Company Quick10K Filing
Molina Healthcare
Price112.13 EPS12
Shares65 P/E9
MCap7,244 P/FCF18
Net Debt-1,472 EBIT1,018
TEV5,772 TEV/EBIT6
TTM 2019-09-30, in MM, except price, ratios
10-Q 2020-03-31 Filed 2020-05-01
10-K 2019-12-31 Filed 2020-02-14
10-Q 2019-09-30 Filed 2019-10-30
10-Q 2019-06-30 Filed 2019-07-31
10-Q 2019-03-31 Filed 2019-04-30
10-K 2018-12-31 Filed 2019-02-19
10-Q 2018-09-30 Filed 2018-11-01
10-Q 2018-06-30 Filed 2018-08-01
10-Q 2018-03-31 Filed 2018-04-30
10-K 2017-12-31 Filed 2018-03-01
10-Q 2017-09-30 Filed 2017-11-07
10-Q 2017-06-30 Filed 2017-08-02
10-Q 2017-03-31 Filed 2017-05-04
10-K 2016-12-31 Filed 2017-03-01
10-Q 2016-09-30 Filed 2016-10-27
10-Q 2016-06-30 Filed 2016-07-27
10-Q 2016-03-31 Filed 2016-05-03
10-K 2015-12-31 Filed 2016-02-26
10-Q 2015-09-30 Filed 2015-10-29
10-Q 2015-06-30 Filed 2015-07-30
10-Q 2015-03-31 Filed 2015-05-07
10-K 2014-12-31 Filed 2015-02-26
10-Q 2014-09-30 Filed 2014-10-30
10-Q 2014-06-30 Filed 2014-07-30
10-Q 2014-03-31 Filed 2014-05-01
10-K 2013-12-31 Filed 2014-02-26
10-Q 2013-09-30 Filed 2013-10-30
10-Q 2013-06-30 Filed 2013-07-25
10-Q 2013-03-31 Filed 2013-05-03
10-K 2012-12-31 Filed 2013-02-28
10-Q 2012-09-30 Filed 2012-10-26
10-Q 2012-06-30 Filed 2012-08-06
10-Q 2012-03-31 Filed 2012-05-09
10-K 2011-12-31 Filed 2012-02-29
10-Q 2011-09-30 Filed 2011-10-28
10-Q 2011-06-30 Filed 2011-07-27
10-Q 2011-03-31 Filed 2011-05-09
10-K 2010-12-31 Filed 2011-03-08
10-Q 2010-09-30 Filed 2010-11-04
10-Q 2010-06-30 Filed 2010-08-04
10-Q 2010-03-31 Filed 2010-05-10
10-K 2009-12-31 Filed 2010-03-16
8-K 2020-06-08
8-K 2020-06-02
8-K 2020-05-29
8-K 2020-05-28
8-K 2020-05-27
8-K 2020-05-14
8-K 2020-05-07
8-K 2020-04-30
8-K 2020-04-30
8-K 2020-04-14
8-K 2020-03-25
8-K 2020-03-09
8-K 2020-02-10
8-K 2020-01-13
8-K 2020-01-09
8-K 2020-01-06
8-K 2019-12-13
8-K 2019-12-02
8-K 2019-10-30
8-K 2019-10-29
8-K 2019-07-30
8-K 2019-05-30
8-K 2019-05-13
8-K 2019-04-29
8-K 2019-02-11
8-K 2019-02-04
8-K 2019-01-31
8-K 2019-01-07
8-K 2019-01-03
8-K 2018-10-31
8-K 2018-10-25
8-K 2018-10-01
8-K 2018-08-13
8-K 2018-07-31
8-K 2018-07-11
8-K 2018-07-09
8-K 2018-06-26
8-K 2018-06-18
8-K 2018-05-31
8-K 2018-05-25
8-K 2018-05-24
8-K 2018-05-23
8-K 2018-05-07
8-K 2018-04-30
8-K 2018-03-05
8-K 2018-02-28
8-K 2018-02-23
8-K 2018-02-12
8-K 2018-02-01
8-K 2018-01-10
8-K 2018-01-10
8-K 2018-01-08
8-K 2018-01-02

