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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
 
FORM 10-Q
 
 
 
 
(Mark One)
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2018
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)
 
 
 
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  ý    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, 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  ý    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 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
ý
Accelerated filer
¨
Non-accelerated filer
¨ (Do not check if a smaller reporting company)
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  ý
The number of shares of the issuer’s Common Stock, $0.001 par value, outstanding as of July 27, 2018, was approximately 61,762,000.


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MOLINA HEALTHCARE, INC. FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED June 30, 2018

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



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CONSOLIDATED STATEMENTS OF OPERATIONS
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2018
 
2017
 
2018
 
2017
 
(In millions, except per-share data)
(Unaudited)
Revenue:
 
 
 
 
 
 
 
Premium revenue
$
4,514

 
$
4,740

 
$
8,837

 
$
9,388

Service revenue
127

 
129

 
261

 
260

Premium tax revenue
106

 
114

 
210

 
225

Health insurer fees reimbursed
104

 

 
165

 

Investment income and other revenue
32

 
16

 
56

 
30

Total revenue
4,883

 
4,999

 
9,529

 
9,903

Operating expenses:
 
 
 
 
 
 
 
Medical care costs
3,850

 
4,491

 
7,572

 
8,602

Cost of service revenue
118

 
124

 
238

 
246

General and administrative expenses
335

 
405

 
687

 
844

Premium tax expenses
106

 
114

 
210

 
225

Health insurer fees
99

 

 
174

 

Depreciation and amortization
25

 
37

 
51

 
76

Impairment losses

 
72

 

 
72

Restructuring and separation costs
8

 
43

 
33

 
43

Total operating expenses
4,541

 
5,286

 
8,965

 
10,108

Operating income (loss)
342

 
(287
)
 
564

 
(205
)
Other expenses (income), net:
 
 
 
 
 
 
 
Interest expense
32

 
27

 
65

 
53

Other expense (income), net
5

 

 
15

 
(75
)
Total other expenses (income), net
37

 
27

 
80

 
(22
)
Income (loss) before income tax expense (benefit)
305

 
(314
)
 
484

 
(183
)
Income tax expense (benefit)
103

 
(84
)
 
175

 
(30
)
Net income (loss)
$
202

 
$
(230
)
 
$
309

 
$
(153
)
 
 
 
 
 
 
 
 
Net income (loss) per share:
 
 
 
 
 
 
 
Basic
$
3.29

 
$
(4.10
)
 
$
5.10

 
$
(2.74
)
Diluted
$
3.02

 
$
(4.10
)
 
$
4.68

 
$
(2.74
)
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2018
 
2017
 
2018
 
2017
 
(Amounts in millions)
(Unaudited)
Net income (loss)
$
202

 
$
(230
)
 
$
309

 
$
(153
)
Other comprehensive income (loss):
 
 
 
 
 
 
 
Unrealized investment gain (loss)
1

 

 
(6
)
 
1

Less: effect of income taxes
(1
)
 

 
(1
)
 

Other comprehensive income (loss), net of tax
2

 

 
(5
)
 
1

Comprehensive income (loss)
$
204

 
$
(230
)
 
$
304

 
$
(152
)
See accompanying notes.

Molina Healthcare, Inc. June 30, 2018 Form 10-Q | 3

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CONSOLIDATED BALANCE SHEETS
 
June 30,
2018
 
December 31,
2017
 
(Amounts in millions,
except per-share data)
 
(Unaudited)
 
 
ASSETS
Current assets:
 
 
 
Cash and cash equivalents
$
3,392

 
$
3,186

Investments
2,176

 
2,524

Restricted investments
80

 
169

Receivables
1,148

 
871

Prepaid expenses and other current assets
344

 
239

Derivative asset
657

 
522

Assets held for sale
230

 

Total current assets
8,027

 
7,511

Property, equipment, and capitalized software, net
276

 
342

Goodwill and intangible assets, net
201

 
255

Restricted investments
117

 
119

Deferred income taxes
114

 
103

Other assets
28

 
141

 
$
8,763

 
$
8,471

 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
 
 
 
Medical claims and benefits payable
$
1,920

 
$
2,192

Amounts due government agencies
1,746

 
1,542

Accounts payable and accrued liabilities
754

 
366

Deferred revenue
193

 
282

Current portion of long-term debt
484

 
653

Derivative liability
657

 
522

Liabilities held for sale
66

 

Total current liabilities
5,820

 
5,557

Long-term debt
1,019

 
1,318

Lease financing obligations
198

 
198

Other long-term liabilities
68

 
61

Total liabilities
7,105

 
7,134

 
 
 
 
Stockholders’ equity:
 
 
 
Common stock, $0.001 par value, 150 shares authorized; outstanding: 62 shares at June 30, 2018 and 60 shares at December 31, 2017

 

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

 

Additional paid-in capital
1,055

 
1,044

Accumulated other comprehensive loss
(11
)
 
(5
)
Retained earnings
614

 
298

Total stockholders’ equity
1,658

 
1,337

 
$
8,763

 
$
8,471

See accompanying notes.

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CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
 
 
Common Stock
 
Additional
Paid-in
Capital
 
Accumulated
Other
Comprehensive
Loss
 
Retained
Earnings
 
Total
 
Outstanding
 
Amount
 
 
 
 
 
(In millions)
 
(Unaudited)
Balance at January 1, 2018
60

 
$

 
$
1,044

 
$
(5
)
 
$
298

 
$
1,337

Net income

 

 

 

 
309

 
309

Adoption of Topic 606

 

 

 

 
6

 
6

Adoption of ASU 2018-02

 

 

 
(1
)
 
1

 

Partial termination of 1.125% Warrants

 

 
(113
)
 

 

 
(113
)
1.625% Convertible Notes exchange transaction
2

 

 
108

 

 

 
108

Other comprehensive loss, net

 

 

 
(5
)
 

 
(5
)
Share-based compensation

 

 
16

 

 

 
16

Balance at June 30, 2018
62

 
$

 
$
1,055

 
$
(11
)
 
$
614

 
$
1,658


See accompanying notes.

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CONSOLIDATED STATEMENTS OF CASH FLOWS
 
Six Months Ended June 30,
 
2018
 
2017
 
(Amounts in millions)
(Unaudited)
Operating activities:
 
 
 
Net income (loss)
$
309

 
$
(153
)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
 
 
 
Depreciation and amortization
73

 
96

Impairment losses

 
72

Deferred income taxes
(6
)
 
(41
)
Share-based compensation
13

 
35

Non-cash restructuring costs
17

 

Amortization of convertible senior notes and lease financing obligations
13

 
16

Loss on debt extinguishment
15

 

Other, net
4

 
7

Changes in operating assets and liabilities:
 
 
 
Receivables
(315
)
 
(32
)
Prepaid expenses and other current assets
(181
)
 
(38
)
Medical claims and benefits payable
(267
)
 
148

Amounts due government agencies
205

 
642

Accounts payable and accrued liabilities
349

 
(18
)
Deferred revenue
(42
)
 
(32
)
Income taxes
127

 
(30
)
Net cash provided by operating activities
314

 
672

Investing activities:
 
 
 
Purchases of investments
(914
)
 
