false--12-31Q3201900011799290.011250.016250.011250.016250.011250.01125P3Y0.0010.00115000000015000000062000000630000000.02452770.016250.016250.048750.05375110000000.011250.011250.011250.0010.001200000002000000000000 0001179929 2019-01-01 2019-09-30 0001179929 2019-10-25 0001179929 2018-07-01 2018-09-30 0001179929 2019-07-01 2019-09-30 0001179929 2018-01-01 2018-09-30 0001179929 us-gaap:TechnologyServiceMember 2019-01-01 2019-09-30 0001179929 us-gaap:HealthCarePremiumMember 2019-07-01 2019-09-30 0001179929 us-gaap:HealthCarePremiumMember 2018-01-01 2018-09-30 0001179929 us-gaap:TechnologyServiceMember 2018-01-01 2018-09-30 0001179929 us-gaap:TechnologyServiceMember 2019-07-01 2019-09-30 0001179929 us-gaap:HealthCarePremiumMember 2019-01-01 2019-09-30 0001179929 us-gaap:HealthCarePremiumMember 2018-07-01 2018-09-30 0001179929 us-gaap:TechnologyServiceMember 2018-07-01 2018-09-30 0001179929 2018-12-31 0001179929 2019-09-30 0001179929 us-gaap:AdditionalPaidInCapitalMember 2019-01-01 2019-03-31 0001179929 us-gaap:AdditionalPaidInCapitalMember 2019-03-31 0001179929 2019-01-01 2019-03-31 0001179929 2019-04-01 2019-06-30 0001179929 us-gaap:CommonStockMember 2019-03-31 0001179929 us-gaap:AdditionalPaidInCapitalMember 2019-04-01 2019-06-30 0001179929 us-gaap:RetainedEarningsMember 2019-01-01 0001179929 us-gaap:AdditionalPaidInCapitalMember 2018-12-31 0001179929 us-gaap:CommonStockMember 2019-09-30 0001179929 us-gaap:AdditionalPaidInCapitalMember 2019-07-01 2019-09-30 0001179929 us-gaap:RetainedEarningsMember 2019-07-01 2019-09-30 0001179929 us-gaap:RetainedEarningsMember 2019-01-01 2019-03-31 0001179929 us-gaap:RetainedEarningsMember 2019-06-30 0001179929 us-gaap:AdditionalPaidInCapitalMember 2019-09-30 0001179929 2019-03-31 0001179929 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-01-01 2019-03-31 0001179929 us-gaap:CommonStockMember 2018-12-31 0001179929 us-gaap:CommonStockMember 2019-01-01 2019-03-31 0001179929 2019-06-30 0001179929 us-gaap:RetainedEarningsMember 2019-09-30 0001179929 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2018-12-31 0001179929 us-gaap:CommonStockMember 2019-06-30 0001179929 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-06-30 0001179929 us-gaap:RetainedEarningsMember 2019-04-01 2019-06-30 0001179929 2019-01-01 0001179929 us-gaap:AdditionalPaidInCapitalMember 2019-06-30 0001179929 us-gaap:RetainedEarningsMember 2019-03-31 0001179929 us-gaap:RetainedEarningsMember 2018-12-31 0001179929 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-09-30 0001179929 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-03-31 0001179929 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2019-04-01 2019-06-30 0001179929 us-gaap:AdditionalPaidInCapitalMember 2018-04-01 2018-06-30 0001179929 us-gaap:AdditionalPaidInCapitalMember 2018-01-01 2018-03-31 0001179929 us-gaap:AdditionalPaidInCapitalMember 2018-07-01 2018-09-30 0001179929 us-gaap:CommonStockMember 2018-06-30 0001179929 us-gaap:RetainedEarningsMember 2018-04-01 2018-06-30 0001179929 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2017-12-31 0001179929 us-gaap:RetainedEarningsMember 2018-01-01 2018-03-31 0001179929 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2018-06-30 0001179929 us-gaap:AdditionalPaidInCapitalMember 2017-12-31 0001179929 us-gaap:CommonStockMember 2018-03-31 0001179929 us-gaap:RetainedEarningsMember 2018-09-30 0001179929 2018-03-31 0001179929 2018-09-30 0001179929 us-gaap:CommonStockMember 2018-01-01 2018-03-31 0001179929 2018-06-30 0001179929 us-gaap:AdditionalPaidInCapitalMember 2018-03-31 0001179929 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2018-03-31 0001179929 us-gaap:CommonStockMember 2018-09-30 0001179929 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2018-07-01 2018-09-30 0001179929 us-gaap:AdditionalPaidInCapitalMember 2018-09-30 0001179929 us-gaap:RetainedEarningsMember 2017-12-31 0001179929 2018-04-01 2018-06-30 0001179929 2018-01-01 2018-03-31 0001179929 2017-12-31 0001179929 us-gaap:RetainedEarningsMember 2018-07-01 2018-09-30 0001179929 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2018-01-01 2018-03-31 0001179929 us-gaap:RetainedEarningsMember 2018-01-01 0001179929 us-gaap:CommonStockMember 2017-12-31 0001179929 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2018-09-30 0001179929 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2018-01-01 0001179929 us-gaap:AccumulatedOtherComprehensiveIncomeMember 2018-04-01 2018-06-30 0001179929 2018-01-01 0001179929 us-gaap:RetainedEarningsMember 2018-03-31 0001179929 us-gaap:AdditionalPaidInCapitalMember 2018-06-30 0001179929 us-gaap:RetainedEarningsMember 2018-06-30 0001179929 moh:CashConvertibleSeniorNotesDue2020WarrantsMember 2019-03-31 0001179929 moh:CashConvertibleSeniorNotesDue2020WarrantsMember 2019-06-30 0001179929 moh:CashConvertibleSeniorNotesDue2020WarrantsMember 2018-06-30 0001179929 moh:CashConvertibleSeniorNotesDue2020WarrantsMember 2019-09-30 0001179929 moh:ConvertibleSeniorNotesDue2044Member us-gaap:ConvertibleDebtMember 2018-09-30 0001179929 moh:ConvertibleSeniorNotesDue2044Member us-gaap:ConvertibleDebtMember 2018-03-31 0001179929 moh:CashConvertibleSeniorNotesDue2020WarrantsMember 2018-09-30 0001179929 us-gaap:EmbeddedDerivativeFinancialInstrumentsMember 2019-01-01 2019-09-30 0001179929 moh:CallOptionDerivativeAssetMember 2019-01-01 2019-09-30 0001179929 moh:CallOptionDerivativeAssetMember 2018-01-01 2018-09-30 0001179929 us-gaap:EmbeddedDerivativeFinancialInstrumentsMember 2018-01-01 2018-09-30 0001179929 us-gaap:EmbeddedDerivativeFinancialInstrumentsMember 2019-09-30 0001179929 moh:CashConvertibleSeniorNotesDue2020Member 2019-09-30 0001179929 moh:CallOptionDerivativeAssetMember 2019-09-30 0001179929 srt:MaximumMember moh:HealthPlansMember 2019-01-01 2019-09-30 0001179929 moh:TexasHealthAndHumanServicesCommissionSTARPLUSProgramMember 2019-01-01 2019-09-30 0001179929 moh:TexasHealthAndHumanServicesCommissionSTARPLUSProgramMember us-gaap:SubsequentEventMember 2019-10-29 0001179929 srt:ScenarioForecastMember moh:YourCareHealthPlanInc.Member us-gaap:SubsequentEventMember 2019-10-10 2020-12-31 0001179929 moh:HealthPlansMember 2019-09-30 0001179929 srt:ScenarioForecastMember moh:YourCareHealthPlanInc.Member us-gaap:SubsequentEventMember 2020-12-31 0001179929 moh:TexasHealthAndHumanServicesCommissionSTARPLUSProgramMember us-gaap:SubsequentEventMember 2019-10-29 2019-10-29 0001179929 srt:MinimumMember moh:HealthPlansMember 2019-01-01 2019-09-30 0001179929 moh:StateAndFederalGovernmentAgenciesMember us-gaap:AccountsReceivableMember us-gaap:CustomerConcentrationRiskMember 2019-09-30 0001179929 us-gaap:AccountingStandardsUpdate201602Member us-gaap:RetainedEarningsMember 2019-01-01 0001179929 moh:MedicaidExpansionMember 2019-09-30 0001179929 moh:CMSSubsidiesMember 2018-01-01 2018-09-30 0001179929 srt:MaximumMember moh:CaliforniaIllinoisNewMexicoOhioSouthCarolinaTexasWashingtonandWisconsinMember 2019-01-01 2019-09-30 0001179929 moh:CMSSubsidiesMember 2018-07-01 2018-09-30 0001179929 srt:MinimumMember moh:CaliforniaIllinoisNewMexicoOhioSouthCarolinaTexasWashingtonandWisconsinMember 2019-01-01 2019-09-30 0001179929 moh:StateAndFederalGovernmentAgenciesMember us-gaap:AccountsReceivableMember us-gaap:CustomerConcentrationRiskMember 2019-01-01 2019-09-30 0001179929 moh:MedicaidExpansionMember 2018-12-31 0001179929 moh:A1.625NotesMember 2018-09-30 0001179929 us-gaap:FairValueInputsLevel3Member us-gaap:EmbeddedDerivativeFinancialInstrumentsMember 2019-09-30 0001179929 us-gaap:FairValueInputsLevel2Member us-gaap:AssetBackedSecuritiesMember 2019-09-30 0001179929 us-gaap:USTreasuryNotesSecuritiesMember 2019-09-30 0001179929 us-gaap:FairValueInputsLevel1Member us-gaap:USGovernmentSponsoredEnterprisesDebtSecuritiesMember 2019-09-30 0001179929 us-gaap:FairValueInputsLevel3Member moh:MunicipalSecuritiesMember 2019-09-30 0001179929 us-gaap:FairValueInputsLevel3Member us-gaap:CorporateDebtSecuritiesMember 2019-09-30 0001179929 us-gaap:FairValueInputsLevel1Member us-gaap:CommercialMortgageBackedSecuritiesMember 2019-09-30 0001179929 us-gaap:FairValueInputsLevel2Member us-gaap:USTreasuryNotesSecuritiesMember 2019-09-30 0001179929 us-gaap:FairValueInputsLevel2Member us-gaap:CallOptionMember 2019-09-30 0001179929 us-gaap:FairValueInputsLevel1Member us-gaap:CallOptionMember 2019-09-30 0001179929 us-gaap:FairValueInputsLevel2Member us-gaap:ForeignGovernmentDebtSecuritiesMember 2019-09-30 0001179929 us-gaap:FairValueInputsLevel2Member moh:MunicipalSecuritiesMember 2019-09-30 0001179929 us-gaap:FairValueInputsLevel2Member 2019-09-30 0001179929 us-gaap:FairValueInputsLevel1Member 2019-09-30 0001179929 us-gaap:FairValueInputsLevel1Member us-gaap:ForeignGovernmentDebtSecuritiesMember 2019-09-30 0001179929 us-gaap:FairValueInputsLevel3Member us-gaap:USGovernmentSponsoredEnterprisesDebtSecuritiesMember 2019-09-30 0001179929 us-gaap:CallOptionMember 2019-09-30 0001179929 us-gaap:FairValueInputsLevel1Member us-gaap:EmbeddedDerivativeFinancialInstrumentsMember 2019-09-30 0001179929 us-gaap:FairValueInputsLevel3Member us-gaap:ForeignGovernmentDebtSecuritiesMember 2019-09-30 0001179929 us-gaap:FairValueInputsLevel2Member us-gaap:CorporateDebtSecuritiesMember 2019-09-30 0001179929 us-gaap:ForeignGovernmentDebtSecuritiesMember 2019-09-30 0001179929 us-gaap:CorporateDebtSecuritiesMember 2019-09-30 0001179929 us-gaap:FairValueInputsLevel3Member us-gaap:AssetBackedSecuritiesMember 2019-09-30 0001179929 us-gaap:FairValueInputsLevel1Member us-gaap:USTreasuryNotesSecuritiesMember 2019-09-30 0001179929 us-gaap:FairValueInputsLevel1Member us-gaap:CertificatesOfDepositMember 2019-09-30 0001179929 us-gaap:FairValueInputsLevel3Member 2019-09-30 0001179929 us-gaap:AssetBackedSecuritiesMember 2019-09-30 0001179929 us-gaap:FairValueInputsLevel2Member us-gaap:EmbeddedDerivativeFinancialInstrumentsMember 2019-09-30 0001179929 moh:MunicipalSecuritiesMember 2019-09-30 0001179929 us-gaap:FairValueInputsLevel2Member us-gaap:CommercialMortgageBackedSecuritiesMember 2019-09-30 0001179929 us-gaap:EmbeddedDerivativeFinancialInstrumentsMember 2019-09-30 0001179929 us-gaap:FairValueInputsLevel1Member us-gaap:AssetBackedSecuritiesMember 2019-09-30 0001179929 us-gaap:FairValueInputsLevel1Member moh:MunicipalSecuritiesMember 2019-09-30 0001179929 us-gaap:FairValueInputsLevel2Member us-gaap:CertificatesOfDepositMember 2019-09-30 0001179929 us-gaap:FairValueInputsLevel3Member us-gaap:CallOptionMember 2019-09-30 0001179929 us-gaap:FairValueInputsLevel1Member us-gaap:CorporateDebtSecuritiesMember 2019-09-30 0001179929 us-gaap:FairValueInputsLevel2Member us-gaap:USGovernmentSponsoredEnterprisesDebtSecuritiesMember 2019-09-30 0001179929 us-gaap:FairValueInputsLevel3Member us-gaap:USTreasuryNotesSecuritiesMember 2019-09-30 0001179929 us-gaap:FairValueInputsLevel3Member us-gaap:CertificatesOfDepositMember 2019-09-30 0001179929 us-gaap:CertificatesOfDepositMember 2019-09-30 0001179929 us-gaap:USGovernmentSponsoredEnterprisesDebtSecuritiesMember 2019-09-30 0001179929 us-gaap:FairValueInputsLevel3Member us-gaap:CommercialMortgageBackedSecuritiesMember 2019-09-30 0001179929 us-gaap:CommercialMortgageBackedSecuritiesMember 2019-09-30 0001179929 moh:SeniorNotesDue2022Member us-gaap:CarryingReportedAmountFairValueDisclosureMember us-gaap:SeniorNotesMember 2019-09-30 0001179929 moh:SeniorNotesDue2022Member us-gaap:EstimateOfFairValueFairValueDisclosureMember us-gaap:SeniorNotesMember 2019-09-30 0001179929 moh:A4.875SeniorNotesMember us-gaap:CarryingReportedAmountFairValueDisclosureMember us-gaap:SeniorNotesMember 2018-12-31 0001179929 moh:SeniorNotesDue2022Member us-gaap:CarryingReportedAmountFairValueDisclosureMember us-gaap:SeniorNotesMember 2018-12-31 0001179929 us-gaap:EstimateOfFairValueFairValueDisclosureMember us-gaap:RevolvingCreditFacilityMember 2018-12-31 0001179929 us-gaap:CarryingReportedAmountFairValueDisclosureMember us-gaap:RevolvingCreditFacilityMember 2018-12-31 0001179929 us-gaap:CarryingReportedAmountFairValueDisclosureMember 2018-12-31 0001179929 us-gaap:EstimateOfFairValueFairValueDisclosureMember 2018-12-31 0001179929 moh:A4.875SeniorNotesMember us-gaap:CarryingReportedAmountFairValueDisclosureMember us-gaap:SeniorNotesMember 2019-09-30 0001179929 moh:CashConvertibleSeniorNotesDue2020Member us-gaap:EstimateOfFairValueFairValueDisclosureMember us-gaap:ConvertibleDebtMember 2018-12-31 0001179929 moh:SeniorNotesDue2022Member us-gaap:EstimateOfFairValueFairValueDisclosureMember us-gaap:SeniorNotesMember 2018-12-31 0001179929 us-gaap:CarryingReportedAmountFairValueDisclosureMember us-gaap:RevolvingCreditFacilityMember 2019-09-30 0001179929 moh:CashConvertibleSeniorNotesDue2020Member us-gaap:CarryingReportedAmountFairValueDisclosureMember us-gaap:ConvertibleDebtMember 2018-12-31 0001179929 us-gaap:EstimateOfFairValueFairValueDisclosureMember us-gaap:RevolvingCreditFacilityMember 2019-09-30 0001179929 us-gaap:EstimateOfFairValueFairValueDisclosureMember 2019-09-30 0001179929 moh:A4.875SeniorNotesMember us-gaap:EstimateOfFairValueFairValueDisclosureMember us-gaap:SeniorNotesMember 2018-12-31 0001179929 moh:CashConvertibleSeniorNotesDue2020Member us-gaap:EstimateOfFairValueFairValueDisclosureMember us-gaap:ConvertibleDebtMember 2019-09-30 0001179929 us-gaap:CarryingReportedAmountFairValueDisclosureMember 2019-09-30 0001179929 moh:A4.875SeniorNotesMember us-gaap:EstimateOfFairValueFairValueDisclosureMember us-gaap:SeniorNotesMember 2019-09-30 0001179929 moh:CashConvertibleSeniorNotesDue2020Member us-gaap:CarryingReportedAmountFairValueDisclosureMember us-gaap:ConvertibleDebtMember 2019-09-30 0001179929 us-gaap:ForeignGovernmentDebtSecuritiesMember 2018-12-31 0001179929 us-gaap:FairValueInputsLevel3Member us-gaap:USGovernmentSponsoredEnterprisesDebtSecuritiesMember 2018-12-31 0001179929 us-gaap:USGovernmentSponsoredEnterprisesDebtSecuritiesMember 2018-12-31 0001179929 us-gaap:FairValueInputsLevel2Member us-gaap:AssetBackedSecuritiesMember 2018-12-31 0001179929 us-gaap:FairValueInputsLevel1Member 2018-12-31 0001179929 us-gaap:FairValueInputsLevel3Member us-gaap:CallOptionMember 2018-12-31 0001179929 us-gaap:AssetBackedSecuritiesMember 2018-12-31 0001179929 us-gaap:USTreasuryNotesSecuritiesMember 2018-12-31 0001179929 us-gaap:FairValueInputsLevel2Member 2018-12-31 0001179929 us-gaap:FairValueInputsLevel2Member us-gaap:EmbeddedDerivativeFinancialInstrumentsMember 2018-12-31 0001179929 us-gaap:FairValueInputsLevel2Member moh:MunicipalSecuritiesMember 2018-12-31 0001179929 us-gaap:FairValueInputsLevel3Member us-gaap:AssetBackedSecuritiesMember 2018-12-31 0001179929 us-gaap:FairValueInputsLevel2Member us-gaap:CorporateDebtSecuritiesMember 2018-12-31 0001179929 us-gaap:FairValueInputsLevel2Member us-gaap:CallOptionMember 2018-12-31 0001179929 us-gaap:FairValueInputsLevel1Member moh:MunicipalSecuritiesMember 2018-12-31 0001179929 us-gaap:FairValueInputsLevel2Member us-gaap:CertificatesOfDepositMember 2018-12-31 0001179929 us-gaap:FairValueInputsLevel1Member us-gaap:EmbeddedDerivativeFinancialInstrumentsMember 2018-12-31 0001179929 us-gaap:FairValueInputsLevel3Member us-gaap:CorporateDebtSecuritiesMember 2018-12-31 0001179929 us-gaap:FairValueInputsLevel1Member us-gaap:CorporateDebtSecuritiesMember 2018-12-31 0001179929 us-gaap:FairValueInputsLevel2Member us-gaap:ForeignGovernmentDebtSecuritiesMember 2018-12-31 0001179929 us-gaap:FairValueInputsLevel1Member us-gaap:CertificatesOfDepositMember 2018-12-31 0001179929 us-gaap:CorporateDebtSecuritiesMember 2018-12-31 0001179929 us-gaap:FairValueInputsLevel1Member us-gaap:USGovernmentSponsoredEnterprisesDebtSecuritiesMember 2018-12-31 0001179929 us-gaap:FairValueInputsLevel3Member 2018-12-31 0001179929 us-gaap:CertificatesOfDepositMember 2018-12-31 0001179929 us-gaap:FairValueInputsLevel3Member moh:MunicipalSecuritiesMember 2018-12-31 0001179929 moh:MunicipalSecuritiesMember 2018-12-31 0001179929 us-gaap:FairValueInputsLevel1Member us-gaap:AssetBackedSecuritiesMember 2018-12-31 0001179929 us-gaap:EmbeddedDerivativeFinancialInstrumentsMember 2018-12-31 0001179929 us-gaap:FairValueInputsLevel3Member us-gaap:CertificatesOfDepositMember 2018-12-31 0001179929 us-gaap:FairValueInputsLevel3Member us-gaap:USTreasuryNotesSecuritiesMember 2018-12-31 0001179929 us-gaap:CallOptionMember 2018-12-31 0001179929 us-gaap:FairValueInputsLevel3Member us-gaap:EmbeddedDerivativeFinancialInstrumentsMember 2018-12-31 0001179929 us-gaap:FairValueInputsLevel2Member us-gaap:USGovernmentSponsoredEnterprisesDebtSecuritiesMember 2018-12-31 0001179929 us-gaap:FairValueInputsLevel1Member us-gaap:ForeignGovernmentDebtSecuritiesMember 2018-12-31 0001179929 us-gaap:FairValueInputsLevel3Member us-gaap:ForeignGovernmentDebtSecuritiesMember 2018-12-31 0001179929 us-gaap:FairValueInputsLevel1Member us-gaap:USTreasuryNotesSecuritiesMember 2018-12-31 0001179929 us-gaap:FairValueInputsLevel2Member us-gaap:USTreasuryNotesSecuritiesMember 2018-12-31 0001179929 us-gaap:FairValueInputsLevel1Member us-gaap:CallOptionMember 2018-12-31 0001179929 moh:CurrentLiabilitiesMember us-gaap:EmbeddedDerivativeFinancialInstrumentsMember 2019-09-30 0001179929 moh:CurrentLiabilitiesMember us-gaap:EmbeddedDerivativeFinancialInstrumentsMember 2018-12-31 0001179929 us-gaap:EmbeddedDerivativeFinancialInstrumentsMember 2018-12-31 0001179929 moh:CallOptionDerivativeAssetMember 2018-12-31 0001179929 moh:SeniorNotesDue2022Member us-gaap:SeniorNotesMember 2019-09-30 0001179929 moh:CashConvertibleSeniorNotesDue2020Member us-gaap:ConvertibleDebtMember 2019-09-30 0001179929 moh:A4.875SeniorNotesMember us-gaap:SeniorNotesMember 2019-09-30 0001179929 moh:SeniorNotesDue2022Member us-gaap:SeniorNotesMember 2018-12-31 0001179929 moh:TermLoanMember us-gaap:LineOfCreditMember 2019-09-30 0001179929 moh:TermLoanMember us-gaap:LineOfCreditMember 2018-12-31 0001179929 moh:CashConvertibleSeniorNotesDue2020Member us-gaap:ConvertibleDebtMember 2018-12-31 0001179929 moh:A4.875SeniorNotesMember us-gaap:SeniorNotesMember 2018-12-31 0001179929 us-gaap:RevolvingCreditFacilityMember us-gaap:LineOfCreditMember 2019-09-30 0001179929 moh:CashConvertibleSeniorNotesDue2020Member us-gaap:ConvertibleDebtMember 2019-07-01 2019-09-30 0001179929 us-gaap:RevolvingCreditFacilityMember us-gaap:LineOfCreditMember 2019-01-31 0001179929 srt:MinimumMember us-gaap:RevolvingCreditFacilityMember us-gaap:LineOfCreditMember 2019-01-01 2019-09-30 0001179929 moh:CashConvertibleSeniorNotesDue2020Member us-gaap:ConvertibleDebtMember 2019-01-01 2019-09-30 0001179929 srt:MaximumMember us-gaap:RevolvingCreditFacilityMember us-gaap:LineOfCreditMember 2019-01-01 2019-09-30 0001179929 us-gaap:LetterOfCreditMember us-gaap:LineOfCreditMember 2019-09-30 0001179929 moh:CashConvertibleSeniorNotesDue2020Member us-gaap:ConvertibleDebtMember 2018-01-01 2018-12-31 0001179929 moh:SeniorNotesDue2022Member 2019-09-30 0001179929 moh:A4.875SeniorNotesMember 2019-09-30 0001179929 moh:CurrentAssetsMember moh:CallOptionDerivativeAssetMember 2019-09-30 0001179929 moh:CurrentAssetsMember moh:CallOptionDerivativeAssetMember 2018-12-31 0001179929 moh:CashConvertibleSeniorNotesDue2020WarrantsMember 2019-07-01 2019-09-30 0001179929 moh:CallOptionDerivativeAssetMember 2019-07-01 2019-09-30 0001179929 moh:CallOptionDerivativeAssetMember 2019-06-30 0001179929 us-gaap:RestrictedStockMember 2019-01-01 2019-09-30 0001179929 us-gaap:PerformanceSharesMember 2019-01-01 2019-09-30 0001179929 us-gaap:RestrictedStockUnitsRSUMember 2019-01-01 2019-09-30 0001179929 us-gaap:RestrictedStockUnitsRSUMember 2018-01-01 2018-09-30 0001179929 us-gaap:PerformanceSharesMember 2018-01-01 2018-09-30 0001179929 us-gaap:RestrictedStockMember 2018-01-01 2018-09-30 0001179929 moh:EquityIncentivePlanMember 2019-09-30 0001179929 us-gaap:EmployeeStockOptionMember 2019-01-01 2019-09-30 0001179929 us-gaap:EmployeeStockOptionMember 2019-09-30 0001179929 moh:CashConvertibleSeniorNotesDue2020WarrantsMember 2019-01-01 2019-09-30 0001179929 us-gaap:CommonStockMember 2019-01-01 2019-09-30 0001179929 moh:EmployeeStockPurchasePlanMember 2019-05-31 0001179929 moh:CashConvertibleSeniorNotesDue2020WarrantsMember 2013-12-31 0001179929 moh:CashConvertibleSeniorNotesDue2020WarrantsMember 2013-01-01 2013-12-31 0001179929 us-gaap:PerformanceSharesMember 2018-12-31 0001179929 us-gaap:RestrictedStockMember 2018-12-31 0001179929 us-gaap:RestrictedStockUnitsRSUMember 2019-09-30 0001179929 us-gaap:PerformanceSharesMember 2019-09-30 0001179929 us-gaap:RestrictedStockUnitsRSUMember 2018-12-31 0001179929 us-gaap:RestrictedStockMember 2019-09-30 0001179929 moh:ITRestructuringMember 2019-09-30 0001179929 moh:A2017RestructuringPlanMember 2018-12-31 0001179929 us-gaap:ContractTerminationMember moh:A2017RestructuringPlanMember 2019-09-30 0001179929 us-gaap:OneTimeTerminationBenefitsMember moh:ITRestructuringMember 2019-01-01 2019-09-30 0001179929 us-gaap:ContractTerminationMember moh:A2017RestructuringPlanMember 2019-01-01 2019-09-30 0001179929 moh:ITRestructuringMember 2018-12-31 0001179929 us-gaap:OtherRestructuringMember moh:A2017RestructuringPlanMember 2019-01-01 2019-09-30 0001179929 us-gaap:OneTimeTerminationBenefitsMember moh:ITRestructuringMember 2019-09-30 0001179929 moh:ProfessionalServicesFeesMember moh:ITRestructuringMember 2019-09-30 0001179929 moh:ITRestructuringMember 2019-01-01 2019-09-30 0001179929 moh:ProfessionalServicesFeesMember moh:ITRestructuringMember 2019-01-01 2019-09-30 0001179929 us-gaap:MaterialReconcilingItemsMember 2019-01-01 2019-09-30 0001179929 us-gaap:MaterialReconcilingItemsMember 2018-01-01 2018-09-30 0001179929 us-gaap:MaterialReconcilingItemsMember 2019-07-01 2019-09-30 0001179929 us-gaap:OperatingSegmentsMember us-gaap:AllOtherSegmentsMember 2018-01-01 2018-09-30 0001179929 us-gaap:OperatingSegmentsMember us-gaap:AllOtherSegmentsMember 2019-01-01 2019-09-30 0001179929 us-gaap:OperatingSegmentsMember us-gaap:AllOtherSegmentsMember 2018-07-01 2018-09-30 0001179929 us-gaap:OperatingSegmentsMember moh:HealthPlansMember 2018-07-01 2018-09-30 0001179929 us-gaap:OperatingSegmentsMember 2018-07-01 2018-09-30 0001179929 us-gaap:OperatingSegmentsMember moh:HealthPlansMember 2019-01-01 2019-09-30 0001179929 us-gaap:OperatingSegmentsMember 2019-01-01 2019-09-30 0001179929 us-gaap:OperatingSegmentsMember 2019-07-01 2019-09-30 0001179929 us-gaap:OperatingSegmentsMember moh:HealthPlansMember 2018-01-01 2018-09-30 0001179929 us-gaap:OperatingSegmentsMember 2018-01-01 2018-09-30 0001179929 us-gaap:MaterialReconcilingItemsMember 2018-07-01 2018-09-30 0001179929 us-gaap:OperatingSegmentsMember moh:HealthPlansMember 2019-07-01 2019-09-30 0001179929 us-gaap:OperatingSegmentsMember us-gaap:AllOtherSegmentsMember 2019-07-01 2019-09-30 0001179929 us-gaap:AllOtherSegmentsMember 2019-01-01 2019-09-30 0001179929 moh:HealthPlansMember 2019-07-01 2019-09-30 0001179929 moh:HealthPlansMember 2019-01-01 2019-09-30 0001179929 moh:HealthPlansMember 2018-07-01 2018-09-30 0001179929 moh:HealthPlansMember 2018-01-01 2018-09-30 0001179929 us-gaap:AllOtherSegmentsMember 2019-07-01 2019-09-30 0001179929 us-gaap:AllOtherSegmentsMember 2018-07-01 2018-09-30 0001179929 us-gaap:AllOtherSegmentsMember 2018-01-01 2018-09-30 0001179929 srt:MinimumMember 2019-01-01 2019-09-30 0001179929 srt:MaximumMember 2019-01-01 2019-09-30 xbrli:shares iso4217:USD moh:Security moh:country xbrli:pure moh:segment iso4217:USD xbrli:shares moh:state moh:member

