UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
Current Report
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): September 19, 2013
MOLINA HEALTHCARE, INC.
(Exact name of registrant as specified in its charter)
| Delaware | 1-31719 | 13-4204626 | ||
| (State of incorporation) | (Commission File Number) | (I.R.S. Employer Identification Number) |
200 Oceangate, Suite 100, Long Beach, California 90802
(Address of principal executive offices)
Registrant’s telephone number, including area code: (562) 435-3666
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
| ¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| ¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| ¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| ¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Item 7.01. Regulation FD Disclosure.
On September 19, 2013, Molina Healthcare, Inc. (the “Company”) presented and webcast certain slides as part of the Company’s presentation at its Investor Day Conference held in New York City. A copy of the Company’s complete slide presentation is included as Exhibit 99.1 to this report. An audio and slide replay of the live webcast of the Company’s Investor Day presentation will be available for 30 days from the date of the presentation at the Company’s website, www.molinahealthcare.com, or at www.earnings.com. The information contained in such websites is not part of this current report.
The information in this Form 8-K current report and the exhibits attached hereto shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except as expressly set forth by specific reference in such a filing.
Item 9.01. Financial Statements and Exhibits.
| (d) | Exhibits: |
| Exhibit No. |
Description | |
| 99.1 | Slide presentation given at the Investor Day Conference of Molina Healthcare, Inc. on September 19, 2013. | |
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| MOLINA HEALTHCARE, INC. | ||||||
| Date: September 19, 2013 | By: /s/ Jeff D. Barlow | |||||
| Jeff D. Barlow | ||||||
| Sr. Vice President – General Counsel, and Secretary | ||||||
EXHIBIT INDEX
| Exhibit No. |
Description | |
| 99.1 | Slide presentation given at the Investor Day Conference of Molina Healthcare, Inc. on September 19, 2013. | |
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Investor Day 2013B
September 19, 2013 New York, New York
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Cautionary Statement 2
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995: This slide presentation and our accompanying oral remarks contain numerous “forward-looking statements” regarding, without limitation: our revenue, membership, and profitability growth projections; market and growth opportunities related to dually eligible members, to the Affordable Care Act (ACA) Medicaid expansion, and to the insurance exchanges or marketplaces; our capital requirements and potential financing sources; the ACA health industry fee and its expected reimbursement; projected growth from recent acquisitions in New Mexico and South Carolina; the settlement expected to be entered into by our California health plan; and various other matters. All of our forward-looking statements are subject to numerous risks, uncertainties, and other factors that could cause our actual results to differ materially. Anyone viewing or listening to this presentation is urged to read the risk factors and cautionary statements found under Item 1A in our annual report on Form
10-K, as well as the risk factors and cautionary statements in our quarterly reports and in our other reports and filings with the Securities and Exchange Commission and available for viewing on its website at www.sec.gov. Except to the extent otherwise required by federal securities laws, we do not undertake to address or update forward-looking statements in future filings or communications regarding our business or operating results.
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Today 3
Approx. Time Topic Speaker
12:30pm-12:35pm Opening Remarks Juan José Orellana, SVP Investor
Relations
12:35pm-1:10pm Business Overview Dr. J. Mario Molina, Chief Executive
Officer
1:10pm-1:45pm Health Plan Discussion Terry Bayer, Chief Operating Officer
1:45pm-2:00pm Q&A
2:00pm-2:15pm Break
2:15pm-2:45pm Financial Discussion Joseph White, Chief Accounting Officer
2:45pm-3:05pm Q&A
3:05pm-3:50pm Financial Discussion John Molina, Chief Financial Officer
3:50pm-4:30pm Q&A
4:30pm End of Program © 2013 Molina Healthcare, Inc.
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Business Overview
J. Mario Molina, M.D.
President & Chief Executive Officer
September 19, 2013 New York, New York
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Our Mission 5
To provide quality health services to financially vulnerable families and individuals covered by government programs.
© 2013 Molina Healthcare, Inc.
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Business Snapshot 6
Our Markets (2Q2013)
Washing
ton
413
k Maine
Michiga
(2 Idaho n MMI
clinics) MMI 215 S
Wiscons
S in k
98k Ohio
Californ 240 MMIS New Jersey
ia Utah
355 87k k W Virginia Virgini
| 2 |
|
Illinois MMISDirect a Virgi US |
k Delive n
(19 (3 ry Islan
clinics) clinics) ds4
New
Mexico1 South
92k Caroli
na3 Membership Profile
(2 clinics) Texas
266 MMIS Louisiana 77% TANF
k 81k Florida 15% 6% ABD
CHIP
clinics) (2 2% Medicare SNP
1.8 million members
1. As of August 1 „13, New Mexico membership increased to 172K members due to the acquisition of the Lovelace state contract
2. As of September 1 ?13, Illinois health plan began serving ABD members
3. South Carolina health plan is expected to begin serving South Carolina Medicaid members starting December 1 „13, as a result of the South Carolina Solutions asset acquisition
4. US Virgin Islands Medicaid management information system, in partnership with MMS West Virginia, went live on August 1 ?13
© 2013 Molina Healthcare, Inc.