(1,636
)
Proceeds from sales and maturities of investments
1,335

 
874

Purchases of property, equipment and capitalized software
(14
)
 
(60
)
Other, net
(9
)
 
(24
)
Net cash provided by (used in) investing activities
398

 
(846
)
Financing activities:
 
 
 
Repayment of credit facility
(300
)
 

Repayment of 1.125% Convertible Notes
(89
)
 

Cash paid for partial settlement of 1.125% Conversion Option
(134
)
 

Cash received for partial termination of 1.125% Call Option
134

 

Cash paid for partial termination of 1.125% Warrants
(113
)
 

Proceeds from senior notes offerings, net of issuance costs

 
325

Other, net
(1
)
 
8

Net cash (used in) provided by financing activities
(503
)
 
333

Net increase in cash, cash equivalents, and restricted cash and cash equivalents
209

 
159

Cash, cash equivalents, and restricted cash and cash equivalents at beginning of period
3,290

 
2,912

Cash, cash equivalents, and restricted cash and cash equivalents at end of period
$
3,499

 
$
3,071


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CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued)
 
Six Months Ended June 30,
 
2018
 
2017
 
(Amounts in millions)
(Unaudited)
Supplemental cash flow information:
 
 
 
 
 
 
 
Schedule of non-cash investing and financing activities:
 
 
 
Common stock used for share-based compensation
$
(6
)
 
$
(21
)
 
 
 
 
Details of change in fair value of derivatives, net:
 
 
 
Gain on 1.125% Call Option
$
135

 
$
173

Loss on 1.125% Conversion Option
(135
)
 
(173
)
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 of 1.625% Convertible Notes allocated to additional paid-in capital, net of income taxes
(23
)
 

Net increase to additional paid-in capital
$
108

 
$

See accompanying notes.


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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
June 30, 2018

1. Basis of Presentation
Organization and Operations
Molina Healthcare, Inc. provides quality managed health care to people receiving government assistance. We offer cost-effective Medicaid-related solutions to meet the health care needs of low-income families and individuals, and to assist government agencies in their administration of the Medicaid program. We have three reportable segments. These segments consist of our Health Plans segment, which constitutes the vast majority of our operations; our Molina Medicaid Solutions segment; and our Other segment.
The Health Plans segment consists of health plans operating in 13 states and the Commonwealth of Puerto Rico. As of June 30, 2018, these health plans served approximately 4.1 million members eligible for Medicaid, Medicare, and other government-sponsored health care programs for low-income families and individuals. This membership includes Affordable Care Act Marketplace (Marketplace) members, most of whom receive government premium subsidies. The health plans are 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 (RFP) 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 (ABD); and regions or service areas.
The Molina Medicaid Solutions segment provides support to state government agencies’ administration of their Medicaid programs, including business processing, information technology development and administrative services. The Other segment includes primarily our Pathways behavioral health and social services provider, and corporate amounts not allocated to other reportable segments.
Recent Developments – Health Plans Segment
Puerto Rico Health Plan. In July 2018, our Puerto Rico health plan was selected by the Puerto Rico Health Insurance Administration to be one of the organizations to administer the Commonwealth’s new Medicaid Managed Care contract. Services under the new contract, currently expected to begin on November 1, 2018, would cover the entire island. The base contract runs for a period of three years with an optional one year extension. As of June 30, 2018, we served approximately 326,000 Medicaid members in the East and Southwest regions of Puerto Rico, which represented premium revenue of $370 million for the six months ended June 30, 2018.
Florida Health Plan. In June 2018, our Florida health plan was awarded comprehensive Medicaid Managed Care contracts by the Florida Agency for Health Care Administration (AHCA) in Regions 8 and 11 of the Florida Statewide Medicaid Managed Care Invitation to Negotiate. As of June 30, 2018, we served approximately 96,000 Medicaid members in those regions, which represented premium revenue of approximately $232 million for the six months ended June 30, 2018. Services under the new contract are expected to begin on January 1, 2019. We will be serving both the Medicaid and long-term care populations in the two regions.
Washington Health Plan. In May 2018, our Washington health plan was selected by the Washington State Health Care Authority (HCA) to enter into a managed care contract for the eight remaining regions of the state’s Apple Health Integrated Managed Care program, in addition to the two regions previously awarded to us. We were selected by HCA for the following regions: Greater Columbia, King, North Sound, Pierce, and Spokane beginning January 1, 2019; and Salish, Thurston-Mason, and Great Rivers beginning January 1, 2020. As of June 30, 2018, we served approximately 742,000 Medicaid members in Washington, which represented premium revenue of $1,083 million for the six months ended June 30, 2018.
Recent Developments – Molina Medicaid Solutions Segment
In June 2018, we entered into a definitive agreement to sell Molina Medicaid Solutions (MMS) to DXC Technology Company. The divestiture, expected to close in the third quarter of 2018, is subject to the satisfaction of customary

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closing conditions and the receipt of certain third party consents and regulatory approvals. Refer to Note 11, “Segments,” for further information.
Presentation and Reclassification
We have reclassified certain amounts in the 2017 consolidated statement of cash flows to conform to the 2018 presentation, relating to the presentation of restricted cash and cash equivalents. The reclassification is a result of our adoption of Accounting Standards Update (ASU) 2016-18, Restricted Cash effective January 1, 2018. See Note 2, “Significant Accounting Policies,” for further information, including the amount reclassified.
We have combined certain line items in the accompanying consolidated balance sheets. For all periods presented, we have combined the presentation of:
Income taxes refundable with “Prepaid expenses and other current assets;”
Income taxes payable with “Accounts payable and accrued liabilities;”
Goodwill, and intangible assets, net to a single line; and
Deferred contract costs with “Other assets.”
Consolidation and Interim Financial Information
The consolidated financial statements include the accounts of Molina Healthcare, Inc., its subsidiaries, and variable interest entities (VIEs) in which Molina Healthcare, Inc. is considered to be the primary beneficiary. Such VIEs are insignificant to our consolidated financial position and results of operations. 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 six months ended June 30, 2018 are not necessarily indicative of the results for the entire year ending December 31, 2018.
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, 2017. Accordingly, certain disclosures that would substantially duplicate the disclosures contained in our December 31, 2017 audited consolidated financial statements have been omitted. These unaudited consolidated interim financial statements should be read in conjunction with our audited consolidated financial statements for the fiscal year ended December 31, 2017.

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.
 
