Molina withdraws guidance on issues in Texas

The Associated Press
June 6, 2012

Molina Healthcare Inc. withdrew its forecast for its 2012 earnings Wednesday due to a possible shortfall in Texas. The news sent the company's shares tumbling in after-hours trading.

The company said in a regulatory filing that its Texas plan, Molina Healthcare of Texas, recently expanded into several new markets in the state, including Hidalgo and El Paso. It said it has found that member claims in these two markets has far exceeded its estimates and as a result, the premium revenue it is collecting there will not likely be enough to cover its medical costs.

"Utilization of long-term care services, including personal attendent services and adult day health care services, is currently far exceeding the utilization of those services elsewhere in the state, and also far exceeding the utilization assumptions used in the development, and our evaluation, of the premium rates," Molina said in the filing.

Molina Healthcare Texas has an estimated 300,000 people enrolled in its plans, more than double what it had last year.

Molina estimates that the medical care ratio, which is essentially the percentage of premiums spent on care, for its Star+Plus membership in Hidalgo and El Paso is about 120 percent. The same ratio for its entire Texas Health Plan is about 100 percent. If the company were to exclude those two markets, it estimates that ratio would drop to roughly 93 percent.

Molina said it will set new premium rates on Sept. 1 but it is asking the state of Texas to take another look at its rate-setting assumptions. It said it is taking some steps to control costs in Texas to improve its profitability there.

Given the uncertainty in Texas, Molina withdrew its 2012 earnings guidance. The company said it plans to provide more information in July when it reports its fiscal second-quarter financial results.

Shares of Molina, which is based in Long Beach, Calif., shed $3.76, nearly 15 percent, to $22 in after-hours trading after it made the filing with the Securities and Exchange Commission.