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We’ve Been Busy 7
Organic Growth Acquisitions Growth Capital Infrastructure
$550,000,000 February 2013
1.125% Convertible Senior Notes due 2020
Interest payable January 15 and July 15
© 2013 Molina Healthcare, Inc.
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Long Term Incremental Growth Drivers 8
Please refer to the Company’s cautionary statements.
Estimated potential revenue run-rate by year-end 2015 associated with growth activities
Revenue4
$
Duals1 ACA2 Acquisiti
He iness
2015
1. Duals denotes revenue potential for dual eligibles in CA, MI, OH, TX, IL
2. ACA denotes revenue potential as a result of Medicaid expansion in CA, IL, MI, NM, and WA; and Marketplace in CA, FL, MI, NM, TX, UT, WA, OH, and WI
3. Acquisitions denote New Mexico (Lovelace), and South Carolina (Community Health Solutions assets)
4. All amounts are estimates and subject to change
© 2013 Molina Healthcare, Inc.
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State of the Industry 9
Officials
warn of Michigan
Obamacare clears way
insurance Despite for
exchange rejection of Obamacare
delays Medicaid Medicaid
expansion, expansion
next steps
in
Obamacare
set to begin
in
Wisconsin
© 2013 Molina Healthcare, Inc.
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U.S. Medicaid Spending Projections 10
Projected Medicaid Spending
2013-20221
$536B
$505B
$476B
$449B
$399B $422B
$372B
$331B
$297B
$265B
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Medicaid spending continues to grow
1. Congressional Budget Office (CBO). http://www.cbo.gov/publication/43947 © 2013 Molina Healthcare, Inc.
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U.S. Medicaid Enrollment 11
Annual Change in Medicaid Enrollment in 50 States and DC
June 2002 to June 20121
Annual 5.9% 4.3%3.2% 0.2% -0.5% 3.1% 7.8% 7.2% 4.7%2.5%
Percentage
Change 53M 54M
50M
47M
42M 43M 42M 44M
39M 41M
37M
Total Monthly
Enrollment
June 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Medicaid enrollment continues to grow
1. Kaiser Family Foundation. Medicaid Enrollment: June 2012 Data Snapshot © 2013 Molina Healthcare, Inc.
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Welcome-Mat Effect 12
The intensity of outreach and awareness efforts associated with the Affordable Care Act may
affect the increase in Medicaid enrollment and participation among previously eligible individuals.
MA Medicaid Unadjusted Enrollment
Rates1
Controls Massachusetts
80%
70%
60%
50%
40%
30%
20%
2003 2004 2005 2006 2007 2008 2009 2010 2011
Medicaid enrollment increased by ~16% in MA as a result of outreach
efforts
1. Health Affairs Journal. “Medicaid „Welcome-Mat? Effect of Affordable Care Act Implementation Could be Substantial”, July 2013
© 2013 Molina Healthcare, Inc.
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Medicaid Expansion 13
Where Molina States Stand on Medicaid Expansion as of August 20131
WA
WI MI
UT OH
CA
NM SC
TX
Participating
FL
Leaning Toward
Participating
Leaning Toward Not
Participating
Not Participating
1. The Advisory Board Company. Beyond the pledges: Where the states stand on Medicaid © 2013 Molina Healthcare, Inc.
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California Managed Care Adoption 14