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 September 30, 2019
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 October 25, 2019, was approximately 62,700,000.



MOLINA HEALTHCARE, INC. FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2019

TABLE OF CONTENTS
ITEM NUMBER
Page
 
 
 
PART I - Financial Information
 
 
 
 
1.
3
 
 
 
2.
28
 
 
 
3.
47
 
 
 
4.
48
 
 
 
Part II - Other Information
 
 
 
 
1.
48
 
 
 
1A.
48
 
 
 
2.
49
 
 
 
3.
Defaults Upon Senior Securities
Not Applicable.
 
 
 
4.
Mine Safety Disclosures
Not Applicable.
 
 
 
5.
Other Information
Not Applicable.
 
 
 
6.
50
 
 
 
 
51
 
 
 
 
 
 





CONSOLIDATED STATEMENTS OF INCOME
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
 
(In millions, except per-share amounts)
(Unaudited)
Revenue:
 
 
 
 
 
 
 
Premium revenue
$
4,084

 
$
4,337

 
$
12,085

 
$
13,174

Premium tax revenue
119

 
110

 
367

 
320

Health insurer fees reimbursed

 
83

 

 
248

Service revenue

 
130

 

 
391

Investment income and other revenue
40

 
37

 
103

 
93

Total revenue
4,243

 
4,697

 
12,555

 
14,226

Operating expenses:
 
 
 
 
 
 
 
Medical care costs
3,523

 
3,790

 
10,360

 
11,362

General and administrative expenses
323

 
311

 
953

 
998

Premium tax expenses
119

 
110

 
367

 
320

Health insurer fees

 
87

 

 
261

Depreciation and amortization
21

 
25

 
68

 
76

Restructuring costs

 
5

 
5

 
38

Cost of service revenue

 
111

 

 
349

Total operating expenses
3,986

 
4,439

 
11,753

 
13,404

Gain on sale of subsidiary

 
37

 

 
37

Operating income
257

 
295

 
802

 
859

Other expenses, net:
 
 
 
 
 
 
 
Interest expense
22

 
26

 
67

 
91

Other expenses (income), net
2

 
10

 
(15
)
 
25

Total other expenses, net
24

 
36

 
52

 
116

Income before income tax expense
233

 
259

 
750

 
743

Income tax expense
58

 
62

 
181

 
237

Net income
$
175

 
$
197

 
$
569

 
$
506

 
 
 
 
 
 
 
 
Net income per share:
 
 
 
 
 
 
 
Basic
$
2.81

 
$
3.22

 
$
9.15

 
$
8.32

Diluted
$
2.75

 
$
2.90

 
$
8.80

 
$
7.60

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
 
(In millions)
(Unaudited)
Net income
$
175

 
$
197

 
$
569

 
$
506

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

 
1

 
17

 
(5
)
Less: effect of income taxes

 

 
4

 
(1
)
Other comprehensive income (loss), net of tax

 
1

 
13

 
(4
)
Comprehensive income
$
175

 
$
198

 
$
582

 
$
502

See accompanying notes.

Molina Healthcare, Inc. September 30, 2019 Form 10-Q | 3


CONSOLIDATED BALANCE SHEETS
 
September 30,
2019
 
December 31,
2018
 
(Dollars in millions,
except per-share amounts)
 
(Unaudited)
 
 
ASSETS
Current assets:
 
 
 
Cash and cash equivalents
$
2,679

 
$
2,826

Investments
1,757

 
1,681

Receivables
1,280

 
1,330

Prepaid expenses and other current assets
140

 
149

Derivative asset
21

 
476

Total current assets
5,877

 
6,462

Property, equipment, and capitalized software, net
379

 
241

Goodwill and intangible assets, net
176

 
190

Restricted investments
79

 
120

Deferred income taxes
82

 
117

Other assets
108

 
24

 
$
6,701

 
$
7,154

 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
 
 
 
Medical claims and benefits payable
$
1,975

 
$
1,961

Amounts due government agencies
612

 
967

Accounts payable and accrued liabilities
478

 
390

Deferred revenue
207

 
211

Current portion of long-term debt
15

 
241

Derivative liability
21

 
476

Total current liabilities
3,308

 
4,246

Long-term debt
1,239

 
1,020

Finance lease liabilities
233

 
197

Other long-term liabilities
90

 
44

Total liabilities
4,870

 
5,507

Stockholders’ equity:
 
 
 
Common stock, $0.001 par value, 150 million shares authorized; outstanding: 63 million shares at September 30, 2019, and 62 million shares at December 31, 2018

 

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

 

Additional paid-in capital
160

 
643

Accumulated other comprehensive income (loss)
5

 
(8
)
Retained earnings
1,666

 
1,012

Total stockholders’ equity
1,831

 
1,647

 
$
6,701

 
$
7,154

See accompanying notes.

Molina Healthcare, Inc. September 30, 2019 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, 2018
62

 
$

 
$
643

 
$
(8
)
 
$
1,012

 
$
1,647

Net income

 

 

 

 
198

 
198

Adoption of new accounting standard

 

 

 

 
85

 
85

Partial termination of 1.125% 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

Net income

 

 

 

 
196

 
196

Partial termination of 1.125% Warrants

 

 
(321
)
 

 

 
(321
)
Other comprehensive income, net

 

 

 
8

 

 
8

Share-based compensation

 

 
18

 

 

 
18

Balance at June 30, 2019
63

 

 
240

 
5

 
1,491

 
1,736

Net income

 

 

 

 
175

 
175

Partial termination of 1.125% Warrants

 

 
(90
)
 

 

 
(90
)
Share-based compensation

 

 
10

 

 

 
10

Balance at September 30, 2019
63

 
$

 
$
160

 
$
5

 
$
1,666

 
$
1,831



 
Common Stock
 
Additional
Paid-in
Capital
 
Accumulated
Other
Comprehensive
Loss
 
Retained
Earnings
 
Total
 
Outstanding
 
Amount
 
 
 
 
 
(In millions)
 
(Unaudited)
Balance at December 31, 2017
60

 
$

 
$
1,044

 
$
(5
)
 
$
298

 
$
1,337

Net income

 

 

 

 
107

 
107

Adoption of new accounting standards

 

 

 
(1
)
 
7

 
6

Exchange of 1.625% Convertible Notes
2

 

 
108

 

 

 
108

Other comprehensive loss, net

 

 

 
(6
)
 

 
(6
)
Share-based compensation

 

 
1

 

 

 
1

Balance at March 31, 2018
62

 

 
1,153

 
(12
)
 
412

 
1,553

Net income

 

 

 

 
202

 
202

Partial termination of 1.125% Warrants

 

 
(113
)
 

 

 
(113
)
Other comprehensive income, net

 

 

 
1

 

 
1

Share-based compensation

 

 
15

 

 

 
15

Balance at June 30, 2018
62

 

 
1,055

 
(11
)
 
614

 
1,658

Net income

 

 

 

 
197

 
197

Partial termination of 1.125% Warrants

 

 
(306
)
 

 

 
(306
)
Conversion of 1.625% Convertible Notes

 

 
4

 

 

 
4

Other comprehensive income, net

 

 

 
1

 

 
1

Share-based compensation

 

 
7

 

 

 
7

Balance at September 30, 2018
62

 
$

 
$
760

 
$
(10
)
 
$
811

 
$
1,561

See accompanying notes.

Molina Healthcare, Inc. September 30, 2019 Form 10-Q | 5


CONSOLIDATED STATEMENTS OF CASH FLOWS
 
Nine Months Ended September 30,
 
2019
 
2018
 
(In millions)
(Unaudited)
Operating activities:
 
 
 
Net income
$
569

 
$
506

Adjustments to reconcile net income to net cash provided by (used in) operating activities:
 
 
 
Depreciation and amortization
68

 
104

Deferred income taxes
7

 
(32
)
Share-based compensation
29

 
20

Amortization of convertible senior notes and finance lease liabilities
5

 
18

(Gain) loss on debt extinguishment
(15
)
 
25

Non-cash restructuring costs

 
17

Gain on sale of subsidiary

 
(37
)
Other, net
(5
)
 
6

Changes in operating assets and liabilities:
 
 
 
Receivables
50

 
(507
)
Prepaid expenses and other current assets
(6
)
 
(117
)
Medical claims and benefits payable
14

 
(144
)
Amounts due government agencies
(355
)
 
(511
)
Accounts payable and accrued liabilities
37

 
398

Deferred revenue
(4
)
 
(55
)
Income taxes
4

 
118

Net cash provided by (used in) operating activities
398

 
(191
)
Investing activities:
 
 
 
Purchases of investments
(1,938
)
 
(1,202
)
Proceeds from sales and maturities of investments
1,890

 
2,070

Purchases of property, equipment and capitalized software
(30
)
 
(24
)
Other, net
(2
)
 
(23
)
Net cash (used in) provided by investing activities
(80
)
 
821

Financing activities:
 
 
 
Repayment of principal amount of 1.125% Convertible Notes
(240
)
 
(236
)
Cash paid for partial settlement of 1.125% Conversion Option
(578
)
 
(477
)
Cash received for partial termination of 1.125% Call Option
578

 
477

Cash paid for partial termination of 1.125% Warrants
(514
)
 
(419
)
Proceeds from borrowings under Term Loan Facility
220

 

Repayment of Credit Facility

 
(300
)
Repayment of 1.625% Convertible Notes

 
(64
)
Other, net
24

 
7

Net cash used in financing activities
(510
)
 
(1,012
)
Net decrease in cash, cash equivalents, and restricted cash and cash equivalents
(192
)
 
(382
)
Cash, cash equivalents, and restricted cash and cash equivalents at beginning of period
2,926

 
3,290

Cash, cash equivalents, and restricted cash and cash equivalents at end of period
$
2,734

 
$
2,908


Molina Healthcare, Inc. September 30, 2019 Form 10-Q | 6



CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued)
 
Nine Months Ended September 30,
 
2019
 
2018
 
(In millions)
(Unaudited)
Supplemental cash flow information:
 
 
 
 
 
 
 
Schedule of non-cash investing and financing activities:
 
 
 
Common stock used for share-based compensation
$
(7
)
 
$
(6
)
 
 
 
 
Details of sale of subsidiary:
 
 
 
Decrease in carrying amount of assets
$

 
$
(243
)
Decrease in carrying amount of liabilities

 
59

Transaction costs

 
(12
)
Receivable from buyer - recorded in prepaid expenses and other current assets

 
233

Gain on sale of subsidiary
$

 
$
37

 
 
 
 
Details of change in fair value of derivatives, net:
 
 
 
Gain on 1.125% Call Option
$
124

 
$
321

Loss on 1.125% Conversion Option
(124
)
 
(321
)
Change in fair value of derivatives, net
$

 
$

 
 
 
 
1.625% Convertible Notes exchange transaction:
 
 
 
Common stock issued in exchange for 1.625% Convertible Notes
$

 
$
131

Component allocated to additional paid-in capital, net of income taxes

 
(23
)
Net increase to additional paid-in capital
$

 
$
108

See accompanying notes.