Six Months Ended June 30,
 
2018
 
2017
 
(In millions)
Cash and cash equivalents
$
3,392

 
$
2,979

Restricted cash and cash equivalents
98

 
92

Cash and cash equivalents reported in assets held for sale
9

 

Total cash, cash equivalents, and restricted cash and cash equivalents presented in the statements of cash flows
$
3,499

 
$
3,071


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Revenue Recognition
We adopted ASU 2014-09, Revenue from Contracts with Customers (Topic 606) effective January 1, 2018, using the modified retrospective approach. The insurance contracts of our Health Plans segment, which segment constitutes the vast majority of our operations, are excluded from the scope of Topic 606 because the recognition of revenue under these contracts is dictated by other accounting standards governing insurance contracts. The cumulative effect of initially applying the guidance, relating entirely to our Molina Medicaid Solutions segment contracts, resulted in an immaterial impact to beginning retained earnings, as presented in the accompanying consolidated statement of stockholders’ equity. Topic 606 was only applied to service contracts that were not completed as of December 31, 2017. Refer to “Molina Medicaid Solutions segment” and “Other segment” below for further information.
Health Plans segment
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 health care services, and premiums collected in advance are deferred. Certain components of premium revenue are subject to accounting estimates and fall into two broad categories discussed in further detail below: 1) “Contractual Provisions That May Adjust or Limit Revenue or Profit;” and 2) “Quality Incentives.” Liabilities recorded for such provisions are included in “Amounts due government agencies” in the accompanying consolidated balance sheets.
1)
Contractual Provisions That May Adjust or Limit Revenue or Profit:
Medicaid
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 a liability under the terms of such contract provisions of $144 million and $135 million at June 30, 2018 and December 31, 2017, respectively. Approximately $97 million and $96 million of the liability accrued at June 30, 2018 and December 31, 2017, respectively, relates to our participation in Medicaid Expansion programs. Refer to Note 12, “Commitments and Contingencies,” for further information regarding the California Medicaid Expansion program.
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, rather than in the months of service to which the retroactive adjustment applies.
Medicare
Minimum MLR: Federal regulations have 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 operations.
Marketplace
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, and will receive a risk adjustment payment from the pool if their composite risk scores are above the average risk score. 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 operations. As of June 30, 2018, and December 31, 2017, the Marketplace risk adjustment payable amounted to $1,159 million and $912 million, respectively. Refer to Note 12, “Commitments and Contingencies,” for further information regarding recent developments in the Marketplace risk adjustment program.
Minimum MLR: The Affordable Care Act (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 operations.

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2)
Quality Incentives:
At many of our health plans, revenue ranging from approximately 1% to 3% of certain health plan premiums is earned only if certain performance measures are met.
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. Although the reasonably possible effects of a change in estimate related to quality incentive premium revenue as of June 30, 2018 are not known, we have no reason to believe that the adjustments to prior years noted below are not indicative of the potential future changes in our estimates as of June 30, 2018.
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2018
 
2017
 
2018
 
2017
 
(Dollars in millions)
Maximum available quality incentive premium - current period
$
47

 
$
39

 
$
87

 
$
77

Quality incentive premium revenue recognized in current period:
 
 
 
 
 
 
 
Earned current period
$
34

 
$
29

 
$
58

 
$
48

Earned prior periods
12

 
1

 
23

 
6

Total
$
46

 
$
30

 
$
81

 
54

 
 
 
 
 
 
 
 
Quality incentive premium revenue recognized as a percentage of total premium revenue
1.0
%
 
0.6
%
 
0.9
%
 
0.6
%
Molina Medicaid Solutions segment
MMS is under contract with Medicaid agencies in six states and the U.S. Virgin Islands. Our existing contracts have terms that currently extend to 2018 through 2025, before renewal options. As of June 30, 2018, the aggregate amount of service revenue relating to unsatisfied performance obligations amounted to approximately $638 million.
Business process outsourcing services are billed immediately following the end of the month in which such services are performed, with payment received soon thereafter. Payments for the design, development and implementation (DDI) of Medicaid management information systems milestones are received following our performance, and the customer’s acceptance, of the milestone deliverable. However, recognition of DDI revenue is deferred until the system ‘go-live’ date, and is amortized over the initial contract hosting period.
Other segment
Our Pathways behavioral health subsidiary’s revenue is all variable, and generally invoiced after services are rendered; customer payment follows invoicing. We have concluded that there is no change to revenue recognition under Topic 606 for our Pathways behavioral health subsidiary, and therefore no impact to retained earnings effective January 1, 2018.
The following table presents the opening and closing balances of receivables, deferred contract costs (contract assets), and deferred revenue (contract liabilities) from contracts with customers, by segment.
 
June 30,
2018
 
December 31,
2017
 
(In millions)
Receivables:
 
 
 
Molina Medicaid Solutions
$
34

 
$
30

Other
40

 
44

Deferred contract costs (contract assets) – Molina Medicaid Solutions
109

 
101

Deferred revenue (contract liabilities) – Molina Medicaid Solutions
39

 
49

Medical Care Costs - Marketplace Cost Share Reduction (CSR) Update
During the first half of 2018, we recognized a benefit of approximately $76 million in reduced medical expense related to 2017 dates of service 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

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a nine-month reconciliation of this item pending confirmation of the time period to which the 2017 reconciliation would be applied.
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 state taxes, nondeductible expenses such as the Health Insurer Fee (HIF), certain compensation, and other general and administrative expenses. The effective tax rate was not impacted by HIF in 2017 given the 2017 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.
The Tax Cuts and Jobs Act (TCJA) was enacted on December 22, 2017. The TCJA, in part, reduced the U.S. federal statutory corporate income tax rate from 35% to 21% effective January 1, 2018. Accounting guidance allows filers one year subsequent to the end of the tax year to finalize the valuation of deferred tax assets and liabilities. At June 30, 2018, we had not completed our accounting for the tax effects resulting from enactment of TCJA with respect to valuation of our deferred tax assets and liabilities. We will continue to make and refine our calculations as additional analysis is completed. In addition, our estimates may also be affected as we gain a more thorough understanding of the tax law based on expected future guidance from the Internal Revenue Service and U.S. Treasury.
Recent Accounting Pronouncements Adopted
Revenue Recognition (Topic 606). See discussion above, in “Revenue Recognition.”
Comprehensive Income. In February 2018, the Financial Accounting Standards Board (FASB) issued ASU 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the TCJA. ASU 2018-02 is effective beginning January 1, 2019; we early adopted this ASU effective January 1, 2018. The effect of applying the guidance resulted in an immaterial impact to beginning retained earnings, as presented in the accompanying consolidated statement of stockholders’ equity.
Restricted Cash. In November 2016, the FASB issued ASU 2016-18, Restricted Cash, which requires us to include in our consolidated statements of cash flows the changes in the balances of cash, cash equivalents, restricted cash and restricted cash equivalents. We adopted ASU 2016-18 on January 1, 2018. We have applied the guidance retrospectively to all periods presented. Such retrospective adoption resulted in a $92 million reclassification of restricted cash and cash equivalents from “Investing activities” to the beginning and ending balances of cash and cash equivalents in our consolidated statements of cash flows for the six months ended June 30, 2017. There was no impact to our consolidated statements of operations, balance sheets, or stockholders’ equity. The reconciliation of cash and cash equivalents to cash, cash equivalents and restricted cash and cash equivalents is presented at the beginning of this note.
Recent Accounting Pronouncements Not Yet Adopted
Credit Losses. In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments. Rather than generally recognizing credit losses when it is probable that the loss has been incurred, the revised guidance requires companies to recognize an allowance for credit losses for the difference between the amortized cost basis of a financial instrument and the amount of amortized cost that the company expects to collect over the instrument’s contractual life. 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. We are evaluating the effect of this guidance.
Leases. In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), as modified by ASU 2017-03, Transition and Open Effective Date Information and ASU 2018-10, Codification Improvements to Topic 842, Leases. Under ASU 2016-02, an entity will be required to recognize assets and liabilities for the rights and obligations created by leases on the entity’s balance sheet for both financing and operating leases. For leases with a term of 12 months or less, an entity may elect to not recognize lease assets and lease liabilities and expense the lease over a straight-line basis for the term of the lease. ASU 2016-02 will require new disclosures that depict the amount, timing,

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and uncertainty of cash flows pertaining to an entity’s leases. ASU 2016-02 must be adopted using a modified retrospective approach for annual and interim periods beginning after December 15, 2018. Early adoption is permitted. Under this guidance, we will record right of use assets and liabilities relating primarily to our long-term office leases. We are currently updating the configuration of our lease database management system for the adoption of Topic 842; we do not currently expect the adoption of this guidance to have a material effect on our consolidated results of operations, financial condition or cash flows.