Govt San
Bernardino/Rive Los Angeles San Diego Sacramento
Program rside
Molina Healthcare Health Net (Molina as Molina Healthcare Molina Healthcare
Inland Empire Health Subcontractor) Care 1st Partner Plan Anthem
Medi-Cal Plan L. A. Care Health Plan Community Health Health Net
Group Health Net Kaiser Permanente
Kaiser Permanente
Molina Healthcare Molina Healthcare Molina Healthcare Molina Healthcare
Medicare Inland Empire Health Health Net Care 1st Partner Plan Health Net
Plan L. A. Care Health Plan Community Health Kaiser Permanente
SNP Kaiser Permanente Group Health Net
Scan Healthplan
Molina Healthcare Health Net Molina Healthcare N/A1
Inland Empire Health L. A. Care Health Plan Care 1st Health Plan
MMP Plan Community Health
Group
Health Net
and now…
Molina Healthcare Molina Healthcare Molina Healthcare Anthem
Anthem Anthem Anthem Blue Shield
Marketpla Blue Shield Blue Shield Blue Shield Kaiser Permanente
ce Health Net Health Net Health Net Western Health
Kaiser Permanente Kaiser Permanente Kaiser Permanente Advantage
L.A. Care Health Plan Sharp Health Plan
Well represented in programs for low-income population
1. Carved Out © 2013 Molina Healthcare, Inc.
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Priority Customer Segment for the Marketplaces 15
Medicaid transitioners; parents of CHIP
members; ex-Medicaid members; low
income uninsured 100% FPL –
Heavily subsidized
Used to getting care from safety net 250% FPL
providers Annual income levels
Require enhanced services for individuals
$11.5K—$27K+
250%+
Annual forFPL income levels
individuals
$28K—$45K
Ensuring continuity of care to Medicaid transitioners
2013 Molina Healthcare, Inc.
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Marketplace – Covered California 16
Premium assistance for marketplace is calculated based on the
federal poverty scale. Individuals who earn <138% of the FPL
qualify for Medicaid.
FEDERAL POVERTY LEVELS & INCOME1
Size of
Househol 133% 138% 150% 200% 250%
d
| 1 |
|
$15,282 $ 15,900 $17,235 $ 22,980 $28,725 |
| 2 |
|
$20,628 $ 21,500 $23,265 $ 31,020 $38,775 |
| 3 |
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$25,975 $ 27,000 $29,295 $ 39,060 $48,825 |
CA Minimum 4 $31,322 $ 32,499 $35,325 $ 47,100 $58,875
$Wage8.00per hour 5 $36,668 $ 38,047 $41,355 $ 55,140 $68,925
$16,640annualized Hourly rate
$12.49
Hourly rate
$14.08
Small hourly rate increases can affect Medicaid eligibility and
marketplace subsidies
1. www.medicaid.gov
© 2013 Molina Healthcare, Inc.
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Marketplace – Covered California 17
Covered California Bronze Plan monthly pricing for 40-year-old
individual, non-smoker in San Bernardino/Riverside
Income Level 133% FPL 150% FPL 200% FPL 250% FPL
Bronze Bronze Member Member Member Member
Carrier Plan Plan Subsidy Subsidy Subsidy Subsidy
Price Rank Premium Premium Premium Premium
Molina $ 204 1 —$221 $2 $ 202 $66 $ 138 $ 138 $ 66
Anthem $ 219 2 —$221 $17 $ 202 $66 $ 138 $ 138 $ 66
Kaiser $ 226 3 $5 $221 $24 $ 202 $81 $ 138 $ 153 $ 66
Health Net $ 270 4 $49 $221 $68 $ 202 $132 $ 138 $ 204 $ 66
CA Molina Premium Revenue PMPM (Medicaid TANF)………….………… $103
Consolidated Premium Revenue PMPM (Medicaid TANF)………………… $182
© 2013 Molina Healthcare, Inc.
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Basic Health Plan 18
Optional coverage program under the Affordable Care Act (ACA)
Offers continuity of coverage for individuals who:
Are ineligible for Medicaid and <65; ??Have incomes at or below 200% FPL; and
Do not have access to affordable employer – or government sponsored coverage
States receive 95% of what federal government would have spent on tax credits and subsidies for out-of-pocket costs in the marketplace
Operational starting in 2015 for interested states
© 2013 Molina Healthcare, Inc.
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Mitigating our Risk 19
Reinsurance
Risk Corridors
Risk Adjustment
2013 Molina Healthcare, Inc.
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Tailwinds & Headwinds 20
Tailwinds Headwinds
Medicaid expansion Delayed state implementations Footprint includes 4 of 5 largest Industry tax Medicaid markets Uniquely positioned to capture Medical cost pressure associated dual eligible enrollment with new contracts/populations
© 2013 Molina Healthcare, Inc.
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Strategic Priorities 21
Mission Priorities
Manage our growth
Organic growth
Medicaid expansion
Dual eligible population
RFPs
Margin Expansion
Leverage our business portfolio
Health plan business
MMS
Our mission is to provide quality • Direct delivery health services to financially vulnerable families and ? Strive for operational excellence individuals covered by • Quality care government programs. • Star ratings
2013 Molina Healthcare, Inc.
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The More Things Change, The More We Stick to Our
Strategy 22
10th Anniversary as a listed company
(July 2, 2013)
© 2013 Molina Healthcare, Inc.
