Title

Presentation

Operator: Good morning, and welcome to Molina Healthcare’s First Quarter 2026 earnings call. [Operator Instructions] Please note this event is being recorded. [Operator Instructions]. I would now like to turn the conference over to Jeffrey Geyer, Vice President, Investor Relations at Molina Healthcare. Please go ahead.

Jeffrey Geyer: Good morning, and welcome to Molina Healthcare’s First Quarter 2026 Earnings Call. Joining me today are Molina’s President and CEO, Joseph Zubretsky; and our CFO, Mark Keim. A press release announcing our first quarter 2026 earnings was distributed after the market closed yesterday and is available on our Investor Relations website. Shortly after the conclusion of this call, a replay will be available for 30 days. The numbers to access the replay are in the earnings release. For those of you who listen to the rebroadcast of this presentation, we remind you that all of the remarks are made as of today, Thursday, April 23, 2026, and have not been updated subsequent to the initial earnings call. On this call, we will refer to certain non-GAAP measures.

A reconciliation of these measures with the most directly comparable GAAP measures can be found in the earnings release. During the call, we will be making certain forward-looking statements, including, but not limited to, statements regarding our 2026 guidance, the medical cost and utilization trend during the year, the political, legislative and regulatory landscape, the impact of Medicaid work requirements and redeterminations, our expected growth and margin expansion, the estimated amount of our embedded earnings power and future earnings realization, Medicaid rate adjustments and updates, our RFP awards and our acquisitions and M&A activity. Listeners are cautioned that all of our forward-looking statements are subject to certain risks and uncertainties that could cause our actual results to differ materially from our current expectations.

We advise listeners to review the risk factors discussed in our Form 10-K annual report filed with the SEC as well as our risk factors listed in our Form 10-Q and Form 8-K filings with the SEC. After the completion of our prepared remarks, we will open the call to take your questions. I will now turn the call over to our Chief Executive Officer, Joe Zubretsky. Joe?

Joseph Zubretsky: Thank you, Jeff, and good morning. Today, I will discuss several topics. Our reported financial results for the first quarter, our full year 2026 guidance, which we reaffirm at approximately $42 billion of premium revenue and at least $5 in adjusted earnings per share, the political and regulatory landscape and a brief glimpse of our Investor Day agenda and growth outlook. Let me start with our first quarter performance. Last night, we reported adjusted earnings per share of $2.35 on $10.2 billion of premium revenue. We would characterize the results as solid under the circumstances but that characterization is against the backdrop of current modest expectations. Our 91.1% consolidated MCR reflects strong operating performance as we continue to navigate a challenging medical cost environment.

We produced a 1.6% adjusted pretax margin in the quarter. In Medicaid in the first quarter, the business produced an MCR of 92%. While the January 1 rate updates came in as expected, our medical cost trend was modestly favorable to our expectations. We continue to work to enhance our medical cost management protocols to address the areas of high cost trend we observed in 2025. Last year, we observed a 7.5% medical cost trend that included 250 basis points of acuity shift related to the post-pandemic redetermination process. However, the acuity shift in core utilization impacts diminished as the year progressed. Our expectation that the acuity shift trend that we had experienced in 2025 was behind us and would not recur is holding up. We feel confident in our 5% medical cost trend assumption for 2026.

In Medicare, we reported a first quarter MCR of 89.8%. At the beginning of the year, we successfully completed the transition of MMP members to the new integrated products. Our Duals business is the strategic focus for us in Medicare. As previously mentioned, we will exit the MAPD product for 2027. In Marketplace, the first quarter MCR was 84%. Membership stands at 305,000 and is slightly higher than our prior guidance, but the profile of our membership is as expected, following our decision to reduce our exposure in this highly volatile segment. The majority of our members are renewal members, and we remain concentrated in the silver tier, which leads to greater stability and predictability in our membership base. Turning now to our 2026 guidance.

Although the quarter was strong when compared to internal and external expectations, we are merely reaffirming our full year 2026 adjusted earnings per share guidance of at least $5. Our full year 2026 premium revenue guidance remains at approximately $42 billion. We note that our forecast for Medicaid membership attrition increased slightly, but the associated revenue loss is projected to be offset by higher revenue in marketplace. We remain optimistic that states may provide off-cycle and retro rate updates throughout the year as they did last year. We are keenly aware that medical cost trend and earnings came in modestly favorable to expectations in the quarter. That being said, merely reaffirming our prior full year guidance is a prudent approach at this early point in the year and in this current environment.

When we report second quarter results, we will update our full year 2026 guidance to reflect the first and second quarter results, which will provide a time-tested base off of which to project the second half of the year. Turning now to the political and legislative landscape. In Medicaid, States continue to evaluate their processes and how to implement work requirements and biannual redeterminations. The guidance from CMS affords States some flexibility on how to proceed with these requirements, particularly as it relates to the timing of these reviews. We are working closely with our state partners on the administrative requirements needed to implement these new policies. We continue to believe that membership impact will be minor and emerge gradually through 2027 and 2028 and therefore, any impact due to changes in the risk pool will be small.