MOH 10Q Quarterly Report

EX-31.1 moh-3312020xex311.htm
EX-31.2 moh-3312020xex312.htm
EX-32.1 moh-3312020xex321.htm
EX-32.2 moh-3312020xex322.htm

Molina Healthcare Earnings 2020-03-31

Balance SheetIncome StatementCash Flow
10.08.06.04.02.00.02012201420172020
Assets, Equity
10.07.95.93.81.8-0.32012201420172020
Rev, G Profit, Net Income
0.80.50.2-0.2-0.5-0.82012201420172020
Ops, Inv, Fin

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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, 2020
OR
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
 
 
 
 
molinalogo2016a26.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 and posted 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 and post 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 24, 2020, was approximately 59,200,000.



MOLINA HEALTHCARE, INC. FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2020

TABLE OF CONTENTS
ITEM NUMBER
Page
 
 
 
PART I
 
 
 
 
1.
 
 
 
2.
 
 
 
3.
 
 
 
4.
 
 
 
PART II
 
 
 
 
1.
 
 
 
1A.
 
 
 
2.
 
 
 
3.
Defaults Upon Senior Securities
Not Applicable.
 
 
 
4.
Mine Safety Disclosures
Not Applicable.
 
 
 
5.
Other Information
Not Applicable.
 
 
 
6.
 
 
 
 
 
 
 
 
 
 





CONSOLIDATED STATEMENTS OF INCOME
 
Three Months Ended March 31,
 
2020
 
2019
 
(In millions, except per-share amounts)
(Unaudited)
Revenue:
 
 
 
Premium revenue
$
4,304

 
$
3,952

Premium tax revenue
150

 
138

Health insurer fees reimbursed
66

 

Investment income and other revenue
29

 
29

Total revenue
4,549

 
4,119

Operating expenses:
 
 
 
Medical care costs
3,716

 
3,371

General and administrative expenses
317

 
302

Premium tax expenses
150

 
138

Health insurer fees
68

 

Depreciation and amortization
20

 
25

Other
4

 
3

Total operating expenses
4,275

 
3,839

Operating income
274

 
280

Other expenses, net:
 
 
 
Interest expense
21

 
23

Other income, net

 
(3
)
Total other expenses, net
21

 
20

Income before income tax expense
253

 
260

Income tax expense
75

 
62

Net income
$
178

 
$
198

 
 
 
 
Net income per share - Basic
$
2.95

 
$
3.19

Net income per share - Diluted
$
2.92

 
$
2.99

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
 
Three Months Ended March 31,
 
2020
 
2019
 
(In millions)
(Unaudited)
Net income
$
178

 
$
198

Other comprehensive (loss) income:
 
 
 
Unrealized investment (loss) income
(25
)
 
7

Less: effect of income taxes
(6
)
 
2

Other comprehensive (loss) income, net of tax
(19
)
 
5

Comprehensive income
$
159

 
$
203

See accompanying notes.

Molina Healthcare, Inc. March 31, 2020 Form 10-Q | 3


CONSOLIDATED BALANCE SHEETS
 
March 31,
2020
 
December 31,
2019
 
(Dollars in millions,
except per-share amounts)
 
(Unaudited)
 
 
ASSETS
Current assets:
 
 
 
Cash and cash equivalents
$
2,365

 
$
2,452

Investments
2,010

 
1,946

Receivables
1,603

 
1,406

Prepaid expenses and other current assets
346

 
163

Total current assets
6,324

 
5,967

Property, equipment, and capitalized software, net
385

 
385

Goodwill and intangible assets, net
168

 
172

Restricted investments
82

 
79

Deferred income taxes
71

 
79

Other assets
99

 
105

Total assets
$
7,129

 
$
6,787

 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
 
 
 
Medical claims and benefits payable
$
1,981

 
$
1,854

Amounts due government agencies
777

 
664

Accounts payable, accrued liabilities and other
743

 
484

Deferred revenue
43

 
249

Current portion of long-term debt
26

 
18

Total current liabilities
3,570

 
3,269

Long-term debt
1,596

 
1,237

Finance lease liabilities
229

 
231

Other long-term liabilities
87

 
90

Total liabilities
5,482

 
4,827

Stockholders’ equity:
 
 
 
Common stock, $0.001 par value, 150 million shares authorized; outstanding: 59 million shares at March 31, 2020, and 62 million shares at December 31, 2019

 

Preferred stock, $0.001 par value; 20 million shares authorized, no shares issued and outstanding

 

Additional paid-in capital
140

 
175

Accumulated other comprehensive (loss) income
(15
)
 
4

Retained earnings
1,522

 
1,781

Total stockholders’ equity
1,647

 
1,960

Total liabilities and stockholders’ equity
$
7,129

 
$
6,787

See accompanying notes.