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Health Plan Discussion
Terry Bayer
Chief Operating Officer September 19, 2013 New York, New York
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Molina MCO Footprint & Planned Growth 24
MCO Markets Planned Duals Planned Marketplace
© 2013 Molina Healthcare, Inc.
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Preparing for Growth – Operational Priorities 25
People Process Technology
15% YTD employee ? Product development ? Premium billing &
growth ? Pricing collections
Dedicated team for ? Network customization ? Member 360
Marketplace ? Premium billing and ? Upgraded care
Expanded Medicare collection management software
team for Duals ? Marketing/Sales/ ? Clear Coverage™
Demonstration Advertising ? Telephony upgrade
LTSS management
Infrastructure build precedes revenue
© 2013 Molina Healthcare, Inc.
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One Molina 26
Enterprise wide approach to business processes
© 2013 Molina Healthcare, Inc.
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Technology—Molina IT Investment Portfolio 27
Contractual Obligations & Compliance
12%
Operational New Business
Improvements
25% & Business Transformation
63%
Infrastructure costs being driven by new business
© 2013 Molina Healthcare, Inc.
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Organic Growth: Ohio 28
New Molina Statewide Service Area
260K Members
Cleveland
In Q3 2013 Molina expanded into 38 new counties.
Molina Healthcare of Ohio Columbus
Historical Enrollment Growth Jun 2013-Aug 2013
Service Dayton Area 260 Expansio
240 n K Cincinnati
K
Expansion service area Existing service area
Jun-13 Aug-13
© 2013 Molina Healthcare, Inc.
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Organic Growth: Florida Long-Term Care (LTC)
Program 29
Consolidates numerous individual LTC waivers (including Nursing Home Diversion program) ??Management of LTC services in least restrictive setting
Stand-alone LTC program
Strong coordination with acute benefits required
Florida LTC Service Area
Under the LTC program, Molina will provide long-term care benefits including institutional and home and community- Region 5
Go based services. Live Region 6
Anticipated LTC Date: 2/1/14 Go
Rates: Live Date:
$3,200-$3,500 2/1/14 PMPM
11 Region
Go Live 12/1/1 Date: 3
© 2013 Molina Healthcare, Inc.
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Acquisition: New Mexico 30
Molina Healthcare of New
Mexico
Historical Enrollment Growth
Jul 2013-Aug 2013
172K
Assumed Lovelace NM
Medicaid Members
Effective August 1, 2013,
Molina assumed Lovelace
Community Health Plan?s 92K
contract for the Medicaid
Salud! Program in New
Mexico.
Consideration:
$54 million Jul-13 Aug-13
Molina is currently the largest Medicaid operator in New Mexico
© 2013 Molina Healthcare, Inc.
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31
Acquisition: South Carolina
Molina has acquired the assets of a South Carolina Medicaid plan, South Carolina Solutions (SCS), from Community Health Solutions of America.
Molina Statewide Service
Area
1.6M Medicaid eligibles
Member transfer has an anticipated effective date of December 1, 2013.1 There are 136K SCS members eligible for transfer to Molina.
Consideration: $59 million
1. Contingent on the state?s granting Molina a HMO license and a full-risk Medicaid managed care contract, and the state?s conversion of the Medical
Homes Network program to a full-risk Medicaid managed care program.
© 2013 Molina Healthcare, Inc.
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32
Medicare-Medicaid Plan (MMP)
Implementations
Dual Eligible
Illinois Michigan
Molina Counties: 15 counties
in 1 Region (Central Region) RFP Response Submitted
Going Live: 1/1/14
California
Molina Counties: San
Diego,
Riverside, San Bernardino
Going Live: 4/1/14
Ohio
Molina Counties: 13 counties
in 3 Regions (Southwest,
Central
and West Central Regions)
Going Live: 3/1/14
South Carolina
Application Filed: Mid-
September
State expected to work with
existing Medicaid Providers
Texas
Going Live: 1/1/15
Contracts awarded to State will work with existing
MOH Medicaid Providers
RFP response or application
in progress
© 2013 Molina Healthcare, Inc.
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33
California Duals Implementation Timeline
A moving target
2013 2014
What we
knew as Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr of
Septembe Anticipated 6/1/2013 Go-Live r 2012 Enrollment begins in
CA Duals
Demonstration
2013 2014
What we
knew as
of Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr
January 1/1/2014
2013 Enrollment Anticipated begins Go-Live in
CA Duals
Demonstration
2013 2014
What we
know as Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr
of
Septembe 7/2013 Anticipated 4/1/2014 Go-Live
r 2013… Completed Plan Enrollment begins in
Readiness Review CA Duals
Demonstration
© 2013 Molina Healthcare, Inc.