Molina Healthcare, Inc. September 30, 2019 Form 10-Q | 7


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 2019

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: our Health Plans segment and our Other segment. We manage the vast majority of our operations through our Health Plans segment. The Other segment includes the historical results of the Medicaid management information systems (“MMIS”) and behavioral health subsidiaries we sold in late 2018, as well as certain corporate amounts not allocated to the Health Plans segment.
The Health Plans segment consists of health plans operating in 14 states and the Commonwealth of Puerto Rico. As of September 30, 2019, these health plans served approximately 3.3 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 health plans’ state Medicaid contracts generally have terms of three to five years. These contracts typically 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.
Subsequent Events
Texas Health Plan. On October 29, 2019, the Texas Health and Human Services Commission (HHSC) notified our Texas health plan, Molina Healthcare of Texas, Inc., that HHSC intends to award contracts to Molina Healthcare of Texas, Inc. for the STAR+PLUS program in the Hidalgo and North East service areas. The awards will be for an initial contract term of 3 years, and anticipated to have an operational effective date of September 1, 2020. STAR+PLUS is a Texas Medicaid Managed Care program integrating the delivery of Acute Care services and Long-Term Services and Supports (LTSS) for people who are age 65 or older, blind, or disabled. Currently, our Texas health plan services the Bexar, Dallas, El Paso, Harris, Hidalgo, and Jefferson service areas, with total membership of approximately 86,000 enrollees. Under the existing STAR+PLUS contract, the premium revenue for this program amounted to approximately $1.2 billion for the nine months ended September 30, 2019. 
New York Health Plan. On October 10, 2019, we entered into a definitive agreement to acquire certain assets of YourCare Health Plan, Inc. Upon the closing of this transaction, expected to occur in early 2020, we will serve approximately 46,000 Medicaid members in seven counties in Western New York. The purchase price of approximately $40 million will be funded with available cash, and the closing is subject to customary closing conditions.
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 nine months ended September 30, 2019, are not necessarily indicative of the results for the entire year ending December 31, 2019.
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, 2018. Accordingly, certain disclosures that would substantially duplicate the disclosures contained in our December 31, 2018, audited consolidated financial statements have been omitted.

Molina Healthcare, Inc. September 30, 2019 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, 2018.
Use of Estimates
The preparation of consolidated financial statements in conformity with 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’ contractual provisions that may limit revenue recognition based upon the costs incurred or the profits realized under a specific contract;
Health plans’ 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 litigation outcomes;
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 non-current “Restricted investments” in the accompanying consolidated balance sheets.
 
September 30,
 
2019
 
2018
 
(In millions)
Cash and cash equivalents
$
2,679

 
$
2,814

Restricted cash and cash equivalents
55

 
94

Total cash, cash equivalents, and restricted cash and cash equivalents presented in the statements of cash flows
$
2,734

 
$
2,908


Premium Revenue
Premium revenue is fixed in advance of the periods covered and, except as described below, is not generally subject to significant accounting estimates. Premium revenues are recognized in the month that members are entitled to receive healthcare services, and premiums collected in advance are deferred. Certain components of premium revenue are subject to accounting estimates and fall into the following categories:
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 $95 million and $103 million at September 30, 2019 and December 31, 2018, respectively. Approximately $78 million and $87 million of the liabilities accrued at September 30, 2019 and December 31, 2018, 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 September 30, 2019 and December 31, 2018.

Molina Healthcare, Inc. September 30, 2019 Form 10-Q | 9


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 September 30, 2019 and December 31, 2018.
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 September 30, 2019 and December 31, 2018.
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 not significant at September 30, 2019 and December 31, 2018.
Marketplace Program
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 (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 September 30, 2019, Marketplace risk adjustment payables amounted to $285 million and related receivables amounted to $76 million, for a net payable of $209 million. As of December 31, 2018, Marketplace risk adjustment payables amounted to $466 million and related receivables amounted to $34 million, for a net payable of $432 million.
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 September 30, 2019 and December 31, 2018.
A summary of the categories of amounts due government agencies follows:
 
September 30,
2019
 
December 31,
2018
 
(In millions)
Medicaid program:
 
 
 
Medical cost floors and corridors
$
95

 
$
103

Other amounts due to states
69

 
81

Marketplace program:
 
 
 
Risk adjustment
285

 
466

Cost sharing reduction (“CSR”)

 
183

Other
163

 
134

Total amounts due government agencies
$
612

 
$
967



Molina Healthcare, Inc. September 30, 2019 Form 10-Q | 10


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.
We believe that the adjustments to prior years noted below are generally indicative of the potential future changes in our estimates as of September 30, 2019. 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 September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
 
(In millions)
Maximum available quality incentive premium - current period
$
47

 
$
48

 
$
138

 
$
135

 
 
 
 
 
 
 
 
Quality incentive premium revenue recognized in current period:
 
 
 
 
 
 
 
Earned current period
$
46

 
$
39

 
$
109

 
$
97

Earned prior periods
5

 
9

 
35

 
32

Total
$
51

 
$
48

 
$
144

 
129

 
 
 
 
 
 
 
 
Quality incentive premium revenue recognized as a percentage of total premium revenue
1.2
%
 
1.1
%
 
1.2
%
 
1.0
%

Medical Care Costs
Marketplace Program
In the nine months ended September 30, 2018, we recognized a benefit of approximately $81 million in reduced medical care costs related to 2017 dates of service, including $5 million in the third quarter of 2018, as a result of the federal government’s confirmation that the reconciliation of 2017 Marketplace CSR subsidies would be performed on an annual basis. In the fourth quarter of 2017, we had assumed a nine-month reconciliation of this item pending confirmation of the time period to which the 2017 reconciliation would be applied.
Leases
Right-of-use (“ROU”) assets represent our right to use the underlying assets over the lease term, and lease liabilities represent our obligation for lease payments arising from the related leases. ROU assets and lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. Lease terms may include options to extend or terminate the lease when we believe it is reasonably certain that we will exercise such options. If applicable, we account for lease and non-lease components within a lease as a single lease component.
Because most of our leases do not provide an implicit interest rate, we generally use our incremental borrowing rate to determine the present value of lease payments. Lease expenses for operating lease payments are recognized on a straight-line basis over the lease term, and the related ROU assets and liabilities are reduced to the present value of the remaining lease payments at the end of each period. Finance lease payments reduce finance lease liabilities, the related ROU assets are amortized on a straight-line basis over the lease term, and interest expense is recognized using the effective interest method.
The significant majority of our operating leases consist of long-term operating leases for office space. Short-term leases (those with terms of 12 months or less) are not recorded as ROU assets or liabilities in the consolidated balance sheets. For certain leases that represent a portfolio of similar assets, such as a fleet of vehicles, we apply a portfolio approach to account for the related operating lease ROU assets and liabilities, rather than account for such assets and the related liabilities individually. A nominal number of our lease agreements include rental payments that adjust periodically for inflation. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.

Molina Healthcare, Inc. September 30, 2019 Form 10-Q | 11


For further information, including the amount and location of the ROU assets and lease liabilities recognized in the accompanying consolidated balance sheet, see Note 13, “Leases.” For further information regarding our adoption and implementation of Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842), see Recent Accounting Pronouncements Adopted, below.
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 a maximum maturity of 10 years, or 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 generally limited because our payors consist principally of the federal government, and governments of each state or commonwealth in which our health plan subsidiaries operate.
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 Health Insurer Fee (“HIF”), certain compensation, and other general and administrative expenses. The effective tax rate will not be impacted by HIF in 2019 given the 2019 HIF moratorium.
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
Leases. In February 2016, the Financial Accounting Standards Board (“FASB”) issued Topic 842, which was subsequently modified by several ASUs issued in 2017 and 2018. Topic 842 was issued to increase transparency and comparability among organizations by requiring the recognition of ROU assets and lease liabilities on the balance sheet. Most prominent among the changes in Topic 842 is the recognition of ROU assets and lease liabilities by lessees for those leases classified as operating leases. In addition, Topic 842’s disclosures are required to meet the objective of enabling users of financial statements to assess the amount, timing and uncertainty of cash flows arising from leases. Topic 842’s transition provisions are applied using a modified retrospective approach; entities may elect whether to apply the transition provisions, including disclosure requirements, at the beginning of the earliest comparative period presented or on the adoption date.
We adopted Topic 842 effective January 1, 2019, and elected to apply the transition provisions as of that date. Accordingly, we recognized the cumulative effect of initially applying the standard as an adjustment to the opening balance of retained earnings on January 1, 2019. In addition, we elected the available practical expedients and implemented internal controls and key system functionality to enable the preparation of financial information on adoption.
As indicated in the accompanying consolidated statements of stockholders’ equity, the cumulative effect adjustment was an increase of $85 million to retained earnings, relating primarily to the transition provisions for sale-leaseback arrangements that did not qualify for sale treatment. Accordingly, such arrangements for certain office buildings were de-recognized and recorded as finance lease ROU assets and lease liabilities. The difference between the de-recognized assets and lease financing obligations resulted in an increase to retained earnings. The recognition of these arrangements as finance lease ROU assets and lease liabilities will not materially impact our consolidated results of operations over the terms of the leases.
Software Licenses. In August 2018, the FASB issued ASU 2018-15, Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. We early adopted ASU 2018-15 effective January 1, 2019, using the prospective method, with no material impact to our financial condition,

Molina Healthcare, Inc. September 30, 2019 Form 10-Q | 12


results of operations or cash flows. Adoption of this guidance may be significant to us in the future depending on the extent to which we use cloud computing arrangements that qualify as service contracts.
Recent Accounting Pronouncements Not Yet Adopted
Credit Losses. In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, as modified by:
ASU 2018-19, Codification Improvements to Topic 326, Financial Instruments - Credit Losses;
ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments - Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments; and
ASU 2019-05, Financial Instruments - Credit Losses (Topic 326), Targeted Transition Relief.
This standard introduces a new current expected credit loss (“CECL”) model for measuring expected credit losses for certain types of financial instruments and replaces the incurred loss model. The CECL model requires companies to recognize an allowance for credit losses for the difference between the amortized cost basis of a financial instrument and the amount companies expect to collect over the instrument’s contractual life after consideration of historical experience, current conditions, and reasonable and supportable forecasts. This standard also introduces targeted changes to the available-for-sale (“AFS”) debt securities impairment model. ASU 2016-13 is effective beginning January 1, 2020, and must be adopted as a cumulative effect adjustment to retained earnings; early adoption is permitted.
The most significant type of financial instrument reported in our consolidated balance sheets, subject to the CECL model, is Receivables. As of September 30, 2019, over 70%, or approximately $970 million of the Receivables balance constitutes receivables from state and federal government agencies. Based on our preliminary analysis, we believe that the credit risk associated with such receivables is nominal due to a very low risk of default.
The AFS debt securities impairment model will apply to “Investments” reported in our consolidated balance sheets. We believe that the credit risk associated with our non-government issued Investments is nominal due to the high quality of such investments.
We are currently evaluating the processes and controls necessary to adopt and implement ASU 2016-13, along with the effects the adoption will have on our consolidated results of operations and financial condition.
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.


Molina Healthcare, Inc. September 30, 2019 Form 10-Q | 13


3. Net Income per Share
The following table sets forth the calculation of net income per share:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
 
(In millions, except net income per share)
Numerator:
 
 
 
 
 
 
 
Net income
$
175

 
$
197

 
$
569

 
$
506

Denominator:
 
 
 
 
 
 
 
Shares outstanding at the beginning of the period
62.2

 
61.3

 
62.1

 
59.3

Weighted-average number of shares issued:
 
 
 
 
 
 
 
Exchange of 1.625% Convertible Notes

 

 

 
1.3

Stock-based compensation

 

 
0.1

 
0.2

Denominator for net income per share, basic
62.2

 
61.3

 
62.2

 
60.8

Effect of dilutive securities:
 
 
 
 
 
 
 
1.125% Warrants (1)
0.8

 
5.6

 
1.8

 
5.0

1.625% Convertible Notes

 
0.6

 

 
0.5

Stock-based compensation
0.6

 
0.4

 
0.6

 
0.3

Denominator for net income per share, diluted
63.6

 
67.9

 
64.6

 
66.6

 
 
 
 
 
 
 
 
Net income per share: (2)
 
 
 
 
 
 
 
Basic
$
2.81

 
$
3.22

 
$
9.15

 
$
8.32

Diluted
$
2.75

 
$
2.90

 
$
8.80

 
$
7.60

______________________________
(1)
For more information and definitions regarding the 1.125% Warrants, including partial termination transactions, refer to Note 9, “Stockholders' Equity.” The dilutive effect of all potentially dilutive common shares is calculated using the treasury stock method.
(2)
Source data for calculations in thousands.
4. Fair Value Measurements
We consider the carrying amounts of current assets and current liabilities (not including derivatives and 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 classification according to the fair value hierarchy for each financial instrument, see Note 4, “Fair Value Measurements,” in our 2018 Annual Report on Form 10-K.
Derivative financial instruments include the 1.125% Call Option derivative asset and the 1.125% Conversion Option derivative liability (see Note 8Derivatives,” for definitions and further information). These derivatives are not actively traded and are valued based on an option pricing model that uses observable and unobservable market data for inputs. Significant market data inputs used to determine fair value as of September 30, 2019, included the price of our common stock, the time to maturity of the derivative instruments, the risk-free interest rate, and the implied volatility of our common stock. The 1.125% Call Option derivative asset and the 1.125% Conversion Option derivative liability were designed such that changes in their fair values would offset, with minimal impact to the consolidated statements of income. Therefore, the sensitivity of changes in the unobservable inputs to the option pricing model for such derivative instruments is mitigated.
The net changes in fair value of Level 3 financial instruments were insignificant to our results of operations for the nine months ended September 30, 2019.

Molina Healthcare, Inc. September 30, 2019 Form 10-Q | 14


Our financial instruments measured at fair value on a recurring basis at September 30, 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
$
1,129

 
$

 
$
1,129

 
$

Mortgage-backed securities
303

 

 
303

 

Asset-backed securities
110

 

 
110

 

Government-sponsored enterprise securities (“GSEs”)
97

 

 
97

 

Municipal securities
68

 

 
68

 

U.S. Treasury notes
40

 

 
40

 

Foreign securities
7

 

 
7

 

Certificates of deposit
3

 

 
3

 

  Subtotal - current investments
1,757

 

 
1,757

 

1.125% Call Option derivative asset
21

 

 

 
21

Total assets
$
1,778

 
$

 
$
1,757

 
$
21

 
 
 
 
 
 
 
 
1.125% Conversion Option derivative liability
$
21

 
$

 
$

 
$
21

Total liabilities
$
21

 
$

 
$

 
$
21

Our financial instruments measured at fair value on a recurring basis at December 31, 2018, were as follows:
 
Total
 
Observable Inputs (Level 1)
 
Directly or Indirectly Observable Inputs (Level 2)
 
Unobservable Inputs (Level 3)
 
(In millions)
Corporate debt securities
$
1,123

 
$

 
$
1,123

 
$

Asset-backed securities
82

 

 
82

 

GSEs
163

 

 
163

 

Municipal securities
114

 

 
114

 

U.S. Treasury notes
181

 

 
181

 

Foreign securities
4

 

 
4

 

Certificates of deposit
14

 

 
14

 

Subtotal
1,681

 

 
1,681

 

1.125% Call Option derivative asset
476

 

 

 
476

Total assets
$
2,157

 
$

 
$
1,681

 
$
476

 
 
 
 
 
 
 
 
1.125% Conversion Option derivative liability
$
476

 
$

 
$

 
$
476

Total liabilities
$
476

 
$

 
$

 
$
476



Molina Healthcare, Inc. September 30, 2019 Form 10-Q | 15


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 September 30, 2019, 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.
 
September 30, 2019
 
December 31, 2018
 
Carrying
Amount
 

Fair Value
 
Carrying
Amount
 

Fair Value
 
(In millions)
5.375% Notes
$
695

 
$
744

 
$
694

 
$
674

4.875% Notes
327

 
334

 
326

 
301

Term Loan Facility
220

 
220

 

 

1.125% Convertible Notes (1),(2)
12

 
34

 
240

 
732

Totals
$
1,254

 
$
1,332

 
$
1,260

 
$
1,707


______________________
(1)
The fair value of the 1.125% Conversion Option (the embedded cash conversion option), which is reflected in the fair value amounts presented above, amounted to $21 million and $476 million as of September 30, 2019, and December 31, 2018, respectively. See further discussion at Note 7, “Debt,” and Note 8, “Derivatives.”
(2)
For more information on debt repayments in 2019, refer to Note 7, “Debt.”

5. Investments
Available-for-Sale Investments
We consider all of our investments classified as current assets to be available-for-sale. The following tables summarize our investments as of the dates indicated:
 
September 30, 2019
 
Amortized
 
Gross
Unrealized
 
Estimated
Fair
 
Cost
 
Gains
 
Losses
 
Value
 
(In millions)
Corporate debt securities
$
1,125

 
$
5

 
$
1

 
$
1,129

Mortgage-backed securities
302

 
1

 

 
303

Asset-backed securities
109

 
1

 

 
110

GSEs
97

 

 

 
97

Municipal securities
68

 

 

 
68

U.S. Treasury notes
40

 

 

 
40

Foreign securities
7

 

 

 
7

Certificates of deposit
3

 

 

 
3

Totals
$
1,751

 
$
7

 
$
1

 
$
1,757



Molina Healthcare, Inc. September 30, 2019 Form 10-Q | 16


 
December 31, 2018
 
Amortized
 
Gross
Unrealized
 
Estimated
Fair
 
Cost
 
Gains
 
Losses
 
Value
 
(In millions)
Corporate debt securities
$
1,131

 
$

 
$
8

 
$
1,123

Asset-backed securities
83

 

 
1

 
82

GSEs
164

 

 
1

 
163

Municipal securities
115

 

 
1

 
114

U.S. Treasury notes
181

 

 

 
181

Foreign securities
4

 

 

 
4

Certificates of deposit
14

 

 

 
14

Totals
$
1,692

 
$

 
$
11

 
$
1,681


The contractual maturities of our available-for-sale investments as of September 30, 2019 are summarized below:
 
Amortized Cost
 
Estimated
Fair Value
 
(In millions)
Due in one year or less
$
498

 
$
498

Due after one year through five years
875

 
878

Due after five years through ten years
107

 
108

Due after ten years
271

 
273

Totals
$
1,751

 
$
1,757


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 $11 million in the third quarter of 2019 and nine months ended September 30, 2019. Gross realized investment losses were insignificant in the third quarter of 2019 and nine months ended September 30, 2019. Gross realized investment gains and losses were insignificant in the third quarter of 2018 and nine months ended September 30, 2018.
We have determined that unrealized losses at September 30, 2019, and December 31, 2018, are temporary in nature, because the change in market value for these securities has resulted from fluctuating interest rates, rather than a deterioration of the creditworthiness of the issuers. 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. 
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 September 30, 2019:
 
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
$
151

 
$
1

 
90

 
$

 
$

 

Totals
$
151

 
$
1

 
90

 
$

 
$

 


Molina Healthcare, Inc. September 30, 2019 Form 10-Q | 17


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 December 31, 2018:
 
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
$
509

 
$
3

 
285

 
$
412

 
$
5

 
298

Asset-backed securities

 

 

 
68

 
1

 
52

GSEs

 

 

 
127

 
1

 
76

Municipal securities

 

 

 
87

 
1

 
90

Totals
$
509

 
$
3

 
285

 
$
694

 
$
8

 
516


Held-to-Maturity Investments
Pursuant to the regulations governing our Health Plans segment subsidiaries, we maintain statutory deposits and deposits required by government authorities primarily in cash, cash equivalents, and U.S. Treasury securities. We also maintain restricted investments as protection against the insolvency of certain capitated providers. The use of these funds is limited as required by regulations in the various states in which we operate, or as needed in the event of insolvency of capitated providers. Therefore, such investments are reported as non-current “Restricted investments” in the accompanying consolidated balance sheets. We have the ability to hold these restricted investments until maturity, and as a result, we would not expect the value of these investments to decline significantly due to a sudden change in market interest rates.
Our held-to-maturity restricted investments are carried at amortized cost, which approximates fair value. Such investments amounted to $79 million at September 30, 2019, and mature in one year or less.