3. Net Income (Loss) per Share
The following table sets forth the calculation of basic and diluted net income (loss) per share:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2018
 
2017
 
2018
 
2017
 
(In millions, except net income per share)
Numerator:
 
 
 
 
 
 
 
Net income (loss)
$
202

 
$
(230
)
 
$
309

 
$
(153
)
Denominator:
 
 
 
 
 
 
 
Shares outstanding at the beginning of the period
61

 
56

 
59

 
56

Weighted-average number of shares issued:
 
 
 
 
 
 
 
1.625% Exchange (1)

 

 
2

 

Denominator for basic net income per share
61

 
56

 
61

 
56

Effect of dilutive securities:
 
 
 
 
 
 
 
1.625% Convertible Notes (1)
1

 

 

 

1.125% Warrants (1)
5

 

 
5

 

Denominator for diluted net income per share
67

 
56

 
66

 
56

 
 
 
 
 
 
 
 
Net income (loss) per share: (2)
 
 
 
 
 
 
 
Basic
$
3.29

 
$
(4.10
)
 
$
5.10

 
$
(2.74
)
Diluted
$
3.02

 
$
(4.10
)
 
$
4.68

 
$
(2.74
)
 
 
 
 
 
 
 
 
Potentially dilutive common shares excluded from calculations:
 
 
 
 
 
 
 
1.125% Warrants (1)

 
2

 

 
1

______________________________
(1)
For more information and definitions regarding the 1.625% Exchange and the 1.625% Convertible Notes, refer to Note 7, “Debt.” For more information regarding the 1.125% Warrants, refer to Note 9, “Stockholders' Equity.” The dilutive effect of all potentially dilutive common shares is calculated using the treasury stock method. Certain potentially dilutive common shares issuable are not included in the computation of diluted net income (loss) per share because to do so would be anti-dilutive. For the three and six months ended June 30, 2017, the 1.125% Warrants were not included in diluted shares outstanding because to do so would have been anti-dilutive.
(2)
Source data for calculations in thousands.
4. Fair Value Measurements
We consider the carrying amounts of cash, cash equivalents and other current assets and current liabilities (not including derivatives, the current portion of long-term debt, and certain accounts reported in assets and liabilities held for sale) 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 2017 Annual Report on Form 10-K.

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Derivative financial instruments include the 1.125% Call Option derivative asset and the 1.125% Conversion Option derivative liability. 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 June 30, 2018, 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. As described further in Note 8, “Derivatives,” 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 operations. 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 six months ended June 30, 2018.
Our financial instruments measured at fair value on a recurring basis at June 30, 2018, were as follows:
 
Total
 
Quoted Market Prices (Level 1)
 
Significant Other Observable Inputs (Level 2)
 
Significant Unobservable Inputs (Level 3)
 
(In millions)
Corporate debt securities
$
1,382

 
$

 
$
1,382

 
$

U.S. treasury notes
330

 
330

 

 

Government-sponsored enterprise securities (GSEs)
207

 
207

 

 

Municipal securities
136

 

 
136

 

Asset-backed securities
99

 

 
99

 

Certificate of deposit
19

 

 
19

 

Other
3

 

 
3

 

  Subtotal - current investments
2,176

 
537

 
1,639

 

Corporate debt securities
55

 

 
55

 

U.S. treasury notes
25

 
25

 

 

     Subtotal - current restricted investments
80

 
25

 
55

 

1.125% Call Option derivative asset
657

 

 

 
657

Total assets
$
2,913

 
$
562

 
$
1,694

 
$
657

 
 
 
 
 
 
 
 
1.125% Conversion Option derivative liability
$
657

 
$

 
$

 
$
657

Total liabilities
$
657

 
$

 
$

 
$
657


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Our financial instruments measured at fair value on a recurring basis at December 31, 2017, were as follows:
 
Total
 
Quoted Market Prices (Level 1)
 
Significant Other Observable Inputs (Level 2)
 
Significant Unobservable Inputs (Level 3)
 
(In millions)
Corporate debt securities
$
1,588

 
$

 
$
1,588

 
$

U.S. treasury notes
388

 
388

 

 

GSEs
253

 
253

 

 

Municipal securities
141

 

 
141

 

Asset-backed securities
117

 

 
117

 

Certificates of deposit
37

 

 
37

 

  Subtotal - current investments
2,524

 
641

 
1,883

 

Corporate debt securities
101

 

 
101

 

U.S. treasury notes
68

 
68

 

 

     Subtotal - current restricted investments
169

 
68

 
101

 

1.125% Call Option derivative asset
522

 

 

 
522

Total assets
$
3,215

 
$
709

 
$
1,984

 
$
522

 
 
 
 
 
 
 
 
1.125% Conversion Option derivative liability
$
522

 
$

 
$

 
$
522

Total liabilities
$
522

 
$

 
$

 
$
522

Fair Value Measurements – Disclosure Only
The carrying amounts and estimated fair values of our senior notes 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 amount due under our Credit Facility was classified as a Level 3 financial instrument, because certain inputs used to determine its fair value were not observable. The carrying amount of the amount due under the Credit Facility as of December 31, 2017, approximated its fair value because the Credit Facility’s interest rate is a variable rate that approximates rates currently available to us.
 
June 30, 2018
 
December 31, 2017
 
Carrying
Amount
 

Fair Value
 
Carrying
Amount
 

Fair Value
 
(In millions)
5.375% Notes
$
693

 
$
706

 
$
692

 
$
730

1.125% Convertible Notes (1)
420

 
1,099

 
496

 
1,052

4.875% Notes
326

 
320

 
325

 
329

1.625% Convertible Notes
63

 
107

 
157

 
220

Credit Facility

 

 
300

 
300

 
$
1,502

 
$
2,232

 
$
1,970

 
$
2,631

______________________
(1)
The fair value of the 1.125% Conversion Option (the embedded cash conversion option) amounted to $657 million and $522 million as of June 30, 2018, and December 31, 2017, respectively. See further discussion at Note 7, “Debt,” and Note 8, “Derivatives.”