Molina Healthcare, Inc. March 31, 2020 Form 10-Q | 4


CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
 
 
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



 
Common Stock
 
Additional
Paid-in
Capital
 
Accumulated
Other
Comprehensive
Loss
 
Retained
Earnings
 
Total
 
Outstanding
 
Amount
 
 
 
 
 
(In millions)
 
(Unaudited)
Balance at December 31, 2018
62

 
$

 
$
643

 
$
(8
)
 
$
1,012

 
$
1,647

Net income

 

 

 

 
198

 
198

Adoption of new accounting standard

 

 

 

 
85

 
85

Partial termination of warrants

 

 
(103
)
 

 

 
(103
)
Other comprehensive income, net

 

 

 
5

 

 
5

Share-based compensation
1

 

 
3

 

 

 
3

Balance at March 31, 2019
63

 
$

 
$
543

 
$
(3
)
 
$
1,295

 
$
1,835

See accompanying notes.

Molina Healthcare, Inc. March 31, 2020 Form 10-Q | 5


CONSOLIDATED STATEMENTS OF CASH FLOWS
 
Three Months Ended March 31,
 
2020
 
2019
 
(In millions)
(Unaudited)
Operating activities:
 
 
 
Net income
$
178

 
$
198

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
20

 
25

Deferred income taxes
14

 
15

Share-based compensation
12

 
9

Gain on debt repayment

 
(3
)
Other, net
(3
)
 
6

Changes in operating assets and liabilities:
 
 
 
Receivables
(197
)
 
(29
)
Prepaid expenses and other current assets
(229
)
 
20

Medical claims and benefits payable
127

 
34

Amounts due government agencies
113

 
(35
)
Accounts payable, accrued liabilities and other
247

 
(30
)
Deferred revenue
(206
)
 
(4
)
Income taxes
60

 
43

Net cash provided by operating activities
136

 
249

Investing activities:
 
 
 
Purchases of investments
(578
)
 
(185
)
Proceeds from sales and maturities of investments
493

 
366

Purchases of property, equipment and capitalized software
(21
)
 
(6
)
Other, net
3

 
(4
)
Net cash (used in) provided by investing activities
(103
)
 
171

Financing activities:
 
 
 
Common stock purchases
(453
)
 

Proceeds from borrowings under term loan facility
380

 
100

Cash paid for partial termination of warrants
(30
)
 
(103
)
Cash paid for partial settlement of conversion option
(27
)
 
(115
)
Cash received for partial settlement of call option
27

 
115

Repayment of principal amount of convertible senior notes
(12
)
 
(46
)
Other, net
(3
)
 
1

Net cash used in financing activities
(118
)
 
(48
)
Net (decrease) increase in cash, cash equivalents, and restricted cash and cash equivalents
(85
)
 
372

Cash, cash equivalents, and restricted cash and cash equivalents at beginning of period
2,508

 
2,926

Cash, cash equivalents, and restricted cash and cash equivalents at end of period
$
2,423

 
$
3,298


Molina Healthcare, Inc. March 31, 2020 Form 10-Q | 6



CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued)
 
Three Months Ended March 31,
 
2020
 
2019
 
(In millions)
(Unaudited)
Supplemental cash flow information:
 
 
 
 
 
 
 
Schedule of non-cash investing and financing activities:
 
 
 
Common stock used for share-based compensation
$
(7
)
 
$
(7
)
 
 
 
 
Details of change in fair value of derivatives, net:
 
 
 
(Loss) gain on call option
$
(2
)
 
$
155

Gain (loss) on conversion option
2

 
(155
)
Change in fair value of derivatives, net
$

 
$

See accompanying notes.