6. Medical Claims and Benefits Payable
The following table provides the details of our medical claims and benefits payable as of the dates indicated.
 
September 30,
2019
 
December 31,
2018
 
(In millions)
Fee-for-service claims incurred but not paid (“IBNP”)
$
1,424

 
$
1,562

Pharmacy payable
128

 
115

Capitation payable
57

 
52

Other
366

 
232

 
$
1,975

 
$
1,961


“Other” medical claims and benefits payable includes non-risk provider payables, where we act as an intermediary on behalf of various government agencies, for certain providers, without assuming financial risk. Such receipts from government agencies and payments to providers do not impact our consolidated statements of income. Non-risk provider payables amounted to $239 million and $107 million as of September 30, 2019, and December 31, 2018, respectively.
The following table presents the components of the change in our medical claims and benefits payable for the periods indicated. The amounts presented for “Components of medical care costs related to: Prior periods” represent the amounts by which our original estimate of medical claims and benefits payable at the beginning of the period were more than the actual amount of the liability, based on information (principally the payment of claims) developed since that liability was first reported.

Molina Healthcare, Inc. September 30, 2019 Form 10-Q | 18


 
Nine Months Ended September 30,
 
2019
 
2018
 
(In millions)
Medical claims and benefits payable, beginning balance
$
1,961

 
$
2,192

Components of medical care costs related to:
 
 
 
Current period
10,613

 
11,670

Prior periods (1)
(253
)
 
(308
)
Total medical care costs
10,360

 
11,362

Change in non-risk and other provider payables
131

 
60

Payments for medical care costs related to:
 
 
 
Current period
8,996

 
9,866

Prior periods
1,481

 
1,706

Total paid
10,477

 
11,572

Medical claims and benefits payable, ending balance
$
1,975

 
$
2,042


_______________________
(1)
The September 30, 2018, amount includes the 2018 benefit of the 2017 Marketplace CSR reimbursement of $81 million.
Our estimates of medical claims and benefits payable recorded at December 31, 2018, and 2017 developed favorably by approximately $253 million and $308 million as of September 30, 2019, and 2018, respectively.
The favorable prior year development recognized in the nine months ended September 30, 2019, was primarily due to lower than expected utilization of medical services by our Medicaid members, and improved operating performance. Consequently, the ultimate costs recognized in 2019, as claims payments were processed, were lower than our original estimates in 2018.

7. Debt
As of September 30, 2019, contractual maturities of debt were as follows. All amounts represent the principal amounts due on the debt instruments outstanding as of December 31 for each year presented, based on September 30, 2019 balances.
 
Total
 
2020
 
2021
 
2022
 
2023
 
2024
 
Thereafter
 
(In millions)
5.375% Notes
$
700

 
$

 
$

 
$
700

 
$

 
$

 
$

4.875% Notes
330

 

 

 

 

 

 
330

Term Loan Facility
220

 
6

 
16

 
22

 
22

 
154

 

1.125% Convertible Notes
12

 
12

 

 

 

 

 

Totals
$
1,262

 
$
18

 
$
16

 
$
722

 
$
22

 
$
154

 
$
330



Molina Healthcare, Inc. September 30, 2019 Form 10-Q | 19


All of our debt is held at the parent, which is reported, for segment purposes, in the Other segment. The following table summarizes our outstanding debt obligations and their classification in the accompanying consolidated balance sheets:
 
September 30,
2019
 
December 31,
2018
 
(In millions)
Current portion of long-term debt:
 
 
 
1.125% Convertible Notes, net of unamortized discount
$
12

 
$
241

Term Loan Facility
3

 

Lease financing obligations

 
1

Debt issuance costs

 
(1
)
 
$
15

 
$
241

Non-current portion of long-term debt:
 
 
 
5.375% Notes
$
700

 
$
700

4.875% Notes
330

 
330

Term Loan Facility
217

 

Debt issuance costs
(8
)
 
(10
)
Totals
$
1,239

 
$
1,020


Interest cost recognized relating to our convertible senior notes for the periods presented was as follows:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
 
(In millions)
Contractual interest at coupon rate
$

 
$
1

 
$
1

 
$
5

Amortization of the discount
1

 
5

 
5

 
18

Totals
$
1

 
$
6

 
$
6

 
$
23


Credit Agreement
We are party to a Credit Agreement, which provides for an unsecured delayed draw term loan facility (the “Term Loan Facility”), and an unsecured $500 million revolving credit facility (the “Credit Facility”). Borrowings under our Credit Agreement bear interest based, at our election, on a base rate or other defined rate, plus in each case the applicable margin. In addition to interest payable on the principal amount of indebtedness outstanding from time to time under the Credit Agreement, we are required to pay a quarterly commitment fee.
The Credit Agreement contains customary non-financial and financial covenants, including a net leverage ratio and an interest coverage ratio. As of September 30, 2019, we were in compliance with all financial and non-financial covenants under the Credit Agreement and other long-term debt. Effective as of the date of the Sixth Amendment to the Credit Agreement described below, there are no guarantors as parties to the Credit Agreement.
Term Loan Facility. In January 2019, we entered into a Sixth Amendment to the Credit Agreement that provided for a delayed draw Term Loan Facility in the aggregate principal amount of $600 million, under which we may request up to ten advances, each in a minimum principal amount of $50 million, until July 31, 2020. The Term Loan Facility will amortize in quarterly installments, commencing on September 30, 2020, equal to the principal amount of the Term Loan Facility outstanding multiplied by rates ranging from 1.25% to 2.50% (depending on the applicable fiscal quarter) for each fiscal quarter. The Term Loan Facility expires on January 31, 2024; any remaining outstanding balance under the Term Loan Facility will be due and payable on that date. As of September 30, 2019, $220 million was outstanding under the Term Loan Facility. Each advance under the Term Loan Facility results in a permanent reduction to its borrowing capacity; therefore, our borrowing capacity under the Term Loan Facility as of September 30, 2019, was $380 million.
Credit Facility. The Credit Facility expires on January 31, 2022; therefore, any amounts outstanding under the Credit Facility will be due and payable on that date. As of September 30, 2019, no amounts were outstanding under the Credit Facility, and outstanding letters of credit amounting to $2 million reduced our borrowing capacity under the Credit Facility to $498 million.

Molina Healthcare, Inc. September 30, 2019 Form 10-Q | 20


5.375% Notes due 2022
We had $700 million aggregate principal amount of senior notes (the “5.375% Notes”) outstanding as of September 30, 2019, which are due November 15, 2022, unless earlier redeemed. Interest, at a rate of 5.375% per annum, is payable semiannually in arrears on May 15 and November 15. The 5.375% Notes contain customary non-financial covenants and change in control provisions.
4.875% Notes due 2025
We had $330 million aggregate principal amount of senior notes (the “4.875% Notes”) outstanding as of September 30, 2019, which are due June 15, 2025, unless earlier redeemed. Interest, at a rate of 4.875% per annum, is payable semiannually in arrears on June 15 and December 15. The 4.875% Notes contain customary non-financial covenants and change of control provisions.
1.125% Cash Convertible Senior Notes due 2020
In the nine months ended September 30, 2019, we received conversion requests and we entered into privately negotiated note purchase agreements with certain holders of our outstanding 1.125% cash convertible senior notes due January 15, 2020 (the “1.125% Convertible Notes”).
In the third quarter of 2019, we paid $161 million to settle $55 million aggregate principal amount, or $54 million aggregate carrying amount, of the 1.125% Convertible Notes, including the related 1.125% Convertible Notes’ embedded cash conversion option (which is a derivative liability we refer to as the “1.125% Conversion Option”) and the mark to market valuation adjustments discussed below.
In the nine months ended September 30, 2019, we paid $794 million to settle $240 million aggregate principal amount, or $232 million aggregate carrying amount, of the 1.125% Convertible Notes, including the related 1.125% Conversion Option and the mark to market valuation adjustments discussed below.
In the three and nine months ended September 30, 2019, we recorded a loss on debt extinguishment of $2 million, and a gain on debt extinguishment of approximately $15 million, respectively, for the 1.125% Convertible Notes repayments (net of accelerated original issuance discount amortization), primarily relating to mark to market valuations on the partial terminations of the Call Spread Overlay executed in connection with the related debt repayments. These amounts are reported in “Other expenses (income), net” in the accompanying consolidated statements of income. No common shares were issued in connection with the transaction.
In connection with the 1.125% Convertible Notes purchases, we also entered into privately negotiated agreements in the first, second, and third quarters of 2019, to partially terminate the Call Spread Overlay, defined and further discussed in Note 8, “Derivatives,” and Note 9, “Stockholders' Equity.” The net cash proceeds from the Call Spread Overlay partial termination transactions partially offset the cash paid to settle the 1.125% Convertible Notes.
Following the transactions described above, $12 million aggregate principal amount of the 1.125% Convertible Notes were outstanding at September 30, 2019. Interest at a rate of 1.125% per annum is payable semiannually in arrears on January 15 and July 15. The 1.125% Convertible Notes are convertible only into cash, and not into shares of our common stock or any other securities. The initial conversion rate is 24.5277 shares of our common stock per $1,000 principal amount, or approximately $40.77 per share of our common stock. Upon conversion, in lieu of receiving shares of our common stock, a holder will receive an amount in cash, per $1,000 principal amount, equal to the settlement amount, determined in the manner set forth in the indenture. We may not redeem the 1.125% Convertible Notes prior to the maturity date. The 1.125% Convertible Notes mature on January 15, 2020; therefore, they are reported in current portion of long-term debt.
Concurrent with the issuance of the 1.125% Convertible Notes in 2013, the 1.125% Conversion Option was separated from the 1.125% Convertible Notes and accounted for separately as a derivative liability, with changes in fair value reported in our consolidated statements of income until the 1.125% Conversion Option fully settles or expires. This initial liability simultaneously reduced the carrying value of the 1.125% Convertible Notes’ principal amount (effectively an original issuance discount), which is amortized to the principal amount through the recognition of non-cash interest expense over the expected life of the debt. The effective interest rate of 6% approximates the interest rate we would have incurred had we issued nonconvertible debt with otherwise similar terms. As of September 30, 2019, the 1.125% Convertible Notes had a remaining amortization period of less than one year, and their ‘if-converted’ value exceeded their principal amount by approximately $28 million and $581 million as of September 30, 2019 and December 31, 2018, respectively.

Molina Healthcare, Inc. September 30, 2019 Form 10-Q | 21


Cross-Default Provisions
The indentures governing the 4.875% Notes, the 5.375% Notes and the 1.125% Convertible Notes contain cross-default provisions that are triggered upon default by us or any of our subsidiaries on any indebtedness in excess of the amount specified in the applicable indenture.

8. Derivatives
The following table summarizes the fair values and the presentation of our derivative financial instruments (defined and discussed individually below) in the accompanying consolidated balance sheets:
 
Balance Sheet Location
 
September 30,
2019
 
December 31,
2018
 
 
 
(In millions)
Derivative asset:
 
 
 
 
 
1.125% Call Option
Current assets: Derivative asset
 
$
21

 
$
476

Derivative liability:
 
 
 
 
 
1.125% Conversion Option
Current liabilities: Derivative liability
 
$
21

 
$
476


Our derivative financial instruments do 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 expenses (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.”
1.125% Convertible Notes Call Spread Overlay
Concurrent with the issuance of the 1.125% Convertible Notes in 2013, we entered into privately negotiated hedge transactions (collectively, the 1.125% Call Option) and warrant transactions (collectively, the 1.125% Warrants), with certain of the initial purchasers of the 1.125% Convertible Notes (the Counterparties). We refer to these transactions collectively as the Call Spread Overlay. Under the Call Spread Overlay, the cost of the 1.125% Call Option we purchased to cover the cash outlay upon conversion of the 1.125% Convertible Notes was reduced by proceeds from the sale of the 1.125% Warrants. Assuming full performance by the Counterparties (and 1.125% Warrants strike prices in excess of the conversion price of the 1.125% Convertible Notes), these transactions are intended to offset cash payments in excess of the principal amount of the 1.125% Convertible Notes due upon any conversion of such notes.
In the nine months ended September 30, 2019, in connection with the 1.125% Convertible Notes purchases (described in Note 7, “Debt”), we entered into privately negotiated termination agreements with each of the Counterparties to partially terminate the Call Spread Overlay, in notional amounts corresponding to the aggregate principal amount of the 1.125% Convertible Notes purchased.
In the third quarter of 2019, we received $105 million for the settlement of the 1.125% Call Option (which is a derivative asset), and paid $90 million for the partial termination of the 1.125% Warrants, for an aggregate net cash receipt of $15 million from the Counterparties.
In the nine months ended September 30, 2019, we received $578 million for the settlement of the 1.125% Call Option (which is a derivative asset), and paid $514 million for the partial termination of the 1.125% Warrants, for an aggregate net cash receipt of $64 million from the Counterparties.
1.125% Call Option
The 1.125% Call Option, which is indexed to our common stock, is a derivative asset that requires mark-to-market accounting treatment due to cash settlement features until the 1.125% Call Option settles or expires. For further discussion of the inputs used to determine the fair value of the 1.125% Call Option, refer to Note 4, “Fair Value Measurements.”
1.125% Conversion Option
The embedded cash conversion option within the 1.125% Convertible Notes is accounted for separately as a derivative liability, with changes in fair value reported in our consolidated statements of income until the cash conversion option settles or expires. For further discussion of the inputs used to determine the fair value of the 1.125% Conversion Option, refer to Note 4, “Fair Value Measurements.”

Molina Healthcare, Inc. September 30, 2019 Form 10-Q | 22


As of September 30, 2019, the 1.125% Call Option and the 1.125% Conversion Option were classified as a current asset and current liability, respectively, because the 1.125% Convertible Notes mature on January 15, 2020, as described in Note 7, “Debt.”

9. Stockholders' Equity
1.125% Warrants
In connection with the Call Spread Overlay transaction described in Note 8, “Derivatives,” in 2013, we issued 13.5 million warrants with a strike price of $53.8475 per share. Under certain circumstances, beginning in April 2020, if the price of our common stock exceeds the strike price of the 1.125% Warrants, we will be obligated to issue shares of our common stock subject to a share delivery cap. The 1.125% Warrants could separately have a dilutive effect to the extent that the market value per share of our common stock exceeds the applicable strike price of the 1.125% Warrants. Refer to Note 3, “Net Income per Share,” for dilution information for the periods presented. We will not receive any additional proceeds if the 1.125% Warrants are exercised. Following the transactions described below, 0.3 million of the 1.125% Warrants remain outstanding.
As described in Note 8, “Derivatives,” in the nine months ended September 30, 2019, we entered into privately negotiated termination agreements with each of the Counterparties to partially terminate the Call Spread Overlay, in notional amounts corresponding to the aggregate principal amount of the 1.125% Convertible Notes purchased.
In the third quarter of 2019, we paid $90 million to the Counterparties for the termination of 1.4 million of the 1.125% Warrants outstanding, which resulted in a reduction of additional paid-in-capital for the same amount.
In the nine months ended September 30, 2019, we paid $514 million to the Counterparties for the termination of 5.9 million of the 1.125% Warrants outstanding, which resulted in a reduction of additional paid-in-capital for the same amount.
Share-Based Compensation
In connection with our employee stock plans, approximately 184,000 shares of common stock vested or were purchased, net of shares used to settle employees’ income tax obligations, during the nine months ended September 30, 2019.
Share-based compensation is recorded to “General and administrative expenses” in the accompanying consolidated statements of income. Total share-based compensation expense amounted to $10 million and $7 million, respectively, in the three months ended September 30, 2019 and 2018. Total share-based compensation expense amounted to $29 million and $20 million, respectively, in the nine months ended September 30, 2019 and 2018.
Equity Incentive Plan
In the second quarter of 2019, our stockholders approved the Molina Healthcare, Inc. 2019 Equity Incentive Plan (the “2019 EIP”). The 2019 EIP provides for awards, in the form of restricted stock awards, performance units, stock options, and other stock– or cash–based awards, to eligible persons who perform services for us. The 2019 EIP will remain in effect until its termination by the board of directors; provided, however, that all awards will be granted no later than May 8, 2029. Concurrent with the adoption of the 2019 EIP, the Molina Healthcare, Inc. 2011 Equity Incentive Plan was amended, restated and merged into the 2019 EIP. A maximum of 2.9 million shares of our common stock may be issued under the 2019 EIP.
As of September 30, 2019, there was $55 million of total unrecognized compensation expense related to unvested restricted stock awards (“RSAs”), and performance stock units (“PSUs”), which we expect to recognize over remaining weighted-average periods of 2.5 years and 1.8 years, respectively. This unrecognized compensation cost assumes an estimated forfeiture rate of 16.2% for non-executive employees as of September 30, 2019.
Also as of September 30, 2019, there was $5 million of total unrecognized compensation expense related to unvested stock options, which we expect to recognize over a weighted-average period of 1.0 year. No stock options were granted or exercised in the nine months ended September 30, 2019.

Molina Healthcare, Inc. September 30, 2019 Form 10-Q | 23


Activity for RSAs, performance stock awards (“PSAs”) and PSUs is summarized below:
 
RSAs
 
PSAs
 
PSUs
 
Total
 
Weighted
Average
Grant Date
Fair Value
Unvested balance, December 31, 2018
399,795

 
3,132

 
201,383

 
604,310

 
$
71.50

Granted
228,902

 

 
141,828

 
370,730

 
137.53

Vested
(133,828
)
 
(3,132
)
 
(10,528
)
 
(147,488
)
 
72.21

Forfeited
(46,780
)
 

 
(11,616
)
 
(58,396
)
 
87.99

Unvested balance, September 30, 2019
448,089

 

 
321,067

 
769,156

 
$
101.93

The aggregate fair values of RSAs, PSUs and PSAs granted and vested are presented in the following table:
 
Nine Months Ended September 30,
 
2019
 
2018
 
(In millions)
Granted:
 
 
 
RSAs
$
32

 
$
26

PSUs
19

 
16

Total granted
$
51

 
$
42

Vested:
 
 
 
RSAs
$
18

 
$
14

PSUs
2

 

PSAs

 
3

Total vested
$
20

 
$
17


Employee Stock Purchase Plan
In May 2019, our stockholders approved the Molina Healthcare, Inc. 2019 Employee Stock Purchase Plan (the “2019 ESPP”), which superseded the Molina Healthcare, Inc. 2011 Employee Stock Purchase Plan (the “2011 ESPP”). A maximum of 3.0 million shares of our common stock may be issued under the 2019 ESPP, the terms of which are substantially similar to the 2011 ESPP. The 2019 ESPP will continue until the earliest of: termination of the 2019 ESPP by the board of directors (which may occur at any time); issuance of all of the shares reserved for issuance under the 2019 ESPP; or May 9, 2029.

10. Restructuring Costs
Restructuring costs are reported by the same name in the accompanying consolidated statements of income.
IT Restructuring Plan
Management is focused on a margin recovery plan that includes identification and implementation of various profit improvement initiatives. To that end, we began a plan to restructure our information technology department (the “IT Restructuring Plan”) in 2018, which is reported in the Other segment. In early 2019, we entered into services agreements with an outsourcing vendor who manages certain of our information technology services.
We expect the IT Restructuring Plan to be substantially completed by the end of 2019. We estimate that we will incur approximately $15 million of cumulative total costs, which is lower than the $20 million reported in our Annual Report on Form 10-K for the year ended December 31, 2018, because more of our IT employees transitioned to our outsourcing vendor than originally contemplated. Once employed by our outsourcing vendor, such employees are no longer included in the IT Restructuring Plan, resulting in lower one-time termination costs.
As of December 31, 2018, there was $6 million accrued under the IT Restructuring Plan, primarily for one-time termination benefits that require cash settlement. In the nine months ended September 30, 2019, we incurred $2 million of other restructuring costs, paid $5 million to settle one-time termination benefits, and paid $3 million to settle other restructuring costs. As of September 30, 2019, no amounts were accrued under the IT Restructuring Plan.

