Molina Healthcare, Inc. — FY2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022; comparisons are with FY2021. Molina provides government-sponsored managed healthcare, serving 5.258 million members across 19 states at year-end.
Financial performance
| Metric | FY2022 | FY2021 | Change |
|---|---|---|---|
| Total revenue | $31.974 billion | $27.771 billion | Up 15% |
| Premium revenue | $30.883 billion | $26.855 billion | Up 15% |
| Operating income | $1.173 billion | $1.020 billion | Up 15% |
| Net income | $792 million | $659 million | Up 20% |
| Diluted EPS | $13.55 | $11.25 | Up 20% |
| Medical care ratio (MCR) | 88.0% | 88.3% | Improved 0.3 percentage points |
| G&A ratio | 7.2% | 7.4% | Improved 0.2 percentage points |
| Operating cash flow | $773 million | $2.119 billion | Down $1.346 billion |
Growth in revenue and operating income reflected acquisitions, Medicaid and Medicare membership gains, and improved Medicaid operating performance. Results also included $143 million of investment income, versus $52 million in 2021. Net income per diluted share benefited from share repurchases.
By segment, Medicaid premium revenue rose to $24.827 billion from $20.461 billion, Medicare rose to $3.795 billion from $3.361 billion, and Marketplace declined to $2.261 billion from $3.033 billion. Year-end membership was 4.754 million Medicaid, 156,000 Medicare, and 348,000 Marketplace members.
Financial position and liquidity
At December 31, 2022, cash and investments totaled $7.7 billion, versus $7.9 billion a year earlier; working capital was $3.2 billion, versus $3.0 billion. Long-term debt was $2.176 billion, consisting of senior notes due 2028, 2030, and 2032. No amount was drawn on the $1.0 billion revolving credit facility; the company reported compliance with debt covenants and stated liquidity was sufficient for at least the next 12 months.
Cash from operations fell to $773 million, principally due to timing and settlement of government receivables and payables, including Marketplace risk-adjustment payments and Medicaid minimum-MLR and risk-corridor settlements. Cash used in financing included $400 million of share repurchases. Regulated subsidiaries paid $668 million in dividends to the parent, subject to regulatory limits.
Material changes, outlook, and notable items
- Medicaid redeterminations: States could resume renewals and disenrollments starting April 1, 2023. Molina expected membership and premium revenue to decline, estimating it would retain about half of pandemic-era new Medicaid enrollees. The actual outcome and remaining-member acuity were uncertain.
- 2023 operating outlook: Management expected Marketplace membership to decline about 30% to approximately 230,000 by year-end, consistent with its pricing and product strategy. It expected Marketplace MCR to return within its 78%–80% target range; 2022 Marketplace MCR was 87.2%. Medicaid MCR was at the low end of its 88%–89% long-term target, while Medicare MCR of 88.5% was above its 87%–88% target, partly reflecting COVID effects.
- Growth and costs: New or expanded state contracts and acquisitions were expected to support growth, while 2023 results could be affected by redeterminations, lower Marketplace enrollment, Medicaid pharmacy carve-outs, nonrecurring Texas directed payments from 2022, and startup costs for expansions in Los Angeles County, Iowa, and Nebraska. My Choice Wisconsin, with an expected purchase price of about $150 million, was expected to close in mid-2023, subject to approvals.
- Unusual charge and COVID effects: Molina recorded a $208 million fourth-quarter impairment charge related to reducing leased space and moving to permanent remote work. The estimated net effect of COVID reduced 2022 diluted EPS by $2.50, compared with $3.50 in 2021. COVID-related risk-corridor impacts were approximately $197 million in 2022, down from $323 million in 2021.
- Other material risks and contingencies: Key risks include medical-cost and claims-reserve estimation, rate adequacy and state funding pressures, contract renewals and concentration in major states, pharmacy-cost inflation, cyber and vendor incidents, and integration of acquisitions. The Kentucky Medicaid contract award remained under legal challenge; separate Puerto Rico litigation was ongoing, with no outcome predicted by the company.
Important facts for investors to verify
- Actual Medicaid enrollment, retention, member acuity, and state rate adjustments as redeterminations proceed.
- Whether medical-cost trends and MCRs remain within management’s segment targets, particularly in Medicare and Marketplace.
- Claims-reserve development: the filing reports $2.597 billion of fee-for-service IBNP and identifies the estimate as a critical audit matter.
- Cash generation, government settlement timing, regulated-subsidiary dividend capacity, and the impact of investment-rate movements.
- Execution, regulatory approval, startup costs, and realized returns from contract expansions and acquisitions; status of the Kentucky and Puerto Rico proceedings.
The financial statements received an unqualified audit opinion, and the auditor also reported effective internal control over financial reporting as of December 31, 2022.