Molina Healthcare, Inc. March 31, 2020 Form 10-Q | 7


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 2020

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”). We currently have two reportable segments: the Health Plans segment and the Other segment. Our reportable segments are consistent with how we currently manage the business and view the markets we serve.
The Health Plans segment consists of health plans operating in 14 states and the Commonwealth of Puerto Rico. As of March 31, 2020, these health plans served approximately 3.4 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 subsidies for premiums. The health plans are generally operated by our respective wholly owned subsidiaries in those states, each of which is licensed as a health maintenance organization (“HMO”).
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; and regions or service areas.
Recent Developments – Health Plans Segment
Refer to Note 11, “Subsequent Events,” for the description of a recent acquisition transaction.
Puerto Rico. We have decided to sell our Puerto Rico Medicaid business. In doing so, we will work closely with the regulatory authorities and the provider community, to ensure that our members in Puerto Rico are cared for and have reliable continuity of care.
Texas. On March 25, 2020, the Texas Health and Human Services Commission (“HHSC”) notified our Texas health plan that HHSC has canceled all contracts associated with their ABD program (known in Texas as “STAR+PLUS”) re-procurement awards announced in October 2019, and canceled the solicitation associated with their TANF and CHIP programs (known in Texas as “STAR/CHIP”) re-procurement. HHSC further indicated that it is currently deliberating next steps with respect to both re-procurements. Previously, in October 2019, the HHSC had awarded contracts to our Texas health plan for the STAR+PLUS program in two service areas, consisting of one legacy service area and one new service area. This would have been a reduction from our current footprint of six service areas. Also, in 2019, our Texas health plan submitted an RFP response for STAR/CHIP.
Illinois. In March 2020, we terminated our agreement to acquire all of the capital stock of NextLevel Health Partners, Inc. due to the seller’s stated unwillingness to close pursuant to the terms of the acquisition agreement.
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 three months ended March 31, 2020, are not necessarily indicative of the results for the entire year ending December 31, 2020.
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, 2019. Accordingly, certain disclosures that would substantially duplicate the disclosures contained in our December 31, 2019, audited consolidated financial statements have been omitted.

Molina Healthcare, Inc. March 31, 2020 Form 10-Q | 8


These unaudited consolidated interim financial statements should be read in conjunction with our audited consolidated financial statements for the fiscal year ended December 31, 2019.
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 of our Health Plans segment;
Health Plans segment contractual provisions that may limit revenue recognition based upon the costs incurred or the profits realized under a specific contract;
Health Plans segment quality incentives that allow us to recognize incremental revenue if certain quality standards are met;
Settlements under risk or savings sharing programs;
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 provides a reconciliation of 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,
 
2020
 
2019
 
(In millions)
Cash and cash equivalents
$
2,365

 
$
3,224

Restricted cash and cash equivalents
58

 
74

Total cash, cash equivalents, and restricted cash and cash equivalents presented in the consolidated statements of cash flows
$
2,423

 
$
3,298


Investments
Our investments are principally held in debt securities, which are grouped into two separate categories for accounting and reporting purposes: available-for-sale securities, and held-to-maturity securities. Available-for-sale (“AFS”) securities are recorded at fair value and unrealized gains and losses, if any, are recorded in stockholders’ equity as other comprehensive income (loss), net of applicable income taxes. Held-to-maturity (“HTM”) securities are recorded at amortized cost, which approximates fair value, and unrealized holding gains or losses are not generally recognized. Realized gains and losses, and unrealized losses arising from credit-related factors with respect to AFS and HTM securities are included in the determination of net income. The cost of securities sold is determined using the specific-identification method.
Our investment policy requires that all our investments have final maturities of less than 10 years, or less than 10 years average life for structured securities. Investments and restricted investments are subject to interest rate risk and will decrease in value if market rates increase. Declines in interest rates over time will reduce our investment income.
In general, our AFS securities are classified as current assets without regard to the securities’ contractual maturity dates because they may be readily liquidated. We monitor our investments for credit-related impairment. For comprehensive discussions of the fair value and classification of our investments, see Note 4, “Fair Value Measurements,” and Note 5, “Investments.”