5. Investments
Available-for-Sale Investments
We consider all of our investments classified as current assets (including restricted investments) to be available-for-sale. Our 4.875% Notes, as further discussed in Note 7, “Debt,” contain a limitation on the use of proceeds which required us to deposit the net proceeds from their issuance into a segregated deposit account, a current asset reported as “Restricted investments” in the accompanying consolidated balance sheets. Such proceeds, while

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restricted as to their use and held in a segregated deposit account, are available-for-sale based upon our contractual liquidity requirements.
The following tables summarize our investments as of the dates indicated:
 
June 30, 2018
 
Amortized
 
Gross
Unrealized
 
Estimated
Fair
 
Cost
 
Gains
 
Losses
 
Value
 
(In millions)
Corporate debt securities
$
1,390

 
$

 
$
8

 
$
1,382

U.S. treasury notes
331

 

 
1

 
330

GSEs
209

 

 
2

 
207

Municipal securities
138

 

 
2

 
136

Asset backed securities
100

 

 
1

 
99

Certificates of deposit
19

 

 

 
19

Other
3

 

 

 
3

Subtotal - current investments
2,190

 

 
14

 
2,176

Corporate debt securities
55

 

 

 
55

U.S. treasury notes
25

 

 

 
25

Subtotal - current restricted investments
80

 

 

 
80

 
$
2,270

 
$

 
$
14

 
$
2,256

 
December 31, 2017
 
Amortized
 
Gross
Unrealized
 
Estimated
Fair
 
Cost
 
Gains
 
Losses
 
Value
 
(In millions)
Corporate debt securities
$
1,591

 
$
1

 
$
4

 
$
1,588

U.S. treasury notes
389

 

 
1

 
388

GSEs
255

 

 
2

 
253

Municipal securities
142

 

 
1

 
141

Asset-backed securities
117

 

 

 
117

Certificates of deposit
37

 

 

 
37

Subtotal - current investments
2,531

 
1

 
8

 
2,524

Corporate debt securities
101

 

 

 
101

U.S. treasury notes
68

 

 

 
68

Subtotal - current restricted investments
169

 

 

 
169

 
$
2,700

 
$
1

 
$
8

 
$
2,693

The contractual maturities of our available-for-sale investments as of June 30, 2018 are summarized below:
 
Amortized Cost
 
Estimated
Fair Value
 
(In millions)
Due in one year or less
$
1,356

 
$
1,354

Due after one year through five years
914

 
902

 
$
2,270

 
$
2,256

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 and losses for the three and six months ended June 30, 2018 and 2017 were insignificant.
We have determined that unrealized losses at June 30, 2018 and December 31, 2017, 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. 

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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 June 30, 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
$
959

 
$
7

 
535

 
$
116

 
$
1

 
72

U.S. Treasury notes
224

 
1

 
52

 

 

 

GSEs

 

 

 
113

 
2

 
56

Municipal securities
81

 
1


79


40


1


52

Asset backed securities
90

 
1

 
59

 

 

 

 
$
1,354

 
$
10

 
725

 
$
269

 
$
4

 
180

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, 2017:
 
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
$
1,297

 
$
3

 
561

 
$
94

 
$
1

 
69

U.S. Treasury Notes
470

 
1

 
89

 

 

 

GSEs
173

 
1

 
69

 
95

 
1

 
47

Municipal securities

 

 

 
38

 
1

 
48

 
$
1,940

 
$
5

 
719

 
$
227

 
$
3

 
164

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 certificates of deposit 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 $117 million at June 30, 2018, 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 (including amounts payable for the provision of long-term services and supports, or LTSS) as of the dates indicated:
 
June 30,
2018
 
December 31,
2017
 
(In millions)
Fee-for-service claims incurred but not paid (IBNP)
$
1,510

 
$
1,717

Pharmacy payable
116

 
112

Capitation payable
49

 
67

Other
245

 
296

 
$
1,920

 
$
2,192


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“Other” medical claims and benefits payable includes amounts payable to certain providers for which we act as an intermediary on behalf of various government agencies without assuming financial risk. Such receipts and payments do not impact our consolidated statements of operations. Non-risk provider payables amounted to $158 million and $122 million as of June 30, 2018 and December 31, 2017, 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.
 
Six Months Ended June 30,
 
2018
 
2017
 
(Dollars in millions)
Medical claims and benefits payable, beginning balance
$
2,192

 
$
1,929

Components of medical care costs related to:
 
 
 
Current period
7,794

 
8,633

Prior periods
(222
)
 
(31
)
Total medical care costs
7,572

 
8,602

 
 
 
 
Change in non-risk provider payables
56

 
(114
)
 
 
 
 
Payments for medical care costs related to:
 
 
 
Current period
6,248

 
6,883

Prior periods
1,652

 
1,457

Total paid
7,900

 
8,340

Medical claims and benefits payable, ending balance
$
1,920

 
$
2,077

Assuming that our initial estimate of IBNP is accurate, we believe that amounts ultimately paid would generally be between 8% and 10% less than the IBNP liability recorded at the end of the period as a result of the inclusion in that liability of the provision for adverse claims deviation and the accrued cost of settling those claims. Because we establish the provision for adverse claims deviation and the accrued cost of settling claims on a consistent basis every quarter, the lower cost recognized in a subsequent period if such a provision proved unnecessary would be offset by the establishment of a similar provision during that subsequent period.
Because the amount of our initial liability is an estimate, we will always experience variability in that estimate as new information becomes available with the passage of time. Therefore, there can be no assurance that amounts ultimately paid out will fall within the range of 8% to 10% lower than the liability that was initially recorded. Furthermore, because our initial estimate of IBNP is derived from many factors, some of which are qualitative in nature rather than quantitative, we are seldom able to assign specific values to the reasons for a change in estimate—we only know when the circumstances for any one or more factors are out of the ordinary.
The differences between our original estimates and the amounts ultimately paid out for the most part relate to IBNP. While many related factors working in conjunction with one another serve to determine the accuracy of our estimates, we are seldom able to quantify the impact that any single factor has on a change in estimate. In addition, given the variability inherent in the reserving process, we will only be able to identify specific factors if they represent a significant departure from expectations. As a result, we do not expect to be able to fully quantify the impact of individual factors on changes in estimates.
We believe that the most significant uncertainties surrounding our IBNP estimates at June 30, 2018 are as follows:
Across all of our health plans, the inventory of unpaid claims increased significantly during the first half of 2017, then decreased in the last half of 2017 and into 2018. Changes in claims inventories impact the timing between date of service and the date of claim payment, increasing the volatility of our liability estimates.
In June 2018, our Puerto Rico health plan implemented state prescribed claim billing requirements to ensure more accurate claims submissions. The billing requirements were more stringent and caused a significant number of claim denials. Although we expect providers to ultimately submit updated claims with

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the required information, the impact of the new billing requirements create more uncertainty in our liability estimates.
At our Florida health plan, a new clinical service system was implemented in the first quarter of 2018. This system impacted the reporting of inpatient authorizations used in our development of claims liabilities, which makes our liability estimates subject to more than the usual amount of uncertainty.
We recently implemented a new process for increased quality review of claims payments in nine of our health plans. While we do not anticipate this new process will impact the percentage of claims paid within the timely turnaround requirements, we believe it will have a minor impact on the timing of some paid claims. For this reason, our liability estimates in the nine health plans are subject to more than the usual amount of uncertainty.
We recognized favorable prior period claims development in the amount of $222 million for the six months ended June 30, 2018. This amount represents our estimate as of June 30, 2018, of the extent to which our initial estimate of medical claims and benefits payable at December 31, 2017, was more than the amount that will ultimately be paid out in satisfaction of that liability. We believe the overestimation was due primarily to the following factors:
The impact of the provision for adverse claims deviation and the accrued cost of settling claims as discussed above. Because we re-establish the provision for adverse claims deviation and the accrued cost of settling claims on a consistent basis every quarter, the impact of this item on the first half of 2018 results was minimal.
Across all of our health plans, the inventory of unpaid claims increased significantly during the first half of 2017, then decreased in the last half of 2017. In hindsight, the impact of the changes in claims processing timing reduced our liabilities more than we had anticipated.
December 2017 data from The Centers for Disease Control and Prevention indicated widespread influenza activity in several states in which we operate health plans. The additional liabilities established in consideration of increased claims related to a more severe influenza season turned out to be higher than our actual experience.
In establishing our liability at December 31, 2017, we anticipated an increase in the utilization of medical services by Marketplace members concerned about the future of their healthcare coverage as a result of uncertainties related to high premium increases and issuer exits. This induced demand did not materialize to the degree we expected.