In Medicare, we are pleased with the improvement in the CMS final rate notice compared to the preliminary notice. In addition, the continued progress of States promoting the integration of Medicaid and Medicare supports the long-term competitive position of our duals products. In Marketplace, as we approach the 2027 pricing cycle, we will likely remain cautious as it is still possible for disruptive regulatory changes to occur. We look forward to updating you on our 3-year outlook at our Investor Day event on Friday, May 8. We see a clear path to margin expansion to the correction of the rate and trended balance that exists today and the revenue growth opportunities continue to be attractive in our businesses. We will provide a detailed financial outlook for premium revenue and earnings per share through 2029 and demonstrate how we will again realize the intrinsic value of the franchise we have built over the past 8 years.

We will do so with the same level of detail and specificity that has been our hallmark. In summary, we are pleased with our solid first quarter results and continued disciplined approach to medical cost management. Our reaffirmed full year 2026 guidance reflects a prudent view of full year results at this early point in the year. With that, I will turn the call over to Mark for some additional color on the financials. Mark?

Mark Keim: Thanks, Joe, and good morning, everyone. Today, I’ll discuss additional details on our first quarter performance, the balance sheet and our 2026 guidance. Beginning with our first quarter results. For the quarter, we reported approximately $10.2 billion of premium revenue with adjusted EPS of $2.35. Our first quarter consolidated MCR was 91.1% and reflects continued disciplined medical cost medicine. In Medicaid, our first quarter reported MCR was 92%. The January 1 rate update came in as expected, while medical cost trend was modestly favorable to our expectations. In Medicare, our first quarter reported MCR was 89.8%, in line with our expectations. We remain confident in the pricing and benefit adjustments we implemented for 2026.

In particular, our duals products, which now include last year’s MMP members are off to a good start. In Marketplace, our first quarter reported MCR was 84%. Adjusted for prior year risk adjustment and program integrity impacts reduces that metric to approximately 79.5%. Given the pricing actions we took in our Marketplace segment this year, we have reduced our exposure and prioritized margin improvement. Our adjusted G&A ratio for the quarter was 6.9% and reflects the timing of certain operating expenses with no change to our full year outlook. Turning to the balance sheet. Our capital foundation remains strong. In the quarter, we harvested approximately $35 million of subsidiary dividends and our parent company cash balance was approximately $213 million at the end of the quarter.

Our operating cash flow for the quarter was $1.1 billion and driven by the timing of government payments in Medicaid and Marketplace. Debt at the end of the quarter was 6.1x trailing 12-month EBITDA, and our debt-to-cap ratio was about 48 we continue to have ample cash and access to capital to fuel our growth initiatives. Days in claims payable at the end of the quarter was 44, modestly lower than is typical due to the timing of payments at quarter end. We remain confident in the strength and consistency of our actuarial process and our reserve position. Next, a few comments on our 2026 guidance. As Joe mentioned, we continue to expect full year premium revenue to be approximately $42 billion. Within that number are a few moving pieces. We now expect same-store membership in Medicaid to decline 6% this year, up from previous guidance of a 2% decline.

We expect to end the year with approximately 4.5 million members. Meanwhile, Marketplace sold moderately higher paid renewals, ending the first quarter at 305,000. With normal market attrition, we expect membership in our Marketplace segment to end the year at approximately 250,000. Renewing members now represent 70% of our book. Lower membership in Medicaid and higher membership in marketplace results in our premium guidance remaining at approximately $42 billion. With low and no utilizers now at the lowest level we have seen, we do not expect any acuity shift from additional Medicaid membership declines. Our full year consolidated MCR and each of our segment MCRs are unchanged. In Medicaid, the full year MCR of 92.9% includes rate increases of 4% and medical cost trend at 5%.

States continue to update their actuarial data to reflect higher observed trends. We remain optimistic States may provide off-cycle and retro rate updates throughout the year as they did last year. Several of our States have already provided off-cycle rate increases, and these would represent upside to our guidance. Full year medical cost trend guidance remains in line with our previous expectations. States continue to evaluate program design and benefit changes to address medical cost categories with the highest observed trends. Our MCR guidance on Medicare is 94%. We remain confident in the performance of our Medicare duals and integrated product business. In Marketplace, our full year MCR guidance is 85.5% and includes the normal expected seasonality.

We continue to expect the full year G&A ratio to be approximately 6.4% as we drive efficiencies in our operations. The higher ratio reported in the first quarter with simply timing of a few items within the year. We reaffirm our full year EPS guidance of at least $5. We continue to expect earnings seasonality to be front-end loaded this year, reflecting the January 1 Medicaid rate cycle in the first half of the year and implementation of the Florida CMS contract in the second half. Turning to embedded earnings. Recall that our definition of embedded earnings is the future incremental contribution of our new contract wins and acquisitions. Recall that $2.50 a share of embedded earnings is the combination of 2026 MAPD losses and Florida CMS first year implementation costs.

Both are certain to be positive impacts to our 2027 performance. Embedded earnings will remain a driver of value in the future. We look forward to providing you with an updated view of this important measure at our Investor Day. This concludes our prepared remarks. Operator, we are now ready to take questions.

