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This audio is auto-generated. Please let us know if you have feedback<\/a>.<\/p>\n Dive Brief:<\/p>\n Dive Insight:<\/p>\n Molina offers health insurance for 5.7 million people in Medicaid, Medicare and the Affordable Care Act exchanges \u2014 tricky businesses to be in right now, given pernicious cost pressures hitting government programs. The insurer grew its membership through acquisitions, contract wins and organic growth coming into 2025 despite early signs of higher spending<\/a>,\u00a0a decision that may be coming back to bite it.<\/p>\n On Wednesday, Molina reduced its 2025 adjusted earnings per share guidance to \u201cno less than\u201d $19 from the previous midpoint of $22<\/a>, which was already down from Molina\u2019s original $24.50 target<\/a>.<\/p>\n Molina first slashed its guidance earlier this month<\/a> following a similar move from rival Centene.<\/p>\n \u201cWe were skeptical that the [earnings per share]\u00a0cut to $22 was enough; that view is validated,\u201d Jefferies analyst David Windley wrote in a Wednesday note on Molina\u2019s results.<\/p>\n Molina\u2019s revenue guidance was unchanged. But the California-based insurer\u2019s expectations for its full-year medical loss ratio \u2014 an important marker of how much it\u2019s spending on patient care, versus retaining in profits \u2014 rose across all three lines of business.<\/p>\n The hike in predicted costs was highest in the ACA exchanges, a business line that\u2019s stayed relatively steady coming out of the coronavirus pandemic despite flagging margins in other government programs. But the marketplaces are a rising concern, especially due to Molina\u2019s recent growth in ACA members. Molina ended the second quarter with 690,000 marketplace enrollees, up 71% from the end of 2024.\u00a0<\/p>\n More members isn\u2019t necessarily good if those members come with higher costs \u2014 and these have, executives said during a Thursday morning call with investors. The problem isn\u2019t unique to Molina but seems to reflect a market-wide increase in enrollees\u2019 health needs, a trend that\u2019s outpacing checks and balances against spiking costs in the ACA risk pools.<\/p>\n \u201cWhile risk adjustment might normally offset higher observed trend, our market indicators clearly detect that the overall market risk pool is also significantly elevated, reducing the value of the natural hedging effect of risk adjustment,\u201d CFO Mark Keim said on the call.\u00a0<\/p>\n Data that Molina received from actuarial firm Wakely\u00a0in late June confirms that \u201cnational market risk pools are trending higher,\u201d Keim said.<\/p>\n \u201c[Molina\u2019s]\u00a0outcome reinforces a deteriorating market morbidity,\u201d Windley wrote. \u201cNo [exchange]\u00a0plan is safe, basically.\u201d<\/p>\n The safety-net Medicaid program is also an ongoing source of cost pressure, due to a mismatch between the health of its members and states updating their rates to keep up.<\/p>\n Medicaid beneficiaries are using more behavioral health services, primary and follow-up specialty care and high-cost drugs, executives said. More members are also being admitted to the hospital for complex health episodes, according to CEO Joe Zubretsky.<\/p>\n \u201cThis is the fourth consecutive quarter we have observed some combination of these trends. The magnitude and persistence of these medical cost increases are unprecedented,\u201d Zubretsky said.<\/p>\n Molina is generally able to keep its Medicaid spending from spiking due to risk-sharing arrangements it has in place called risk corridors. But \u201crisk corridor protection at this point is very limited and isolated,\u201d the CEO said.<\/p>\n Overall in the second quarter, Molina reported revenue of $11.4 billion, up 16% year over year and above analyst expectations.<\/p>\n The payer\u2019s net income of $255 million was down 15% compared to the prior-year quarter.<\/p>\n Molina plans to raise prices for its ACA plans next year to recapture margins. As for Medicaid, the payer is hopeful that states will continue raising their payment rates to account for elevated trend.<\/p>\n But Molina\u2019s path forward is complicated by policy changes out of Washington that will cause significant volatility for Medicaid and ACA plans starting next year, leading Zubretsky to call the current moment a \u201cseason of great uncertainty.\u201d<\/p>\n Millions of Americans are expected to lose coverage<\/a> from Republicans\u2019 recently passed tax and policy law<\/a> overhauling federal healthcare programs. The so-called \u201cBig Beautiful Bill\u201d\u00a0includes the largest cut to Medicaid in the program\u2019s history and a significant rollback of the ACA that are expected to decimate U.S. insurance coverage gains and cut into payers\u2019 earnings.<\/p>\n During the call, Zubretsky attempted to soothe investors that changes to Medicaid, including the imposition of work requirements, should be \u201cmodest and gradual,\u201d allowing plans the opportunity to adjust.<\/p>\n Coverage losses from work requirements shouldn\u2019t be dramatic, as two-thirds of Molina\u2019s 1.3 million Medicaid expansion members already work in some capacity, while many others qualify for exclusions, the CEO said.<\/p>\n It\u2019s trickier, however, to predict how states will respond to policies cutting federal Medicaid funding.<\/p>\n \u201cStates could limit eligibility, reduce benefits or keep their programs intact by funding it with additional state revenues. We anticipate that whatever a state elects to do will follow prevailing state-specific political tendencies,\u201d Zubretsky said.<\/p>\n\n