SEC Filing | Molina Healthcare Inc.

View:

Download DOC

Download PDF

Download XLS

Download XBRL

moh-20210331

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2021


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________ to ________

Commission file number: 001-31719

https://cdn.kscope.io/a4c5ab856a5104049f9fd6b1e24323c2-moh-20210331_g1.jpg

MOLINA HEALTHCARE, INC.

(Exact name of registrant as specified in its charter)


Delaware		13-4204626
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

200 Oceangate, Suite 100
Long Beach,	California	90802
(Address of principal executive offices)		(Zip Code)

(562) 435-3666

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.001 Par Value	MOH	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer ☒ Accelerated Filer ☐ Non-Accelerated Filer ☐ Smaller reporting company ☐ Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The number of shares of the issuer’s Common Stock, $0.001 par value, outstanding as of April 23, 2021, was approximately 58,400,000.

Table of Contents

MOLINA HEALTHCARE, INC. FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2021

TABLE OF CONTENTS


ITEM NUMBER		Page

PART I

1.	Financial Statements	3

2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20

3.	Quantitative and Qualitative Disclosures About Market Risk	33

4.	Controls and Procedures	34

PART II

1.	Legal Proceedings	34

1A.	Risk Factors	34

2.	Unregistered Sales of Equity Securities and Use of Proceeds	34

3.	Defaults Upon Senior Securities	Not Applicable.

4.	Mine Safety Disclosures	Not Applicable.

5.	Other Information	Not Applicable.

6.	Exhibits	35

	Signatures	36

Table of Contents

CONSOLIDATED STATEMENTS OF INCOME


	Three Months Ended March 31,
	2021		2020

	(In millions, except per-share amounts) (Unaudited)
Revenue:
Premium revenue	$	6,306	$	4,304
Premium tax revenue	187		150
Health insurer fees reimbursed	—		66
Investment income	9		25
Other revenue	20		4
Total revenue	6,522		4,549
Operating expenses:
Medical care costs	5,474		3,716
General and administrative expenses	473		317
Premium tax expenses	187		150
Health insurer fees	—		68
Depreciation and amortization	33		20
Other	20		4
Total operating expenses	6,187		4,275
Operating income	335		274
Other expenses, net:
Interest expense	30		21

Total other expenses, net	30		21
Income before income tax expense	305		253
Income tax expense	77		75
Net income	$	228	$	178

Net income per share - Basic	$	3.95	$	2.95
Net income per share - Diluted	$	3.89	$	2.92

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME


	Three Months Ended March 31,
	2021		2020

	(In millions) (Unaudited)
Net income	$	228	$	178
Other comprehensive loss:
Unrealized investment loss	(15)		(25)
Less: effect of income taxes	(4)		(6)
Other comprehensive loss, net of tax	(11)		(19)
Comprehensive income	$	217	$	159

See accompanying notes.

Molina Healthcare, Inc. March 31, 2021 Form 10-Q | 3

Table of Contents

CONSOLIDATED BALANCE SHEETS


	March 31, 2021		December 31, 2020

	(Dollars in millions, except per-share amounts)
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	4,431	$	4,154
Investments	1,938		1,875
Receivables	1,776		1,672
Prepaid expenses and other current assets	163		175
Total current assets	8,308		7,876
Property, equipment, and capitalized software, net	378		391
Goodwill, and intangible assets, net	923		941
Restricted investments	138		136
Deferred income taxes	66		69
Other assets	137		119
Total assets	$	9,950	$	9,532

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Medical claims and benefits payable	$	2,839	$	2,696
Amounts due government agencies	1,718		1,253
Accounts payable, accrued liabilities and other	695		641
Deferred revenue	71		375
Total current liabilities	5,323		4,965
Long-term debt	2,128		2,127
Finance lease liabilities	223		225
Other long-term liabilities	112		119
Total liabilities	7,786		7,436
Stockholders’ equity:
Common stock, $0.001 par value, 150 million shares authorized; outstanding: 58 million shares at March 31, 2021, and 59 million shares at December 31, 2020	—		—
Preferred stock, $0.001 par value; 20 million shares authorized, no shares issued and outstanding	—		—
Additional paid-in capital	170		199
Accumulated other comprehensive income	26		37
Retained earnings	1,968		1,860
Total stockholders’ equity	2,164		2,096
Total liabilities and stockholders’ equity	$	9,950	$	9,532

See accompanying notes.