7. Debt
All of our debt is held at the parent, which is reported in the Other segment. The following table summarizes our outstanding debt obligations and their classification in the accompanying consolidated balance sheets:
 
June 30,
2018
 
December 31,
2017
 
(In millions)
Current portion of long-term debt:
 
 
 
1.125% Convertible Notes, net of unamortized discount
$
422

 
$
499

1.625% Convertible Notes, net of unamortized discount
63

 
157

Lease financing obligations
1

 
1

Debt issuance costs
(2
)
 
(4
)
 
484

 
653

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

 
700

4.875% Notes
330

 
330

Credit Facility

 
300

Debt issuance costs
(11
)
 
(12
)
 
1,019

 
1,318

Lease financing obligations
198

 
198

 
$
1,701

 
$
2,169


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Interest cost recognized relating to our convertible senior notes for the periods presented was as follows:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2018
 
2017
 
2018
 
2017
 
(In millions)
Contractual interest at coupon rate
$
2

 
$
3

 
$
4

 
$
6

Amortization of the discount
6

 
8

 
13

 
16

 
$
8

 
$
11

 
$
17

 
$
22

Credit Facility
In January 2017, we entered into an amended unsecured $500 million revolving credit facility (Credit Facility). The Credit Facility has a term of five years and all amounts outstanding will be due and payable on January 31, 2022. In May 2018, we repaid all outstanding borrowings under the Credit Facility. As of June 30, 2018, no amounts were outstanding under the Credit Facility, and outstanding letters of credit amounting to $6 million reduced our borrowing capacity under the Credit Facility to $494 million.
Borrowings under our Credit Facility bear interest based, at our election, on a base rate or an adjusted London Interbank Offered Rate (LIBOR), 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 Facility, we are required to pay a quarterly commitment fee. The Credit Facility contains customary non-financial and financial covenants, including a net leverage ratio and an interest coverage ratio. As of June 30, 2018, we were in compliance with all financial and non-financial covenants under the Credit Facility and other long-term debt.
Bridge Credit Agreement
In January 2018, we entered into a bridge credit agreement (Bridge Credit Agreement) with several banks. Under the Bridge Credit Agreement, we may borrow up to $550 million to: (i) satisfy conversions of our 1.125% Convertible Notes; (ii) satisfy and/or refinance indebtedness incurred to satisfy conversion of the 1.125% Convertible Notes; (iii) repay or refinance our Credit Facility; and (iv) pay fees and expenses in connection with the foregoing. Subject to the satisfaction of certain conditions, the remaining amount of any borrowing may be used for general corporate purposes.
Borrowings under the Bridge Credit Agreement are reduced by the following:
Any future debt and/or equity transactions including term loans, but excluding any Credit Facility drawing (excluding transactions with proceeds used for working capital purposes and acquisition financings up to $300 million); and
On August 20, 2018 (the first put date for the 1.625% Convertible Notes), the Bridge Credit Agreement shall permanently be reduced by the greater of $150 million; and the principal amount of the 1.625% Convertible Notes that are exchanged into equity or otherwise defeased on or prior to that date.
The Bridge Credit Agreement matures on January 1, 2019 and, subject to the satisfaction of certain conditions, we may elect to extend twice the initial maturity date by a period of six months each. The amount available for borrowing under the Bridge Credit Agreement at June 30, 2018, was $550 million.
Borrowings under the Bridge Credit Agreement bear interest based, at our election, at a base rate or an adjusted LIBOR rate, plus in each case the applicable margin. Our wholly owned subsidiaries that guarantee our obligations under the indenture governing the 4.875% Notes, the 5.375% Notes, and the Credit Facility have jointly and severally guaranteed our obligations under the Bridge Credit Agreement.
The Bridge Credit Agreement contains usual and customary (a) affirmative covenants for credit facilities of this type which are substantially similar to those contained in the Credit Facility, (b) negative covenants consistent with those contained in the 4.875% Notes and (c) events of default for credit facilities of this type which are substantially similar to those contained in the 4.875% Notes.
4.875% Notes due 2025
We have outstanding $330 million aggregate principal amount of senior notes (4.875% Notes) due June 15, 2025, unless earlier redeemed. Interest on the 4.875% Notes is payable semiannually in arrears on June 15 and December 15. Guarantees under the 4.875% Notes mirror those of the Credit Facility. See Note 13, “Supplemental Condensed Consolidating Financial Information,” for more information on the guarantors. The 4.875% Notes contain customary non-financial covenants and change of control provisions.

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The 4.875% Notes contain a limitation on the use of proceeds which required us to deposit a portion of the net proceeds from their issuance into a segregated deposit account. These funds may be used by us as follows:
On or prior to August 20, 2018, to:
Redeem, repurchase, repay, tender for, or acquire for value all or any portion of our 1.625% Convertible Notes, defined and discussed further below, or to satisfy the cash portion of any consideration due upon any conversion of the 1.625% Convertible Notes and/or
Pay any interest due on all or any portion of the 4.875% Notes.
On or after August 20, 2018, to repurchase all or any portion of the 1.625% Convertible Notes that we are obligated to repurchase; and
Subsequent to August 20, 2018 (or such earlier date in the event that there are no longer any 1.625% Convertible Notes outstanding), in any other manner not otherwise prohibited in the indenture governing the 4.875% Notes.
The investments that constitute the segregated funds are current assets reported as “Restricted investments” in the accompanying consolidated balance sheets. As a result of the 1.625% Exchange described below, approximately $94 million of such investments were transferred to unrestricted current investments in the first quarter of 2018. As of June 30, 2018, the balance of current restricted investments was $80 million.
5.375% Notes due 2022
We have outstanding $700 million aggregate principal amount of senior notes (5.375% Notes) due November 15, 2022, unless earlier redeemed. Interest on the 5.375% Notes is payable semiannually in arrears on May 15 and November 15. Certain of our wholly owned subsidiaries guarantee our obligations under the 5.375% Notes. Such guarantees mirror those of the Credit Facility. See Note 13, “Supplemental Condensed Consolidating Financial Information,” for more information on the guarantors. The 5.375% Notes contain customary non-financial covenants and change in control provisions.
1.125% Cash Convertible Senior Notes due 2020
In June 2018, we entered into two separate, privately negotiated note purchase agreements with certain holders of our outstanding 1.125% cash convertible senior notes due January 15, 2020 (1.125% Convertible Notes). In these transactions, we repaid $96 million aggregate principal amount of the 1.125% Convertible Notes, plus accrued interest, for an aggregate cash payment of $228 million. The $132 million difference between the principal amount extinguished and our cash payment represents primarily the settlement of the fair value of the 1.125% Convertible Notes’ embedded cash conversion option feature (which is a derivative liability we refer to as the 1.125% Conversion Option). In addition, we recorded a loss on debt extinguishment of $5 million, primarily relating to the acceleration of the debt discount, which is recorded in “Other expenses (income), net” in the accompanying consolidated statements of operations. No common shares were issued in connection with these transactions.
Also in June 2018, in connection with the 1.125% Notes purchases, we entered into privately negotiated termination agreements with each of the counterparties to partially terminate the Call Spread Overlay, defined and further discussed in Notes 8, “Derivatives,” and 9, “Stockholders' Equity.”
Following the transactions described above, we have outstanding $454 million aggregate principal amount of 1.125% Convertible Notes. Interest 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 for the 1.125% Convertible Notes 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 of 1.125% Convertible Notes, 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 stock price trigger for the 1.125% Convertible Notes is $53.00 per share. The 1.125% Convertible Notes met this trigger in the quarter ended June 30, 2018; therefore, they are convertible into cash and are reported in current portion of long-term debt as of June 30, 2018.
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 operations until the 1.125% Conversion Option settles or expires. The effective interest rate approximating what we would have incurred had nonconvertible debt with otherwise similar terms been issued is approximately 6%. As of June 30,