Molina Healthcare, Inc. March 31, 2020 Form 10-Q | 9


Accrued interest receivable relating to our AFS and HTM securities is presented within “Prepaid expenses and other current assets” in the accompanying consolidated balance sheets, and amounted to $11 million and $12 million at March 31, 2020, and December 31, 2019, respectively. We do not measure an allowance for credit losses on accrued interest receivable. Instead, we write off accrued interest receivable that has not been collected within 90 days of the interest payment due date. We recognize such write offs as a reversal of interest income. No accrued interest was written off during the three months ended March 31, 2020.
Premium Revenue Recognition and Premiums Receivable
Premium revenue is generated from our Health Plans segment contracts related to our 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 premiums revenues are recognized in the month that members are entitled to receive healthcare services, and premiums collected in advance are deferred. The state Medicaid programs and the federal Medicare program periodically adjust premiums. Additionally, many of our contracts contain provisions that may adjust or limit revenue or profit, as described below. Consequently, we recognize premium revenue as it is earned under such provisions.
Contractual Provisions That May Adjust or Limit Revenue or Profit
Medicaid Program
Medical Cost Floors (Minimums), and Medical Cost Corridors. A portion of our premium revenue may be returned if certain minimum amounts are not spent on defined medical care costs. In the aggregate, we recorded liabilities under the terms of such contract provisions of $74 million at each of March 31, 2020, and December 31, 2019, respectively. Approximately $69 million of the liabilities accrued at each of March 31, 2020, and December 31, 2019, respectively, relate to our participation in Medicaid Expansion programs.
In certain circumstances, the health plans may receive additional premiums if amounts spent on medical care costs exceed a defined maximum threshold. Receivables relating to such provisions were insignificant at March 31, 2020, and December 31, 2019.
Profit Sharing and Profit Ceiling. Our contracts with certain states contain profit-sharing or profit ceiling provisions under which we refund amounts to the states if our health plans generate profit above a certain specified percentage. In some cases, we are limited in the amount of administrative costs that we may deduct in calculating the refund, if any. Liabilities for profits in excess of the amount we are allowed to retain under these provisions were insignificant at March 31, 2020, and December 31, 2019.
Retroactive Premium Adjustments. State Medicaid programs periodically adjust premium rates on a retroactive basis. In these cases, we must adjust our premium revenue in the period in which we learn of the adjustment, based on our best estimate of the ultimate premium we expect to realize for the period being adjusted.
Medicare Program
Risk Adjusted Premiums. Our Medicare premiums are subject to retroactive increase or decrease based on the health status of our Medicare members (as measured by member risk score). We estimate our members’ risk scores and the related amount of Medicare revenue that will ultimately be realized for the periods presented based on our knowledge of our members’ health status, risk scores and Centers for Medicare and Medicaid Services (“CMS”) practices. Consolidated balance sheet amounts related to anticipated Medicare risk adjusted premiums and Medicare Part D settlements were insignificant at March 31, 2020, and December 31, 2019.
Minimum MLR. The Affordable Care Act (“ACA”) has established a minimum annual medical loss ratio (“Minimum MLR”) of 85% for Medicare. The medical loss ratio represents medical costs as a percentage of premium revenue. Federal regulations define what constitutes medical costs and premium revenue. If the Minimum MLR is not met, we may be required to pay rebates to the federal government. We recognize estimated rebates under the Minimum MLR as an adjustment to premium revenue in our consolidated statements of income. The amounts payable for the Medicare Minimum MLR were insignificant at March 31, 2020, and December 31, 2019.
Marketplace Program
Refer to Note 11, “Subsequent Events,” for the description of a recent United States Supreme Court decision regarding Marketplace risk corridors.
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

Molina Healthcare, Inc. March 31, 2020 Form 10-Q | 10


(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, 2020, Marketplace risk adjustment payables amounted to $456 million and related receivables amounted to $76 million, for a net payable of $380 million, of which $80 million relates to 2020 and $300 million relates primarily to 2019. As of December 31, 2019, Marketplace risk adjustment payables amounted to $368 million and related receivables amounted to $63 million, for a net payable of $305 million, which relates primarily to 2019 and prior periods.
Minimum MLR. The ACA has established a Minimum MLR of 80% for the Marketplace. If the Minimum MLR is not met, we may be required to pay rebates to our Marketplace policyholders. The Marketplace risk adjustment program is taken into consideration when computing the Minimum MLR. We recognize estimated rebates under the Minimum MLR as an adjustment to premium revenue in our consolidated statements of income. Aggregate balance sheet amounts related to the Minimum MLR were insignificant at March 31, 2020, and December 31, 2019.
A summary of the categories of amounts due government agencies is as follows:
 