Molina Healthcare, Inc. March 31, 2021 Form 10-Q | 4

Table of Contents

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY


	Common Stock			Additional Paid-in Capital		Accumulated Other Comprehensive Income		Retained Earnings		Total
	Outstanding	Amount

	(In millions)
	(Unaudited)
Balance at December 31, 2020	59	$	—	$	199	$	37	$	1,860	$	2,096
Net income	—	—		—		—		228		228
Common stock purchases	(1)	—		(2)		—		(120)		(122)








Other comprehensive loss, net	—	—		—		(11)		—		(11)
Share-based compensation	—	—		(27)		—		—		(27)
Balance at March 31, 2021	58	$	—	$	170	$	26	$	1,968	$	2,164


	Common Stock			Additional Paid-in Capital		Accumulated Other Comprehensive Income (Loss)		Retained Earnings		Total
	Outstanding	Amount

	(In millions)
	(Unaudited)
Balance at December 31, 2019	62	$	—	$	175	$	4	$	1,781	$	1,960
Net income	—	—		—		—		178		178
Common stock purchases	(3)	—		(9)		—		(437)		(446)
Termination of warrants	—	—		(30)		—		—		(30)







Other comprehensive loss, net	—	—		—		(19)		—		(19)
Share-based compensation	—	—		4		—		—		4
Balance at March 31, 2020	59	$	—	$	140	$	(15)	$	1,522	$	1,647

See accompanying notes.

Molina Healthcare, Inc. March 31, 2021 Form 10-Q | 5

Table of Contents

CONSOLIDATED STATEMENTS OF CASH FLOWS


	Three Months Ended March 31,
	2021		2020

	(In millions) (Unaudited)
Operating activities:
Net income	$	228	$	178
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	33		20
Deferred income taxes	6		14
Share-based compensation	24		12

Other, net	12		(3)
Changes in operating assets and liabilities:
Receivables	(98)		(197)
Prepaid expenses and other current assets	(15)		(229)
Medical claims and benefits payable	168		127
Amounts due government agencies	432		113
Accounts payable, accrued liabilities and other	16		254
Deferred revenue	(304)		(206)
Income taxes	66		60
Net cash provided by operating activities	568		143
Investing activities:
Purchases of investments	(388)		(578)
Proceeds from sales and maturities of investments	308		493

Purchases of property, equipment and capitalized software	(16)		(21)
Other, net	9		3
Net cash used in investing activities	(87)		(103)
Financing activities:


Common stock purchases	(128)		(453)
Common stock withheld to settle employee tax obligations	(51)		(7)
Contingent consideration liabilities settled	(20)		—
Proceeds from borrowings under term loan facility	—		380





Other, net	(8)		(45)
Net cash used in financing activities	(207)		(125)
Net increase (decrease) in cash, cash equivalents, and restricted cash and cash equivalents	274		(85)
Cash, cash equivalents, and restricted cash and cash equivalents at beginning of period	4,223		2,508
Cash, cash equivalents, and restricted cash and cash equivalents at end of period	$	4,497	$	2,423

Molina Healthcare, Inc. March 31, 2021 Form 10-Q | 6

Table of Contents

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

MARCH 31, 2021

1. Organization and Basis of Presentation

Organization and Operations

Molina Healthcare, Inc. provides managed healthcare services under the Medicaid and Medicare programs, and through the state insurance marketplaces (the “Marketplace”). In the first quarter of 2021, we realigned our reportable operating segments to reflect recent changes in our internal operating and reporting structure, which is now organized by government program. These reportable segments consist of: 1) Medicaid; 2) Medicare; 3) Marketplace; and 4) Other. For further information, refer to Note 10, “Segments.”

As of March 31, 2021, we served approximately 4.6 million members eligible for Medicaid, Medicare, and other government-sponsored healthcare programs for low-income families and individuals, including Marketplace members, most of whom receive government premium subsidies.

Our state Medicaid contracts typically have terms of three to five years, contain renewal options exercisable by the state Medicaid agency, and allow either the state or the health plan to terminate the contract with or without cause. Such contracts are subject to risk of loss in states that issue requests for proposal (“RFPs”) open to competitive bidding by other health plans. If one of our health plans is not a successful responsive bidder to a state RFP, its contract may not be renewed.

In addition to contract renewal, our state Medicaid contracts may be periodically amended to include or exclude certain health benefits (such as pharmacy services, behavioral health services, or long-term care services); populations such as the aged, blind or disabled (“ABD”); and regions or service areas.

Recent Developments

Texas Acquisition—Medicaid and Medicare. On April 22, 2021, we announced a definitive agreement to acquire Cigna Corporation’s Texas Medicaid and Medicare-Medicaid Plan (“MMP”) contracts, along with certain operating assets. As of December 31, 2020, Cigna served approximately 48,000 members in the Texas ABD program, also known as “STAR+PLUS,” in the Hidalgo, Tarrant and Northeast service areas, and approximately 2,000 MMP members in the Hidalgo service area, with full year 2020 premium revenue of approximately $1.0 billion. The purchase price for the transaction is approximately $60 million, which we intend to fund with cash on hand. The transaction is subject to receipt of applicable federal and state regulatory approvals and satisfaction of other customary closing conditions. We currently expect the transaction to close in the second half of 2021.

