SEC Filing | Molina Healthcare Inc.

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moh-20210930

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 September 30, 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/007bd3aebf552e6d004f2a7efcb0ea3a-moh-20210930_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 Section 13(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 October 22, 2021, was approximately 58,400,000.

Table of Contents

MOLINA HEALTHCARE, INC. FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 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	21

3.	Quantitative and Qualitative Disclosures About Market Risk	36

4.	Controls and Procedures	36

PART II

1.	Legal Proceedings	36

1A.	Risk Factors	36

2.	Unregistered Sales of Equity Securities and Use of Proceeds	37

3.	Defaults Upon Senior Securities	Not Applicable.

4.	Mine Safety Disclosures	Not Applicable.

5.	Other Information	Not Applicable.

6.	Exhibits	38

	Signatures	39

Table of Contents

CONSOLIDATED STATEMENTS OF INCOME


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020

	(In millions, except per-share amounts) (Unaudited)
Revenue:
Premium revenue	$	6,800	$	4,768	$	19,689	$	13,444
Premium tax revenue	204		170		576		477
Health insurer fees reimbursed	—		69		—		206
Investment income	20		10		39		48
Other revenue	16		4		58		13
Total revenue	7,040		5,021		20,362		14,188
Operating expenses:
Medical care costs	6,049		4,098		17,342		11,412
General and administrative expenses	532		368		1,489		1,030
Premium tax expenses	204		170		576		477
Health insurer fees	—		70		—		209
Depreciation and amortization	32		23		96		64
Other	2		3		30		9
Total operating expenses	6,819		4,732		19,533		13,201
Operating income	221		289		829		987
Other expenses, net:
Interest expense	30		27		90		72
Other expense, net	—		—		—		5
Total other expenses, net	30		27		90		77
Income before income tax expense	191		262		739		910
Income tax expense	48		77		183		271
Net income	$	143	$	185	$	556	$	639

Net income per share - Basic	$	2.49	$	3.14	$	9.63	$	10.80
Net income per share - Diluted	$	2.46	$	3.10	$	9.51	$	10.65

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020

	(In millions) (Unaudited)
Net income	$	143	$	185	$	556	$	639
Other comprehensive loss income:
Unrealized investment (loss) income	(13)		6		(27)		43
Less: effect of income taxes	(4)		1		(7)		10
Other comprehensive (loss) income, net of tax	(9)		5		(20)		33
Comprehensive income	$	134	$	190	$	536	$	672

See accompanying notes.

Molina Healthcare, Inc. September 30, 2021 Form 10-Q | 3

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CONSOLIDATED BALANCE SHEETS


	September 30, 2021		December 31, 2020

	(Dollars in millions, except per-share amounts)
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	4,357	$	4,154
Investments	2,900		1,875
Receivables	1,912		1,672
Prepaid expenses and other current assets	197		175
Total current assets	9,366		7,876
Property, equipment, and capitalized software, net	385		391
Goodwill, and intangible assets, net	915		941
Restricted investments	156		136
Deferred income taxes	83		69
Other assets	128		119
Total assets	$	11,033	$	9,532

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Medical claims and benefits payable	$	3,191	$	2,696
Amounts due government agencies	2,081		1,253
Accounts payable, accrued liabilities and other	797		641
Deferred revenue	1		375
Total current liabilities	6,070		4,965
Long-term debt	2,130		2,127
Finance lease liabilities	220		225
Other long-term liabilities	95		119
Total liabilities	8,515		7,436
Stockholders’ equity:
Common stock, $0.001 par value, 150 million shares authorized; outstanding: 58 million shares at September 30, 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	205		199
Accumulated other comprehensive income	17		37
Retained earnings	2,296		1,860
Total stockholders’ equity	2,518		2,096
Total liabilities and stockholders’ equity	$	11,033	$	9,532

See accompanying notes.

Molina Healthcare, Inc. September 30, 2021 Form 10-Q | 4

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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
Net income	—	—		—		—		185		185










Share-based compensation	—	—		21		—		—		21
Balance at June 30, 2021	58	—		191		26		2,153		2,370
Net income	—	—		—		—		143		143









Other comprehensive loss, net	—	—		—		(9)		—		(9)
Share-based compensation	—	—		14		—		—		14
Balance at September 30, 2021	58	$	—	$	205	$	17	$	2,296	$	2,518


	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
Net income	—	—		—		—		276		276









Other comprehensive income, net	—	—		—		47		—		47
Share-based compensation	—	—		26		—		—		26
Balance at June 30, 2020	59	—		166		32		1,798		1,996
Net income	—	—		—		—		185		185









Other comprehensive income, net	—	—		—		5		—		5
Share-based compensation	—	—		15		—		—		15
Balance at September 30, 2020	59	$	—	$	181	$	37	$	1,983	$	2,201

See accompanying notes.