Receive real-time insider trading and news alerts

Operator: [Operator Instructions] The first question comes from Andrew Mok with Barclays.

Andrew Mok: I appreciate the updated comments around lower Medicaid membership. Can you help us understand which states are driving that incremental pressure and how that impacts the MLR outlook and cadence for the balance of the year?

Joseph Zubretsky: Sure, Andrew. I’ll frame it and I’ll kick it to Mark. We are pretty spot on with our membership forecast in Medicaid for about 15 or 17 of our states at about 2%. We underestimated the impact in California, Illinois and New York and somewhat in Texas. And in California, it was certainly influenced by the undocumented immigrant population. I’ll kick it to Mark to talk about why we don’t expect a continued acuity shift here. And it has to do with what we call low and no utilizers and the fact that, that’s a much smaller component of our population today than it was in the past. Mark?

Mark Keim: Yes. Absolutely. Andrew. Yes, so the States that Joe mentioned are driving why we’re looking for a little bit higher attrition this year, California, Illinois, New York, Texas, Joe mentioned in California, it’s the UIS, the undocumented immigration status members that are probably very disproportionately driving that State. Now our guidance has — membership attrition was 2% for the year. In our new guidance, it’s now 6%. So certainly on volume, that’s down. In our prepared remarks, we said the revenue would be offset by marketplace. But to Joe’s point, the acuity impact, potential acuity impact on a higher attrition assumption for Medicaid, we’re really not seeing it. When we look at the low and no users, most of them came out over the last 1.5 years or 2 years since the start of redetermination after the pandemic.

Right now, we’re seeing a lower percentage of low users and no users in our Medicaid population than we ever have, at least since we’ve been recording it. The other point I’d mention is when we look at our stairs, levers analysis, on Medicaid, the people that are staying with us versus the people that are leaving us, the levers at this point are leaving very close to portfolio averages, which is just one more data point that suggests to us that any of this pent-up acuity shift is largely behind us. So yes, lower on Medicaid membership, but we don’t really see an acuity impact here.

Operator: The next question comes from Stephen Baxter with Wells Fargo.

Stephen Baxter: Just to kind of follow up on that. I hear your point that low and no utilizers are at the lowest point you’ve seen. But I guess enrollment is also being more tightly managed, I think, probably at any time in the recent history of the Medicaid program. So I guess, can you talk a little bit about your confidence level that, that actually is kind of the reasonable baseline for looking at this. And then I hear you on the kind of the acuity narrowing and the lever stayer narrowing as you got through the second half of the year. But do you think you’re actually at the point now where it is truly 0, and there is no difference. I hope you’d just be able to expand a little bit more on this assumption.

Joseph Zubretsky: A couple of data points. I’ll [indiscernible] it and hand it to Mark again. Our definition of low and no utilizes, we don’t actually talk about exactly what it is, but it’s a good metric to figure out whether there’s large SKUs of MCRs in your population. That right now is very tight. In fact, in our definition, the percentage of total membership that are low and no users is 7.5 percentage points higher — lower, sorry, than it was at the peak of the pandemic, and it’s actually below pre-pandemic levels. So we’re really confident that the post-pandemic redetermination process eliminated a lot of people who weren’t using the system and eliminated them from the Medicaid roles. Now with respect to membership, yes, the whole eligibility verification process has gotten tighter in States.

Right now, we’re comfortable with our 6% membership attrition assumption for 2026. And when we talk to you at Investor Day on May 8, we’ll give you a longer-term view of what that might look like for our Medicaid business over a 3-year period.

Operator: The next question comes from Ann Hynes with Mizuho Securities.

Ann Hynes: Can we talk about free cash flow. Your free cash flow was strong in the quarter. after a couple of years that weren’t great. What are you expecting for 2026? And then on your debt to cap, I know it’s right now 48%. What is the goal? What’s the ultimate goal to get that to and maybe the timing?

Mark Keim: Ann, it’s Mark. Thanks a lot for that. I get questions on operating cash flow all the time. And as you know, in a regulated business like Molina, what’s more important than total company operating cash flow is cash flow at the parent, right? Operating cash flow swings a lot as we do accruals for risk adjustment for corridors, we hold those accruals. Maybe we don’t pay them down for a year or two. Then if we’re not accruing new liabilities, you see those operating cash flows, but they aren’t meaningful for the company because, again, the cash flow stays in the subs. . What is meaningful is the cash flow at the parent. We continue to have a lot of success with dividends moving from our subsidiaries to the parent. We moved cash to the parent once again in the first quarter and our outlook for the rest of the year is pretty good.

My cash at the parent is a little over $200 million in the first quarter. It will be more than $600 million at the end of the year based on the dividends I expect to take throughout the rest of the year. So very good cash flow to the parent, and that’s where we can actually use it to redeploy. That’s what’s really important. So on debt to cap, we are a little higher than we’ve been, but still at a very comfortable level, 47%, 48% depending on how you measure it. Typically, we target something in the low 40s as the more sustaining and enduring level. But with normal net income and the outlook we have for the business, I’m very comfortable with where we are in debt to cap.

Operator: The next question comes from Kevin Fischbeck with Bank of America.

