Molina Healthcare, Inc. (NYSE: MOH)

Molina Healthcare’s Q2 2025 results demonstrated continued top-line growth despite significant pressure on profitability metrics. Premium revenue increased 15% year-over-year to $10.9 billion, driven by new contract wins, acquisitions, growth in current footprint, and rate increases. This growth was partially offset by the ongoing impact of Medicaid redetermination activities that began in 2024.

However, profitability came under significant pressure as the company faced challenging medical cost trends. GAAP net income decreased to $255 million ($4.75 per share) from $301 million ($5.17 per share) in Q2 2024, representing an 8% decline in earnings per share. Adjusted net income fared slightly better at $294 million ($5.48 per share), down 6% year-over-year.

The primary driver of earnings pressure was the Medical Care Ratio (MCR) increasing to 90.4% from 88.6% in the prior year, reflecting an 180 basis point deterioration. This increase was attributed to continued utilization growth in behavioral health, pharmacy, and inpatient and outpatient services, which management characterized as a temporary dislocation between premium rates and accelerated medical cost trends.

General and administrative expenses showed operational discipline, with the G&A ratio improving to 6.2% from 7.0% in the prior year, reflecting the benefit of one-time items and continued cost management efforts. The adjusted G&A ratio was 6.1%, demonstrating the company’s focus on operational efficiency amid revenue growth.

Cash flow dynamics reflected seasonal working capital patterns typical for managed care organizations. Operating cash flow for the six months ended June 30, 2025, was an outflow of $112 million compared to $5 million in the prior year, driven mainly by timing differences in government receivables and payables and risk corridor settlement activity.

Medicaid remained the largest segment with premium revenue of $8.0 billion and 4.7 million members. The Medicaid MCR increased to 91.3% from 90.8% in the prior year, reflecting medical cost pressure from continued utilization growth in behavioral health, pharmacy, and inpatient and outpatient services. These increases were partially offset by rate updates that went into effect in the first and second quarters of 2025.

Medicare generated $1.6 billion in premium revenue with an MCR of 90.0%, significantly higher than the 84.9% recorded in Q2 2024. This increase reflected higher utilization among high-acuity members, particularly for long-term services and supports and pharmacy costs. The Medicare segment served 267,000 members, up from 251,000 in the prior year.

Marketplace showed the most dramatic shift with premium revenue of $1.2 billion and an MCR of 85.4%. However, this result included approximately 300 basis points of impact from prior year member reconciliations and a higher “new store” MCR related to the ConnectiCare acquisition. Excluding these items, the Marketplace MCR was approximately 82.4%, which was above expectations due to higher utilization relative to risk adjustment. Membership increased significantly to 690,000 from 386,000 in the prior year.

The segment performance highlighted the industry-wide challenge of medical cost trend acceleration, with all segments experiencing pressure on medical care ratios. However, the company’s diversified business model across Medicaid, Medicare, and Marketplace provided some offsetting dynamics and growth opportunities.

Molina Healthcare’s membership base continued to expand, reaching 5.7 million members as of June 30, 2025, representing net growth of 167,000 members compared to the same period in 2024. This growth reflected the company’s successful execution of new contract wins and strategic acquisitions, partially offset by the ongoing impact of Medicaid redetermination.

Membership Composition Changes

• Medicaid: 4.77 million members (down from 4.94 million in Q2 2024), reflecting redetermination impacts
• Medicare: 267,000 members (up from 251,000 in Q2 2024), showing continued growth in Medicare Advantage
• Marketplace: 690,000 members (up from 386,000 in Q2 2024), representing 79% growth driven by acquisitions and organic expansion
• Other: 15,000 members in new product lines

The company’s strategic focus on geographic expansion and product diversification has positioned it well for future growth. New contract wins in California, Iowa, Nebraska, New Mexico, Texas, and Georgia for Medicaid, along with newly awarded Medicare Duals contracts in Idaho, Illinois, Massachusetts, Michigan, and Ohio, provide significant embedded earnings potential.

The management team highlighted that “new store embedded earnings” remain at $8.65 per diluted share, representing the incremental impact expected between 2026 and 2028 from newly awarded contracts and recent acquisitions not yet reflected in 2025 guidance.

The second quarter results were significantly impacted by challenging medical cost trends across multiple service categories, representing what management characterized as a temporary dislocation between premium rates and medical cost inflation:

Key Medical Cost Drivers

• Behavioral Health: Continued elevated utilization reflecting ongoing post-pandemic mental health needs and increased access to services
• Pharmacy Costs: Rising drug costs and increased utilization of specialty pharmaceuticals across all segments
• Inpatient Services: Higher acuity and increased admission rates, particularly among Medicare members
• Outpatient Services: Increased utilization as members returned to routine and elective care

Days in claims payable decreased to 43 days from 50 days in the prior year, primarily reflecting faster claims processing and adjudication, higher volumes of pass-through payments, and several provider claim settlements. This improvement in processing efficiency demonstrates the company’s operational capabilities despite volume increases.

The company’s claims reserving methodology remained consistently applied across all periods, with prior year development showing favorable results. For the six months ended June 30, 2025, prior year medical care costs were $201 million favorable to original estimates, compared to $519 million favorable in the prior year period.

Management emphasized that while current trends are challenging, the company’s long-term target ranges remain achievable as rate updates catch up with medical cost inflation and the company continues to invest in medical management and care coordination programs.

Molina Healthcare revised its full-year 2025 guidance to reflect the challenging medical cost environment experienced in the second quarter and updated assumptions for the remainder of the year:

Updated Full-Year 2025 Guidance

• Premium Revenue: $42.0 billion (unchanged from prior guidance)
• GAAP EPS: ≥$16.90 per diluted share (revised down from previous expectations)
• Adjusted EPS: ≥$19.00 per diluted share (revised down from previous expectations)
• Consolidated MCR: 90.2% (up from previous expectations)
• GAAP G&A Ratio: 6.7%
• Adjusted G&A Ratio: 6.6%

The guidance revision was attributed disproportionately to the Marketplace segment, reflecting new information gained during the quarterly closing process and implications for medical cost trend assumptions for the second half of 2025.

Management emphasized confidence in the long-term outlook, with CEO Joseph Zubretsky stating: “The current earnings pressure we are experiencing results from what we believe to be a temporary dislocation between premium rates and medical cost trend which has recently accelerated. We are still performing near our long-term target ranges, and nothing has changed our outlook for the long-term performance of the business.”

The company maintains significant embedded earnings potential from new contract wins and acquisitions, with new store embedded earnings of $8.65 per diluted share expected to materialize between 2026 and 2028. This provides a strong foundation for future growth once current market dynamics normalize.

Molina Healthcare maintained a solid balance sheet position with adequate liquidity and regulatory capital to support operations and growth initiatives:

• Cash Position: $100 million in cash and investments at the parent company as of June 30, 2025, compared to $445 million at December 31, 2024
• Total Assets: $16.2 billion, up from $15.6 billion at year-end 2024
• Long-term Debt: $3.4 billion, providing financial flexibility for operations and growth
• Stockholders’ Equity: $4.6 billion, representing a strong capital base

The decrease in parent company cash was primarily driven by operational cash flow patterns typical for managed care organizations, including timing of government receivables and payables. The company maintained adequate access to capital markets and credit facilities to support working capital needs.

Regulatory capital ratios at the health plan subsidiaries remained well above minimum requirements, providing flexibility for business operations and supporting the company’s growth strategy in new markets and service lines.

The balance sheet structure supports the company’s strategic initiatives while maintaining the financial strength necessary to navigate current market challenges and capitalize on future growth opportunities.