Dive Brief:
- Molina's net income fell sharply in the fourth quarter as the insurer was forced to refund rates to some of its state partners as COVID-19 continues to depress normal care utilization, CEO Joe Zubretsky told investors Thursday.
- Although utilization remained curtailed, COVID-19 costs were higher in the fourth quarter than any other quarter in 2020, Zubretsky said. As such, Molina's medical care ratio for the quarter increased to 90.8% from 86% the prior-year period.
- Still, Molina remained in the black for the full year of 2020. Looking ahead, the company expects utilization to improve, though does not expect it to rebound entirely. At the same time, the company expects direct COVID-19 costs to come in lower than last year.
Dive Insight:
Insurers have largely remained unbruised from the pandemic, unlike some providers, but the fourth quarter was a different story.
The pandemic took a bite out of Molina's net income in the fourth quarter as the company reported that figure fell to $34 million from $168 million in Q4 2019.
The biggest contributor to the impact on the bottom line was Medicaid refunds to states, including California, Michigan and Ohio. States have clawed back some of the money they pay insurers like Molina as members continue to defer care, which is a benefit to insurers as they then pay out less.
Molina painted a clearer picture of this scenario during Thursday's conference call with investors.
For the full year, Molina estimated that medical cost suppression amounted to $620 million while direct COVID-19 costs amounted to $200 million. In other words, curbed utilization continued to outweigh direct COVID-19 costs, resulting in a $420 million benefit from the pandemic, which the company characterized as a surplus.
But states took back a total of $565 million through rate refunds. Overall, the net impact of COVID-19 was a $180 million hit to Molina for 2020 when factoring in other costs.
Looking ahead, executives seemed cautiously optimistic for 2021 but noted headwinds from the pandemic will persist. While the forecast reflects future growth, Zubretsky said, "it is a constrained picture" of the company's potential earnings.
Some of those headwinds include Medicare risk scores that don't fully capture the acuity of their Medicare members. As seniors put off care in 2020, companies like Molina were unable to capture diagnosis codes to help them determine how sick members are and the ultimate risk they pose.
Still, there are some bright spots. As the public health emergency is likely to be continued throughout the remainder of the year, it means that redeterminations will remain halted, or, in other words, Medicaid members will not be kicked off coverage.
This was a boon for Molina in 2020, as it allowed them to pick up a significant number of new members. Overall, it was a major catalyst for Medicaid membership growth in 2020, Zubretsky said.
Molina expects care utilization to improve this year but not fully return to normal. Instead, it expects utilization suppression to be about one third of 2020 levels.
Molina, which solely focuses its portfolio on government sponsored and marketplace plans, said it expects to pick up as many as 30,000 additional members during the Affordable Care Act special enrollment period.
Opening up a special enrollment period was one of the first moves made by the new administration in the White House. Zubretsky seems enthused by the recent moves through executive orders and the unfolding bill developments in Congress that are looking to raise premium subsidies on the exchanges.
Those early actions "just couldn't be better for government sponsored managed care, and we're pleased to see that progress already being made," Zubretsky said.