Molina Healthcare Inc (MOH)

MOH 
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Molina Healthcare, Inc. (MOH)

September 15, 2011 12:30 pm ET

Executives

Joseph W. White - Principal Accounting Officer and Vice President of Accounting

Terry P. Bayer - Chief Operating Officer

Juan José Orellana - VP, IR

Joseph Mario Molina - Chairman, Chief Executive Officer and President

John C. Molina - Chief Financial Officer, Executive Vice President of Financial Affairs, Treasurer, Director and Member of Compliance Committee

Analysts

Charles Andrew Boorady - Crédit Suisse AG, Research Division

Thomas A. Carroll - Stifel, Nicolaus & Co., Inc., Research Division

Joshua R. Raskin - Barclays Capital, Research Division

Christian Rigg - Susquehanna Financial Group, LLLP, Research Division

Unknown Analyst -

Presentation

Juan José Orellana

Hello, everyone and welcome to the Molina Healthcare Investor Day. My name is Juan José Orellana, and I'm the Vice President of Investor Relations of the company. You may see a B affixed to the year there of our Investor Day 2011, and that's really there to identify that this is the second Investor Day that we've had this year. Our first Investor Day was held here in New York in January, and that was when our company first issued our outlook for 2011, as well as an initial look into 2012. Putting together 2 Investor Days a year does take a lot of work, and there's a lot of people who contribute to making these happen. So I just wanted to take a brief moment to thank a few people who helped us with all of the behind-the-scenes activities and that includes Norma, Brita, Rosalyn, Margot and Cole [ph], back at home in Long Beach.

I think for those of us that follow the markets pretty closely, we all agree that the markets over the last several months have been extremely volatile. But I think that one of the things that remains very grounded for us here at Molina Healthcare are both the short-term and the long-term opportunities that are ahead for the company. Those short-term opportunities include everything from expansions and RFPs in new states, expansions to new populations, and obviously in the longer-term, some of the items associated with Health Care Reform.

And to provide you an overview of some of those opportunities and also to highlight some of the things that are happening in our business, we have 3 individuals presenting before you today. We have Dr. Mario Molina, our President and Chief Executive Officer, who will actually be starting the discussion today and closing it. His initial remarks will include a high-level overview of some of the topics and things that are happening in our industry, as well as in our company. We'll follow that up with Terry Bayer, our Chief Operating Officer, who will provide a review of a lot of our health plans and what's happening in each one of the -- of our health plan markets.

We will follow that up with John Molina, our Chief Financial Officer, who will be leading our financial discussion this afternoon. And then, as I mentioned, we'll have Dr. Molina, who will be highlighting one of the biggest opportunities for us in the future, which is the dual eligible.

Despite a myriad of requests to have Joseph White, Chief Accounting Officer, deliver a discussion on an accounting topic, he will not be presenting before you today. But Joe is here with us and he will be available for any questions that you might have.

So with that, I'd just like to remind everyone that the slide presentation, as well as our accompanying oral remarks contain numerous forward-looking statements regarding our business operations, membership levels, RFPs, benefit changes, rates, business expansion opportunities and other matters. All of our forward-looking statements are subject to numerous risks, uncertainties and other factors that could cause our actual results to differ materially. Anyone viewing or listening to this presentation is urged to read the risk factors and cautionary statements found under Item 1A in our 10A annual report on Form 10-K filed on March 8, 2011, our first quarter and second quarter 2011 quarterly reports filed on May 9, 2011, and July 27, 2011, respectively, and the risk factors and cautionary statements found in our other reports and filings with the Securities and Exchange Commission, and available for viewing on its website at sec.gov.

Except to the extent otherwise required by the federal securities laws, we do not undertake to address or update forward-looking statements and future filings or communications regarding our business or operating results.

So with that, I'll go ahead and turn the mic and the podium over to our President and Chief Executive Officer, Dr. Mario Molina.

Joseph Mario Molina

Thank you, Juan José. That's probably the slowest I've ever heard you read that. That was for Jeff Barlow, our Chief Legal Officer. So coming to New York is always a pleasure for me, especially these Investor Days because it's very different from being at home, and what you'll notice is that I'm leading off and I get to finish up. So that means unlike at home, I get to have the last word.