Kevin Fischbeck: Great. I understand the desire to kind of reaffirm this early in the year. I think we usually expect a lot more clarity for companies with Q2 results, so that makes sense. But just trying to understand a little bit whether this is that type of normal assumption around always kind of wait for Q2 to kind of raise guidance or whether you believe that there is still meaningful unknowns that aren’t quantifiable at this point? And if there are, where you think that those things that could push the numbers in either direction that are still unknown?

Joseph Zubretsky: Our prudent move to not increase guidance at the first quarter, even though the indicators are all positive for all 3 businesses are for vastly different reasons. In Medicaid, the volatility of the network cost inflection we experienced in late 2025, we had a very good trend result. In fact, the annualized trend result in the first quarter would indicate we might even come in less than 5% for the year, but we’re not yet calling that. In Marketplace, we want to wait to see the June [indiscernible] before truing up our estimate for the full year. And we had a very, very good start in our new integrated products, our FIDE and HIDE in Medicare, but it’s 1 quarter. It’s a brand-new product, existing members, but a brand-new product.

We want to see that develop for another quarter. We use the term time tested because I think it is prudent to see 6 months of results before updating our guidance, particularly coming off a highly volatile medical cost inflection environment in 2025, bearing in mind in Medicaid with a 92% result in the first quarter a 92.9% indication in our guidance for the full year, we can actually produce loss ratios north of 93% and still hit our guidance for the rest of the year. So cautious perhaps, but in this environment, we think it’s entirely prudent to do so.

Operator: The next question comes from Justin Lake with Wolfe Research.

Justin Lake: Medicaid cost trend last year, you said 7.5%, this year, you’re saying around 5%, appreciate the company’s transparency and giving quarterly Medicaid trend? I think you said 1.2% in the first quarter last year and 1.6% in the second. Can you give us the Q3 and Q4 trends that you saw quarterly coming out, what are you seeing in the first quarter? And can you give us the split between trend and acuity each quarter? And maybe also tell us what’s driving the lower trend, what cost categories driving lower trend this year?

Joseph Zubretsky: Sure, Justin. I’ll frame it and hand it to Mark. The framing remarks that I’ll make is that in 2025 on a reported basis, the trend appeared to be accelerating. But as normalized and viewed on a pure period basis, it was actually declining throughout the year. Now the real key point is all of that 2025 information is trying to be used by observers to predict what’s going to happen in 2026. In 2026 for 1 quarter only, the 2.5% acuity shift component of trend for 2025 did not recur. And the trend observed in the first quarter annualized, would put us at better than 5% for the full year. . So despite what it was doing in 2025, it looks like, at least for 1 quarter, our trend pick for 2026 is holding. Mark, do you want to discuss the quarter?

Mark Keim: Sure. Justin, I appreciate your question. And the 1.2% to 1.6% you cited, I certainly recall. The way we look at our medical cost expenses is at the time what we report is what we know at the time. The other way we look at medical cost is on a pure period basis. we go back and we look at the full development of medical costs, and we put them in the periods of their dates of service. Those dates of service on a pure period basis in retrospect, can look different than what we reported at the time. So the 7.5% that we looked at for last year is certainly the number we saw. The evolution of it is a little bit different than we reported at the time. So what we saw is higher trends in the first and second quarters, declining when we put the cost into their appropriate time periods, which we call a pure period basis.

Within that declining overall medical cost PMPM, the component of the acuity shift that we’ve talked about declined very meaningfully, such that by the end of the year, it was de minimis, almost gone. And as what Joe said, what gives us great confidence is here in the first quarter, we’re seeing exactly that bear out. We’re seeing the run rate of the 5% we saw last year of the core, but we’re not seeing the acuity shift. In fact, as Joe said, we’re seeing just a little bit better than that run rate of 5%. But at this point, it’s too early to really lay that out. I always am reluctant to talk about trends on a quarterly basis because there’s seasonality and there’s noise. It’s a much better annual concept, but I certainly appreciate the question.

Operator: The next question comes from Sarah James with Cantor Fitzgerald..

Sarah James: Days came in at 44, which is below the 46 to 47 range in the prior 3 quarters. I know you’re attributing that to timing, but is there any way that you can give us look at normalized DCP ex the timing items and then help us understand how you’re thinking about reserve funding for Florida Kids, given the scale of the contract and typical pressure in the beginning of new contracts? And then second, in your assumption that the sub dividend bring parent cash up to $600 million by the end of the year. Would that be possible while your company-wide RBC still remain similar to the 305% that you exited ’25 with?

Joseph Zubretsky: I’ll take the floor to — I think your second question is about Florida Kids. Let me frame that. And we’ll be talking about this on May 8 as a proof point of the significant amount of new business wins we’ve had over the last 5 or 6 years. The Florida Kids program, Florida CMS, the official name. We believe that total run rate is a $6 billion revenue program. We are in full implementation mode currently. We are experts at managing high-acuity lives, which is what this is. And we also have an unparalleled platform in our opinion, of managing behavioral costs, both from a clinical and cost perspective, which is a very large component of this program. We’re really proud of the RFP proposal that we put forward in one.