Molina Healthcare, Inc. September 30, 2019 Form 10-Q | 24


As of September 30, 2019, we had incurred cumulative restructuring costs under the IT Restructuring Plan of $11 million, including $7 million of one-time termination benefits and $4 million of other restructuring costs (primarily consulting fees).
2017 Restructuring Plan
As of December 31, 2018, accrued liabilities of $18 million remained for the restructuring and profitability improvement plan approved by the board of directors in June 2017 (the “2017 Restructuring Plan”). In the nine months ended September 30, 2019, we incurred $3 million of restructuring costs for adjustments to previously recorded lease contract termination costs, and paid $7 million to settle one-time termination and lease contract termination costs. As of September 30, 2019, accrued liabilities of $14 million remained for lease contract termination costs under the 2017 Restructuring Plan. We expect to continue to settle these liabilities through 2025, unless the leases are terminated sooner.

11. Segments
We currently have two reportable segments: our Health Plans segment and our Other segment. Our reportable segments are consistent with how we currently manage the business and view the markets we serve.
Margin is the appropriate earnings measure for our reportable segments, based on how our chief operating decision maker currently reviews results, assesses performance, and allocates resources.
Margin for our Health Plans segment is referred to as “Medical Margin,” which represents the amount earned after medical costs are deducted from premium revenue. The medical care ratio represents the amount of medical care costs as a percentage of premium revenue, and is one of the key metrics used to assess the performance of the segments. Therefore, the underlying Medical Margin is the most important measure of earnings reviewed by the chief operating decision maker.
The following table presents total revenue by segment. Inter-segment revenue was insignificant for all periods presented.
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
 
(In millions)
Total revenue:
 
 
 
 
 
 
 
Health Plans
$
4,239

 
$
4,565

 
$
12,546

 
$
13,826

Other
4

 
132

 
9

 
400

Consolidated
$
4,243

 
$
4,697

 
$
12,555

 
$
14,226


The following table reconciles margin by segment to consolidated income before income taxes:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
 
(In millions)
Margin:
 
 
 
 
 
 
 
Health Plans
$
561

 
$
547

 
$
1,725

 
$
1,812

Other

 
19

 

 
42

Total margin
561

 
566

 
1,725

 
1,854

Add: other operating revenues (1)
159

 
230

 
470

 
661

Add: gain on sale of subsidiary

 
37

 

 
37

Less: other operating expenses (2)
(463
)
 
(538
)
 
(1,393
)
 
(1,693
)
Operating income
257

 
295

 
802

 
859

Other expenses, net
24

 
36

 
52

 
116

Income before income tax expense
$
233

 
$
259

 
$
750

 
$
743

______________________
(1)
Other operating revenues include premium tax revenue, health insurer fees reimbursed, and investment income and other revenue.

Molina Healthcare, Inc. September 30, 2019 Form 10-Q | 25


(2)
Other operating expenses include general and administrative expenses, premium tax expenses, health insurer fees, depreciation and amortization, and restructuring costs.
12. Commitments and Contingencies
Legal Proceedings
The healthcare industry is subject to numerous laws and regulations of federal, state, and local governments. Penalties associated with violations of these laws and regulations include significant fines, exclusion from participating in publicly funded programs, and the repayment of previously collected revenues.
In the ordinary course of business we are involved in legal actions, some of which seek monetary damages, including claims for punitive damages, which are not covered by insurance. We have accrued liabilities for certain matters for which we deem the loss to be both probable and reasonably estimable, but the outcome of legal actions is inherently uncertain and our estimates of such losses could change as a result of further developments of these matters. For certain pending matters, accruals have not been established because such matters have not progressed sufficiently through discovery or factual development to enable us to reasonably estimate a range of possible loss. An adverse determination in one or more of these pending matters could have a material adverse effect on our consolidated financial position, results of operations, or cash flows.
States’ Budgets
Nearly all of our premium revenues come from the joint federal and state funding of the Medicaid and Children’s Health Insurance Program (“CHIP”) programs. The states and Commonwealth in which we operate our health plans regularly face significant budgetary pressures.

13. Leases
As discussed in Note 2, “Significant Accounting Policies,” we elected the Topic 842 transition provision that allows entities to continue to apply the legacy guidance in Topic 840, Leases, including its disclosure requirements, in the comparative periods presented in the year of adoption. Accordingly, the Topic 842 disclosures below are presented as of and for the three-month and nine-month periods ended September 30, 2019, only.
We are a party to operating and finance leases primarily for our corporate and health plan offices. Our operating leases have remaining lease terms up to 10 years, some of which include options to extend the leases for up to 10 years. As of September 30, 2019, the weighted average remaining operating lease term is 4 years.
Our finance leases have remaining lease terms of 2 years to 19 years, some of which include options to extend the leases for up to 25 years. As of September 30, 2019, the weighted average remaining finance lease term is 16 years.
As of September 30, 2019, the weighted-average discount rate used to compute the present value of lease payments was 5.6% for operating lease liabilities, and 6.5% for finance lease liabilities. The components of lease expense were as follows:
 
Three Months Ended September 30, 2019
 
Nine Months Ended September 30, 2019
 
(In millions)
Operating lease expense
$
9

 
$
26

 
 
 
 
Finance lease expense:
 
 
 
Amortization of right-of-use (“ROU”) assets
$
4

 
$
12

Interest on lease liabilities
3

 
11

Total finance lease expense
$
7

 
$
23


Molina Healthcare, Inc. September 30, 2019 Form 10-Q | 26


Supplemental consolidated cash flow information related to leases follows:
 
Nine Months Ended September 30, 2019
 
(In millions)
Cash used in operating activities:
 
Operating leases
$
28

Finance leases
12

Cash used in financing activities:
 
Finance leases
4

ROU assets recognized in exchange for lease obligations:
 
Operating leases
95

Finance leases
245


Supplemental information related to leases, including location of amounts reported in the accompanying consolidated balance sheets, follows:
 
September 30, 2019
 
(In millions)
Operating leases:
 
ROU assets
 
Other assets
$
69

Lease liabilities
 
Accounts payable and accrued liabilities (current)
$
28

Other long-term liabilities (non-current)
49

Total operating lease liabilities
$
77

Finance leases:
 
ROU assets
 
Property, equipment, and capitalized software, net
$
233

Lease liabilities
 
Accounts payable and accrued liabilities (current)
$
8

Finance lease liabilities (non-current)
233

Total finance lease liabilities
$
241


Maturities of lease liabilities as of September 30, 2019, were as follows:
 
Operating Leases
 
Finance Leases
 
(In millions)
2019 (for the three months ended December 31, 2019)
$
9

 
$
6

2020
28

 
23

2021
18

 
23

2022
12

 
22

2023
10

 
21

Thereafter
8

 
311

Total lease payments
85

 
406

Less imputed interest
(8
)
 
(165
)
Totals
$
77

 
$
241




Molina Healthcare, Inc. September 30, 2019 Form 10-Q | 27


MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (“MD&A”)
FORWARD-LOOKING STATEMENTS
This quarterly report on Form 10-Q contains forward-looking statements regarding our business, financial condition, and results of operations within the meaning of Section 27A of the Securities Act of 1933, or Securities Act, and Section 21E of the Securities Exchange Act of 1934, or Securities Exchange Act. We intend such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and we are including this statement for purposes of complying with these safe harbor provisions. All statements included in this quarterly report, other than statements of historical fact, may be deemed to be forward-looking statements for purposes of the Securities Act and the Securities Exchange Act. Without limiting the foregoing, we use the words “anticipate(s),” “believe(s),” “estimate(s),” “expect(s),” “intend(s),” “may,” “plan(s),” “project(s),” “will,” “would,” “could,” “should” and similar expressions to identify forward-looking statements, although not all forward-looking statements contain these identifying words. We cannot guarantee that we will actually achieve the plans, intentions, or expectations disclosed in our forward-looking statements and, accordingly, you should not place undue reliance on our forward-looking statements. We caution you that we do not undertake any obligation to update forward-looking statements made by us. Forward-looking statements involve known and unknown risks and uncertainties that may cause our actual results in future periods to differ materially from those projected, estimated, or expected. Those known risks and uncertainties include, but are not limited to, risks and uncertainties related to the following:
the numerous political, judicial, and market-based uncertainties associated with the Affordable Care Act (the “ACA”) or “Obamacare,” including the ultimate outcome on appeal of the Texas et al. v. U.S. et al. matter;
the market dynamics surrounding the ACA Marketplaces, including but not limited to uncertainties associated with risk adjustment requirements, the potential for disproportionate enrollment of higher acuity members, the discontinuation of premium tax credits, and the adequacy of agreed rates;
subsequent adjustments to reported premium revenue based upon subsequent developments or new information, including changes to estimated amounts payable or receivable related to Marketplace risk adjustment;
effective management of our medical costs;
our ability to predict with a reasonable degree of accuracy utilization rates, including utilization rates associated with seasonal flu patterns or other newly emergent diseases;
significant budget pressures on state governments and their potential inability to maintain current rates, to implement expected rate increases, or to maintain existing benefit packages or membership eligibility thresholds or criteria;
the full reimbursement of the ACA health insurer fee, or HIF;
the success of our efforts to retain existing or awarded government contracts, and the success of any requests for proposal protest filings or defenses, including the pending Texas STAR+PLUS and STAR/CHIP RFPs;
the ability to manage our operations, including maintaining and creating adequate internal systems and controls relating to authorizations, approvals, provider payments, and the overall success of our care management initiatives;
our receipt of adequate premium rates to support increasing pharmacy costs, including costs associated with specialty drugs and costs resulting from formulary changes that allow the option of higher-priced non-generic drugs;
our ability to operate profitably in an environment where the trend in premium rate increases lags behind the trend in increasing medical costs;
the interpretation and implementation of federal or state medical cost expenditure floors, administrative cost and profit ceilings, premium stabilization programs, profit sharing arrangements, and risk adjustment provisions and requirements;
our estimates of amounts owed for such cost expenditure floors, administrative cost and profit ceilings, premium stabilization programs, profit-sharing arrangements, and risk adjustment provisions;
the Medicaid expansion medical cost corridor, and any other retroactive adjustment to revenue where methodologies and procedures are subject to interpretation or dependent upon information about the health status of participants other than Molina members;
the interpretation and implementation of at-risk premium rules and state contract performance requirements regarding the achievement of certain quality measures, and our ability to recognize revenue amounts associated therewith;

Molina Healthcare, Inc. September 30, 2019 Form 10-Q | 28


cyber-attacks or other privacy or data security incidents resulting in an inadvertent unauthorized disclosure of protected health information;
the success of our health plan in Puerto Rico, including the resolution of the debt crisis and the effect of the PROMESA law, the effects of political and regulatory instability, and the impact of any future significant weather events;
the success and renewal of our duals demonstration programs in California, Illinois, Michigan, Ohio, South Carolina, and Texas;
the accurate estimation of incurred but not reported or paid medical costs across our health plans;
efforts by states to recoup previously paid and recognized premium amounts;
our ability to consummate, integrate, and realize benefits from acquisitions;
complications, member confusion, eligibility re-determinations, or enrollment backlogs related to the renewal of Medicaid coverage, as well as the chilling effect of the new so-called public charge rule;
government audits, reviews, comment letters, or potential investigations, and any fine, sanction, enrollment freeze, monitoring program, or premium recovery that may result therefrom;
changes with respect to our provider contracts and the loss of providers;
approval by state regulators of dividends and distributions by our health plan subsidiaries;
changes in funding under our contracts as a result of regulatory changes, programmatic adjustments, or other reforms;
high dollar claims related to catastrophic illness;
the favorable resolution of litigation, arbitration, or administrative proceedings, including litigation involving the ACA to which we are not a direct party;
the relatively small number of states in which we operate health plans, including the greater scale and revenues of our California, Ohio, Texas, and Washington health plans;
the availability of adequate financing on acceptable terms to fund and capitalize our expansion and growth, repay our outstanding indebtedness at maturity and meet our liquidity needs, including the interest expense and other costs associated with such financing;
the failure to comply with the financial or other covenants in our credit agreement or the indentures governing our outstanding notes;
the sufficiency of funds on hand to pay the amounts due upon conversion or maturity of our outstanding notes;
the failure of a state in which we operate to renew its federal Medicaid waiver;
changes generally affecting the managed care industry;
increases in government surcharges, taxes, and assessments;
newly emergent viruses or widespread epidemics, public catastrophes or terrorist attacks, and associated public alarm;
the unexpected loss of the leadership of one or more of our senior executives; and
increasing competition and consolidation in the Medicaid industry.
Readers should refer to the section entitled “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2018, for a discussion of certain risk factors that could materially affect our business, financial condition, cash flows, or results of operations. Given these risks and uncertainties, we can give no assurance that any results or events projected or contemplated by our forward-looking statements will in fact occur.
This Quarterly Report on Form 10-Q and the following discussion of our financial condition and results of operations should be read in conjunction with the accompanying consolidated financial statements and the notes to those statements appearing elsewhere in this report, and the audited financial statements and Management’s Discussion and Analysis appearing in our Annual Report on Form 10-K for the year ended December 31, 2018.


Molina Healthcare, Inc. September 30, 2019 Form 10-Q | 29


OVERVIEW
Molina Healthcare, Inc., a FORTUNE 500 company, provides managed healthcare services under the Medicaid and Medicare programs, and through the state insurance marketplaces (the “Marketplace”). Through our locally operated health plans in 14 states and the Commonwealth of Puerto Rico, we served approximately 3.3 million members as of September 30, 2019. 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”).
We currently have two reportable segments: our Health Plans segment and our Other segment. We manage the vast majority of our operations through our Health Plans segment. The Other segment includes the historical results of the Medicaid management information systems (“MMIS”) and behavioral health subsidiaries we sold in late 2018, as well as certain corporate amounts not allocated to the Health Plans segment. Beginning in 2019, we no longer report service revenue or cost of service revenue as a result of the sales of the MMIS and behavioral health subsidiaries noted above.
THIRD QUARTER 2019 HIGHLIGHTS
In summary, we produced pretax earnings of $233 million, and net income of $175 million in the third quarter of 2019, resulting in an after-tax margin of 4.1%. On a year-to-date basis, pretax earnings were $750 million and net income was $569 million, resulting in an after-tax margin of 4.5%. These results include, on a consolidated and year-to-date basis, a medical care ratio (“MCR”) of 85.7% and a general and administrative (“G&A”) expense ratio of 7.6%.
Program Performance
We have a broad and well diversified business portfolio, and all of our lines of business and our local health plans are continuing to perform well for the third quarter and nine months year to date.
In the Medicaid business, our MCR for the third quarter was sequentially flat at approximately 88.1%. These results were in line with our expectations and performance in this business continued to be stable, as we have achieved an 88.2% MCR for the first nine months of the year.
Our Medicare business, comprising our Medicare Special Needs Plans and MMP products, continued to perform well in the third quarter and was also in line with our expectation. The 85.6% MCR in the third quarter was fairly stable compared to 85.2% MCR in the second quarter of this year. We achieved an 85.2% MCR for the first nine months of the year, as we continue to manage high-acuity members by providing access to high-quality healthcare at a reasonable cost, including our management of long term services and supports, or LTSS, benefits which are embedded in our MMP product. Additionally, we continue to see the results of our quality and risk adjustment efforts, as our Medicare risk scores are becoming more commensurate with the acuity of this population and risk adjustment revenue has increased.
Our Marketplace business has also continued to perform well and the results are in line with seasonal expectations, as we reported a 71.2% MCR for the third quarter compared to 67.2% MCR in the second quarter of this year. For the first nine months of the year, the Marketplace MCR was 66.7%, and the attractive margin profile of this business will allow us to be more competitive on premium rates, increase value added benefits, and offer more competitive commissions in 2020, so we can grow membership - albeit at a lower, but still attractive and more sustainable margin.
G&A Expenses
Our G&A expense ratio increased 60 basis points to 7.6% in the nine months ended September 30, 2019, from 7.0% for the same period in 2018, due mainly to the year-over-year decline in total revenues.
Balance Sheet and Capital Management
We continue to improve our balance sheet, as we repaid an additional $55 million aggregate principal amount of our 1.125% Convertible Notes in the third quarter, for a total of $240 million year to date. The impact of capital deployment actions in the quarter resulted in lower interest expense, a slight loss on repayment of the convertible notes, and a lower share count.

Molina Healthcare, Inc. September 30, 2019 Form 10-Q | 30



FINANCIAL SUMMARY
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
 
(Dollars in millions, except per-share amounts)
Premium revenue
$
4,084

 
$
4,337

 
$
12,085

 
$
13,174

Premium tax revenue
119

 
110

 
367

 
320

Health insurer fees reimbursed

 
83

 

 
248

Investment income and other revenue
40

 
37

 
103

 
93

 
 
 
 
 
 
 
 
Medical care costs
3,523

 
3,790

 
10,360

 
11,362

General and administrative expenses
323

 
311

 
953

 
998

Premium tax expenses
119

 
110

 
367

 
320

Health insurer fees

 
87

 

 
261

Restructuring costs

 
5

 
5

 
38

Gain on sale of subsidiary

 
37

 

 
37

 
 
 
 
 
 
 
 
Operating income
257

 
295

 
802

 
859

Interest expense
22

 
26

 
67

 
91

Other expenses (income), net
2

 
10

 
(15
)
 
25

Income before income tax expense
233

 
259

 
750

 
743

Income tax expense
58

 
62

 
181

 
237

Net income
175

 
197

 
569

 
506

 
 
 
 
 
 
 
 
Net income per diluted share
$
2.75

 
$
2.90

 
$
8.80

 
$
7.60

 
 
 
 
 
 
 
 
Operating Statistics:
 
 
 
 
 
 
 
Ending total membership
3,346,000

 
3,999,000

 
3,346,000

 
3,999,000

MCR (1)
86.3
%
 
87.4
%
 
85.7
%
 
86.2
%
G&A ratio (2)
7.6
%
 
6.6
%
 
7.6
%
 
7.0
%
Premium tax ratio (1)
2.8
%
 
2.5
%
 
2.9
%
 
2.4
%
Effective income tax rate
24.7
%
 
24.0
%
 
24.1
%
 
31.9
%
After-tax margin (2)
4.1
%
 
4.2
%
 
4.5
%
 
3.6
%
________________________
(1)
MCR represents medical care costs as a percentage of premium revenue; premium tax ratio represents premium tax expenses as a percentage of premium revenue plus premium tax revenue.
(2)
G&A ratio represents general and administrative expenses as a percentage of total revenue. After-tax margin represents net income as a percentage of total revenue.

CONSOLIDATED RESULTS
NET INCOME AND OPERATING INCOME
Net income in the third quarter of 2019 amounted to $175 million, or $2.75 per diluted share, compared with $197 million, or $2.90 per diluted share, in the third quarter of 2018. Operating income of $257 million in the third quarter of 2019, was lower compared with $295 million in the third quarter of 2018, mainly resulting from the year-over-year decline in premium revenue. Additionally, results for the third quarter of 2018 included the recognition of a $37 million gain on the sale of subsidiary.
Net income in the nine months ended September 30, 2019, amounted to $569 million, or $8.80 per diluted share, compared with $506 million, or $7.60 per diluted share, in the nine months ended September 30, 2018. Operating income amounted to $802 million in the nine months ended September 30, 2019, compared with $859 million in the nine months ended September 30, 2018.