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2018, the 1.125% Convertible Notes had a remaining amortization period of 1.5 years. The 1.125% Convertible Notes’ if-converted value exceeded their principal amount by approximately $503 million and $406 million as of June 30, 2018 and December 31, 2017, respectively.
1.625% Convertible Senior Notes due 2044
In March 2018, we entered into separate, privately negotiated, synthetic exchange agreements (1.625% Exchange) with certain holders of our outstanding 1.625% convertible senior notes due 2044 (1.625% Convertible Notes). In this transaction, we exchanged $97 million aggregate principal amount and accrued interest for 1.8 million shares of our common stock. We recorded a loss on debt extinguishment, including transaction fees, of $10 million for the transaction, primarily relating to the inducement premium paid to the bondholders, which is recorded in “Other expenses (income), net” in the accompanying consolidated statements of operations. We did not receive any proceeds from the 1.625% Exchange.
On July 11, 2018, we announced notice of our election to redeem the remaining $64 million aggregate principal amount of the 1.625% Convertible Notes on August 20, 2018 (the Redemption Date). Pursuant to the terms of the indenture, the 1.625% Convertible Notes will be redeemed for cash equal to 100% of the principal amount plus accrued and unpaid interest to, but excluding the Redemption Date (the Redemption Price).
Also pursuant to the indenture, the 1.625% Convertible Notes may be converted until August 17, 2018, at a conversion rate of 17.2157 shares of our common stock per $1,000 principal amount, or approximately $58.09 per share of our common stock. Upon conversion, we will pay cash for the principal and, if applicable, deliver shares of our common stock to the converting holders in an amount per $1,000 principal amount equal to the settlement amount (as defined in the related indenture). After August 17, 2018, holders will be entitled only to the Redemption Price.
Because the 1.625% Convertible Notes are convertible within 12 months, they are reported in current portion of long-term debt as of June 30, 2018.
From the issuance date in 2014, the expected life of the 1.625% Convertible Notes has been approximately four years, ending on the first date we may redeem the 1.625% Convertible Notes in August 2018. As of June 30, 2018, the 1.625% Convertible Notes had a remaining amortization period of 0.1 years. The effective interest rate approximating what we would have incurred had nonconvertible debt with otherwise similar terms been issued is approximately 5%. The outstanding 1.625% Convertible Notes’ if-converted value exceeded their principal amount at June 30, 2018 and December 31, 2017 by approximately $39 million and $50 million, respectively. At June 30, 2018 and December 31, 2017, the equity component of the 1.625% Convertible Notes, including the impact of deferred taxes, was $5 million and $12 million, respectively.
Cross-Default Provisions
The indentures governing the 4.875% Notes, the 5.375% Notes, the 1.125% Convertible Notes and the 1.625% 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
 
June 30,
2018
 
December 31,
2017
 
 
 
(In millions)
Derivative asset:
 
 
 
 
 
1.125% Call Option
Current assets: Derivative asset
 
$
657

 
$
522

Derivative liability:
 
 
 
 
 
1.125% Conversion Option
Current liabilities: Derivative liability
 
$
657

 
$
522

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 operations, 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.”

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1.125% 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 June 2018, 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. This resulted in our receipt of $134 million for the settlement of the 1.125% Call Option (which is a derivative asset), and the payment of $113 million for the partial termination of the 1.125% Warrants, for an aggregate net cash receipt of $21 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 operations 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.”
As of June 30, 2018, 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 may be converted within twelve months of June 30, 2018, as described in Note 7, “Debt.”

9. Stockholders' Equity
1.625% Exchange
As described in Note 7, “Debt,” we issued 1.8 million shares of our common stock in connection with the 1.625% Exchange in March 2018.
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 (Loss) per Share,” for dilution information for the periods presented. We will not receive any additional proceeds if the 1.125% Warrants are exercised.
As described in Note 8, “Derivatives,” in June 2018, 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. We paid $113 million to the Counterparties for the termination of 2.4 million of the 1.125% Warrants outstanding, which resulted in a reduction of additional paid-in capital for the same amount. Following this transaction, 11.1 million of the 1.125% Warrants remain outstanding.
Share-Based Compensation
In connection with our equity incentive plans and employee stock purchase plan, approximately 276,000 shares of common stock vested or were purchased, net of shares used to settle employees’ income tax obligations, during the six months ended June 30, 2018.
We record share-based compensation as “General and administrative expenses” in the accompanying consolidated statements of operations. As of June 30, 2018, there was $46 million of total unrecognized compensation expense

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related to unvested restricted stock awards (RSAs), performance stock awards (PSAs), and performance stock units (PSUs), which we expect to recognize over a remaining weighted-average period of 3.1 years, 0.7 years and 2.6 years, respectively. This unrecognized compensation cost assumes an estimated forfeiture rate of 10.8% for non-executive employees as of June 30, 2018.
Also as of June 30, 2018, there was $12 million of total unrecognized compensation expense related to unvested stock options, which we expect to recognize over a weighted-average period of 2.3 years. No stock options were granted or exercised in the six months ended June 30, 2018.
Activity for RSAs, PSAs and PSUs, for the six months ended June 30, 2018, is summarized below:
 
Restricted Stock Awards
 
Performance Stock Awards
 
Performance Stock Units
 
Total
 
Weighted
Average
Grant Date
Fair Value
Unvested balance, December 31, 2017
401,804

 
84,762

 
91,828

 
578,394

 
$
58.35

Granted
346,491

 

 
211,969

 
558,460

 
73.43

Vested
(183,595
)
 
(32,929
)
 

 
(216,524
)
 
57.04

Forfeited
(124,690
)
 