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34
Molina’s Target Markets for Health Insurance Marketplaces
Washing ton 200 Michiga
Wiscons n K in 246
in Eligibles Molina 150 k Counties
k Eligibles in
Eligibles Molina
Californi in CountieOhio
a Utah Countie Molina s264
1.4 Utah87k s Ohiok
M 90kEligible 285k
Eligibles Eligibles Molina s in New Eligiblesin Eligibles
Molina in in s CountieMolina 130 Mexico inCountie Molina Molina
Countie Counties Countiess s k
Eligibles Texas
in 693
Molina Florida
Countie k 546 s
Eligibles in k
Molina Eligibles
Countie in
s Molina
Counties
State-run Marketplace
State-Fed partnership
marketplace
Federally facilitated
marketplace
© 2013 Molina Healthcare, Inc.
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35
Q&A
© 2013 Molina Healthcare, Inc.
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Affordable Care Act (ACA) Health Insurer Fee
Joseph White
Chief Accounting Officer September 19, 2013 New York, New York
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37
ACA Insurer Fee
Please refer to the Company’s cautionary statements.
Section 9010 of the Patient Protection and Affordable Care Act (ACA) and Section 1406 of the Reconciliation Act impose an annual fee on the health insurance industry starting in 2014.
Allocated based upon plan s relative share of premiums in prior year (“data year”)
Full liability is incurred on January 1st of the fee year
Oliver Wyman estimates the increase in premiums to cover the fee would be 1.9% to 2.3%1 Insurers notified of liability by August 31st Fee payment due by September 30th
Year Industry Fee1 Molina Fee2
2014 $8.3B $ 100M
2015 $11.3B $ 140M
2016 $11.3B $ 140M
2017 $13.9B $ 170M
2018 $14.3B $ 170M
2019 indexed -
Source(s):
1. Section 9010 of the Patient Protection and Affordable Care Act (ACA)
2. MOH estimated
Note(s):
1. Oliver Wyman November 2012 , “Annual Tax Insurers Allocated by State”
© 2013 Molina Healthcare, Inc.
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38
Items Related to ACA Insurer Fee
Please refer to the Company’s cautionary statements.
State Reimbursement of Fee Fee Not Tax Deductible Capital Funding Requirements Timing and Recognition
© 2013 Molina Healthcare, Inc.
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39
Why Do We Think We’re Going To Be Reimbursed?
Please refer to the Company’s cautionary statements.
Reimbursement of assessments (like the ACA insurer fee) is specifically required for actuarial soundness.
American Academy of Actuaries:
“Medicaid benefit plan premium rates are “actuarially sound” if….projected premiums…provide for all reasonable, appropriate and attainable costs, including health benefits, health benefit settlement expenses, marketing and administrative expenses, any state-mandated assessments and taxes, and the cost of capital.“1
Milliman:
“Regulations issued by CMS require Medicaid managed care premiums to be actuarially sound and that states obtain an actuarial certification from a qualified actuary. While CMS does not have set criteria to determine actuarial soundness, taxes are widely recognized as a reasonable and unavoidable cost of doing business for Medicaid managed care organizations (MCOs) and are included in Medicaid managed care premiums“2
Milliman serves as consulting actuary to Molina state partners in FL, IL, MI, NM, UT and WA
Ohio Integrated Dual Eligibles Draft Rate Memorandum (May 2013):
“If it is later determined that the ICDS is subject to the health insurer fee, in whole or in part, a rating adjustment will need to be made to the CY2014 component of the Medicaid rates“3
Michigan Rate Development Fiscal Year 2014
“We have estimated that the fee (health insurance assessment fee) will range from a 0% impact to a 4% impact on the capitation rates specific to the State of Michigan Medicaid program. This impact is considered part of the actuarial certification of the rates. It is anticipated that MDCH will pay to the health plans the exact amount due for each health plan following receipt of notification of the health insurance fee. …… The allowance for the corporate income tax should be considered a portion of the health insurance assessment fee capitation rate adjustment
…….for any individual health plan” 4
Note(s):
1. American Academy of Actuaries Practice Note, August 2005, “Actuarial Certification of Rates for Medicaid Managed Care Programs”
2. Milliman Research Report, April 2013, “ACA Health Insurer Fee – Estimated Impact on the U.S health insurance industry”
3. Mercer, May 10 2013, “Integrated Care Delivery System Opt-In-Rates – Calendar Years 2013 and 2014”
4. Milliman September 13, 2013, “Michigan CSHCS Capitation Rate Development”
© 2013 Molina Healthcare, Inc.