Ohio Procurement—Medicaid. On April 13, 2021, we announced that our Ohio health plan subsidiary was selected as an awardee in all three regions across the state pursuant to the Medicaid managed care request for award issued on September 30, 2020, by the Ohio Department of Medicaid. This new contract is expected to begin in early 2022, and will offer health care coverage to Medicaid beneficiaries through the state of Ohio’s Covered Family and Children, Expansion, and ABD programs.

New York Acquisition—Medicaid. In September 2020, we entered into a definitive agreement to acquire substantially all of the assets of Affinity Health Plan, Inc., a Medicaid health plan in New York. The net purchase price for the transaction is approximately $380 million, subject to various adjustments at closing, which we intend to fund with cash on hand. We currently expect the transaction to close in the third quarter of 2021.

Consolidation and Interim Financial Information

The consolidated financial statements include the accounts of Molina Healthcare, Inc., and its subsidiaries. In the opinion of management, all adjustments considered necessary for a fair presentation of the results as of the date and for the interim periods presented have been included; such adjustments consist of normal recurring adjustments. All significant intercompany balances and transactions have been eliminated. The consolidated results of operations for the first quarter of 2021 are not necessarily indicative of the results for the entire year ending December 31, 2021.

The unaudited consolidated interim financial statements have been prepared under the assumption that users of the interim financial data have either read or have access to our audited consolidated financial statements for the fiscal year ended December 31, 2020. Accordingly, certain disclosures that would substantially duplicate the disclosures contained in our December 31, 2020, audited consolidated financial statements have been omitted. These

Molina Healthcare, Inc. March 31, 2021 Form 10-Q | 7

Table of Contents

unaudited consolidated interim financial statements should be read in conjunction with our audited consolidated financial statements for the fiscal year ended December 31, 2020.

Reclassifications

Consistent with the change in reportable segments described above, certain prior year disclosures in Note 7, “Medical Claims and Benefits Payable,” and Note 10, “Segments,” have been recast to conform to the current year presentation.

Certain immaterial amounts presented in the accompanying consolidated statement of cash flows for the three months ended March 31, 2020, have been reclassified to conform to the current year presentation.

Use of Estimates

The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities. Estimates also affect the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Principal areas requiring the use of estimates include:

•The determination of medical claims and benefits payable;

•Contractual provisions that may limit revenue recognition based upon the costs incurred or the profits realized under a specific contract;

•Quality incentives that allow us to recognize incremental revenue if certain quality standards are met;

•Settlements under risk- or savings-sharing programs;

•Purchase price allocations relating to business combinations, including the determination of contingent consideration;

•The assessment of long-lived and intangible assets, and goodwill for impairment;

•The determination of reserves for potential absorption of claims unpaid by insolvent providers;

•The determination of reserves for the outcome of litigation;

•The determination of valuation allowances for deferred tax assets; and

•The determination of unrecognized tax benefits.

2. Significant Accounting Policies

Cash and Cash Equivalents

Cash and cash equivalents consist of cash and short-term, highly liquid investments that are both readily convertible into known amounts of cash and have a maturity of three months or less on the date of purchase. The following table reconciles cash, cash equivalents, and restricted cash and cash equivalents reported within the accompanying consolidated balance sheets that sum to the total of the same such amounts presented in the accompanying consolidated statements of cash flows. The restricted cash and cash equivalents presented below are included in “Restricted investments” in the accompanying consolidated balance sheets.


	March 31,
	2021		2020

	(In millions)
Cash and cash equivalents	$	4,431	$	2,365
Restricted cash and cash equivalents	66		58
Total cash, cash equivalents, and restricted cash and cash equivalents presented in the consolidated statements of cash flows	$	4,497	$	2,423

Receivables

Receivables consist primarily of premium amounts due from government agencies, which may be subject to potential retroactive adjustments. Because substantially all our receivable amounts are readily determinable and substantially all of our creditors are governmental authorities, our allowance for credit losses is insignificant. Any amounts determined to be uncollectible are charged to expense when such determination is made.

Molina Healthcare, Inc. March 31, 2021 Form 10-Q | 8

Table of Contents


	March 31, 2021		December 31, 2020

	(In millions)
Government receivables	$	1,332	$	969
Pharmacy rebate receivables	200		178
Health insurer fee reimbursement receivables	54		104
Other	190		255
Magellan Complete Care acquisition opening balance	—		166
Total	$	1,776	$	1,672

Premium Revenue Recognition and Amounts Due Government Agencies

Premium revenue is generated from our contracts with state and federal agencies, in connection with our participation in the Medicaid, Medicare, and Marketplace programs. Premium revenue is generally received based on per member per month (“PMPM”) rates established in advance of the periods covered. These premium revenues are recognized in the month that members are entitled to receive healthcare services, and premiums collected in advance are deferred. State Medicaid programs and the federal Medicare program periodically adjust premium rates.

