Five years ago, Long Beach-based managed care provider Molina Healthcare Inc. was reeling. The company had lost a series of state Medicaid contracts, first in Florida, then New Mexico and Texas, forcing its total Medicaid enrollment to less than 3 million for the first time in nearly a decade.

Chief Executive Joseph Zubretsky, then only a couple of years on the job, acknowledged at an investor conference a general skepticism about the company’s ability to compete for contracts. He then hired two industry veterans who were to report directly to him and gave them the task of helping the company retain its existing Medicaid contracts and win new ones.

For the next four years, Molina racked up an impressive streak of contract wins, including adding roughly 1 million members in California as of the beginning of this year. 

As of March 31 of last year, Molina’s total enrollment from Medicaid, Medicare and state-run health insurance exchanges topped 5.3 million; however that figure slipped to about 5 million as of Dec. 31 due in large part to states culling their Medicaid rolls. (For more information on that process, see “Disenrollments Strike Molina” in the Nov. 27 issue of the Business Journal.) 

But in recent months, that Medicaid contract winning streak appears to have ended. The company lost two Medicaid contracts it had hoped to win – a re-procurement in Virginia and a new contract in Indiana – totaling nearly 250,000 members (enrollees). 

Late last month, Virginia officials announced they were reevaluating their contract award process, so there’s a chance that loss could be smaller than originally announced. 

Nonetheless, the contract losses were a reminder to Molina investors that retaining state Medicaid contracts is not a slam dunk as competition for those contracts has grown fiercer. And the timing is significant: Over the next three years, Medicaid contracts representing roughly $20 billion of Molina’s $26 billion in Medicaid program revenue will be coming up for re-procurement.

“Given the strengthening competitive dynamics in the managed Medicaid arena over the past few years, the (Virginia) contract loss for (Molina) casts a slight blemish to its 100% re-procurement win rate since 2020,” Scott Fidel, an analyst with Little Rock, Arkansas-based Stephens Inc., said in a recent industry research update note.

Molina becomes powerhouse Medicaid contractor

Medicaid is the federally funded health insurance program for the poor; it was established in 1965 as part of President Lyndon Johnson’s so-called War on Poverty. While the funding comes from Washington, states administer the program. 

In the 1980s and 1990s, most states transitioned from direct government payouts to a managed care system, where private companies compete for state contracts and state governments set reimbursement rates for health care providers.

Since its founding in 1980, Molina has become a powerhouse Medicaid contractor. Last year, roughly 80% of Molina’s $34.1 billion in revenue came from the Medicaid program.

For most of the last 18 months, Molina’s track record in reprocuring existing Medicaid contracts was stellar. In remarks to analysts during the company’s most recent earnings teleconference call in February, Zubretsky noted the company successfully defended its contracts in Texas and New Mexico and expanded its contract bases in Iowa and California. Molina also acquired books of business from other companies serving Wisconsin and California.

“Collectively, these acquisitions and RFP successes represent $7 billion of annual premium revenue, a portion of which was in our 2023 results, most of which is in our 2024 guidance and all of which will be fully realized in 2025,” Zubretsky told analysts on the call. “To say we are pleased with the execution of our 2023 growth initiatives would be an understatement.”

Pair of setbacks arise

The first little chink in this armor came in Indiana. Molina was initially told that it was one of four companies that had won contracts for a new Medicaid program in that state that would initially serve about 100,000 members. But in October, Indiana officials reversed the decision and decided against awarding Molina the contract. 

In its 10-K filing with the Securities and Exchange Commission, Molina said it wasn’t able to meet Indiana’s deadline for having a program for residents with special needs who were on both Medicaid and Medicare (the government health care insurance program for seniors). Molina said red tape at the federal Centers for Medicare and Medicaid Services agency was to blame.

Then came the Virginia contract loss. Unlike the situation in Indiana, this represented a loss of existing Molina members. Molina was one of five health care insurance companies currently serving Virginia’s Medicaid population and which bid for the contract re-procurement. 

The other four were: Aetna Better Health (owned by Woonsocket, Rhode Island-based CVS Health Corp.); Anthem HealthKeepers Plus (owned by Indianapolis-based Elevance Health Inc.); Edina, Minnesota-based UnitedHealthcare Community Plan; and the homegrown Sentara Community Plan (owned by Sentara Health Plans of Virginia Beach, Virginia).

At the end of February, when Virginia officials announced the re-procurement awards, Molina was the only of these incumbent health plans not awarded a contract.

However, analyst Fidel noted that on March 28 Virginia officials rescinded their earlier notice of the contract awards and said the contract process was under review. A new notice concerning the contract awards would be posted “in coming days.”

Whatever happens in Virginia, Molina isn’t going to have much time to contemplate the situation. Zubretsky said the company has already submitted bids and is awaiting word from state agencies in Florida, Georgia, Kansas and Michigan.

Zubretsky expressed optimism about the company’s chances to retain or expand these contracts.

“There is over $50 billion of total premium revenue opportunity, active or near term, up for bid in several states over the coming years,” he said. “The pipeline of opportunities fueling our future growth trajectory is extremely strong.”

Pressure on Medicare business

Meanwhile, Molina is facing increased pressure on its Medicare business. 

On April 1, President Joe Biden’s administration announced that 2025 payment rates to health care insurers underwriting Medicare Advantage plans would be lower than insurance companies anticipated, according to a news report from Bloomberg.

This announcement puts a further squeeze on Medicare insurers, who are already dealing with rising medical costs and demands from health care providers for higher payments.

The 2025 rate news sent health insurance company stocks nosediving on April 2, especially those heavily reliant on Medicare Advantage plans. With less than 20% of its business from Medicare, Molina escaped the worst stock price carnage on this news, falling nearly 6% on April 2. Shares subsequently continued to drift down, closing at $375.30 on April 4.