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40
Lack of Deductibility Requires Gross Up
Please refer to the Company’s cautionary statements.
States have always reimbursed us for the gross up required for premium taxes.
Deductible Premium Tax
For illustrative purposes only
assumes a 10% premium tax rate
Premium &
Reimbursement
$0.11
Reimbursement of Tax
=
$0.10 / ( 1- prem. tax
$1.00
rate)
= $0.11
Gross Up
$0.10
Prem. Tax
$0.01
Incremental
Prem. Tax
Premium taxes must be paid on all
premium—even the premium that
reimburses us for premium taxes
Non-Deductible Excise
Tax
For illustrative purposes only
assumes a 35% federal income tax
rate & 10% excise tax
Premium &
Reimbursement
Reimbursement of Tax =
$0.15 $0.10 / ( 1- income tax rate)
= $0.15
$1.00
Gross
Up
$0.10
Excise Tax $0.05
Income Tax
The ACA Insurer fee is an excise tax and is
non tax deductible. Income taxes will be
paid on premiums received to cover the fee
© 2013 Molina Healthcare, Inc.
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ACA Fee & Reimbursement – Timing & Recognition (GAAP) 1
41
Please refer to the Company’s cautionary statements.
Dec 31 Jan 1 Sep 30
Reporting
& “Non-Recognized” Recognize Liability & Begin
(Type II) Pay Fee
Recogniti Subsequent Event Expense Recognition
on
• Full liability recognized on
Descriptio Jan 1 based on net • Non cash transaction
• Disclosure only
n premiums written in prior until fee paid
year
• Rcrd. Current Asset Full
Amount
Accountin • Disclose nature of • Rcrd. Current Liability Full • Decr. Liability
assessment & Amount
g/ • Decr. Cash
estimate financial • Rcrd. Expense
Disclosure effect (1/12 per month)
• Rcrd. revenue (1/12) if fully
reimbursed
• No equity impact if fully
reimbursed
Impact • Disclosure only • Asset/Liability offset
• No P&L impact if fully
Note(s):
1. Based on Accounting Standards Update (ASU) No. 2011-06: Fees Paid to the Federal Government by HealthreimbursedInsurers
© 2013 Molina Healthcare, Inc.
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ACA Fee & Reimbursement – Timing & Recognition (STAT)1
42
Please refer to the Company’s cautionary statements.
Dec 31 Jan 1 Sep 30
Reportin Begin Establishing
g & “Non-Recognized” Recognize Liability & Special Surplus
(Type II) Begin Expense Pay Fee
Recognit Subsequent Event Recognition Reserve for Next
ion Year Payable
• Full liability recognized
Descripti on Jan 1 based on net • Statutory Net • Non cash
• Disclosure only Worth transaction until
on premiums written in Reclassification fee paid
prior year
• Disclose nature of • Rcrd. Current Asset
assessment & Full Amount • Monthly, reclassify
Accounti estimate of • Rcrd. Current Liability 1/12 of next years
financial effect, Full Amount • Decr. Liability
ng/Discl estimated fee from
including pro • Rcrd. Expense • Decr. Cash
osure forma net worth (1/12 per month) Unassigned to
impact as of Dec • Rcrd. revenue (1/12) if Special Surplus
31 fully reimbursed
• Decr. Surplus as
asset is non-admitted • Potentially reduce
• Incr. capital • Asset/Liability
Impact • Disclosure only amount available
requirements offset
• No P&L impact if fully for dividends
Note(s): reimbursed
1. Based on SSAP 35R exposure Draft as of August 26. 2013
© 2013 Molina Healthcare, Inc.
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Q&A 43
© 2013 Molina Healthcare, Inc.
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Funding Our Growth
John Molina
Chief Financial Officer September 19, 2013 New York, New York
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Long Term Incremental Growth Drivers 45
Please refer to the Company’s cautionary statements.
Estimated potential revenue run-rate by year-end 2015 associated with growth activities
Revenue4
~$
Duals1 ACA2 Acquisiti
He iness
2015
1. Duals denotes revenue potential for dual eligibles in CA, MI, OH, TX, IL
2. ACA denotes revenue potential as a result of Medicaid expansion in CA, IL, MI, NM, and WA; and Marketplace in CA, FL, MI, NM, TX, UT, WA, OH, and WI
3. Acquisitions denote New Mexico (Lovelace), and South Carolina
4. All amounts are estimates and subject to change
© 2013 Molina Healthcare, Inc.