Certain components of premium revenue are subject to accounting estimates and are described in further detail below, and in our 2020 Annual Report on Form 10-K, Note 2, “Significant Accounting Policies,” under “Contractual Provisions That May Adjust or Limit Revenue or Profit,” and “Quality Incentives.”

Contractual Provisions That May Adjust or Limit Revenue or Profit

Many of our contracts contain provisions that may adjust or limit revenue or profit, which include those provisions with significant interim period balances described in further detail below. We recognize premium revenue as it is earned under such provisions. Liabilities accrued for premiums to be returned under such provisions are reported in the aggregate as “Amounts due government agencies,” in the accompanying consolidated balance sheets. Categorized by segment, such amounts due government agencies included the following:


	March 31, 2021		December 31, 2020

	(In millions)
Medicaid:
Minimum MLR and profit sharing	$	735	$	513
Other	167		76
Medicare:
Risk adjustment and Part D risk sharing	75		45
Minimum MLR and profit sharing	105		62
Other	42		30
Marketplace:
Risk adjustment	520		326
Minimum MLR	47		37
Other	27		21
Magellan Complete Care acquisition opening balance	—		143
Total amounts due government agencies	$	1,718	$	1,253

Medicaid

Minimum MLR and Retroactive Premium Adjustments. State Medicaid programs periodically adjust premium rates on a retroactive basis. In these cases, we adjust our premium revenue in the period in which we determine that the adjustment is probable and reasonably estimable, and is based on our best estimate of the ultimate premium we expect to realize for the period being adjusted.

Beginning in 2020, through March 31, 2021, various states enacted temporary risk corridors in response to the reduced demand for medical services stemming from COVID-19, which have resulted in a reduction of our medical margin. In some cases, these risk corridors were retroactive to earlier periods in 2020, or as early as the beginning

Molina Healthcare, Inc. March 31, 2021 Form 10-Q | 9

Table of Contents

of the states’ fiscal years in 2019. Beginning in the second quarter of 2020, we have recognized retroactive risk corridors that we believe to be probable, and where the ultimate premium amount is reasonably estimable. In the first quarter of 2021, we recognized approximately $110 million related to such risk corridors, primarily in the Medicaid segment.

It is possible that certain states could increase the level of existing risk corridors, and other states could implement some form of retroactive risk corridors in the future. Due to these uncertainties, the ultimate outcomes could differ materially from our estimates as a result of changes in facts or further developments, which could have an adverse effect on our consolidated financial position, results of operations, or cash flows.

Marketplace

Risk Adjustment. Under this program, our health plans’ composite risk scores are compared with the overall average risk score for the relevant state and market pool. Generally, our health plans will make a risk adjustment payment into the pool if their composite risk scores are below the average risk score (risk adjustment payable), and will receive a risk adjustment payment from the pool if their composite risk scores are above the average risk score (risk adjustment receivable). We estimate our ultimate premium based on insurance policy year-to-date experience, and recognize estimated premiums relating to the risk adjustment program as an adjustment to premium revenue in our consolidated statements of income. As of March 31, 2021, Marketplace risk adjustment payables amounted to $520 million and related receivables amounted to $20 million, for a net payable of $500 million, of which $211 million related to 2021, and $289 million related primarily to 2020. As of December 31, 2020, Marketplace risk adjustment payables amounted to $326 million and related receivables amounted to $20 million, for a net payable of $306 million.

Concentrations of Credit Risk

Financial instruments that potentially subject us to concentrations of credit risk consist primarily of cash and cash equivalents, investments, receivables, and restricted investments. Our investments and a portion of our cash equivalents are managed by professional portfolio managers operating under documented investment guidelines. Our portfolio managers must obtain our prior approval before selling investments where the loss position of those investments exceeds certain levels. Our investments consist primarily of investment-grade debt securities with final maturities of less than 10 years, or less than 10 years average life for structured securities. Restricted investments are invested principally in cash, cash equivalents, and U.S. Treasury securities. Concentration of credit risk with respect to accounts receivable is limited because our payors consist principally of the federal government, and the local governments of the states in which our health plan subsidiaries operate.

Income Taxes

The provision for income taxes is determined using an estimated annual effective tax rate, which generally differs from the U.S. federal statutory rate primarily because of foreign and state taxes, and nondeductible expenses such as certain compensation and other general and administrative expenses.