March 31,
2020
 
December 31,
2019
 
(In millions)
Medicaid program:
 
 
 
Medical cost floors and corridors
$
74

 
$
74

Other amounts due to states
76

 
84

Marketplace program:
 
 
 
Risk adjustment
456

 
368

Other
171

 
138

Total amounts due government agencies
$
777

 
$
664


Quality Incentives
At many of our health plans, revenue ranging from approximately 1% to 4% of certain health plan premiums is earned only if certain performance measures are met. Such performance measures are generally found in our Medicaid and MMP contracts. As described in Note 1, “Organization and Basis of PresentationUse of Estimates,” recognition of quality incentive premium revenue is subject to the use of estimates.
The following table quantifies the quality incentive premium revenue recognized for the periods presented, including the amounts earned in the periods presented and prior periods.
 
 
Three Months Ended March 31,
 
 
2020
 
2019
 
(In millions)
Maximum available quality incentive premium - current period
 
$
61

 
$
45

 
 
 
 
 
Quality incentive premium revenue recognized in current period:
 
 
 
 
Earned current period
 
$
44

 
$
26

Earned prior periods
 
12

 
20

Total
 
$
56

 
46

 
 
 
 
 
Quality incentive premium revenue recognized as a percentage of total premium revenue
 
1.3
%
 
1.2
%


Molina Healthcare, Inc. March 31, 2020 Form 10-Q | 11


Receivables
Receivables consist primarily of 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.
 
March 31,
2020
 
December 31,
2019
 
(In millions)
Government receivables
$
1,167

 
$
1,056

Pharmacy rebate receivables
160

 
150

Health insurer fee reimbursement receivables
71

 
5

Other
205

 
195

Total
$
1,603

 
$
1,406


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 governments of each state or commonwealth in which our health plan subsidiaries operate.
Health Insurer Fee
Under the Affordable Care Act, the federal government imposes an annual fee, or excise tax, on health insurers for each calendar year (the “HIF”). Public Law No. 115-120 provided for a HIF moratorium in 2019; therefore, there was no HIF incurred or reimbursed in that year. The HIF is reinstated in 2020, but the Further Consolidated Appropriations Act, 2020, repealed the HIF effective for years after 2020. The HIF is allocated to health insurers based on each health insurer's share of net premiums for all U.S. health insurers in the year preceding the assessment. Our estimated HIF liability for 2020 is $271 million, and was accrued as of January 1, 2020, with a corresponding deferred expense asset that will be amortized to expense through December 31, 2020, on a straight-line basis. The HIF is not deductible for income tax purposes, and is payable by September 30, 2020. Due to the reinstatement of the HIF in 2020, our effective tax rate is higher in 2020 compared with 2019.
Within our Medicaid program, we must secure additional reimbursement from our state partners for this added cost. We have obtained a contractual commitments or are receiving payments from all states in which we operate Medicaid programs to reimburse us for the HIF, and such HIF revenue is being recognized ratably throughout the year.
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, nondeductible expenses such as the HIF, 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 Adopted
Credit Losses. In June 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which was subsequently modified by several ASUs issued in 2018 and 2019. We adopted Topic 326 effective January 1, 2020,

Molina Healthcare, Inc. March 31, 2020 Form 10-Q | 12


using the modified retrospective approach. Under this method we recognized the cumulative effect of adopting the standard as an adjustment to the opening balance of retained earnings on January 1, 2020, which was immaterial.
Recent Accounting Pronouncements Not Yet Adopted
Reference Rate Reform. In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional expedients and exceptions for applying generally accepted accounting principles to contracts, hedging relationships, and other transactions affected by a change in the reference rate from LIBOR or another reference rate expected to be discontinued, if certain conditions are met. ASU 2020-04 is effective immediately and expires after December 31, 2022. We are evaluating the effect of reference rate reform and this guidance on our contracts and other transactions.
Other 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 March 31,
 
 
2020
 
2019
 
(In millions, except net income per share)
Numerator:
 
 
 
 
Net income
 
$
178

 
$
198

Denominator:
 
 
 