We have good visibility into the economics of the program now that we’re in implementation mode. We have all the cost and claim data from our customer, our state regulator, and we have visibility on the ’25, ’26 program rates. So all that being said, we believe and we’ve seen that the financial profile of this program is attractive, and we believe will provide for a meaningful — it already has provided for a meaningful addition to our embedded earnings to be harvested over a 2-year period. Mark, do you want to address the reserve stat?

Mark Keim: Absolutely. Sarah, there was a lot in that question. Let me start with DCP. We were at 44 in the first quarter. Now that was down 1.5 days from our recent average. And what we said on the prepared remarks, it was entirely the timing of payments. Now if you wanted to poke on that, you would look at what we call the roll forward of our reserves that was in the earnings release, you’ll see it again in the [ queue ]. But if you look at it on a kind of per member per month basis, what you would see is that our medical expenses were tracking like average incurred. But on a paid basis, we just paid faster, and that will stick out in the PMPMs, if you do the math. Now the other thing you guys do a lot of times to test our reserves is you look at the growth of premium versus the growth of claims payable.

And our premium revenue was actually slightly negative year-over-year and our claims payable was actually meaningfully positive year-over-year, which would certainly give you comfort. Now on top of this, these are just testing balance sheet liabilities, underlying this are true actuarial [ tics ], which remain standard like they always are. I think the last part of your question was, can the dividends that I talked about still be possible in the presence of the RBC ratio? Absolutely. We only take dividends when they are above the RBC target of $300 million. So we would never dividend to get below 300. If that was the point of your question, we’ll finish the year well above $300 million RBC even with those forecasted dividends.

Operator: The next question comes from A.J. Rice with UBS.

Albert Rice: Maybe just to clarify something on the quarterly trend and then ask about the marketplace. You were nicely ahead on MCR relative to consensus. I wonder how that compared to your internal expectation? And is any of your hesitancy on rolling that forward and updating guidance related to unusual items that might have impacted the quarter? I know some of the other companies have called out weather and flu being favorable. I don’t know whether that had any impact on the trend you saw. And then my question on the exchanges, you’re probably the only one that’s saying you’re seeing silver level continue to be the predominant one. Others are talking about move to bronze, someone even said they had some backup into gold. Is that pretty much benefit design that’s driving that?

Or are you seeing something different in the market than perhaps others are seeing? And then finally, just to comment your 305,000 current membership down to 250,000. Is that just evenly spread over the back half of the year? Do you sort of expect a more material drop at some point?

Joseph Zubretsky: Let me take in the reverse order. So I can remember the about 305,000, think of it as going down to 250,000. Think of it as 40,000 terminations per quarter and 20,000 SAP adds. So 20,000 decline per quarter to 3 quarters. That’s the easy one. On HICS product mix, we are still predominantly silver at 50%. But yes, we are in bronze where States allow a pricing regime that bronze can be profitable. And yes, there was a slight shift to gold during the year and I’ll let Mark take that and put some color on that in a minute. And on your question about the Medicaid MCR. We use the word time tested for a very specific reason. There was nothing unusual about the first quarter. Yes, the flu season, what we call ILI is coming in slightly better than last year but within expectations.

The weather had an effect here and there in various states, but for a few days here and there. No impact. The quarter was clean. Coming off of the unprecedented inflection of 2025, we want to see 2 quarters of information before we declare that the 5% trend is coming down and the 4% rates are going up, it’s as simple as that. Mark, anything to add on HICS.

Mark Keim: Yes, absolutely. On the point of the metallic mixes, the market is certainly up on bronze, a lot of what people call buy-downs as the subsidies declined. And certainly, we have a little bit more. We reported about 20% of our mix was bronze this year, which is up a little bit since last year. We’re at silver, 50% and gold, almost 30%. What’s interesting about gold is a lot of states have shifted their metallics such that gold becomes just as attractive as silver. As a result, we have a lot of gold and silver. Now why maybe do we have less buydowns than the market? Remember, our renewal rate is 70%. So we’re keeping a lot of the same people. And very often, they’re staying in the same metallic.

Operator: [Operator Instructions] Next question comes from Scott Fidel with Goldman Sachs. .

Scott Fidel: I was hoping you could maybe just on the Medicare MLR, just because you have the dynamic of exiting, MAPD plan for next year. Would you be able to parse out what the sort of continuing operations in Medicare, which I guess, would be more of the duals versus the MAPD MLR was in the quarter? And maybe any thoughts around maybe sort of giving us at those metrics, each of this quarter just as we try to think about sort of the run rate on Medicare MLR heading into next year?

Joseph Zubretsky: You’re right to point out that the Medicare story is a little more complicated than most Medicare story because it’s a combination of our D-SNP product, which has been in force for many, many years. Our MMP members who are now converted to commercial-based HIDE and FIDE and then our MAPD product, which is going to be — we’re going to eliminate that product for 2027. We cited a drag on this year’s earnings due to the MAPD product. I think we cited as producing $1 earnings per share drag that won’t repeat next year. And it is tracking to plan. D-SNPs have always produced a modest profit, and they continue to the surprise, if there was one, a positive surprise was that we took a very cautious approach to converting 80,000 members and over $2 billion of revenue to HIDE and FIDE that are highly competitive new product, new rating regime.