The effective tax rate may be subject to fluctuations during the year as new information is obtained. Such information may affect the assumptions used to estimate the annual effective tax rate, including projected pretax earnings, the mix of pretax earnings in the various tax jurisdictions in which we operate, valuation allowances against deferred tax assets, the recognition or the reversal of the recognition of tax benefits related to uncertain tax positions, and changes in or the interpretation of tax laws in jurisdictions where we conduct business. We recognize deferred tax assets and liabilities for temporary differences between the financial reporting basis and the tax basis of our assets and liabilities, along with net operating loss and tax credit carryovers.

Recent Accounting Pronouncements

Various recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the American Institute of Certified Public Accountants, and the Securities and Exchange Commission (“SEC”) did not have, nor does management expect such pronouncements to have, a significant impact on our present or future consolidated financial statements.

Molina Healthcare, Inc. March 31, 2021 Form 10-Q | 10

Table of Contents

3. Net Income per Share

The following table sets forth the calculation of net income per share:


	Three Months Ended March 31,
	2021		2020

	(In millions, except net income per share)
Numerator:
Net income	$	228	$	178
Denominator:
Shares outstanding at the beginning of the period	58.0		61.9
Weighted-average number of shares issued:
Stock purchases	(0.4)		(1.7)
Stock-based compensation	0.1		—
Denominator for basic net income per share	57.7		60.2
Effect of dilutive securities: (1)
Stock-based compensation	0.9		0.7
Other	—		0.1
Denominator for diluted net income per share	58.6		61.0

Net income per share - Basic (2)	$	3.95	$	2.95
Net income per share - Diluted (2)	$	3.89	$	2.92

______________________________

(1) The dilutive effect of all potentially dilutive common shares is calculated using the treasury stock method.

(2) Source data for calculations in thousands.

4. Business Combinations

On December 31, 2020, we closed on our acquisition of 100% of the outstanding equity interests of the Magellan Complete Care line of business of Magellan Health, Inc., for total purchase consideration of approximately $1,037 million. In the first quarter of 2021, we recorded various measurement period adjustments, including an increase of $6 million to “Receivables,” a decrease of $25 million to “Medical claims and benefits payable,” and an increase of $33 million to “Amounts due government agencies.” In the aggregate, we recorded a net decrease of $6 million to goodwill for these measurement period adjustments and various purchase price adjustments.

Refer to Note 10, “Segments” for further information regarding the allocation of goodwill and intangible assets, net, by reportable segment.

5. Fair Value Measurements

We generally consider the carrying amounts of current assets and current liabilities to approximate their fair values because of the relatively short period of time between the origination of these instruments and their expected realization or payment. For our financial instruments measured at fair value on a recurring basis, we prioritize the inputs used in measuring fair value according to the three-tier fair value hierarchy. For a description of the methods and assumptions used to: a) estimate the fair value; and b) determine the classification according to the fair value hierarchy for each financial instrument, refer to our 2020 Annual Report on Form 10-K, Note 5, “Fair Value Measurements.”

Molina Healthcare, Inc. March 31, 2021 Form 10-Q | 11

Table of Contents

Our financial instruments measured at fair value on a recurring basis at March 31, 2021, were as follows:


			Observable Inputs		Directly or Indirectly Observable Inputs		Unobservable Inputs
	Total		(Level 1)		(Level 2)		(Level 3)

	(In millions)
Corporate debt securities	$	1,188	$	—	$	1,188	$	—
Mortgage-backed securities	429		—		429		—
Asset-backed securities	152		—		152		—
U.S. Treasury notes	97		—		97		—
Municipal securities	72		—		72		—



Total assets	$	1,938	$	—	$	1,938	$	—

Contingent consideration liabilities	$	31	$	—	$	—	$	31
Total liabilities	$	31	$	—	$	—	$	31

Our financial instruments measured at fair value on a recurring basis at December 31, 2020, were as follows:


			Observable Inputs		Directly or Indirectly Observable Inputs		Unobservable Inputs
	Total		(Level 1)		(Level 2)		(Level 3)

	(In millions)
Corporate debt securities	$	1,256	$	—	$	1,256	$	—
Mortgage-backed securities	392		—		392		—
Asset-backed securities	132		—		132		—
U.S. Treasury notes	27		—		27		—
Municipal securities	68		—		68		—



Total assets	$	1,875	$	—	$	1,875	$	—

Contingent consideration liabilities	$	46	$	—	$	—	$	46
Total liabilities	$	46	$	—	$	—	$	46

The net changes in fair value of Level 3 financial instruments are reported in “Other” operating expenses in our consolidated statements of income. In the first quarter of 2021, we recognized a loss of $8 million for the increase in the fair value of the contingent consideration liabilities described below.

