Molina to cut two-thirds of leased real estate footprint

Molina to cut two-thirds of leased real estate footprint

Roger Pettingell Sarasota Real Estate

Molina Healthcare will shed two-thirds of its leased real estate footprint as its workforce shifts to permanent remote work, the for-profit health insurance company announced Thursday.

The company spent $216 million on real estate, equipment and software during the second-quarter. That compares to $234 million that Molina spent in finance lease liabilities for all of last year, according to the annual report filed with the Securities and Exchange Commission in February.

Molina generated $8 billion in revenue during the second quarter, up 18.4% from the $6.8 billion reported the year prior, the company reported Thursday. Net income grew 34% to $248 million.

Regulators require Molina to have offices in every service area where it operates. The company didn’t immediately respond to an questions about what locations and job functions would be affected, or about the financial impact.

“The reduction of our real estate footprint by two-thirds will yield substantial and sustainable savings,” CEO Joe Zubretsky said during an earnings call. Molina plans to unload the properties by the end of the year, Zubretsky said. Rival insurer Centene recently announced a $1.65 billion plan to divest more than half of its leased real estate.

A recently renegotiated contract with CVS Caremark through 2026 will positively impact future earnings, Zubretsky said. The chief executive declined to specify the financial details of the agreement, but said the deal does not include service cuts.

Zubretsky also noted Molina’s $150 million acquisition of My Choice Wisconsin, a Medicaid insurer, which was the seventh deal Molina completed since it embarked on a corporate restructuring plan in 2017. Expect more acquisitions to come in the second half of this year, he said. “We have far more to do on building the book of business for next year,” he said.

The My Choice Wisconsin deal added more than 44,000 lower-income beneficiaries to Molina’s rolls. Medicaid enrollees represent the lion’s share of Molina’s 5.1 million membership.

The company gained 750,000 Medicaid enrollees because states paused eligibility checks during the COVID-19 public health emergency, Zubretsky said. The federal disaster relief program is slated to end in October. Once states begin redetermining eligibility, Molina expects to lose 375,000 Medicaid enrollees, which is equivalent to half the members it gained under the pandemic policy, Zubretsky said. That will translate to a $1.2 billion revenue loss next year and a $450 million loss in 2024, he said.

A six-month extension for marketplace coverage last year also affected Molina during the second quarter. The special enrollment period led to a flood of 250,000 new exchange customers but the insurer didn’t accurately code the risk the influx of new members presented, Zubretsky said.

“Part of it was keeping pace with the surge of members and keeping their risk scores, and part of it was the acuity of members, and part of it was the imprecise nature of actuarial estimations given unstable environment,” he said.

Under the Affordable Care Act, insurers that attract lower-risk members must transfer funds to insurers that enroll higher-risk customers. The Centers for Medicare and Medicaid Services scrapped a rule that would have modified how regulators calculate medical liability across exchange insurers in April.

Because Molina failed to accurately quantify new exchange enrollees’ risk, the insurer incurred a charge that equated to $0.44 on its diluted earnings per share price of $4.25 during the quarter.

Molina adjusted its pricing to account for member risk before it submitted final exchange rates this year, Zubretsky said.

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