It performed a lot better out of the gate than we had anticipated. But it’s 1 quarter, and we’re going to be cautious in terms of updating guidance for the full year on that product. So in 2027 and beyond, we’ll only be talking about duals. We’ll be talking about D-SNP and we’ll be talking about HIDE and FIDE, which will become a dual segment, and it will be a lot easier to follow. Those are the 3 pieces, and they will have different dynamics for different reasons. Mark, anything to add?

Mark Keim: Yes. I’ll just put some numbers around that. For our guidance for Medicare, we have about $6.6 billion in revenue, $6.6 billion, and a loss of $1.25. As Joe mentioned, the MAPD component of that is $1 loss on $1.2 billion of revenue. That goes away next year. So with next year just being the duals, the D-SNPs, the FIDEs, the HIDEs. The current run rate is about $5.5 billion, about a 94% MLR and we see that only getting better over time. In fact, our Stars profile for payment year 2027 has improved. So the outlook for 2027, but that should give you the jumping off point.

Joseph Zubretsky: We’ll give you a good 3-year outlook for our duals business in a couple of weeks at our Investor Day. We’re pretty excited about it. As you know, the regulatory regime is favoring the integration of Medicaid and Medicare. And since we have a very deep and wide footprint in Medicaid and a Medicare business is quite robust. We’re quite enthusiastic about the prospects for our duals business. .

Operator: The next question comes from John Stansel with JPMorgan.

John Stansel: Over the last few quarters, usually in the prepared remarks, you spent time talking about an actionable M&A pipeline. A little bit last commentary on that today. I just want to understand, we’ve seen some Medicaid plans announced that they’re exiting either in ’26 or ’27. How are you seeing the pipeline? Has anything changed or anything that’s kind of making that more or less actionable right now?

Joseph Zubretsky: John, really, the only reason, very practical reason why we didn’t talk about growth this quarter was because we have an Investor Day coming up in 2 weeks. What we’ll talk about on this. And you’re right to cite that as you plumb the depths of what goes on around the country in various states, there are plans that are reportedly in trouble, distressed. We know where they are. We know who they are. We’ve probably talked to them. And the pipeline, the M&A pipeline is quite replete with actionable opportunities -. We are going to remain disciplined, stick to our knitting on properties that fit into our core strategy. And I’ll tell you, Mark and I have this debate with ourselves all the time. While we only paid 22%, 23% of revenue in the past, book value seems to be the best benchmark that one can look at now.

And if you’re putting — if you’re only paying for regulatory capital, an M&A opportunity is as good, if not better, than a new contract win. So we’ll talk more about that in 2 weeks’ time. The only reason we didn’t talk about here is not because it’s less important. We’re not actionable. We’ll be talking about it in great detail in 2 weeks’ time.

Operator: The next question comes from Erin Wright with Morgan Stanley.

Erin Wilson Wright: So you mentioned several of those moving pieces a lot throughout the call in terms of the various different books of business where you want better clarity — you mentioned, for instance, June Wakely data, but what are the latest weekly data. How did that inform you? And then as we think about all those variables, can you kind of rank them on the level of clarity or how comfortable or vulnerable you are across those segments? And then just as we think about you give long-term growth aspirations or targets on May 8, how do we get comfortable with the baseline if — could you give us any incremental clarity on the near term on May 8 at all?

Joseph Zubretsky: Erin, we are encouraged by the start to the new year. The data points we laid out are real, as someone suggested before, is there anything in the first quarter of an unusual nature that is creating the caution that you’re exhibiting. And the answer is no. We use the board time tested because in this environment, we think it is entirely reasonable, if not prudent, to have 2 full quarters of information, let the first quarter develop and become fully seasoned. [ Look ] in the second quarter, particularly on businesses where you have new membership, in order to update our forecast. So no, there is nothing in the first quarter result that is causing this caution. It is the test of time coming off this unprecedented inflection we experienced last year.

Now when we get to Investor Day in 2 weeks’ time, all you’re going to have at the baseline is our current guidance for 2026 at $5, but we’re going to give you a really good view of what this looks like in 2029. We’ll show you the building blocks of growth. We’ll show you how we expect margins to recover and to what extent. Obviously, we’ll give you the numbers then. But you will see block by block, brick by brick, how we’re building a story for 2029 in all 3 of our businesses. And the 2026 baseline of $42 billion of revenue and $5 is going to be the baseline. We’re not updating it at Investor Day.

Operator: The next question comes from Ryan Langston with TD Cowen.

Ryan Langston: Sorry if I missed this, but can you elaborate a little bit more on the commentary of timing for operating expenses and G&A. Is that for incentive comp or something else? And then on the MAPD business, exit. You said in the past that you might have an opportunity to monetize that. Can you give us an update where you’re at in that process?