Contingent Consideration Liabilities

As of March 31, 2021, our Level 3 financial instruments recorded at fair value on a recurring basis included contingent consideration liabilities of $31 million, in connection with our 2020 acquisition of certain assets of Passport Health Plan, Inc., a Medicaid health plan in Kentucky. In the first quarter of 2021, the contingent purchase consideration relating to 2021 member enrollment was finalized and half the consideration due, or $23 million, was paid to the seller. We expect to pay the remaining balance of the liabilities, reported in “Accounts payable, accrued liabilities and other” in the accompanying consolidated balance sheets, later in 2021 and in the first quarter of 2022. The portion of the contingent purchase consideration paid in the first quarter 2021 has been presented primarily in “Financing activities” in the accompanying consolidated statements of cash flows, with the balance reflected in “Operating activities.”

Molina Healthcare, Inc. March 31, 2021 Form 10-Q | 12

Table of Contents

Fair Value Measurements – Disclosure Only

The carrying amounts and estimated fair values of our notes payable are classified as Level 2 financial instruments. Fair value for these securities is determined using a market approach based on quoted market prices for similar securities in active markets or quoted prices for identical securities in inactive markets.


	March 31, 2021				December 31, 2020
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
	(In millions)
4.375% Notes	$	790	$	822	$	789	$	843
5.375% Notes	697		736		697		742
3.875% Notes	641		665		641		691
Total	$	2,128	$	2,223	$	2,127	$	2,276

6. Investments

Available-for-Sale

We consider all our investments classified as current assets to be available-for-sale. The following tables summarize our investments as of the dates indicated:


	March 31, 2021
	Amortized Cost		Gross Unrealized				Estimated Fair Value
			Gains		Losses

	(In millions)
Corporate debt securities	$	1,162	$	27	$	1	$	1,188
Mortgage-backed securities	424		6		1		429
Asset-backed securities	150		2		—		152
U.S. Treasury notes	97		—		—		97
Municipal securities	71		1		—		72



Total	$	1,904	$	36	$	2	$	1,938


	December 31, 2020
	Amortized Cost		Gross Unrealized				Estimated Fair Value
			Gains		Losses

	(In millions)
Corporate debt securities	$	1,220	$	36	$	—	$	1,256
Mortgage-backed securities	383		10		1		392
Asset-backed securities	130		2		—		132
U.S. Treasury notes	27		—		—		27
Municipal securities	66		2		—		68



Total	$	1,826	$	50	$	1	$	1,875

Molina Healthcare, Inc. March 31, 2021 Form 10-Q | 13

Table of Contents

The contractual maturities of our available-for-sale investments as of March 31, 2021 are summarized below:


	Amortized Cost		Estimated Fair Value

	(In millions)
Due in one year or less	$	428	$	429
Due after one year through five years	948		974
Due after five years through ten years	167		169
Due after ten years	361		366
Total	$	1,904	$	1,938

Gross realized gains and losses from sales of available-for-sale securities are calculated under the specific identification method and are included in investment income. Gross realized investment gains were insignificant in the three months ended March 31, 2021, and amounted to $5 million in the three months ended March 31, 2020. Gross realized investment losses were insignificant in the three months ended March 31, 2021, and 2020.

We have determined that unrealized losses at March 31, 2021, and December 31, 2020, primarily resulted from fluctuating interest rates, rather than a deterioration of the creditworthiness of the issuers. Therefore, we determined that an allowance for credit losses was not necessary. So long as we maintain the intent and ability to hold these securities to maturity, we are unlikely to experience losses. In the event that we dispose of these securities before maturity, we expect that realized losses, if any, will be insignificant.

The following table summarizes those available-for-sale investments that have been in a continuous loss position for less than 12 months. No investments have been in a continuous loss position for 12 months or more as of March 31, 2021, and December 31, 2020.


	March 31, 2021					December 31, 2020
	Estimated Fair Value		Unrealized Losses		Total Number of Positions	Estimated Fair Value		Unrealized Losses		Total Number of Positions

	(Dollars in millions)
Corporate debt securities	$	175	$	1	78	$	—	$	—	—
Mortgage-backed securities	101		1		34	77		1		21






Total	$	276	$	2	112	$	77	$	1	21

Held-to-Maturity

Pursuant to the regulations governing our state health plan subsidiaries, we maintain statutory deposits and deposits required by government authorities primarily in cash, cash equivalents, and U.S. Treasury securities. We also maintain restricted investments as protection against the insolvency of certain capitated providers. The use of these funds is limited as required by regulations in the various states in which we operate, or as needed in the event of insolvency of capitated providers. Therefore, such investments are reported as “Restricted investments” in the accompanying consolidated balance sheets.