Molina Healthcare, Inc. September 30, 2021 Form 10-Q | 5

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CONSOLIDATED STATEMENTS OF CASH FLOWS


	Nine Months Ended September 30,
	2021		2020

	(In millions) (Unaudited)
Operating activities:
Net income	$	556	$	639
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	96		64
Deferred income taxes	(8)		(3)
Share-based compensation	49		43
Loss on debt repayment	—		5
Other, net	9		2
Changes in operating assets and liabilities:
Receivables	(247)		(369)
Prepaid expenses and other current assets	(43)		(98)
Medical claims and benefits payable	522		431
Amounts due government agencies	810		(24)
Accounts payable, accrued liabilities and other	129		63
Deferred revenue	(374)		(188)
Income taxes	23		34
Net cash provided by operating activities	1,522		599
Investing activities:
Purchases of investments	(2,018)		(670)
Proceeds from sales and maturities of investments	965		891
Purchases of property, equipment and capitalized software	(56)		(64)
Net cash paid in business combinations	—		(62)
Other, net	3		3
Net cash (used in) provided by investing activities	(1,106)		98
Financing activities:
Common stock purchases	(128)		(453)
Common stock withheld to settle employee tax obligations	(52)		(8)
Contingent consideration liabilities settled	(20)		—
Proceeds from senior notes offering, net of issuance costs	—		789
Repayment of term loan facility	—		(600)
Proceeds from borrowings under term loan facility	—		380





Other, net	(4)		(47)
Net cash (used in) provided by financing activities	(204)		61
Net increase in cash, cash equivalents, and restricted cash and cash equivalents	212		758
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	$	4,435	$	3,266

Molina Healthcare, Inc. September 30, 2021 Form 10-Q | 6

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

SEPTEMBER 30, 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 September 30, 2021, we served approximately 4.8 million members eligible for government-sponsored healthcare programs, located across 18 states.

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

New York Acquisition—Medicaid. On October 25, 2021, we closed on our acquisition of 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, net of certain tax benefits and allocation of required regulatory capital, which we funded with cash on hand.

New York Acquisition—Medicaid. On October 7, 2021, we announced a definitive agreement to acquire the Medicaid Managed Long Term Care business of AgeWell New York. As of August 31, 2021, AgeWell served approximately 13,000 managed long-term services and supports members, with full-year 2020 premium revenue of approximately $700 million. The purchase price for the transaction is approximately $110 million, net of certain tax benefits and target allocation of required regulatory capital, which we intend to fund with cash on hand. The transaction is subject to applicable federal and state regulatory approvals and the satisfaction of other customary closing conditions. We currently expect the transaction to close by the third quarter of 2022.

Nevada Procurement—Medicaid. On August 17, 2021, we announced that our Nevada health plan subsidiary was selected as an awardee in Clark and Washoe Counties. This new contract is expected to commence on January 1, 2022, and will offer health coverage to TANF, CHIP and Medicaid Expansion beneficiaries. The four year contract with a possible two year extension was ratified in September 2021.

California Procurement—Medicaid. The state currently expects a final RFP to be released in February 2022.

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 the receipt of applicable federal and state regulatory approvals and the satisfaction of other customary closing conditions. We currently expect the transaction to close in January 2022.

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 July 1, 2022, and will offer health care coverage to Medicaid beneficiaries through the state of Ohio’s Covered Family and Children, Expansion, and ABD programs.

Molina Healthcare, Inc. September 30, 2021 Form 10-Q | 7

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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 nine months ended September 30, 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 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 nine months ended September 30, 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.

Molina Healthcare, Inc. September 30, 2021 Form 10-Q | 8

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	September 30,
	2021		2020

	(In millions)
Cash and cash equivalents	$	4,357	$	3,196
Restricted cash and cash equivalents	78		70
Total cash, cash equivalents, and restricted cash and cash equivalents presented in the consolidated statements of cash flows	$	4,435	$	3,266

Receivables

Receivables consist primarily of premium amounts due from government agencies, which are subject to potential retroactive adjustments. Because substantially all of 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.


	September 30, 2021		December 31, 2020

	(In millions)
Government receivables	$	1,331	$	969
Pharmacy rebate receivables	264		178
Health insurer fee reimbursement receivables	25		104
Other	292		255
Magellan Complete Care acquisition opening balance	—		166
Total	$	1,912	$	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.”

Molina Healthcare, Inc. September 30, 2021 Form 10-Q | 9

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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:


	September 30, 2021		December 31, 2020

	(In millions)
Medicaid:
Minimum MLR and profit sharing	$	852	$	513
Other	249		76
Medicare:
Risk adjustment and Part D risk sharing	87		45
Minimum MLR and profit sharing	82		62
Other	41		30
Marketplace:
Risk adjustment	691		326
Minimum MLR	30		37
Other	49		21
Magellan Complete Care acquisition opening balance	—		143
Total amounts due government agencies	$	2,081	$	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. Our adjustment is based on our best estimate of the ultimate premium we expect to realize for the period being adjusted.

Beginning in 2020, through September 30, 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 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. For the three and nine months ended September 30, 2021, we recognized approximately $17 million and $183 million, respectively, related to such risk corridors, primarily in the Medicaid segment.