This is an overview of our business. You've seen this slide probably before, if you've followed us. The light blue states represent our health plan states, where we're doing managed care. The lavender states are our MMIS states, where Molina Medicaid Solution runs -- is the fiscal agent. In yellow, you'll see Virginia, where we operate clinics for Fairfax County. Also, you'll note the little stars are indicating the states in which we operate clinics. Currently, we operate primary care clinics in California, Washington and Virginia.

We've enjoyed strong revenue growth over the years. We are a little more than 1.6 million members at the end of the second quarter of 2011. And in the bottom right-hand corner, you'll see the distribution of the membership. 80% are TANF member. These are Medicaid patients who qualify. They're typically a young woman and her children. The average age of our patients in the TANF group is about 14.

Second largest group are the Aged, Blind and Disabled. This is a group that's been growing in our health plans. They now constitute about 10% of our overall membership. Then there's the CHIP program. This is a program that is similar to Medicaid. It's for children who are uninsured, but whose families don't qualify for Medicaid. And then, there's a small sliver of Medicare, which is now growing to about 2% of our overall membership, and most of that are the dual eligibles.

One of the things that we have always emphasized over the years is our commitment to quality. Our Board of Directors made the decision that all of the health plans should be accredited by the National Committee on Quality Assurance, and we have made excellent progress. You see here the states that are currently accredited. In yellow, you see Missouri, which is undergoing its accreditation, and we should know the status of that soon. And then last will be Wisconsin. But because that's a new health plan, it's going to take longer for us to gather enough data to go forward for the accreditation, but we're enormously proud of this. We operate more NCQA-accredited health plans for Medicaid than any other company.

Now Health Care Reform has been on everyone's mind a lot. And one of the thing that I want to emphasize to you is that most of the Medicaid provisions are already in effect, and there's a lot of discussion about will the law be struck down? Will it be repealed? Well, 18 of the 21 provisions that affect Medicaid are already in effect in one form or another. There's a lot of regulations that's going to come out over the next couple of years, but the train has clearly left the station.

As I mentioned, lots and lots of regulations coming out of CMS, and we're monitoring this very closely. We have a group that is looking at the implementation of the exchanges and how we might participate in that. Only 3 of our states have, thus far, put exchanges in place. And a number of states are waiting on the sidelines to see what the results of the Supreme Court decision is going to be. I think that those states that wait too long are going to end up having their exchanges run by the federal government.

One of the other things that's going to be very important about the exchanges is the eligibility portals. These are going to be complex systems to make sure that all the eligible beneficiaries are enrolled and enrolled in the appropriate programs. As you know, there are a number of challenges in the courts, and we're awaiting the Supreme Court decision, which will ultimately decide the fate of the individual mandate.

I think it's likely that the individual mandate will be upheld, but that's just my opinion. But we're monitoring that closely as well, as I'm sure you are, too. This shows Medicaid spending. And what I want you to take away from this slide is the growth in percentage spending in dollars. That's the light blue line, year-over-year, and then below that is the growth in enrollment.

Recently, the growth in enrollment and the growth in spending has been similar. But traditionally, the program has grown, both in terms of the numbers of enrollees and in total dollars, but the total expenditures have grown faster than the membership. And this is another way of looking at it. This shows the growth in the percentage of the states' cost. You see the dip in 2009, which was due to the enhanced FMAP. The enhanced FMAP going away, you see the cost going up again. The average annual growth rate is just under 8%. So this gives you an idea of the states' sort of medical inflation that they have to deal with. And one of the ways that they can deal with this is by moving their patients out of fee-for-service into managed care plans, because it allows them to better budget and fix their costs to capitating the health plans.

State budgets have yet to recover. The poor economic conditions continue, and even when the economy recovers, state budgets tend to lag by a couple of years. Medicaid enrollment has increased tremendously, as has Medicaid spending, and it's growing faster than GDP. And you don't need to be an economist to know that this is a real problem for the states. In fact, states, most states are now spending more on health care than they are on education. So it is a huge issue for the states and how they're going to manage their budgets in the future. However, interestingly enough, Medicaid growth is slower than -- Medicaid cost growth is slower than that of the general medical spend. So we are doing a better job of controlling costs, I think, than the commercial side. And as you know, the enhanced federal matching funds have expired, and I think that's part of what's putting some pressure on state premium rates, because on average, their contribution from the federal government has gone down about 2%.

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