 
Shares outstanding at the beginning of the period
 
61.9

 
62.1

Weighted-average number of shares issued:
 
 
 
 
Stock purchases
 
(1.7
)
 

Stock-based compensation
 

 

Denominator for basic net income per share
 
60.2

 
62.1

Effect of dilutive securities: (1)
 
 
 
 
Warrants
 
0.1

 
3.5

Stock-based compensation
 
0.7

 
0.6

Denominator for diluted net income per share
 
61.0

 
66.2

 
 
 
 
 
Net income per share - Basic (2)
 
$
2.95

 
$
3.19

Net income per share - Diluted (2)
 
$
2.92

 
$
2.99

______________________________
(1)
The dilutive effect of all potentially dilutive common shares is calculated using the treasury stock method. Approximately 0.1 million anti-dilutive shares were not included in the computation of diluted net income per share for the three months ended March 31, 2019. All warrants outstanding as of December 31, 2019, were settled in the first quarter of 2020. For more information refer to Note 8, “Stockholders' Equity.”
(2)
Source data for calculations in thousands.
4. Fair Value Measurements
We consider the carrying amounts of current assets and current liabilities (not including the current portion of long-term debt) 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 that we use to a) estimate the fair value; and b) determine the

Molina Healthcare, Inc. March 31, 2020 Form 10-Q | 13


classification according to the fair value hierarchy for each financial instrument, refer to our 2019 Annual Report on Form 10-K, Note 4, “Fair Value Measurements.”
Our financial instruments measured at fair value on a recurring basis at March 31, 2020, were as follows:
 
Total
 
Observable Inputs (Level 1)
 
Directly or Indirectly Observable Inputs (Level 2)
 
Unobservable Inputs (Level 3)
 
(In millions)
Corporate debt securities
$
1,260

 
$

 
$
1,260

 
$

Mortgage-backed securities
451

 

 
451

 

Asset-backed securities
143

 

 
143

 

Municipal securities
138

 

 
138

 

Certificates of deposit
7

 

 
7

 

Government-sponsored enterprise securities (“GSEs”)
6

 

 
6

 

U.S. Treasury notes
5

 

 
5

 

Total assets
$
2,010

 
$

 
$
2,010

 
$

Our financial instruments measured at fair value on a recurring basis at December 31, 2019, were as follows:
 
Total
 
Observable Inputs (Level 1)
 
Directly or Indirectly Observable Inputs (Level 2)
 
Unobservable Inputs (Level 3)
 
(In millions)
Corporate debt securities
$
1,178

 
$

 
$
1,178

 
$

Mortgage-backed securities
420

 

 
420

 

Asset-backed securities
127

 

 
127

 

Municipal securities
78

 

 
78

 

Certificates of deposit
1

 

 
1

 

GSEs
49

 

 
49

 

U.S. Treasury notes
86

 

 
86

 

Foreign securities
7

 

 
7

 

Subtotal
1,946

 

 
1,946

 

Call option derivative asset
29

 

 

 
29

Total assets
$
1,975

 
$

 
$
1,946

 
$
29

 
 
 
 
 
 
 
 
Conversion option derivative liability
$
29

 
$

 
$

 
$
29

Total liabilities
$
29

 
$

 
$

 
$
29


The net changes in fair value of Level 3 financial instruments were insignificant to our results of operations for the three months ended March 31, 2020.

Molina Healthcare, Inc. March 31, 2020 Form 10-Q | 14



Derivatives
The following table summarizes the fair values and the presentation of our derivative financial instruments in the accompanying consolidated balance sheets:
 
Balance Sheet Location
 
March 31,
2020
 
December 31,
2019
 
 
 
(In millions)
Derivative asset:
 
 
 
 
 
Call option
Current assets: Prepaid expenses and other current assets
 
$

 
$
29

Derivative liability:
 
 
 
 
 
Conversion option
Current liabilities: Accounts payable, accrued liabilities and other
 