It is possible that certain states could change the structure of existing risk corridors, implement new risk corridors in the future or discontinue existing risk corridors. 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 September 30, 2021, Marketplace risk adjustment payables amounted to $691 million and related receivables amounted to $29 million, for a net payable of $662 million, of which $660 million related to 2021, and $2 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.

Molina Healthcare, Inc. September 30, 2021 Form 10-Q | 10

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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.

3. Net Income per Share

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


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020

	(In millions, except net income per share)
Numerator:
Net income	$	143	$	185	$	556	$	639
Denominator:
Shares outstanding at the beginning of the period	57.8		58.7		58.0		61.9
Weighted-average number of shares issued:
Stock purchases	—		—		(0.5)		(2.8)
Stock-based compensation	—		—		0.3		0.1
Denominator for basic net income per share	57.8		58.7		57.8		59.2
Effect of dilutive securities: (1)
Stock-based compensation	0.7		0.9		0.7		0.8

Denominator for diluted net income per share	58.5		59.6		58.5		60.0

Net income per share - Basic (2)	$	2.49	$	3.14	$	9.63	$	10.80
Net income per share - Diluted (2)	$	2.46	$	3.10	$	9.51	$	10.65

______________________________

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

(2) Source data for calculations in thousands.

Molina Healthcare, Inc. September 30, 2021 Form 10-Q | 11

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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 nine months ended September 30, 2021, we recorded various measurement period adjustments, including a decrease of $7 million to “Receivables,” a decrease of $27 million to “Medical claims and benefits payable,” and an increase of $18 million to “Amounts due government agencies.” In the aggregate, we recorded a net increase of $9 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.”

Our financial instruments measured at fair value on a recurring basis at September 30, 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	$	1,705	$	—	$	1,705	$	—
Mortgage-backed securities	610		—		610		—
U.S. Treasury notes	235		—		235		—
Asset-backed securities	224		—		224		—
Municipal securities	97		—		97		—



Other	29		—		29		—
Total assets	$	2,900	$	—	$	2,900	$	—

Contingent consideration liabilities	$	26	$	—	$	—	$	26
Total liabilities	$	26	$	—	$	—	$	26

Molina Healthcare, Inc. September 30, 2021 Form 10-Q | 12

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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		—
U.S. Treasury notes	27		—		27		—
Asset-backed securities	132		—		132		—
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 nine months ended September 30, 2021, we recognized a loss of $3 million for the increase in the fair value of the contingent consideration liabilities described below.

Contingent Consideration Liabilities

As of September 30, 2021, our Level 3 financial instruments recorded at fair value on a recurring basis included contingent consideration liabilities of $26 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. The portion of the contingent purchase consideration paid in the first quarter of 2021 has been presented primarily in “Financing activities” in the accompanying consolidated statements of cash flows for the nine months ended September 30, 2021, with the balance reflected in “Operating activities.” We expect to pay the remaining balance of the liabilities, reported in “Accounts payable, accrued liabilities and other” in the accompanying consolidated balance sheets, by the end of the first quarter of 2022.

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.


	September 30, 2021				December 31, 2020
	Carrying Amount		Fair Value		Carrying Amount		Fair Value

	(In millions)
4.375% Notes	$	790	$	835	$	789	$	843
5.375% Notes	698		725		697		742
3.875% Notes	642		688		641		691
Total	$	2,130	$	2,248	$	2,127	$	2,276

Molina Healthcare, Inc. September 30, 2021 Form 10-Q | 13

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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:


	September 30, 2021
	Amortized Cost		Gross Unrealized				Estimated Fair Value
			Gains		Losses

	(In millions)
Corporate debt securities	$	1,688	$	19	$	2	$	1,705
Mortgage-backed securities	607		4		1		610
U.S. Treasury notes	235		—		—		235
Asset-backed securities	223		1		—		224
Municipal securities	96		1		—		97



Other	29		—		—		29
Total	$	2,878	$	25	$	3	$	2,900


	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
U.S. Treasury notes	27		—		—		27
Asset-backed securities	130		2		—		132
Municipal securities	66		2		—		68



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

The contractual maturities of our available-for-sale investments as of September 30, 2021 are summarized below:


	Amortized Cost		Estimated Fair Value

	(In millions)
Due in one year or less	$	555	$	557
Due after one year through five years	1,530		1,546
Due after five years through ten years	296		298
Due after ten years	497		499
Total	$	2,878	$	2,900

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 amounted to $6 million and $7 million for the three and nine months ended September 30, 2021, respectively. Gross realized investment gains were insignificant for three months ended September 30, 2020, and amounted to $6 million for the nine months ended September 30, 2020. Gross realized investment losses were insignificant for the three and nine months ended September 30, 2021, and 2020.

We have determined that unrealized losses at September 30, 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.

Molina Healthcare, Inc. September 30, 2021 Form 10-Q | 14

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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 September 30, 2021, and December 31, 2020.


	September 30, 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	$	509	$	2	174	$	—	$	—	—
Mortgage-backed securities	270		1		94	77		1		21






Total	$	779	$	3	268	$	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 $156 million at September 30, 2021, of which $148 million will mature in one year or less, and $8 million will mature after one through five years.

7. Medical Claims and Benefits Payable