Molina Healthcare, Inc. September 30, 2019 Form 10-Q | 31


In the third quarter and nine months ended September 30, 2019, net income per diluted share was favorably impacted by the reduction of the dilutive impact of the 1.125% Warrants, as a result of the 1.125% Warrants partial termination transactions that settled between September 2018 and September 2019. See further discussion in Notes to Consolidated Financial Statements, Note 9, “Stockholders' Equity.”
PREMIUM REVENUE
Premium revenue decreased $253 million in the third quarter of 2019, when compared with the third quarter of 2018. Member months declined 18%, partially offset by a per-member per-month (“PMPM”) revenue increase of 12%. Premium revenue decreased $1,089 million in the nine months ended September 30, 2019, when compared with the nine months ended September 30, 2018. Member months declined 18%, partially offset by a PMPM revenue increase of 10%. The premium revenue decline in both periods was primarily in the Medicaid and Marketplace programs.
The decline in Medicaid premium revenue was driven primarily by the loss in membership due to the previously announced loss of the New Mexico Medicaid contract, along with the resizing of the Florida Medicaid contract as reported throughout 2018. This was partially offset by Medicaid premium rate increases, and the impact of a $57 million reduction in premium revenue recognized in the third quarter of 2018, relating to a retroactive California Medicaid Expansion risk corridor for the state’s 2017 fiscal year.
The decline in Marketplace premium revenue was primarily due to declining membership, which also drove a relatively smaller benefit from prior year Marketplace risk adjustment in 2019 compared with 2018, partially offset by premium rate increases.
MEDICAL CARE RATIO
The consolidated MCR decreased to 86.3% in the third quarter of 2019, from 87.4% in the third quarter of 2018. The consolidated MCR in the third quarter of 2018 would have been 86.4% excluding the retroactive California Medicaid Expansion risk corridor adjustment and a slight benefit from the Marketplace cost sharing (“CSR”) reimbursement related to 2017 dates of service. Prior period reserve development in the quarter was negligible.
The consolidated MCR decreased to 85.7% in the nine months ended September 30, 2019, from 86.2% in the nine months ended September 30, 2018. The consolidated MCR in the nine months ended September 30, 2018, would have been 86.5%, excluding the retroactive California Medicaid Expansion risk corridor adjustment and the $81 million benefit from the Marketplace CSR reimbursement related to 2017 dates of service.
The improvement in both periods was due to a decrease in the Medicaid and Medicare MCRs, partially offset by an increase in the Marketplace MCR.
PREMIUM TAX REVENUE AND EXPENSES
The premium tax ratio (premium tax expense as a percentage of premium revenue plus premium tax revenue) was 2.8% in the third quarter of 2019, compared with 2.5% in the third quarter of 2018; and 2.9% compared with 2.4% for the nine months ended September 30, 2019 and 2018, respectively. The increase is mainly attributed to the state of Michigan’s implementation of an insurance provider assessment in 2019, and the state of Illinois’ implementation of a managed care organization provider assessment in the third quarter of 2019.
INVESTMENT INCOME AND OTHER REVENUE
Investment income and other revenue increased to $40 million in the third quarter of 2019, compared with $37 million in the third quarter of 2018, and increased to $103 million in the nine months ended September 30, 2019, compared with $93 million in the nine months ended September 30, 2018, mainly due to gains realized on the sale of certain investments in the third quarter of 2019, and improved annualized portfolio yields overall in 2019.
G&A EXPENSES
The G&A expense ratio increased to 7.6% in the third quarter of 2019, from 6.6% in the third quarter of 2018, and increased to 7.6% in the nine months ended September 30, 2019, compared with 7.0% in the nine months ended September 30, 2018. These increases were due mainly to the year-over-year decline in total revenues.
 

Molina Healthcare, Inc. September 30, 2019 Form 10-Q | 32


HEALTH INSURER FEES
There are no health insurer fees (“HIF”) expensed or reimbursed in 2019 due to the moratorium under Public Law No. 115-120. In the third quarter of 2018 and the nine months ended September 30, 2018, the HIF amounted to $87 million and $261 million, respectively, and HIF reimbursements amounted to $83 million and $248 million, respectively.
RESTRUCTURING COSTS
We incurred restructuring costs of $5 million in the nine months ended September 30, 2019, mainly due to true-ups of lease terminations recorded in our 2017 Restructuring Plan. In the third quarter of 2018 and the nine months ended September 30, 2018, we incurred restructuring costs of $5 million and $38 million, respectively, related to our 2017 Restructuring Plan.
INTEREST EXPENSE
Interest expense declined to $22 million in the third quarter of 2019, from $26 million in the third quarter of 2018, and declined to $67 million in the nine months ended September 30, 2019, from $91 million in the nine months ended September 30, 2018. As further described below in “Liquidity,” we reduced the principal amount outstanding of our 1.125% Convertible Notes by $240 million in the nine months ended September 30, 2019, and reduced total debt by $759 million in the year ended December 31, 2018. The decrease in interest expense in 2019 was partially offset by interest expense attributable to $220 million borrowed under our Term Loan Facility in the nine months ended September 30, 2019.
Interest expense includes non-cash interest expense relating primarily to the amortization of the discount on convertible senior notes, which amounted to $1 million and $5 million in the third quarter of 2019, and 2018, respectively, and $5 million and $18 million in the nine months ended September 30, 2019 and 2018, respectively. The decline in 2019 is due to repayment of our convertible senior notes throughout 2018 and in the nine months ended September 30, 2019. See further discussion in Notes to Consolidated Financial Statements, Note 7, “Debt.”
OTHER EXPENSES (INCOME), NET
In the third quarter of 2019 and the nine months ended September 30, 2019, we recognized a loss on debt repayment of $2 million, and a gain on debt repayment of $15 million, respectively. In the third quarter of 2018 and the nine months ended September 30, 2018, we recognized losses on debt repayment of $10 million and $25 million, respectively, in connection with convertible senior notes repayment transactions. The net gain year to date in 2019 was due to a favorable mark to market valuation on the partial termination of the Call Spread Overlay executed in connection with the related debt repayment. See further discussion in Notes to Consolidated Financial Statements, Note 7, “Debt.”
INCOME TAXES
The provision for income taxes was recorded at an effective rate of 24.7% in the third quarter of 2019, compared with 24.0% in the third quarter of 2018, and 24.1% in the nine months ended September 30, 2019, compared with 31.9% in the nine months ended September 30, 2018. The effective tax rate was higher in 2018 due to higher non-deductible expenses in 2018, primarily related to the non-deductible HIF. The HIF is not applicable in 2019 due to the moratorium under Public Law No. 115-120.

Molina Healthcare, Inc. September 30, 2019 Form 10-Q | 33


SUMMARY OF NON-RUN RATE ITEMS
The table below summarizes the impact of certain expenses and other items that management believes are not indicative of longer-term business trends and operations. The individual items presented below increase (decrease) income before income tax expense.
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
 
Amount
 
Per Diluted Share (1)
 
Amount
 
Per Diluted Share (1)
 
Amount
 
Per Diluted Share (1)
 
Amount
 
Per Diluted Share (1)
 
(In millions except per diluted share amounts)
(Loss) gain on debt repayment
$
(2
)
 
$
(0.03
)
 
$
(10
)
 
$
(0.12
)
 
$
15

 
$
0.18

 
$
(25
)
 
$
(0.33
)
Restructuring costs

 

 
(5
)
 
(0.06
)
 
(5
)
 
(0.06
)
 
(38
)
 
(0.45
)
Gain on sale of subsidiary

 

 
37

 
0.42

 

 

 
37

 
0.43

 
$
(2
)
 
$
(0.03
)
 
$
22

 
0.24

 
$
10

 
$
0.12

 
$
(26
)
 
$
(0.35
)
___________________
(1)
Except for permanent differences between GAAP and tax (such as certain expenses that are not deductible for tax purposes), per diluted share amounts are generally calculated at the statutory income tax rate of 22.6% and 22% for 2019 and 2018, respectively.

REPORTABLE SEGMENTS
HOW WE ASSESS PERFORMANCE
We derive our revenues primarily from health insurance premiums. Our primary customers are state Medicaid agencies and the federal government.
One of the key metrics used to assess the performance of our Health Plans segment is the MCR, which represents the amount of medical care costs as a percentage of premium revenue. Therefore, the underlying margin, or the amount earned by the Health Plans segment after medical costs are deducted from premium revenue, is the most important measure of earnings reviewed by management.
Margin for our Health Plans segment is referred to as “Medical Margin.” Medical Margin amounted to $561 million in the third quarter of 2019, and $547 million in the third quarter of 2018. Medical Margin amounted to $1,725 million in the nine months ended September 30, 2019, and $1,812 million in the nine months ended September 30, 2018. Management’s discussion and analysis of the changes in the individual components of Medical Margin follows.
See Notes to Consolidated Financial Statements, Note 11, “Segments,” for more information on our reportable segments.

HEALTH PLANS
The Health Plans segment consists of health plans operating in 14 states and the Commonwealth of Puerto Rico. As of September 30, 2019, these health plans served approximately 3.3 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 premium subsidies.
TRENDS AND UNCERTAINTIES
Decline in Membership and Premium Revenue
Medicaid Program
Our Medicaid contracts in New Mexico and in all but two regions in Florida terminated in late 2018 and early 2019. As a result, our Medicaid membership has decreased to approximately 96,000 members in Florida as of September 30, 2019, from 468,000 members in Florida and New Mexico, in the aggregate, as of December 31, 2018. In 2019, we continue to serve Medicare and Marketplace members in both Florida and New Mexico, as well as Medicaid members in two regions in Florida.

Molina Healthcare, Inc. September 30, 2019 Form 10-Q | 34


In addition, our Medicaid membership has declined further in Puerto Rico as a result of the entry of more managed care organizations to that market late last year. We served approximately 186,000 members in Puerto Rico as of September 30, 2019, compared with 252,000 members as of December 31, 2018.
Our Medicaid premium revenues have decreased 9% in the nine months ended September 30, 2019, when compared with the nine months ended September 30, 2018, primarily as a result of the changes described above. We expect our Medicaid premium revenues to continue to decline in 2019 compared with 2018.
Marketplace Program
We estimate that our 2019 Marketplace end-of-year enrollment will decrease to approximately 270,000 members due to expected attrition. This projected enrollment is lower than the 289,000 and 362,000 members enrolled as of September 30, 2019, and December 31, 2018, respectively. Consequently, we expect our Marketplace premium revenues to continue to decrease in 2019 compared with 2018.
Status of Upcoming Contract Re-Procurements
Medicaid Program
Texas Health Plan. On October 29, 2019, the Texas Health and Human Services Commission (HHSC) notified our Texas health plan, Molina Healthcare of Texas, Inc., that HHSC intends to award contracts to Molina Healthcare of Texas, Inc. for the STAR+PLUS program in the Hidalgo and North East service areas. The awards will be for an initial contract term of 3 years, and anticipated to have an operational effective date of September 1, 2020. STAR+PLUS is a Texas Medicaid Managed Care program integrating the delivery of Acute Care services and Long-Term Services and Supports (LTSS) for people who are age 65 or older, blind, or disabled. Currently, our Texas health plan services the Bexar, Dallas, El Paso, Harris, Hidalgo, and Jefferson service areas, with total membership of approximately 86,000 enrollees. Under the existing STAR+PLUS contract, the premium revenue for this program amounted to approximately $1.2 billion for the nine months ended September 30, 2019. We are seeking to understand the basis for HHSC’s selection of intended contract awards. We do not expect this matter to affect our earnings during fiscal year 2019. 
Our Texas health plan has submitted a request for proposal (“RFP”) response with regard to the STAR/CHIP program. We currently expect the STAR/CHIP award to be announced in the fourth quarter of 2019. The STAR/CHIP program is currently expected to have an operational effective date of December 1, 2020. As of September 30, 2019, our Texas health plan served 116,000 members under the existing STAR/CHIP contracts, under which we estimate annualized premium revenues of approximately $310 million in 2019.
Ohio Health Plan. We have received information that the state of Ohio expects to release its Medicaid contract RFP early in 2020, with an announcement of the awards expected in the third quarter of 2020, and an operational effective date of January 1, 2021.
California Health Plan. We have received information that the state of California expects to release its Medicaid contract RFP in 2020, with new contracts effective in 2023.
Losses of any of our Texas, Ohio, or California Medicaid contracts could have a material adverse effect on our business, financial condition, cash flows, and results of operations.
MMP Program
Our California, Illinois and Ohio MMP contracts have been extended, with one-year renewal terms, through December 31, 2022. These contracts represent aggregate annualized revenues of approximately $910 million in 2019.
Our Michigan, South Carolina and Texas MMP contracts are active through December 31, 2020. In October 2019, the Michigan Medicaid agency submitted a three-year extension request to CMS.
Pressures on Medicaid Funding
Due to states’ budget challenges and political agendas at both the state and federal levels, there are a number of different legislative proposals being considered, some of which would involve significantly reduced federal or state spending on the Medicaid program, constitute a fundamental change to the federal role in healthcare and, if enacted, could have a material adverse effect on our business, financial condition, cash flows and results of operations. These proposals include elements such as the following, as well as numerous other potential changes and reforms:
Changes in the entitlement nature of Medicaid (and perhaps Medicare as well) by capping future increases in federal health spending for these programs, and shifting much more of the risk for health costs in the

Molina Healthcare, Inc. September 30, 2019 Form 10-Q | 35


future to states and consumers;
Reversing the ACA’s expansion of Medicaid that enables states to cover low-income childless adults;
Changing Medicaid to a state block grant program, including potentially capping spending on a per-enrollee basis;
Requiring Medicaid beneficiaries to work; and
Limiting the amount of lifetime benefits for Medicaid beneficiaries.
ACA
In December 2018, in a case brought by the state of Texas and nineteen other states, a federal judge in Texas held that the ACA’s individual mandate is unconstitutional. He further held that the individual mandate is inseverable from the entire body of the ACA, and thus the entire ACA is unconstitutional. The District Court stayed its order pending  appeal, and the decision has now been appealed to and argued before a three judge panel of the Fifth Circuit Court of Appeals. A decision of that court is expected in the fourth quarter of 2019, after which the case may be further appealed to the United States Supreme Court. Any final, non-appealable determination that the ACA is unconstitutional would have a material adverse effect on our business, financial condition, cash flows, and results of operations.
MEMBERSHIP
The following tables set forth our Health Plans membership as of the dates indicated:
 
September 30,
2019
 
December 31,
2018
 
September 30,
2018
Ending Membership by Program:
 
 
 
 
 
TANF and CHIP
1,993,000

 
2,295,000

 
2,436,000

Medicaid Expansion
598,000

 
660,000

 
664,000

ABD
364,000

 
406,000

 
415,000

Total Medicaid
2,955,000

 
3,361,000

 
3,515,000

MMP – Integrated (1)
58,000

 
54,000

 
55,000

Medicare Special Needs Plans (“Medicare”)
44,000

 
44,000

 
45,000

Total Medicare
102,000

 
98,000

 
100,000

Total Medicaid and Medicare
3,057,000

 
3,459,000

 
3,615,000

Marketplace
289,000

 
362,000

 
384,000

 
3,346,000

 
3,821,000

 
3,999,000

 
 
 
 
 
 
Ending Membership by Health Plan:
 
 
 
 
 
California
580,000

 
608,000

 
623,000

Florida (2)
136,000

 
313,000

 
395,000

Illinois
224,000

 
224,000

 
223,000

Michigan
361,000

 
383,000

 
394,000

New Mexico (2)
24,000

 
222,000

 
234,000

Ohio
292,000

 
302,000

 
315,000

Puerto Rico
186,000

 
252,000

 
320,000

South Carolina
134,000

 
120,000

 
117,000

Texas
350,000

 
423,000

 
436,000

Washington
818,000

 
781,000

 
770,000

Other (3)
241,000

 
193,000

 
172,000

 
3,346,000

 
3,821,000

 
3,999,000

_________________________
(1)
MMP members receive both Medicaid and Medicare coverage from Molina Healthcare.
(2)
Our Medicaid contracts in New Mexico and in all but two regions in Florida terminated in late 2018 and early 2019. During 2019, we continue to serve Medicare and Marketplace members in both Florida and New Mexico, as well as Medicaid members in two regions in Florida.
(3)
“Other” includes the Idaho, Mississippi, New York, Utah and Wisconsin health plans, which are not individually significant to our consolidated operating results.


Molina Healthcare, Inc. September 30, 2019 Form 10-Q | 36


THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2019, COMPARED WITH THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2018

FINANCIAL PERFORMANCE BY PROGRAM
The following tables summarize member months, premium revenue, medical care costs, MCR and medical margin by program for the periods indicated (PMPM amounts are in whole dollars; member months and other dollar amounts are in millions):
 
Three Months Ended September 30, 2019
 
Member
Months (1)
 
Premium Revenue
 
Medical Care Costs
 
MCR (2)
 
Medical Margin
 
 
Total
 
PMPM
 
Total
 
PMPM
 
 
TANF and CHIP
6.0

 
$
1,225

 
$
202.46

 
$
1,071

 
$
176.88

 
87.4
%
 
$
154

Medicaid Expansion
1.8

 
696

 
385.63

 
622

 
345.25

 
89.5

 
74

ABD
1.1

 
1,247

 
1,136.67

 
1,097

 
1,000.56

 
88.0

 
150

Total Medicaid
8.9

 
3,168

 
353.81

 
2,790

 
311.70

 
88.1

 
378

MMP
0.2

 
399

 
2,328.70

 
345

 
2,010.50

 
86.3

 
54

Medicare
0.1

 
160

 
1,230.01

 
134

 
1,029.75

 
83.7

 
26

Total Medicare
0.3

 
559

 
1,854.96

 
479

 
1,587.61

 
85.6

 
80

Total Medicaid and Medicare
9.2

 
3,727

 
402.76

 
3,269

 
353.31

 
87.7

 
458

Marketplace
0.9

 
357

 
410.23

 
254

 
292.21

 
71.2

 
103

 
10.1

 
$
4,084

 
$
403.40

 
$
3,523

 
$
348.06

 
86.3
%
 
$
561

 
Three Months Ended September 30, 2018
 
Member
Months (1)
 
Premium Revenue
 
Medical Care Costs
 
MCR (2)
 
Medical Margin
 
 
Total
 
PMPM
 
Total
 
PMPM
 
 
TANF and CHIP
7.4

 
$
1,379

 
$
187.03

 
$
1,228

 
$
166.41

 
89.0
%
 
$
151

Medicaid Expansion
2.0

 
671

 
333.11

 
640

 
317.62

 
95.3

 
31

ABD
1.2

 
1,322

 
1,054.92

 
1,186

 
946.38

 
89.7

 
136

Total Medicaid
10.6

 
3,372

 
316.86

 
3,054

 
286.86

 
90.5

 
318

MMP
0.2

 
353

 
2,159.72

 
323

 
1,981.45

 
91.7

 
30

Medicare
0.1

 
156

 
1,157.71

 
121

 
895.25

 
77.3

 
35

Total Medicare
0.3

 
509

 
1,706.95

 
444

 
1,490.63

 
87.3

 
65

Total Medicaid and Medicare
10.9

 
3,881

 
354.70

 
3,498

 
319.63

 
90.1

 
383

Marketplace
1.2

 
456

 
394.02

 
292

 
252.61

 
64.1

 
164

 
12.1

 
$
4,337

 
$
358.46

 
$
3,790

 
$
313.23

 
87.4
%
 
$
547



Molina Healthcare, Inc. September 30, 2019 Form 10-Q | 37


 
Nine Months Ended September 30, 2019
 
Member
Months (1)
 
Premium Revenue
 
Medical Care Costs
 
MCR (2)
 
Medical Margin
 
 
Total
 
PMPM
 
Total
 
PMPM
 
 
TANF and CHIP
18.3

 
$
3,594

 
$
196.01

 
$
3,141

 
$
171.30

 
87.4
%
 
$
453

Medicaid Expansion
5.4

 
2,055

 
380.08

 
1,810

 
334.85

 
88.1

 
245

ABD
3.3

 
3,590

 
1,097.94

 
3,200

 
978.64

 
89.1

 
390

Total Medicaid
27.0

 
9,239

 
342.03

 
8,151

 
301.77

 
88.2

 
1,088

MMP
0.5

 
1,193

 
2,368.38

 
1,034

 
2,051.90

 
86.6

 
159

Medicare
0.4

 
489

 
1,270.32

 
399

 
1,037.24

 
81.7

 
90

Total Medicare
0.9

 
1,682

 
1,892.63

 
1,433

 
1,612.29

 
85.2

 
249

Total Medicaid and Medicare
27.9

 
10,921

 
391.44

 
9,584

 
343.53

 
87.8

 
1,337

Marketplace
2.8

 
1,164

 
414.17

 
776

 
276.28

 
66.7

 
388

 
30.7

 
$
12,085

 
$
393.52

 
$
10,360

 
$
337.37

 
85.7
%
 
$
1,725


 
Nine Months Ended September 30, 2018
 
Member
Months (1)
 
Premium Revenue
 
Medical Care Costs
 
MCR (2)
 
Medical Margin
 
 
Total
 
PMPM
 
Total
 
PMPM
 
 
TANF and CHIP
22.3

 
$
4,145

 
$
186.12

 
$
3,705

 
$
166.35

 
89.4
%
 
$
440

Medicaid Expansion
6.1

 
2,184

 
359.37

 
1,957

 
322.01

 
89.6

 
227

ABD
3.7

 
3,864

 
1,034.25

 
3,550

 
950.11

 
91.9

 
314

Total Medicaid
32.1

 
10,193

 
317.70

 
9,212

 
287.10

 
90.4

 
981

MMP
0.5

 
1,077

 
2,173.90

 
941

 
1,899.26

 
87.4

 
136

Medicare
0.4

 
470

 
1,171.59

 
385

 
959.54

 
81.9

 
85

Total Medicare
0.9

 
1,547

 
1,725.71

 
1,326

 
1,479.06

 
85.7

 
221

Total Medicaid and Medicare
33.0

 
11,740

 
355.96

 
10,538

 
319.50

 
89.8

 
1,202

Marketplace
3.8

 
1,434

 
379.91

 
824

 
218.44

 
57.5

 
610

 
36.8

 
$
13,174

 
$
358.42

 
$
11,362

 
$
309.12

 
86.2
%
 
$
1,812

_______________________
(1)
A member month is defined as the aggregate of each month’s ending membership for the period presented.
(2)
“MCR” represents medical costs as a percentage of premium revenue.
Medicaid Program
The Medical Margin of our Medicaid program increased $60 million, or 19% in the third quarter of 2019 when compared with the third quarter of 2018, and increased $107 million, or 11% in the nine months ended September 30, 2019, when compared with the nine months ended September 30, 2018. The increase in both periods was due to improvement in the overall Medicaid MCR, which more than offset the impact of declining Medicaid premium revenue. The Medicaid MCR decreased to 88.1% from 90.5%, or 240 basis points, in the third quarter of 2019 when compared with the same period in 2018, and decreased to 88.2% from 90.4%, or 220 basis points, in the nine months ended September 30, 2019, when compared with the same period in 2018.
The Medicaid MCR for both periods in 2019 benefited from improvements across all programs. The MCR for TANF and CHIP improved for both periods due to PMPM premium revenue increases. The improved MCR for the ABD program was principally driven by increases in premium revenue PMPM, lower pharmacy costs from re-contracted pharmacy benefits management, and our continued focus on medical cost management.
The decrease in the Medicaid Expansion MCR for both periods in 2019 when compared to 2018, was mainly due to the impact of a $57 million reduction in premium revenue, recognized in the third quarter of 2018, relating to a retroactive California Medicaid Expansion risk corridor for the state’s 2017 fiscal year.
Medicaid premium revenue decreased $204 million and $954 million in the third quarter of 2019 and the nine months ended September 30, 2019, respectively, mainly due to the loss in membership in connection with the termination of our Medicaid contracts in New Mexico and in all but two regions in Florida in late 2018 and early 2019, partially offset by net rate increases in certain other markets. As noted above, we expect lower Medicaid premium revenue throughout 2019, when compared with 2018.