$

 
$
29


For additional description of our derivative financial instruments, see Note 11, “Debt,” and Note 12, “Derivatives,” in our 2019 Annual Report on Form 10-K. Our derivative financial instruments did not qualify for hedge treatment; therefore, the change in fair value of these instruments is recognized immediately in our consolidated statements of income, and reported in “Other income, net.” Gains and losses for our derivative financial instruments are presented individually in the accompanying consolidated statements of cash flows, “Supplemental cash flow information.”
In the first quarter of 2020, we received $27 million for the settlement of the call option derivative asset, and we paid $39 million to settle the outstanding $12 million principal amount of the 1.125% Convertible Notes, and settle the related conversion option. For more information, refer to Notes 7, “Debt,” and 8, “Stockholders' Equity.”
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. The carrying amount and estimated fair value of the Term Loan Facility is classified as a Level 3 financial instrument, because certain inputs used to determine its fair value are not observable. As of March 31, 2020, the carrying amount of the Term Loan Facility approximated fair value because its interest rate is a variable rate that approximates rates currently available to us.
 
March 31, 2020
 
December 31, 2019
 
Carrying
Amount
 

Fair Value
 
Carrying
Amount
 

Fair Value
 
(In millions)
5.375% Notes
$
696

 
$
701

 
$
696

 
$
745

4.875% Notes
326

 
310

 
327

 
340

Term Loan Facility
600

 
600

 
220

 
220

1.125% Convertible Notes (1)

 

 
12

 
42

Totals
$
1,622

 
$
1,611

 
$
1,255

 
$
1,347


______________________
(1)
For more information on debt repayments, refer to Note 7, “Debt.”


Molina Healthcare, Inc. March 31, 2020 Form 10-Q | 15


5. Investments
Available-for-Sale Investments
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, 2020
 
Amortized
 
Gross
Unrealized
 
Estimated
Fair
 
Cost
 
Gains
 
Losses
 
Value
 
(In millions)
Corporate debt securities
$
1,277

 
$
4

 
$
21

 
$
1,260

Mortgage-backed securities
453

 
6

 
8

 
451

Asset-backed securities
144

 

 
1

 
143

Municipal securities
138

 

 

 
138

Certificates of deposit
7

 

 

 
7

GSEs
6

 

 

 
6

U.S. Treasury notes
5

 

 

 
5

Totals
$
2,030

 
$
10

 
$
30

 
$
2,010


 
December 31, 2019
 
Amortized
 
Gross
Unrealized
 
Estimated
Fair
 
Cost
 
Gains
 
Losses
 
Value
 
(In millions)
Corporate debt securities
$
1,174

 
$
5

 
$
1

 
$
1,178

Mortgage-backed securities
420

 
1

 
1

 
420

Asset-backed securities
126

 
1

 

 
127

Municipal securities
78

 

 

 
78

Certificates of deposit
1

 

 

 
1

GSEs
49

 

 

 
49

U.S. Treasury notes
86

 

 

 
86

Foreign securities
7

 

 

 
7

Totals
$
1,941

 
$
7

 
$
2

 
$
1,946


The contractual maturities of our available-for-sale investments as of March 31, 2020 are summarized below:
 
Amortized Cost
 
Estimated
Fair Value
 
(In millions)
Due in one year or less
$
375

 
$
375

Due after one year through five years
1,032

 
1,017

Due after five years through ten years
183

 
181

Due after ten years
440

 
437

Totals
$
2,030

 
$
2,010


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 $5 million in the three months ended March 31, 2020. Gross realized investment losses were insignificant in the three months ended March 31, 2020. Gross realized investment gains and losses were insignificant in the three months ended March 31, 2019.
We have determined that unrealized losses at March 31, 2020, and December 31, 2019, have primarily resulted from fluctuating interest rates, rather than a deterioration of the creditworthiness of the issuers. Therefore, we have determined that an allowance for credit losses is 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. March 31, 2020 Form 10-Q | 16


The following table segregates those available-for-sale investments that have been in a continuous loss position for less than 12 months, and those that have been in a continuous loss position for 12 months or more as of March 31, 2020:
 
In a Continuous Loss Position
for Less than 12 Months
 
In a Continuous Loss Position
for 12 Months or More
 
Estimated
Fair
Value
 
Unrealized
Losses
 
Total
Number of
Positions
 
Estimated
Fair
Value
 
Unrealized
Losses
 
Total
Number of
Positions
 
(Dollars in millions)
Corporate debt securities
$
805

 
$
21

 
627

 
$

 
$

 

Mortgage-backed securities
211

 
8