Joseph Zubretsky: Sure. I’ll comment on the second question, Ryan, first and tag it to Mark on the timing of operating expenses. Yes, on the MAPD business, which is mostly in — here in the Northeast and in California, we are still working with potential counterparties to transfer that business. We’d rather transfer to a strategic partner. We’re still working with various counterparties to that end. . If we feel we won’t be successful doing that, we will terminate the business and terminate the product for next year. So either way, we will be out of the — the traditional MAPD product for 2027. We prefer the one transfer to a strategic partner. But if we’re not able to do that, and we’re still in the process of exploring that, we will wind it down. Mark, timing of expenses?

Mark Keim: Yes. Ryan, full year guidance unchanged, as I said in my prepared remarks, 6.4%. We booked a 6.9% in the first quarter, which is entirely timing. There’s some IT projects. And separately, as you know, we’re gearing up for that very large contract in Florida, the Florida CMS Kids contract, which is $6 billion of run rate. You can imagine that’s a big lift as we think about that. So it’s just some lumpy expenses quarter-to-quarter. The emphasis here is that full year is unchanged at 6.4%. It’s just the lumpiness of how we recognize expense. .

Operator: Next question comes from Michael Ha with Baird. .

Hua Ha: Just wanted to follow up on Steve’s question about low and no utilizers. I understand you have a lot at you’ve seen. You don’t expect additional acuity shifts Medicaid declines and that your low utilizes, I think you said 7.5% below peak. And I know, Joe, you mentioned you won’t provide a definition on that, but is there any way you could provide a bit more color around perhaps what buckets of MLR you consider low utilized? Or is that 0 to 20%, 20% to 40% MLR higher, for example, would a 70% MLR number be considered that because the 70% MLR number dropping off is still like a 20% delta basically where your book is running at today. So curious if you had more color there, what percent of your members fit in those buckets, how those cohorts change over the past couple of years? Also, how do they compare versus your expansion book?

Joseph Zubretsky: I’m not sure we actually — I’ll respect your question and try to answer as best as I can without. I think we’re going to stop short of giving detailed numbers. So let me frame it this way. First of all, over what time period, if somebody doesn’t use a service in a 90-day period is that no utilizer. Many people don’t get a service for 3 months at a time. So the way I’ll frame it is we didn’t lock in on the definition, we tested all definitions. We tested time periods. We tested 0 utilizers very clear, no claims. What’s a low utilizer? Is it a PMPM number? Is it a medical loss ratio number. . We tested definitions and centered in on one. And to be honest, the fact that low and no utilizers are down substantially, even below pre-pandemic levels.

It almost matters not — it doesn’t matter what definition you use, it’s down. So we’re not giving absolute numbers, and we’re not giving the model that we’re using. But I absolutely assure you that making up a definition to make yourself feel good about is not what we do here. We tested the definition across a wide range of time frames and PMPM medical costs for that time frame to test whether it matters or not. And I will tell you it doesn’t matter all that much. It is markedly down and therefore, we’re not anticipating an acuity shift. Mark, you the architect of all this, do you have anything to add?

Mark Keim: Yes. What’s important is this is a directional statistic. As Joe mentioned, we’ve taken a lot of different approaches. And directionally, the number of low users and no users by all approaches is much lower. The specific numbers, in this case, are less relevant. The other statistic that I use, which just gives us great comfort in what we’re seeing is the stayers, levers analysis. A year or two ago, levers would have left at much lower PMPM or MLRs, whereas now they’re leaving at those ratios being much closer to the average, which again, is one more data point supporting our view on this. .

Operator: The next question comes from Lance Wilkes with Bernstein. .

Lance Wilkes: Can you talk a little bit about the state behaviors you’re observing as we’re going through this. And what I’m interested in, obviously, you commented a little bit on off-cycle rate increases. And maybe if you can talk about maybe what are the characteristics that help to drive that. But interested in kind of comments on pipeline, how states are approaching implementation, new processes, what types of products, if any, they’re looking at kind of given the backdrop? And then just as a cleanup, if you could make any comments on the trend favorability in the first quarter. If there is any aspects of trend beyond acuity shift you’re seeing some positive favorability in 1Q, that would be helpful.

Joseph Zubretsky: Sure, Lance. On State behaviors, it’s hard to — you can draw some themes across the various states, but they’re all different. But generally speaking, we’re seeing states step up to the reality that a cost inflection has occurred and they are catching up to it. What do they need to catch up to? If you look at the trends we’ve experienced over the past 3 years, 4.5, 6.5 and 7.5 the cost baseline is 20% higher than it was 3 years ago. That’s what they need to catch up to. Now we believe we’re operating 300 basis points — 300 to 400 basis points better than the average market. So as they catch up, we should be going back into a much more positive territory than we already are. Bearing in mind, our guidance in Medicaid is for a 1.5% pretax margin this year, eliminating the impact of Florida Kids.

So we’re in good shape there. So states are stepping up on rates. They are also, obviously, due to the indirect impacts of OB3, they’re looking at eligibility. They’re looking at carbons and carve-outs. They’re wrestling with provider and MCO taxes. They’re dealing with all the effects of that. They’re looking at helping MCOs reintroduce UM on behavioral, for instance, during the pandemic, a lot of that was relaxed because people weren’t using services. So you can go state by state, but those are the general themes focusing on eligibility a lot, focusing on program features, supplemental benefits that maybe don’t need to be funded and trying to deal with the residual impacts of OB3, that’s what we’re seeing. On first quarter trend, I think your question was, is there any more color to put around it?