Molina Healthcare, Inc. September 30, 2019 Form 10-Q | 38


Medicare Program
The Medical Margin of our Medicare program increased $15 million, or 23%, in the third quarter of 2019, when compared with the third quarter of 2018, and increased $28 million, or 13%, in the nine months ended September 30, 2019, when compared with the nine months ended September 30, 2018. Premiums continue to increase compared with the prior year, mainly due to risk scores that are more commensurate with the acuity of our population.
Marketplace Program
The Marketplace Medical Margin decreased $61 million in the third quarter of 2019, when compared with the third quarter of 2018, and decreased $222 million in the nine months ended September 30, 2019, when compared with the nine months ended September 30, 2018. The decrease in both periods in 2019 is mainly attributed to a decrease in premium revenues, driven by a decrease in membership of over 20%, partially offset by premium rate increases and increased premiums tied to risk scores. Additionally, the decrease in premiums in both periods in 2019 reflects a relatively smaller benefit from prior year Marketplace risk adjustment in 2019 compared with 2018. As noted above, we expect Marketplace premium revenue to be lower in 2019, when compared with 2018.
The decrease in Medical Margin for the nine months ended September 30, 2019, was partially driven by the impact of the $81 million CSR reimbursement recognized in the nine months ended September 30, 2018. The CSR benefit related to 2017 dates of service and was recognized following the federal government’s confirmation that the reconciliation would be performed on an annual basis. In the fourth quarter of 2017, we had assumed a nine-month reconciliation of this item pending confirmation of the time period to which the 2017 reconciliation would be applied.
The MCR for the Marketplace program amounted to 71.2% in the third quarter of 2019, compared with 64.1% in the third quarter of 2018, and 66.7% in the nine months ended September 30, 2019, compared with 57.5% in the nine months ended September 30, 2018. The increased MCR in both periods in 2019 reflects a relatively smaller benefit from prior year Marketplace risk adjustment in 2019 compared with 2018, and the impact of higher acuity membership, partially offset by the impact of rate increases and increased premiums tied to risk scores. Additionally, the increase in MCR for the nine months ended September 30, 2019, reflects the impact of the CSR reimbursement recognized in the nine months ended September 30, 2018.
FINANCIAL PERFORMANCE BY HEALTH PLAN
The following tables summarize member months, premium revenue, medical care costs, MCR, and medical margin by state health plan for the periods indicated (PMPM amounts are in whole dollars; member months and other dollar amounts are in millions):
Health Plans Segment Financial Data — Medicaid and Medicare
 
Three Months Ended September 30, 2019
 
Member
Months
 
Premium Revenue
 
Medical Care Costs
 
MCR
 
Medical Margin
 
 
Total
 
PMPM
 
Total
 
PMPM
 
 
California
1.6

 
$
510

 
$
315.90

 
$
423

 
$
261.97

 
82.9
%
 
$
87

Florida
0.3

 
130

 
436.99

 
127

 
427.80

 
97.9

 
3

Illinois
0.7

 
257

 
383.41

 
232

 
347.28

 
90.6

 
25

Michigan
1.1

 
401

 
373.01

 
332

 
307.97

 
82.6

 
69

Ohio
0.9

 
615

 
687.38

 
563

 
628.98

 
91.5

 
52

Puerto Rico
0.6

 
117

 
209.25

 
102

 
182.53

 
87.2

 
15

South Carolina
0.4

 
151

 
379.20

 
138

 
347.23

 
91.6

 
13

Texas
0.7

 
592

 
912.76

 
540

 
833.51

 
91.3

 
52

Washington
2.3

 
643

 
269.52

 
570

 
238.55

 
88.5

 
73

Other (1) (2)
0.6

 
311

 
437.60

 
242

 
341.29

 
78.0

 
69

 
9.2

 
$
3,727

 
$
402.76

 
$
3,269

 
$
353.31

 
87.7
%
 
$
458


Molina Healthcare, Inc. September 30, 2019 Form 10-Q | 39


 
Three Months Ended September 30, 2018
 
Member
Months
 
Premium Revenue
 
Medical Care Costs
 
MCR
 
Medical Margin
 
 
Total
 
PMPM
 
Total
 
PMPM
 
 
California
1.7

 
$
435

 
$
249.00

 
$
446

 
$
255.22

 
102.5
%
 
$
(11
)
Florida
1.0

 
388

 
363.16

 
362

 
339.33

 
93.4

 
26

Illinois
0.7

 
207

 
312.72

 
182

 
274.98

 
87.9

 
25

Michigan
1.1

 
397

 
350.05

 
321

 
282.49

 
80.7

 
76

New Mexico (2)
0.6

 
304

 
471.66

 
275

 
426.69

 
90.5

 
29

Ohio
0.9

 
584

 
624.84

 
532

 
568.93

 
91.1

 
52

Puerto Rico
1.0

 
179

 
189.65

 
162

 
171.96

 
90.7

 
17

South Carolina
0.4

 
124

 
354.53

 
112

 
318.56

 
89.9

 
12

Texas
0.7

 
577

 
848.47

 
525

 
772.14

 
91.0

 
52

Washington
2.3

 
511

 
226.77

 
444

 
197.04

 
86.9

 
67

Other (1) 
0.5

 
175

 
334.29

 
137

 
261.49

 
78.2

 
38

 
10.9

 
$
3,881

 
$
354.70

 
$
3,498

 
$
319.63

 
90.1
%
 
$
383

 
Nine Months Ended September 30, 2019
 
Member
Months
 
Premium Revenue
 
Medical Care Costs
 
MCR
 
Medical Margin
 
 
Total
 
PMPM
 
Total
 
PMPM
 
 
California
4.9

 
$
1,508

 
$
306.96

 
$
1,286

 
$
261.76

 
85.3
%
 
$
222

Florida
1.0

 
418

 
410.71

 
374

 
367.95

 
89.6

 
44

Illinois
2.0

 
726

 
365.35

 
632

 
318.26

 
87.1

 
94

Michigan
3.3

 
1,199

 
370.77

 
990

 
305.99

 
82.5

 
209

Ohio
2.7

 
1,835

 
682.59

 
1,653

 
614.89

 
90.1

 
182

Puerto Rico
1.8

 
341

 
190.42

 
301

 
167.98

 
88.2

 
40

South Carolina
1.2

 
427

 
368.35

 
378

 
326.61

 
88.7

 
49

Texas
2.0

 
1,789

 
910.64

 
1,623

 
826.20

 
90.7

 
166

Washington
7.1

 
1,868

 
261.92

 
1,691

 
236.98

 
90.5

 
177

Other (1) (2)
1.9

 
810

 
402.31

 
656

 
325.93

 
81.0

 
154

 
27.9

 
$
10,921

 
$
391.44

 
$
9,584

 
$
343.53

 
87.8
%
 
$
1,337

 
Nine Months Ended September 30, 2018
 
Member
Months
 
Premium Revenue
 
Medical Care Costs
 
MCR
 
Medical Margin
 
 
Total
 
PMPM
 
Total
 
PMPM
 
 
California
5.3

 
$
1,446

 
$
270.63

 
$
1,299

 
$
243.14

 
89.8
%
 
$
147

Florida
3.2

 
1,147

 
356.15

 
1,069

 
331.93

 
93.2

 
78

Illinois
1.8

 
551

 
308.45

 
474

 
265.47

 
86.1

 
77

Michigan
3.4

 
1,161

 
343.08

 
983

 
290.26

 
84.6

 
178

New Mexico (2)
2.0

 
936

 
469.19

 
875

 
438.70

 
93.5

 
61

Ohio
2.8

 
1,670

 
590.71

 
1,474

 
521.26

 
88.2

 
196

Puerto Rico
2.9

 
549

 
190.34

 
501

 
173.83

 
91.3

 
48

South Carolina
1.1

 
369

 
350.94

 
323

 
306.76

 
87.4

 
46

Texas
2.1

 
1,715

 
831.21

 
1,554

 
753.31

 
90.6

 
161

Washington
6.8

 
1,666

 
245.40

 
1,544

 
227.41

 
92.7

 
122

Other (1) 
1.6

 
530

 
323.84

 
442

 
269.98

 
83.4

 
88

 
33.0

 
$
11,740

 
$
355.96

 
$
10,538

 
$
319.50

 
89.8
%
 
$
1,202

______________________

(1)
“Other” includes the Idaho, Mississippi, New York, Utah and Wisconsin health plans, which are not individually significant to our consolidated operating results.

Molina Healthcare, Inc. September 30, 2019 Form 10-Q | 40


(2)
In 2019, “Other” includes the New Mexico health plan. The New Mexico health plan’s Medicaid contract terminated on December 31, 2018, and therefore its 2019 results are not individually significant to our consolidated operating results.

Health Plans Segment Financial Data — Marketplace
 
Three Months Ended September 30, 2019
 
Member
Months
 
Premium Revenue
 
Medical Care Costs
 
MCR
 
Medical Margin
 
 
Total
 
PMPM
 
Total
 
PMPM
 
 
California
0.2

 
$
57

 
$
371.07

 
$
33

 
$
210.87

 
56.8
%
 
$
24

Florida
0.1

 
41

 
349.53

 
25

 
212.00

 
60.7

 
16

Michigan

 
7

 
431.41

 
4

 
289.45

 
67.1

 
3

Ohio

 
25

 
792.96

 
19

 
626.30

 
79.0

 
6

Texas
0.4

 
142

 
351.04

 
105

 
257.68

 
73.4

 
37

Washington
0.1

 
45

 
719.67

 
33

 
548.75

 
76.2

 
12

Other (1)
0.1

 
40

 
480.41

 
35

 
408.35

 
85.0

 
5

 
0.9

 
$
357

 
$
410.23

 
$
254

 
$
292.21

 
71.2
%
 
$
103

 
Three Months Ended September 30, 2018
 
Member
Months
 
Premium Revenue
 
Medical Care Costs
 
MCR
 
Medical Margin
 
 
Total
 
PMPM
 
Total
 
PMPM
 
 
California
0.2

 
$
49

 
$
309.04

 
$
37

 
$
235.63

 
76.2
%
 
$
12

Florida
0.2

 
66

 
548.60

 
45

 
362.39

 
66.1

 
21

Michigan

 
12

 
233.51

 
7

 
145.13

 
62.1

 
5

New Mexico
0.1

 
28

 
419.20

 
18

 
249.33

 
59.5

 
10

Ohio
0.1

 
27

 
485.08

 
18

 
336.86

 
69.4

 
9

Texas
0.6

 
228

 
357.54

 
134

 
209.80

 
58.7

 
94

Washington

 
44

 
656.70

 
34

 
518.75

 
79.0

 
10

Other (2)

 
2

 
NM

 
(1
)
 
NM

 
NM

 
3

 
1.2

 
$
456

 
$
394.02

 
$
292

 
$
252.61

 
64.1
%
 
$
164


 
Nine Months Ended September 30, 2019
 
Member
Months
 
Premium Revenue
 
Medical Care Costs
 
MCR
 
Medical Margin
 
 
Total
 
PMPM
 
Total
 
PMPM
 
 
California
0.5

 
$
174

 
$
364.72

 
$
101

 
$
210.76

 
57.8
%
 
$
73

Florida
0.4

 
152

 
389.44

 
81

 
207.22

 
53.2

 
71

Michigan

 
27

 
474.12

 
15

 
265.95

 
56.1

 
12

Ohio
0.1

 
79

 
801.90

 
53

 
543.00

 
67.7

 
26

Texas
1.3

 
457

 
344.19

 
331

 
249.44

 
72.5

 
126

Washington
0.2

 
143

 
744.47

 
97

 
509.50

 
68.4

 
46

Other (1)
0.3

 
132

 
494.59

 
98

 
364.71

 
73.7

 
34

 
2.8

 
$
1,164

 
$
414.17

 
$
776

 
$
276.28

 
66.7
%
 
$
388



Molina Healthcare, Inc. September 30, 2019 Form 10-Q | 41


 
Nine Months Ended September 30, 2018
 
Member
Months
 
Premium Revenue
 
Medical Care Costs
 
MCR
 
Medical Margin
 
 
Total
 
PMPM
 
Total
 
PMPM
 
 
California
0.6

 
$
171

 
$
326.82

 
$
89

 
$
169.98

 
52.0
%
 
$
82

Florida
0.5

 
211

 
491.13

 
67

 
155.24

 
31.6

 
144

Michigan
0.1

 
40

 
248.24

 
23

 
145.38

 
58.6

 
17

New Mexico
0.2

 
93

 
426.07

 
55

 
247.57

 
58.1

 
38

Ohio
0.2

 
84

 
466.75

 
58

 
324.91

 
69.6

 
26

Texas
2.0

 
679

 
330.92

 
440

 
214.65

 
64.9

 
239

Washington
0.2

 
139

 
654.78

 
105

 
497.00

 
75.9

 
34

Other (2)

 
17

 
NM

 
(13
)
 
NM

 
NM

 
30

 
3.8

 
$
1,434

 
$
379.91

 
$
824

 
$
218.44

 
57.5
%
 
$
610

_________________________

(1)
“Other” includes the New Mexico, Utah and Wisconsin health plans, which are not individually significant to our consolidated operating results in 2019.
(2)
“Other” includes the Utah and Wisconsin health plans, where we did not participate in the Marketplace in 2018. Therefore, the ratios for 2018 periods are not meaningful (NM).
Health Plans Segment Financial Data — Total
 
Three Months Ended September 30, 2019
 
Member
Months
 
Premium Revenue
 
Medical Care Costs
 
MCR
 
Medical Margin
 
 
Total
 
PMPM
 
Total
 
PMPM
 
 
California
1.8

 
$
567

 
$
320.67

 
$
456

 
$
257.55

 
80.3
%
 
$
111

Florida
0.4

 
171

 
412.29

 
152

 
366.86

 
89.0

 
19

Illinois
0.7

 
257

 
383.41

 
232

 
347.28

 
90.6

 
25

Michigan
1.1

 
408

 
373.92

 
336

 
307.68

 
82.3

 
72

Ohio
0.9

 
640

 
690.88

 
582

 
628.89

 
91.0

 
58

Puerto Rico
0.6

 
117

 
209.25

 
102

 
182.53

 
87.2

 
15

South Carolina
0.4

 
151

 
379.20

 
138

 
347.23

 
91.6

 
13

Texas
1.1

 
734

 
696.46

 
645

 
611.78

 
87.8

 
89

Washington
2.4

 
688

 
280.85

 
603

 
246.36

 
87.7

 
85

Other (1) (2)
0.7

 
351

 
442.14

 
277

 
348.40

 
78.8

 
74

 
10.1

 
$
4,084

 
$
403.40

 
$
3,523

 
$
348.06

 
86.3
%
 
$
561

 
Three Months Ended September 30, 2018
 
Member
Months
 
Premium Revenue
 
Medical Care Costs
 
MCR
 
Medical Margin
 
 
Total
 
PMPM
 
Total
 
PMPM
 
 
California
1.9

 
$
484

 
$
253.96

 
$
483

 
$
253.60

 
99.9
%
 
$
1

Florida
1.2

 
454

 
382.20

 
407

 
341.70

 
89.4

 
47

Illinois
0.7

 
207

 
312.72

 
182

 
274.98

 
87.9

 
25

Michigan
1.1

 
409

 
345.28

 
328

 
276.88

 
80.2

 
81

New Mexico (2)
0.7

 
332

 
466.63

 
293

 
409.68

 
87.8

 
39

Ohio
1.0

 
611

 
616.95

 
550

 
555.83

 
90.1

 
61

Puerto Rico
1.0

 
179

 
189.65

 
162

 
171.96

 
90.7

 
17

South Carolina
0.4

 
124

 
354.53

 
112

 
318.56

 
89.9

 
12

Texas
1.3

 
805

 
611.01

 
659

 
500.14

 
81.9

 
146

Washington
2.3

 
555

 
239.25

 
478

 
206.38

 
86.3

 
77

Other (1)
0.5

 
177

 
336.18

 
136

 
260.19

 
77.4

 
41

 
12.1

 
$
4,337

 
$
358.46

 
$
3,790

 
$
313.23

 
87.4
%
 
$
547


Molina Healthcare, Inc. September 30, 2019 Form 10-Q | 42


 
Nine Months Ended September 30, 2019
 
Member
Months
 
Premium Revenue
 
Medical Care Costs
 
MCR
 
Medical Margin
 
 
Total
 
PMPM
 
Total
 
PMPM
 
 
California
5.4

 
$
1,682

 
$
312.08

 
$
1,387

 
$
257.25

 
82.4
%
 
$
295

Florida
1.4

 
570

 
404.81

 
455

 
323.37

 
79.9

 
115

Illinois
2.0

 
726

 
365.35

 
632

 
318.26

 
87.1

 
94

Michigan
3.3

 
1,226

 
372.58

 
1,005

 
305.29

 
81.9

 
221

Ohio
2.8

 
1,914

 
686.80

 
1,706

 
612.35

 
89.2

 
208

Puerto Rico
1.8

 
341

 
190.42

 
301

 
167.98

 
88.2

 
40

South Carolina
1.2

 
427

 
368.35

 
378

 
326.61

 
88.7

 
49

Texas
3.3

 
2,246

 
682.10

 
1,954

 
593.50

 
87.0

 
292

Washington
7.3

 
2,011

 
274.52

 
1,788

 
244.10

 
88.9

 
223

Other (1) (2)
2.2

 
942

 
413.13

 
754

 
330.48

 
80.0

 
188

 
30.7

 
$
12,085

 
$
393.52

 
$
10,360

 
$
337.37

 
85.7
%
 
$
1,725

 
Nine Months Ended September 30, 2018
 
Member
Months
 
Premium Revenue
 
Medical Care Costs
 
MCR
 
Medical Margin
 
 
Total
 
PMPM
 
Total
 
PMPM
 
 
California
5.9

 
$
1,617

 
$
275.64

 
$
1,388

 
$
236.61

 
85.8
%
 
$
229

Florida
3.7

 
1,358

 
372.07

 
1,136

 
311.09

 
83.6

 
222

Illinois
1.8

 
551

 
308.45

 
474

 
265.47

 
86.1

 
77

Michigan
3.5

 
1,201

 
338.83

 
1,006

 
283.77

 
83.7

 
195

New Mexico (2)
2.2

 
1,029

 
464.92

 
930

 
419.78

 
90.3

 
99

Ohio
3.0

 
1,754

 
583.29

 
1,532

 
509.52

 
87.4

 
222

Puerto Rico
2.9

 
549

 
190.34

 
501

 
173.83

 
91.3

 
48

South Carolina
1.1

 
369

 
350.94

 
323

 
306.76

 
87.4

 
46

Texas
4.1

 
2,394

 
581.74

 
1,994

 
484.70

 
83.3

 
400

Washington
7.0

 
1,805

 
257.82

 
1,649

 
235.59

 
91.4

 
156

Other (1)
1.6

 
547

 
334.26

 
429

 
262.27

 
78.5

 
118

 
36.8

 
$
13,174

 
$
358.42

 
$
11,362

 
$
309.12

 
86.2
%
 
$
1,812

__________________
(1)
“Other” includes the Idaho, Mississippi, New York, Utah and Wisconsin health plans, which are not individually significant to our consolidated operating results.
(2)
In 2019, “Other” includes the New Mexico health plan. The New Mexico health plan’s Medicaid contract terminated on December 31, 2018, and therefore its 2019 results are not individually significant to our consolidated operating results.