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Dual Eligibles Market Opportunity 46
Please refer to the Company’s cautionary statements.
Dual Dual Eligibles Estimated
State Eligibles in Molina Potential
Statewide Service Areas Enrollment1
California2 527K 122K 44K
Ohio2 115K 48K 25K
Illinois2 156K 18K 5K
Michigan2 199K 62K 10K
Texas3 214K 132K 5K
Total 1.3M 382K 89K
Annualized Potential Revenue.…………………………………… $2.0B
Source: Company estimates, figures may not add due to rounding
1. Estimated enrollment denotes Dual members before opt out for year end 2015
2. 2014 start date
3. 2015 Start date
© 2013 Molina Healthcare, Inc.
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Medicaid Expansion Opportunity 47
Please refer to the Company’s cautionary statements.
Expansion Molinas
Eligibles in
State Estimated
Medicaid Enrollment
Managed Care
California 1M 90K
Illinois 300K 50K
Michigan 500K 40K
New Mexico 100K 40K
Washington 250K 70K
Total 2.2M 290K
Annualized Potential Revenue……………………….…
$1.0B
Source: Company estimates, figures may not add due to rounding
© 2013 Molina Healthcare, Inc.
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Marketplace Opportunity
48
Please refer to the Company’s cautionary statements.
Number of Molinas
Marketplace Estimated
State Members in Marketplace
Molina Enrollment
Markets
California 1.4M 90K
Florida 546K 20K
Michigan 246K 20K
New Mexico 130K 10K
Ohio 264K 2K
Texas 693K 30K
Utah 87K 10K
Washington 200K 25K
Wisconsin 150K 40K
Total 3.7M 247K
Annualized Potential Revenue……………………
$1.0B
Source: Company estimates, figures may not add due to rounding
© 2013 Molina Healthcare, Inc.
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Capital Needs
49
Please refer to the Company’s cautionary statements.
Current regulatory requirements
Future (anticipated) regulatory requirements in current and new states
Capital demands on health plans in the event of losses
Costs of acquisitions and other expansions
Costs of MMS implementations in new and existing states
Costs of infrastructure
© 2013 Molina Healthcare, Inc.
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Sources of Capital
50
Please refer to the Company’s cautionary statements.
Current excess net worth
Parent Cash
Issuance of securities –
Debt
Equity
Convertible Future earnings
Alternative Financing –
Capital leases
Structured co-insurance or structured quota share
© 2013 Molina Healthcare, Inc.
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Regulatory Capital and Requirements
51
Please refer to the Company’s cautionary statements.
Regulatory Capital
Regulatory capital at 6/30/13
approximately $0.6B; compared to a
requirement of approximately
$0.4B.
$0.6B
Excess
Regulatory $0.2B
Capital2
$0.4B Regulatory Required
Capital1
Growth Capacity
After adjusting for the estimated
ACA Fee; excess regulatory capital
will support $2.3B of additional
revenue $8.5B
Growth Capacity
with Existing $2.3B
Regulatory
Capital4
$6.2B
Annualized
Revenue3
Required minimum net worth on average is 7% of revenue
1. Denotes required regulatory capital for 6/30/13
2. Excess regulatory capital as of 6/30/13
3. Annualized Revenue as of 6/30/13
4. Denotes growth capacity assuming existing excess regulatory capital less $100M estimated capital required for the ACA fee
© 2013 Molina Healthcare, Inc.
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Summary of Growth Capacity 52
Please refer to the Company’s cautionary statements.
Revenue Growth
Capacity
$11.2B—
$17.$2.0B2B
Capital Revenue capacity
$2.0B dependent
$0.8B—$ 1.1B on profitability
$2.0B
Retained earnings @ 1.5%1 $0.1B We are here
Retained earnings @ 1.0%1 $0.1B $2.7B
Retained earnings @ 0.5%1 $0.1B
Parent Cash2 $0.2B $2.3B
Current excess capital3 $ 0.2B Current Revenue
Capacity
$6.2B
$0.4B
Current required capital
Required minimum net worth on average is 7% of revenue
1. Retained earnings @ % of net income margin, each 0.5% equates to $0.1B. Anticipated $25 billion revenue for the 30 months ended 12/31/15
2. Parent cash as of 6/30/13 net of $187M for repayment of 3.75% convertible notes and $150M for our South Carolina and New Mexico acquisitions (consideration and subsidiary funding requirements)
3. Current excess capital 6/30/13 net estimated capital required for ACA insurer fee
© 2013 Molina Healthcare, Inc.
