who qualify for the program must renew each year their eligibility application with the state they live in. This process requires applicants to document the income and employment histories of their households, among other things.

In spring 2020, as part of the first relief package dealing with the fallout from the coronavirus public health emergency, the federal government dropped the annual renewal requirement for Medicaid recipients. With no one getting kicked off the program even if their incomes made them ineligible, the ranks of Medicaid enrollees grew to 85 million by early this year from 71 million at the end of 2019, according to figures from the San Francisco-based Kaiser Family Foundation as reported earlier this year in the Washington Post.

That of course spurred premium growth at companies like Molina, which has contracts with in up to 20 states to manage Medicaid insurance services. Molina added about 800,000 members during this pandemic-era easing of enrollment requirements, translating into at least $3 billion in additional revenue.

The moratorium on annual Medicaid eligibility renewals ended on April 1; states were given 14 months to go through their Medicaid rolls and determine who should still be eligible to receive the benefits. In order for the process to go more smoothly, states were asked to stagger their redetermination processes.

As the states have gone through this culling process, many have moved more aggressively than originally expected. Based on the trends that Molina executives were seeing, Zubrekstky said the company changed its underlying assumption of the percentage of the 800,000 added members it would retain.

“While many uncertainties remain on the ultimate impact of redetermination, we now believe it prudent to lower our retention assumption from 50% to 40%,” Zubretsky said in the earnings call. That is where the upward revision in projected Medicaid member losses stemmed from.

Reenrollment attempts

Those who are removed from the rolls generally have between 90 and 120 days to submit reenrollment forms to gain reentry to the program, depending on the particular state.

Molina has built tracking and monitoring systems to maximize the retention of its members who meet Medicaid eligibility requirements. The effort is twofold: first to encourage members to re-enroll before impending state deadlines and second to reconnect if they are disenrolled.

In the company’s earnings teleconference call, Molina’s chief financial officer Keim provided an update on Molina’s reconnection efforts. Keim said that as of the end of the third quarter, this reconnection rate stood at about 30%.

Other companies have also plunged into this reenrollment effort, including Woodland Hills-based mPulse Mobile Inc., which is using its digital engagement platform to reenroll terminated Medicaid patients on behalf of health insurer clients.

Switch to Obamacare

For the other 70% of Molina’s members who have been culled from Medicaid rolls and were not able to be reconnected, all is not lost from the company’s perspective. Molina has succeeded in switching some of these members to the state-run health insurance exchanges that offer varying degrees of subsidies depending on income. In California, the insurance exchange is known as Covered California.

“As we interact with members who lose eligibility (for Medicaid), we seek to warm transfer them to our marketplace team for potential enrollment in that product,” Keim said. “Throughout the process, we are seeing an increasing rate of former Medicaid members, both ours and our competitors enroll in our marketplace products.”

Molina executives provided some numbers on the transfers to the state-run health insurance exchanges, according to a research report late last month on Molina from Scott Fidel, an analyst with Little Rock, Arkansas-based Stephens Inc.

“The company highlighted increased (Marketplace) enrollment of +12,000 per month (vs. +8,000 to 9,000 typically observed) factoring in growth from its own redetermined Medicaid members and competitors’ Medicaid members,” Fidel said in his report. This would imply that Molina is enrolling an average of 3,000 to 4,000 per month into state-run health insurance exchange programs over the typical number – primarily drawing from those who have been dropped from Medicaid rolls.

Member gains

Also helping to offset the Medicaid enrollee losses are two recent acquisitions. Molina in the third quarter closed its $150 million acquisition of My Choice Wisconsin, a managed care organization with about 44,000 members. Still pending is its $510 million acquisition of the California business of Bright Health, a Minneapolis-based health insurer with 125,000 members in California, mostly enrolled in Medicare programs.

Also, in January, Molina is set to onboard hundreds of thousands more members as a result of contract wins from the state last year to manage California’s Medicaid program, known as Medi-Cal. When the contracts were announced, Molina had expected to inherit an additional 1 million members. But with the culling of Medicaid rolls, that figure is likely to be significantly smaller, though still enough to offset whatever Medicaid member losses Molina is currently suffering.