From a medical cost perspective, we’re seeing good controls over inpatient in Medicaid. The inpatient trend is flattening in Medicaid. That’s pretty obvious. Pharmacy is actually behaving favorably. High-cost drugs are still a pressure point. But number of script volume per 1,000 and unit cost is actually leveling as well. And BH, which has been a trend inflection over the past 2 or 3 years, is more favorable this year, at least in the early stages than it was in the past due to state controls, client controls and company controls. So those are a few but it’s certainly good news and encouraging news in the first quarter that the first quarter trend in Medicaid annualized would have us slightly better than the 5% trend assumption for the year.

Mark, did I miss anything?

Mark Keim: No, Joe, I think that’s well summarized. The only thing I’d add on [indiscernible] is comments that Joe made, obviously, very appropriate. There’s always questions about ILI or flu, whatever you want to call it, pretty much a normal season for us, and we’re now coming out of that. So I think that’s behind us. Thanks, Lance. .

Operator: The next question comes from George Hill with Deutsche Bank. .

George Hill: Two quick ones. Mark, I think you talked about — I want to follow up on Michael’s question. You talked about the decline in 0 or low utilizers down to the lowest level. It seems like it moves a lot sequentially from Q4 to Q1. I would love to have you talk a little bit about what drove that? And Joe, as we talked to state administrators on the Medicaid side, we’re hearing a lot of worry about the community engagement requirements as we go into 2027. I would love to hear any early thoughts that you guys have had. We know work requirements are an issue, but a lot of states are worried about how to administer the community engagement requirements. Would love to hear what you think about that.

Joseph Zubretsky: I’ll take the second one first, and then we’ll go back to low and no mark. Acuity engagement. Every state is different. We’re actually fortunate in a way where we have a business in Nebraska, which is a state that has declared it’s going early on work requirements. So we have some insights. And I’ll tell you, they’re going to move and they’re going to move for the middle of this year. But it is very clear that the rules around what information you need to terminate Comex Part procedurally, how does it work? What’s the definition of medical frailty that’s going to be used. So we are working with each of our states in different ways. Various states allow different levels of intervention with MCOs in terms of whether you can help people find work, whether you control it performs, every state is different.

But our community engagement teams nationally, property-by-property are extremely engaged with each of our state clients on working through these requirements. But I will tell you that it is still a bit unclear given the very general guidance CMS has given, what information is going to be required to terminate someone or allow them on ex parte and what the — what are the exceptions, particularly with medical frailty. Mark, do you want to take the lower now user question?

Mark Keim: Absolutely. So George, the market is down. Medicaid membership market is down about 20% since its peak in 2023 when redetermination began. As those 20% of the people came out, a lot of them were 0 and low utilizers. That is what drove the acuity shift, right? As they come out, the remaining population is on a weighted average, slightly higher cost per member. So what we saw in ’24 and ’25 was a component of our trend attributed to that mix shift, which we call acuity shift across ’24 into ’25. Across ’25 we saw the percentage of low utilizers and utilizers fall to the lowest level with a little higher at the beginning of ’25 and by the end of ’25, it was at its very low level. which gave us confidence that, that acuity shift is largely behind us. So again, the component of low and no utilizers falling ’24 and ’25, that’s what contributes to the acuity shift. And our data shows us that’s largely behind us, if not totally behind us.

Operator: Our last question comes from Jason Cassorla with Guggenheim. .

Jason Cassorla: Most of my questions have been asked. Maybe just a quick 1 on earnings seasonality. You talked about the majority of earnings in the first half — you’ve got an updated Medicaid enrollment expectation, higher exchange enrollment at the start of the year. I know this prudence in your outlook, given the unknowns and some timing nuances with the G&A and the ramp-up of the Florida CMS, maybe just you could step back, is there anything more or anything else on the seasonality side are you willing to give for us as we sit here today ahead of your Investor Day would be helpful. .

Joseph Zubretsky: Mark, do you want to take what we expect for seasonality this year.

Mark Keim: Absolutely. .What we had said previously was about 2/3 in the first half, 1/3 in the second half. I’m not going to update that now because if I did, I’d effectively be giving you second quarter earnings. But proportionately, we’re in the same place. We had a nice first quarter, but I think proportionately, we would be in the same front half, second half. What drives that while the Medicaid rate cycle, remember, we get — we’re a little bit front-end loaded on the Medicaid rate cycle. Remember, seasonality on marketplace means always the first half of the year is a little better than second half. That’s baked into our full year guidance. And then lastly, fourth quarter, Florida Kids, as Joe mentioned earlier on this Q&A session, Florida Kids will come in pretty high MOR in its first quarter, which is typical for new business.

That will be some weight on the fourth quarter, no doubt. But those are the major components and proportionately higher in the first half, lower in the second half, as we said.

Operator: This concludes our question-and-answer session and Molina Healthcare’s First Quarter 2026 Earnings Call. Thank you for attending today’s presentation. You may now disconnect.

Receive real-time insider trading and news alerts