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Why We Might Want To Raise More Capital
53
Please refer to the Company’s cautionary statements.
Acquisitions
Capital expenditures Variability in profitability Timing New benefits Growth above expectations Desire for capital cushion
© 2013 Molina Healthcare, Inc.
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Adjusted Net Income Per Share
John Molina
Chief Financial Officer September 19, 2013 New York, New York
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Why Use Adjusted Net Income per Share 55
Please refer to the Company’s cautionary statements.
Other companies who use the same measures:
Catamaran Corporation
HMS Holdings Corporation
Laboratory Corporation of America
Team Health Holdings
Universal American Corporation
WellCare Health Plans
Significant and growing non-cash expense items
Equity compensation
Convertible senior notes
Depreciation and amortization
Youve asked for it!
Enhances period to period comparability
© 2013 Molina Healthcare, Inc.
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Adjusted Net Income Per Share1
56
Please refer to the Company’s cautionary statements.
$2.93
$ 2.00
$1.67 $1.72 Adjusted Net
Income Per Diluted
$ 1.00 Share, Continuing
Operations
Net Income Per
$ 0.27 Diluted Share,
Continuing
Operations
2011 2012 June 2013 YTD
1. Adjusted net income per diluted share, continuing operations is a non-GAAP financial measure used by management as a supplemental metric to evaluate the Companys financial performance. Management believes this non-GAAP financial measure aids in the comparison of performance between periods by removing the net-of-tax impact of depreciation, amortization, stock-based compensation, amortization of convertible senior notes, and changes in the fair value of derivatives.
© 2013 Molina Healthcare, Inc.
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Adjusted Net Income Per Share1
57
Please refer to the Company’s cautionary statements.
Reconciliation of Net Income Per Diluted Share,
Continuing Operations to Adjusted Net Income Per
Diluted Share, Continuing Operations
FY 2011 FY 2012 June 2013
YTD
Net income per diluted share, $ 1.67 $ 0.27 $ 1.00
continuing operations
Depreciation and amortization of 0.64 0.75 0.46
capitalized software
Stock-based compensation 0.23 0.31 0.20
Amortization of intangible assets 0.32 0.29 0.13
Amortization of convertible senior notes 0.07 0.08 0.13
Change in fair value of derivatives — 0.02 0.08
Adjusted net income per diluted share,
continuing operations1 $ 2.93 $ 1.72 $ 2.00
1. Adjusted net income per diluted share, continuing operations is a non-GAAP financial measure used by management as a supplemental metric to evaluate the
Companys financial performance. Management believes this non-GAAP financial measure aids in the comparison of performance between periods by removing the net-of-tax impact of depreciation, amortization, stock-based compensation, amortization of convertible senior notes, and changes in the fair value of derivatives. This non-GAAP financial measure should not be considered as an alternative to the GAAP measure of net income per diluted share, continuing operations, nor should it be considered in isolation from that GAAP measure of financial performance.
© 2013 Molina Healthcare, Inc.
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Q&A
58
© 2013 Molina Healthcare, Inc.
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Tentative CA Settlement Agreement
John Molina
Chief Financial Officer September 19, 2013 New York, New York
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CA Department of Health Care Services (DHCS) Tentative Settlement Agreement
60
Please refer to the Company’s cautionary statements.
Molina has reached a tentative settlement with DHCS, which is conditioned on final governmental approvals
The tentative settlement includes the creation of a settlement account that will commence on January 1, 2014 and will be for four years (to December 31, 2017)
As part of the this tentative agreement, DHCS has agreed to extend several of Molinas Medi-Cal contracts
In addition, the tentative settlement agreement envisions that Molina will be a Medi-Cal Managed Care Plan in Imperial County
This tentative settlement will resolve several MediCal rate disputes with DHCS dating back to 2003
Following final governmental review and approval, if obtained, we will provide an update
© 2013 Molina Healthcare, Inc.
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Investment Highlights
61
Please refer to the Company’s cautionary statements.
Attractive sector growth prospects driven by government policies and economic conditions
Focus on government-sponsored health care programs
Proven flexible health care services portfolio (risk-based, fee-based and direct delivery)
Diversified geographic exposure in 15 states with significant presence in high growth regions
Scalable administrative efficiencies stemming from centralized and standardized functions
Seasoned management team with strong track record of delivering earnings growth
Over 30 years of experience
© 2013 Molina Healthcare, Inc.
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Q&A
62
© 2013 Molina Healthcare, Inc.