This article has been revised from its original version.

While most companies have welcomed the end of Covid-era emergency measures, the end of one such measure has meant treacherous times for managed health care organizations such as Long Beach-based Molina Healthcare Inc.

This year, the federal government ended the moratorium on low-income residents needing to re-enroll annually in Medicaid, the government subsidized health care program for the poor. As a result, states have begun purging their Medicaid rolls – some more aggressively than others. By one estimate, through midyear, nearly 4 million people have already lost their Medicaid coverage, and the process has yet to hit full stride.

Molina, which derives roughly 80% of its $32 billion in annual revenue from Medicaid payments, stood to be hit very hard by this process, known as Medicaid redetermination. The topic dominated the company’s most recent earnings call late last month.

But so far, the managed health care giant appears to have escaped the brunt of the impact. The company stated during the earnings call that it had lost about 93,000 members during the second quarter due to Medicaid redetermination, a figure that Chief Executive Joseph Zubretsky termed “well within our expectations,” with “negligible” impact.

That drop in members took Molina’s overall member level down to 5.2 million at the end of June from 5.3 million as of December.

But Zubretsky said this disenrollment process is still in the early stages. And Chief Financial Officer Mark Keim, who elaborated on the impact, said the company still expects to lose up to 400,000 members when the process is completed by early next year. If that maximum scenario holds, Molina could see a $1.6 billion hit to revenue.

Disenrollment

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 so-called 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 in the Washington Post.

That spurred premium growth at companies like Molina, which has contracts with dozens of states to manage Medicaid services. 

The moratorium on annual Medicaid eligibility renewals ended on April 1; states were given 14 months to go through their Medicaid rolls and determined 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.

Earlier this year, the federal Department of Health and Human Services issued an analysis that said up to 15 million people could be dropped from Medicare rolls. But the analysis estimated that nearly 7 million of those recipients could be terminated even though they might still meet the eligibility requirements. The analysis cited inability to fulfill paperwork requirements, lack of timely notification and other procedural barriers that could result in people getting kicked off the rolls. 

The department updated this estimate last month with data from the first two months of the Medicaid redetermination process. It found that of roughly 2.2 million people dropped from Medicaid rolls, 79% were removed for “procedural reasons.” 

The Post story, citing Kaiser Family Foundation data, said about 3.8 million Medicaid recipients had been cut from the rolls as of midyear.

Molina outreach

Both Zubretsky and Keim said in Molina’s earnings call that the company is not standing by and letting state bureaucrats disenroll its members.

“We continue our outreach to members to minimize procedural disenrollment,” Zubretsky said. “We also continue to work with our state partners to ensure rates remain actuarially sound to account for any potential shifts in acuity.” 

Keim elaborated on these efforts, saying the company 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. Most states give a window of 90 to 120 days to reconnect.

Zubretsky said he expects that the number of disenrolled members that are successfully reconnected with Molina’s assistance to be “quite high,” and that most of this reconnection activity will show up in Molina’s premium revenue in the second half of this year.

As for Molina’s outreach to the states, Zubretsky said that some states have moved more cautiously to vet Medicaid enrollees and that three states that Molina does business in have halted their redetermination efforts temporarily to allow time for paperwork and administrative processes to catch up.

Zubretsky and Keim also mentioned the possibility that some states may adjust their Medicaid reimbursement rates based on any changes in the overall health-risk profile – or acuity – of the enrollee pool as a result of disenrollments. The adjustments, which could be implemented either at the end of rate cycle or mid-cycle, would potentially bring in more premium revenue.

But one analyst who follows Molina said any such discussion of rate adjustments is premature.

“Molina highlighted indications of all of its Medicaid states likely factoring in an acuity adjustment into the rate-setting process; however, the magnitude and implementation timeline remains uncertain given (the) lack of a mature dataset,” Scott Fidel, an analyst with Little Rock, Arkansas-based Stephens Inc., said in his post-earnings research report on Molina.

Gearing up in California

While there’s never a good time for a health insurer to lose hundreds of thousands of members and possibly more than $1 billion in premiums, in Molina’s case the timing is somewhat fortuitous. That’s because on Jan. 1, Molina is set to onboard up to 1 million more members as a result of contract wins last year to manage the state’s Medicaid program, known as Medi-Cal. That will more than offset any member losses from Medicaid redeteriminations throughout the country.

Last year, the California Department of Health Care Services awarded Molina new or additional contracts in Los Angeles, Sacramento and San Diego counties, mostly at the expense of Woodland Hills-based HealthNet, a subsidiary of St. Louis-based Centene Corp. The biggest win came in Los Angeles County, with Molina ultimately gaining as many as 600,000 members from HealthNet.

In December, Zubretsky said the company expects to add nearly $4 billion to its revenue next year from the new or expanded state Medi-Cal contracts. Again, that more than offsets the potential $1.6 billion hit from the Medicaid redeterminations.

Centene and others expressed concerns about Molina’s capability to handle all these additional members; Centene made those concerns a cornerstone of its administrative appeal of the initial award. (That appeal resulted in a scaling back of Molina’s initial Los Angeles County contract win.) Molina has spent much of this year gearing up on this front.

“Molina is working closely with the Department of Health Care Services and other partners to ensure a smooth transition of Medi-Cal beneficiaries to Molina on Jan. 1, 2024,” a Molina spokeswoman said in a statement. “We look forward to continuing to serve the Medi-Cal program through innovative provider partnerships, quality care, and strong community presence.”

Molina further boosted its home-state profile in June with the announcement that it was acquiring the California book of Medicare business from Minneapolis-based Bright Health Group for $510 million. That’s expected to bring tens of thousands of additional members to Molina’s California portfolio.

Analyst Fidel said that Bright Health Group’s 125,000 Medicare members in the state have roughly 60% overlap with Molina’s Medi-Cal member base, meaning that on net, the acquisition will bring an additional 50,000 members to Molina’s overall statewide portfolio.

While Fidel called the acquisition “idiosyncratic” for Molina because the managed-care company has made relatively few acquisition forays into the Medicare market, Zubretsky characterized it differently.

The acquisition, he said, is “consistent with our strategy of acquiring capitated government-sponsored assets.”