HTN’s View:
The narrowing gap between Medicaid rates and medical trend puts Molina in a strong position heading into 2027, although HTN sees meaningful uncertainty around the acuity impacts of the H.R.1 work requirements and state budget pressure.
Molina’s relatively lean adjusted G&A ratio, expected to be 6.4% for FY 2026, seems somewhat in tension with its high acuity strategy in both Medicaid (e.g., the FL Children’s Medical Services contract) and its newly streamlined Medicare Advantage dual-eligible business.
After two years of unexpectedly disappointing Marketplace performance, HTN is interested to see how Molina navigates the upcoming open enrollment and the strategic questions if it continues to be an anchor on earnings.
Molina Healthcare reports Q3 results in what is hopefully a trough year
Premium revenue of ~$10.5b, down 3.5% YoY
Adjusted EPS of $0.89, down ~51.6% YoY
Adjusted pre-tax margin of 0.6%, down 40 bps YoY
Consolidated MCR of 92.9%, up 30 bps YoY
Medicaid MCR of 93.0%, up 100 bps YoY
Medicare MCR of 93.0%, down 60 bps YoY
Marketplace MCR of 92.5%, down 310 bps YoY
Molina’s Medicaid cost per member still outpaces premium per member, but the gap is narrowing
While UnitedHealthcare and Elevance both said the gap between rates and trend is narrowing, Molina Healthcare breaks out revenue, membership, and medical costs by line of business, showing the gap starting to close both YoY and sequentially.
An early read on 2027 rates vs trend: ~6% rate increase against 5.5-6% trend
Average January 1st draft rate increases are ~7%, with 55% of premium revenue renewing at the start of the year. Acuity shifts from the implementation of H.R.1 are being contemplated in rate negotiations with states, in some cases with updated rates and in other cases a willingness to consider an off-cycle rate increase; Nebraska’s early implementation and Molina’s favorable experience offer a limited read-through into disenrollments and acuity because of its more generous medical frailty approach.
>$9.50 in adjusted EPS after bringing Florida CMS and ACA up to break-even and exiting MAPD
Management reaffirmed FY 2026 guidance of at least $5.25 per share and shared the building blocks to at least $9.50 per share before accounting for Medicaid MCR improvement.
Two years of big MCR misses loom over Marketplace turnaround story
Molina’s biggest challenge on the path to >$9.50 is ACA marketplace performance after two disappointing years, including this year where several peers rebounded in their marketplace businesses.
Molina has the lowest admin costs among public payers– somewhat in tension with a high acuity strategy
Like much of the managed care market, Molina is betting big on a higher-acuity strategy in both its Medicaid business—see the Florida Children’s Medicaid contract it’s taking over from Centene—and its D-SNP strategy in Medicare Advantage. Whether Molina can effectively manage a higher acuity population while also maintaining the lowest SG&A ratio among its peers is a question the HTN team and D-SNP experts in the HTN community are pondering.
