Long Beach-based managed care giant Molina Healthcare Inc. has agreed to buy the California Medicare business of Bright Health Group for $510 million.
The stock-based transaction with Minneapolis-based Bright Health is intended to provide a complement to Molina’s soon-to-be-expanded footprint for its Medicaid business in California, Molina said in its June 30 announcement.
The deal must still win approval from state and federal agencies and go through other customary closing conditions before it can be finalized; Molina said in its announcement it expects the deal to wrap up in the first quarter of next year.
Molina also said it expects to fund its purchase with available cash and other funds on hand. Molina reported in its first-quarter earnings release that it had $4.6 billion in cash and cash equivalents on hand as of March 31. The company’s first-quarter revenue was $8.15 billion.
According to the announcement, Bright Health Group’s California operations served approximately 125,000 members as of March 31. These members are split among three different Medicare categories: Medicare Advantage with Part D prescription coverage; chronic condition special-needs Medicare plans; and “dual eligible” special needs plans for patients who meet eligibility requirements for both Medicare and state-run Medicaid programs.
“These additions fit perfectly with our strategy of serving high-acuity, low-income members and represent a textbook execution of our growth playbook,” Joe Zubretsky, Molina’s chief executive, said in the announcement. “We are pleased to continue our meaningful growth in California as the latest realization of our national growth strategy.”
For Molina, this is the latest expansion in its home state, following a huge win last year with state contracts for Medi-Cal, the state’s Medicaid program for low-income residents.
When the California Department of Health Care Services state initially awarded its Medi-Cal redetermination contracts over the summer, Molina was by far the biggest winner, gaining an additional 1.4 million enrollees, including approximately 1 million in Los Angeles County. Most of those gains came at the expense of St. Louis, Missouri-based Centene Corp. and its Woodland Hills-based subsidiary Health Net, especially in Los Angeles County.
But in December, the state scaled back some of Molina’s gains, keeping a portion of L.A. County Medicaid enrollees with incumbent HealthNet.
In the end, Molina will gain about 1.2 million enrollees when the contracts take effect in January, which Zubretsky said will add approximately $3.9 billion a year in revenue.
This latest deal with Bright Health will add another 125,000 enrollees to Molina’s California total. Zubretsky said in the announcement this represents an additional $1 per share in embedded earnings starting in 2024 — on top of the $4.50 per share in new embedded earnings from the Medi-Cal contract redetermination awards and other recent Molina transactions.
Molina shares rose just over 2% on June 30 following the announcement of the deal with Bright Health, closing at $301.24.