OTHER
The Other segment includes the historical results of the Medicaid management information systems (“MMIS”) and behavioral health subsidiaries we sold in late 2018, as well as certain corporate amounts not allocated to the Health Plans segment. Beginning in 2019, we no longer report service revenue or cost of service revenue as a result of the sales of the MMIS and behavioral health subsidiaries noted above.
FINANCIAL OVERVIEW
The Other segment margin in the third quarter and nine months ended September 30, 2018, was insignificant.


Molina Healthcare, Inc. September 30, 2019 Form 10-Q | 43


LIQUIDITY AND FINANCIAL CONDITION
LIQUIDITY
We manage our cash, investments, and capital structure to meet the short- and long-term obligations of our business while maintaining liquidity and financial flexibility. We forecast, analyze, and monitor our cash flows to enable prudent investment management and financing within the confines of our financial strategy.
We maintain liquidity at two levels: 1) the regulated health plan subsidiaries; and 2) the parent company. Our regulated health plan subsidiaries generate significant cash flows from premium revenue, which is generally received a short time before related healthcare services are paid. Such cash flows are our primary source of liquidity. Thus, any decline in our profitability may have a negative impact on our liquidity. A majority of the assets held by our regulated health plan subsidiaries is in the form of cash, cash equivalents, and investments.
When available and as permitted by applicable regulations, cash in excess of the capital needs of our regulated health plan subsidiaries is generally paid in the form of dividends to our parent company to be used for general corporate purposes. In the third quarter of 2019 and nine months ended September 30, 2019, the parent received $430 million and $1,064 million, respectively, in dividends from the regulated health plan subsidiaries. In addition, the parent received $185 million in dividends from the regulated health plan subsidiaries during October 2019.
To satisfy minimum statutory net worth requirements, the parent company may contribute capital to the regulated health plan subsidiaries. In the third quarter of 2019 and nine months ended September 30, 2019, the parent contributed capital of $19 million and $25 million, respectively, to the regulated health plan subsidiaries.
Cash, cash equivalents and investments at the parent company amounted to $796 million and $170 million as of September 30, 2019, and December 31, 2018, respectively. The increase in 2019 was mainly due to the dividends received from regulated health plan subsidiaries, as described above, and proceeds from borrowings under the Term Loan Facility, partially offset by principal repayments of our outstanding 1.125% Convertible Notes, as described further below in “Cash Flow Activities.”
Investments
After considering expected cash flows from operating activities, we generally invest cash of regulated subsidiaries that exceeds our expected short-term obligations in longer term, investment-grade, and marketable debt securities to improve our overall investment return. These investments are made pursuant to board approved investment policies which conform to applicable state laws and regulations.
Our investment policies are designed to provide liquidity, preserve capital, and maximize total return on invested assets, all in a manner consistent with state requirements that prescribe the types of instruments in which our subsidiaries may invest. These investment policies require that our investments have final maturities of less than 10 years, or less than 10 years average life for structured securities. Professional portfolio managers operating under documented guidelines manage our investments and a portion of our cash equivalents. Our portfolio managers must obtain our prior approval before selling investments where the loss position of those investments exceeds certain levels.
Our restricted investments are invested principally in cash, cash equivalents, and U.S. Treasury securities; we have the ability to hold such restricted investments until maturity. All of our unrestricted investments are classified as current assets.
Cash Flow Activities
Our cash flows are summarized as follows:
 
Nine Months Ended September 30,
 
2019
 
2018
 
Change
 
(In millions)
Net cash provided by (used in) operating activities
$
398

 
$
(191
)
 
$
589

Net cash (used in) provided by investing activities
(80
)
 
821

 
(901
)
Net cash used in financing activities
(510
)
 
(1,012
)
 
502

Net decrease in cash, cash equivalents, and restricted cash and cash equivalents
$
(192
)
 
$
(382
)
 
$
190


Molina Healthcare, Inc. September 30, 2019 Form 10-Q | 44


Operating Activities
We typically receive capitation payments monthly, in advance of payments for medical claims; however, government payors may adjust their payment schedules, positively or negatively impacting our reported cash flows from operating activities in any given period. For example, government payors may delay our premium payments, or they may prepay the following month’s premium payment.
Net cash provided by operations for the nine months ended September 30, 2019 was $398 million, compared with $191 million used in operations in the nine months ended September 30, 2018. The $589 million increase in cash flow was due to the net impact of timing differences in receivables, payables and other current assets, settlements with government agencies, mainly related to the final 2017 CSR settlement paid in 2019, and timing of premium receipts.
Investing Activities
Net cash used in investing activities was $80 million in the nine months ended September 30, 2019, compared with $821 million provided by investing activities in the nine months ended September 30, 2018, a decrease in cash flow of $901 million. The year over year decline was primarily due to increased purchases of investments, net of lower proceeds from sales and maturities of investments, in the nine months ended September 30, 2019.
Financing Activities
Net cash used in financing activities was $510 million in the nine months ended September 30, 2019, compared with $1,012 million in the nine months ended September 30, 2018. In the nine months ended September 30, 2019, net cash paid for the aggregate 1.125% Convertible Notes-related transactions amounted to $794 million, partially offset by proceeds of $220 million borrowed under the Term Loan Facility. In the nine months ended September 30, 2018, net cash used in financing activities included net cash paid for the aggregate 1.125% Convertible Notes-related transactions of $710 million, the $300 million repayment of the Credit Facility, and $64 million repayment of the 1.625% Convertible Notes.
FINANCIAL CONDITION
We believe that our cash resources, our borrowing capacity available under our Credit Agreement as discussed further below in “Future Sources and Uses of Liquidity—Future Sources,” and internally generated funds will be sufficient to support our operations, regulatory requirements, debt repayment obligations and capital expenditures for at least the next 12 months.
On a consolidated basis, at September 30, 2019, our working capital was $2,569 million, compared with $2,216 million at December 31, 2018. At September 30, 2019, our cash and investments amounted to $4,517 million, compared with $4,629 million at December 31, 2018.
Regulatory Capital and Dividend Restrictions
Each of our regulated HMO subsidiaries must maintain a minimum amount of statutory capital determined by statute or regulations. Such statutes, regulations and capital requirements also restrict the timing, payment and amount of dividends and other distributions, loans or advances that may be paid to us as the sole stockholder. To the extent our HMO subsidiaries must comply with these regulations, they may not have the financial flexibility to transfer funds to us. Based upon current statutes and regulations, the minimum capital and surplus (net assets) requirement for these subsidiaries was estimated to be approximately $1,100 million at September 30, 2019, compared to $1,040 million at December 31, 2018. Our HMO subsidiaries were in compliance with these minimum capital requirements as of both dates.
Under applicable regulatory requirements, the amount of dividends that may be paid through the remainder of 2019 by our HMO subsidiaries without prior approval by regulatory authorities as of September 30, 2019, is approximately $56 million in the aggregate. Our HMO subsidiaries may pay dividends over this amount, but only after approval is granted by the regulatory authorities.
Debt Ratings
Our 5.375% Notes and 4.875% Notes are rated “BB-” by Standard & Poor’s, and “B2” by Moody’s Investor Service, Inc. A downgrade in our ratings could adversely affect our borrowing capacity and increase our borrowing costs.

Molina Healthcare, Inc. September 30, 2019 Form 10-Q | 45


Financial Covenants
Our Credit Agreement contains customary non-financial and financial covenants, including a net leverage ratio and an interest coverage ratio. Such ratios, presented below, are computed as defined by the terms of the Credit Agreement.
Credit Agreement Financial Covenants
Required Per Agreement
 
As of September 30, 2019
 
 
 
 
Net leverage ratio
<4.0x
 
0.9x
Interest coverage ratio
>3.5x
 
15.3x
In addition, the indentures governing the 4.875% Notes, the 5.375% Notes and the 1.125% Convertible Notes contain cross-default provisions that are triggered upon default by us or any of our subsidiaries on any indebtedness in excess of the amount specified in the applicable indenture. As of September 30, 2019, we were in compliance with all covenants under the Credit Agreement and the indentures governing our outstanding notes.
Capital Plan Progress
In the first quarter of 2019, we repaid $46 million aggregate principal amount of our 1.125% Convertible Notes and entered into privately negotiated termination agreements to terminate the respective portion of the related 1.125% Call Option and 1.125% Warrants.
In the second quarter of 2019, we repaid $139 million aggregate principal amount of our 1.125% Convertible Notes and entered into privately negotiated termination agreements to terminate the respective portion of the related 1.125% Call Option and 1.125% Warrants.
In the third quarter of 2019, we repaid $55 million aggregate principal amount of our 1.125% Convertible Notes and entered into privately negotiated termination agreements to terminate the respective portion of the related 1.125% Call Option and 1.125% Warrants. Following these transactions, the remaining principal amount outstanding of our 1.125% Convertible Notes is $12 million.

FUTURE SOURCES AND USES OF LIQUIDITY
Future Sources
Our Health Plans segment regulated subsidiaries generate significant cash flows from premium revenue, which we generally receive a short time before we pay for the related healthcare services. Such cash flows are our primary source of liquidity. Thus, any decline in our profitability may have a negative impact on our liquidity.
Dividends from Subsidiaries. When available and as permitted by applicable regulations, cash in excess of the capital needs of our regulated health plans is generally paid in the form of dividends to our unregulated parent company to be used for general corporate purposes.
Credit Agreement Borrowing Capacity. As of September 30, 2019, we had available borrowing capacity of $380 million under the Term Loan Facility, following our draw down of $220 million in the first half of 2019. Under the Term Loan Facility, we may request up to ten advances, each in a minimum principal amount of $50 million, until July 31, 2020. In addition, we have available borrowing capacity of $498 million under our Credit Facility. See further discussion in the Notes to Consolidated Financial Statements, Note 7, “Debt.”
Savings from the IT Restructuring Plan. Management is focused on a margin recovery plan that includes identification and implementation of various profit improvement initiatives. To that end, we began a plan to restructure our information technology department (the “IT Restructuring Plan”) in 2018, which is reported in the Other segment. In early 2019, we entered into services agreements with an outsourcing vendor who manages certain of our information technology services. We expect the IT Restructuring Plan to be substantially completed by the end of 2019. We currently estimate that this plan will reduce annualized run-rate expenses by approximately $10 million to $15 million in the first full year, increasing to approximately $25 million to $30 million by the end of the fifth full year. Such savings, if achieved, would reduce Other segment general and administrative expenses in our consolidated statements of income. Further details are described in the Notes to Consolidated Financial Statements, Note 10, “Restructuring Costs.”

Molina Healthcare, Inc. September 30, 2019 Form 10-Q | 46


Future Uses
Acquisition. On October 10, 2019, we entered into a definitive agreement to acquire certain assets of YourCare Health Plan, Inc. Upon the closing of this transaction, expected to occur in early 2020, we will serve approximately 46,000 Medicaid members in seven counties in the Western New York and Finger Lakes regions. The purchase price of approximately $40 million will be funded with available cash, and the closing is subject to customary closing conditions.
Regulatory Capital Requirements and Dividend Restrictions. We have the ability, and have committed to provide, additional capital to each of our health plans as necessary to ensure compliance with statutory capital and surplus requirements.
1.125% Convertible Notes. The fair value of the 1.125% Convertible Notes was $34 million as of September 30, 2019, which amount reflects both the principal amount outstanding and the estimated fair value of the 1.125% Conversion Option. We have sufficient available cash, combined with borrowing capacity available under our Credit Agreement, to fund conversions, and to repay the outstanding principal amount of the 1.125% Convertible Notes at maturity on January 15, 2020. Refer to the Notes to Consolidated Financial Statements, Note 7, “Debt,” for a detailed discussion of the 1.125% Convertible Notes, including recent transactions.

CONTRACTUAL OBLIGATIONS
A summary of future obligations under our various contractual obligations and commitments as of December 31, 2018, was disclosed in our Annual Report on Form 10-K for the year ended December 31, 2018.
Other than the financing transactions described in the Notes to Consolidated Financial Statements, Note 7, “Debt,” there were no significant changes to this previously filed information outside the ordinary course of business during the nine months ended September 30, 2019. See also Note 13, “Leases,” for a summary of the maturities of our lease liabilities as of September 30, 2019.

CRITICAL ACCOUNTING ESTIMATES
When we prepare our consolidated financial statements, we use estimates and assumptions that may affect reported amounts and disclosures; actual results could differ from these estimates. Our critical accounting estimates relate to:
Medical claims and benefits payable. Refer to Notes to Consolidated Financial Statements, Note 6, “Medical Claims and Benefits Payable,” for a table that presents the components of the change in medical claims and benefits payable, and for additional information regarding the factors used to determine our changes in estimates for all periods presented in the accompanying consolidated financial statements. Other than the discussion as noted above, there have been no significant changes during the nine months ended September 30, 2019, to our disclosure reported in “Critical Accounting Estimates” in our Annual Report on Form 10-K for the year ended December 31, 2018.
Contractual provisions that may adjust or limit revenue or profit. For a discussion of this topic, including amounts recorded in our consolidated financial statements, refer to Notes to Consolidated Financial Statements, Note 2, “Significant Accounting Policies.”
Quality incentives. For a discussion of this topic, including amounts recorded in our consolidated financial statements, refer to Notes to Consolidated Financial Statements, Note 2, “Significant Accounting Policies.”
Goodwill and intangible assets, net. There have been no significant changes, during the nine months ended September 30, 2019, to our disclosure reported in “Critical Accounting Estimates” in our Annual Report on Form 10-K for the year ended December 31, 2018.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our earnings and financial position are exposed to financial market risk relating to changes in interest rates, and the resulting impact on investment income and interest expense.

Molina Healthcare, Inc. September 30, 2019 Form 10-Q | 47


Substantially all of our investments and restricted investments are subject to interest rate risk and will decrease in value if market interest rates increase. Assuming a hypothetical and immediate 1% increase in market interest rates at September 30, 2019, the fair value of our fixed income investments would decrease by approximately $39 million. Declines in interest rates over time will reduce our investment income.
For further information on fair value measurements and our investment portfolio, please refer to Notes to Consolidated Financial Statements, Note 4, “Fair Value Measurements,” and Note 5, “Investments.”
Borrowings under our Credit Agreement bear interest based, at our election, on a base rate or other defined rate, plus in each case the applicable margin. As of September 30, 2019, $220 million was outstanding under the Term Loan Facility. For further information, see Notes to Consolidated Financial Statements, Note 7, “Debt.”

CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures. Our management, with the participation of our chief executive officer and our chief financial officer, has concluded, based upon its evaluation as of the end of the period covered by this report, that the Company’s “disclosure controls and procedures” (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act), are effective to ensure that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms.
Changes in Internal Control Over Financial Reporting. There has been no change in our internal control over financial reporting during the fiscal quarter ended September 30, 2019 that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.

LEGAL PROCEEDINGS
For information regarding legal proceedings, see Notes to Consolidated Financial Statements, Note 12, “Commitments and Contingencies.”

RISK FACTORS
Certain risks may have a material adverse effect on our business, financial condition, cash flows, results of operations, or stock price, and you should carefully consider them before making an investment decision with respect to our securities. In addition to the other information set forth in this report, you should carefully consider the risk factors discussed in “Risk Factors,” in our Annual Report on Form 10-K for the year ended December 31, 2018. The risk factors described in our Annual Report on Form 10-K for the year ended December 31, 2018, are not the only risks that we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially adversely affect our business, financial condition, cash flows, results of operations, or stock price.


Molina Healthcare, Inc. September 30, 2019 Form 10-Q | 48


UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
ISSUER PURCHASES OF EQUITY SECURITIES
Purchases of common stock made by us, or on our behalf during the quarter ended September 30, 2019, including shares withheld by us to satisfy our employees’ income tax obligations, are set forth below:
 
Total Number
of Shares
Purchased (1)
 
Average Price 
Paid per Share
 
Total Number of Shares
Purchased as Part of
Publicly 
Announced 
Plans or
Programs
 
Approximate 
Dollar Value
of Shares Authorized to Be Purchased Under the Plans or Programs
July 1 - July 31
375

 
$
140.31

 

 
$

August 1 - August 31

 
$

 

 
$

September 1 - September 30

 
$

 

 
$

Total
375

 
$
140.31

 

 
 
_______________________
(1)
During the three months ended September 30, 2019, we withheld 375 shares of common stock, to settle employee income tax obligations, for releases of awards granted under the Molina Healthcare, Inc. 2011 Equity Incentive Plan. This plan was amended, restated and merged into the Molina Healthcare, Inc. 2019 Equity Incentive Plan. For further information refer to Note 9, “Stockholders' Equity.”

Molina Healthcare, Inc. September 30, 2019 Form 10-Q | 49


INDEX TO EXHIBITS 
Exhibit No.
 
Title
 
Method of Filing
 
 
 
 
 
First Amendment, dated August 1, 2019, to the Master Services Agreement for Information Technology Services, dated February 4, 2019, by and between Molina Healthcare, Inc. and Infosys Limited.
 
Filed herewith.
 
 
 
 
 
 
Section 302 Certification of Chief Executive Officer
 
Filed herewith.
 
 
 
 
 
Section 302 Certification of Chief Financial Officer
 
Filed herewith.
 
 
 
 
 
 
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
Filed herewith.
 
 
 
 
 
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
Filed herewith.
 
 
 
 
 
101.INS 
 
XBRL Taxonomy Instance Document.
 
Filed herewith.
 
 
 
 
101.SCH 
 
XBRL Taxonomy Extension Schema Document.
 
Filed herewith.
 
 
 
 
101.CAL 
 
XBRL Taxonomy Extension Calculation Linkbase Document.
 
Filed herewith.
 
 
 
 
101.DEF 
 
XBRL Taxonomy Extension Definition Linkbase Document.
 
Filed herewith.
 
 
 
 
101.LAB 
 
XBRL Taxonomy Extension Label Linkbase Document.
 
Filed herewith.
 
 
 
 
101.PRE
 
XBRL Taxonomy Extension Presentation Linkbase Document
 
Filed herewith.



Molina Healthcare, Inc. September 30, 2019 Form 10-Q | 50


SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
 
MOLINA HEALTHCARE, INC.
 
 
 
(Registrant)
 
 
 
Dated:
October 30, 2019
 
/s/ JOSEPH M. ZUBRETSKY
 
 
 
Joseph M. Zubretsky
 
 
 
Chief Executive Officer
 
 
 
(Principal Executive Officer)
 
 
 
Dated:
October 30, 2019
 
/s/ THOMAS L. TRAN
 
 
 
Thomas L. Tran
 
 
 
Chief Financial Officer and Treasurer
 
 
 
(Principal Financial Officer)


Molina Healthcare, Inc. September 30, 2019 Form 10-Q | 51
Molina Healthcare (NYSE:MOH)
Historical Stock Chart
From Feb 2024 to Mar 2024 Click Here for more Molina Healthcare Charts.
Molina Healthcare (NYSE:MOH)
Historical Stock Chart
From Mar 2023 to Mar 2024 Click Here for more Molina Healthcare Charts.