We have the ability to hold these restricted investments until maturity, and as a result, we would not expect the value of these investments to decline significantly due to a sudden change in market interest rates. Our held-to-maturity restricted investments are carried at amortized cost, which approximates fair value. Such investments amounted to $138 million at March 31, 2021, of which $122 million will mature in one year or less, and $16 million will mature in after one through five years.

Molina Healthcare, Inc. March 31, 2021 Form 10-Q | 14

Table of Contents

7. Medical Claims and Benefits Payable

The following table provides the details of our medical claims and benefits payable as of the dates indicated:


	March 31, 2021		December 31, 2020

	(In millions)
Fee-for-service claims incurred but not paid (“IBNP”)	$	2,008	$	1,647
Pharmacy payable	217		157
Capitation payable	93		70
Other	521		528
Magellan Complete Care acquisition opening balance	—		294
Total	$	2,839	$	2,696

“Other” medical claims and benefits payable includes amounts payable to certain providers for which we act as an intermediary on behalf of various government agencies without assuming financial risk. Such receipts and payments do not impact our consolidated statements of income. Non-risk provider payables amounted to $222 million and $235 million as of March 31, 2021, and December 31, 2020, respectively.

The following table presents the components of the change in our medical claims and benefits payable for the periods indicated, with the prior period recast to conform to the current year presentation. The amounts presented for “Components of medical care costs related to: Prior years” represent the amounts by which our original estimates of medical claims and benefits payable at the beginning of the year were more than the actual liabilities, based on information (principally the payment of claims) developed since those liabilities were first reported.


	Three Months Ended March 31, 2021
	Medicaid		Medicare		Marketplace		Consolidated

	(In millions)
Medical claims and benefits payable, beginning balance	$	2,129	$	392	$	175	$	2,696
Components of medical care costs related to:
Current year	4,394		738		536		5,668
Prior years	(158)		(16)		(20)		(194)
Total medical care costs	4,236		722		516		5,474
Payments for medical care costs related to:
Current year	2,790		410		313		3,513
Prior years	1,364		304		113		1,781
Total paid	4,154		714		426		5,294
Change in acquired balances	8		(33)		—		(25)
Change in non-risk and other provider payables	(11)		(1)		—		(12)
Medical claims and benefits payable, ending balance	$	2,208	$	366	$	265	$	2,839

Molina Healthcare, Inc. March 31, 2021 Form 10-Q | 15

Table of Contents


	Three Months Ended March 31, 2020
	Medicaid		Medicare		Marketplace		Consolidated

	(In millions)
Medical claims and benefits payable, beginning balance	$	1,465	$	267	$	122	$	1,854
Components of medical care costs related to:
Current year	2,991		543		283		3,817
Prior years	(70)		(26)		(5)		(101)
Total medical care costs	2,921		517		278		3,716
Payments for medical care costs related to:
Current year	1,786		324		164		2,274
Prior years	1,014		205		86		1,305
Total paid	2,800		529		250		3,579
Change in non-risk and other provider payables	(10)		—		—		(10)
Medical claims and benefits payable, ending balance	$	1,576	$	255	$	150	$	1,981

Our estimates of medical claims and benefits payable recorded at December 31, 2020, and 2019 developed favorably by approximately $194 million and $101 million as of March 31, 2021, and 2020, respectively.

The favorable prior period development recognized in the first quarter of 2021 was primarily due to lower than expected utilization of medical services by our Medicaid members and improved operating performance. Consequently, the ultimate costs recognized in 2021, as claims payments were processed, were lower than our original estimates in 2020.

8. Debt

All long-term debt is held at the parent, which is reported in the Other segment. The following table summarizes our outstanding debt obligations, all of which are non-current as of the dates reported below:


	March 31, 2021		December 31, 2020

	(In millions)





4.375% Notes due 2028	$	800	$	800
5.375% Notes due 2022	700		700
3.875% Notes due 2030	650		650
Deferred debt issuance costs	(22)		(23)
Total	$	2,128	$	2,127

Credit Agreement

We are party to a credit agreement (“Credit Agreement”) which includes a revolving credit facility (“Credit Facility”) of $1.0 billion, among other provisions. The Credit Agreement has a term of five years, and all amounts outstanding will be due and payable on June 8, 2025. Borrowings under the Credit Agreement bear interest based, at our election, on a base rate or other defined rate, plus in each case, the applicable margin. In addition to interest payable on the principal amount of indebtedness outstanding from time to time under the Credit Agreement, we are required to pay a quarterly commitment fee.

The Credit Agreement contains customary non-financial and financial covenants. As of March 31, 2021, we were in compliance with all financial and non-financial covenants under the Credit Agreement and other long-term debt. As of March 31, 2021, no amounts were outstanding under the Credit Facility.

High-Yield Senior Notes

Our high-yield senior notes are described below. Each of these notes are senior unsecured obligations of Molina Healthcare, and rank equally in right of payment with all existing and future senior debt, and senior to all existing and future subordinated debt of Molina Healthcare. In addition, each of the notes contain customary non-financial covenants and change of control provisions.

Molina Healthcare, Inc. March 31, 2021 Form 10-Q | 16

Table of Contents

The indentures governing the high-yield senior notes contain cross-default provisions that are triggered upon default by us or any of our subsidiaries on any indebtedness in excess of the amount specified in the applicable indenture.

4.375% Notes due 2028. We had $800 million aggregate principal amount of senior notes (the “4.375% Notes”) outstanding as of March 31, 2021, which are due June 15, 2028, unless earlier redeemed. Interest, at a rate of 4.375% per annum, is payable semiannually in arrears on June 15 and December 15.

5.375% Notes due 2022. We had $700 million aggregate principal amount of senior notes (the “5.375% Notes”) outstanding as of March 31, 2021, which are due November 15, 2022, unless earlier redeemed. Interest, at a rate of 5.375% per annum, is payable semiannually in arrears on May 15 and November 15.

3.875% Notes due 2030. We had $650 million aggregate principal amount of senior notes (the “3.875% Notes”) outstanding as of March 31, 2021, which are due November 15, 2030, unless earlier redeemed. Interest, at a rate of 3.875% per annum, is payable semiannually in arrears on May 15 and November 15 of each year, commencing on May 15, 2021.

9. Stockholders' Equity

In September 2020, our board of directors authorized the purchase of up to $500 million, in the aggregate, of our common stock. This program is funded with cash on hand and extends through December 31, 2021. The exact timing and amount of any repurchase is determined by management based on market conditions and share price, in addition to other factors, and subject to the restrictions relating to volume, price, and timing under applicable law. Under this program, pursuant to a Rule 10b5-1 trading plan, we purchased approximately 577,000 shares for $122 million in January and February 2021 (average cost of $211.65). In the first quarter of 2021, we also paid $6 million to settle shares purchased in late December 2020.

10. Segments

In the first quarter of 2021, we realigned our reportable operating segments to reflect recent changes in our internal operating and reporting structure, which is now organized by government program. The revised reporting structure reflects the reporting and review process used by our chief executive officer (who is our chief operating decision maker) to assess performance and allocate resources, and is consistent with how we currently manage the business and view the markets we serve. These reportable segments consist of: 1) Medicaid; 2) Medicare; 3) Marketplace; and 4) Other.

The Medicaid, Medicare, and Marketplace segments represent the government-funded or sponsored programs under which we offer managed healthcare services. The Other segment, which is insignificant to our consolidated results of operations, includes certain corporate amounts not associated with or allocated to the Medicaid, Medicare, or Marketplace segments. Additionally, the Other segment includes service revenues and service costs associated with the long-term services and supports consultative services we now provide in Wisconsin, as a result of the Magellan Complete Care acquisition on December 31, 2020.

The key metrics used to assess the performance of our Medicaid, Medicare, and Marketplace segments are premium revenue, medical margin and MCR. MCR represents the amount of medical care costs as a percentage of premium revenue. Therefore, the underlying medical margin, or the amount earned by the Medicaid, Medicare, and Marketplace segments after medical costs are deducted from premium revenue, represents the most important measure of earnings reviewed by management, and is used by our chief executive officer to review results, assess performance, and allocate resources. The key metric used to assess the performance of our Other segment is service margin. The service margin is equal to service revenue minus cost of service revenue. We do not report total assets by segment since this is not a metric used to assess segment performance or allocate resources.

For all tables presented below, the prior period disclosures have been recast to conform to the current period segment presentation.

Molina Healthcare, Inc. March 31, 2021 Form 10-Q | 17

Table of Contents

The following table presents total revenue by segment. Inter-segment revenue was insignificant for all periods presented.


	Three Months Ended March 31,
	2021		2020

	(In millions)
Total revenue:
Medicaid	$	5,020	$	3,517
Medicare	805		639
Marketplace	680		393
Other	17		—
Total	$	6,522	$	4,549

The following table presents goodwill and intangibles assets, net by segment. For the Magellan Complete Care acquisition completed on December 31, 2020, the total purchase price was preliminarily allocated to tangible and intangible assets acquired, and liabilities assumed, based on their fair values as of the acquisition date. We expect to complete the final determination of the purchase price allocation no later than December 31, 2021, which may result in adjustments to the related goodwill and intangible assets, net.


	March 31,		December 31,
	2021		2020

	(In millions)
Goodwill:
Medicaid	$	372	$	378
Medicare	247		247
Other	67		67
Intangibles assets, net:
Medicaid	150		157
Medicare	72		76
Other	15