(48,701
)
 
(101,320
)
 
(274,711
)
 
63.38

Unvested balance, June 30, 2018
440,010

 
3,132

 
202,477

 
645,619

 
69.69

The aggregate fair values of RSAs, PSAs and PSUs granted and vested are presented in the following table:
 
Six Months Ended June 30,
 
2018
 
2017
 
(In millions)
Granted:
 
 
 
Restricted stock awards
$
25

 
$
19

Performance stock units
16

 
16

 
$
41

 
$
35

Vested:
 
 
 
Restricted stock awards
$
14

 
$
20

Performance stock awards
3

 
15

Performance stock units

 
9

 
$
17

 
$
44



10. Restructuring and Separation Costs
Following a management-initiated, broad operational assessment in early 2017, our board of directors approved, and we committed to, a comprehensive restructuring and profitability improvement plan in June 2017 (the 2017 Restructuring Plan). Key activities under this plan to date have included:
Streamlining of our organizational structure to eliminate redundant layers of management, consolidate regional support services, and other staff reductions to improve efficiency and the speed and quality of decision making;
Re-design of core operating processes such as provider payment, utilization management, quality monitoring and improvement, and information technology, to achieve more effective and cost-efficient outcomes;
Remediation of high-cost provider contracts and enhancement of high quality, cost-effective networks;
Restructuring, including selective exits, of direct delivery operations; and
Partnering with the lowest-cost, most effective vendors.
Costs Incurred
In our 2017 Annual Report on Form 10-K, we reported that we had incurred substantially all of the costs associated with the 2017 Restructuring Plan in 2017, amounting to $234 million. In the first half of 2018, we incurred an

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additional $33 million in such costs, primarily as a result of our further evaluation and write-off of a utilization and care management project terminated because of its inconsistency with the goals of the 2017 Restructuring Plan. We also recorded nominal amounts for one-time termination benefits, true-ups of certain lease contract termination costs, and consulting fees recorded in 2017. As of June 30, 2018, we had incurred $267 million in total costs under the 2017 Restructuring Plan; we expect to complete all activities under the 2017 Restructuring Plan in 2018, with the exception of the cash settlement of lease termination liabilities. We expect to continue to settle those liabilities through 2025, unless the leases are terminated sooner.
Restructuring and separation costs are reported by the same name in the accompanying consolidated statements of operations. The following tables present the major types of such costs by segment. Current and long-lived assets include current and non-current capitalized project costs, and capitalized software determined to be unrecoverable.
 
Three Months Ended June 30, 2018
 
One-Time Termination Benefits
 
Other Restructuring Costs
 
Total
 
 
Write-offs of Current and Long-lived Assets
 
Consulting Fees
 
Contract Termination Costs
 
 
(In millions)
Health Plans
$
(1
)
 
$

 
$

 
$
9

 
$
8

 
$
(1
)
 
$

 
$

 
$
9

 
$
8

 
Six Months Ended June 30, 2018
 
One-Time Termination Benefits
 
Other Restructuring Costs
 
Total
 
 
Write-offs of Current and Long-lived Assets
 
Consulting Fees
 
Contract Termination Costs
 
 
(In millions)
Health Plans
$

 
$
(1
)
 
$

 
$
8

 
$
7

Other
5

 
20

 
1

 

 
26

 
$
5

 
$
19

 
$
1

 
$
8

 
$
33

 
Three Months and Six Months Ended June 30, 2017
 
Separation Costs - Former Executives
 
One-Time Termination Benefits
 
Other Restructuring Costs
 
Total
 
 
 
Write-offs of Current and Long-lived Assets
 
Consulting Fees
 
Contract Termination Costs
 
 
(In millions)
Other
$
35

 
$

 
$

 
$
8

 
$

 
$
43

 
$
35

 
$

 
$

 
$
8

 
$

 
$
43

As of June 30, 2018, we had incurred cumulative restructuring costs under the 2017 Restructuring Plan as follows:
 
Separation Costs - Former Executives
 
One-Time Termination Benefits
 
Other Restructuring Costs
 
Total
 
 
 
Write-offs of Current and Long-lived Assets
 
Consulting Fees
 
Contract Termination Costs
 
 
(In millions)
Health Plans
$

 
$
33

 
$
15

 
$

 
$
32

 
$
80

Molina Medicaid Solutions

 

 
8

 

 

 
8

Other
36

 
39

 
57

 
45

 
2

 
179

 
$
36

 
$
72

 
$
80

 
$
45

 
$
34

 
$
267

Reconciliation of Liability
For those restructuring and separation costs that require cash settlement (primarily separation costs, one-time termination benefits, consulting fees and contract termination costs), the following table presents a roll-forward of

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the accrued liability, which is reported in “Accounts payable and accrued liabilities” in the accompanying consolidated balance sheets. The adjustments are due to true-ups of costs recorded in 2017.
 
Separation Costs - Former Executives
 
One-Time Termination Benefits
 
Other Restructuring Costs
 
Total
 
(In millions)
Accrued as of December 31, 2017
$
2

 
$
11

 
$
35

 
$
48

Adjustments

 
(1
)
 
8

 
7

Charges

 
6

 
2

 
8

Cash payments
(2
)
 
(15
)
 
(13
)
 
(30
)
Accrued as of June 30, 2018
$

 
$
1

 
$
32

 
$
33


11. Segments
We have three reportable segments. These segments consist of our Health Plans segment, which constitutes the vast majority of our operations; our Molina Medicaid Solutions segment; and our Other segment. Our reportable segments are consistent with how we currently manage the business and view the markets we serve.
Recent Developments – Molina Medicaid Solutions Segment
In late 2017, as part of the 2017 Restructuring Plan, management decided to pursue the divestiture of MMS.
In June 2018, we entered into a definitive agreement to sell Molina Medicaid Solutions (MMS) to DXC Technology Company. The divestiture, expected to close in the third quarter of 2018, is subject to the satisfaction of customary closing conditions and the receipt of certain third party consents and regulatory approvals. We expect the net cash selling price for the equity interests of MMS to approximate $220 million after certain adjustments.
As of June 30, 2018, Molina Medicaid Solutions’ major classes of assets and liabilities were as follows:
 
(In millions)
Cash and cash equivalents
$
9

Receivables and prepaid expenses
41

Goodwill and property, equipment, and capitalized software, net
70

Deferred contract costs and other assets
110

Total assets held for sale
$
230

 
 
Accounts payable and accrued and other liabilities
$
27

Deferred revenue
39

Total liabilities held for sale
$
66

Description of Earnings Measures for Reportable Segments
Gross 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.
Gross margin for our Health Plans segment is referred to as “Medical margin,” and for our Molina Medicaid Solutions and Other segments, as “Service margin.” Medical margin represents the amount earned by the Health Plans segment after medical care costs are deducted from premium revenue. The medical care ratio represents medical care costs as a percentage of premium revenue, and is one of the key metrics used to assess the performance of the Health Plans segment. Therefore, the underlying medical margin is the most important measure of earnings reviewed by the chief operating decision maker. The service margin is equal to service revenue minus cost of service revenue.
The following table presents total revenue by segment. Inter-segment revenue was insignificant for all periods presented.

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Three Months Ended June 30,
 
Six Months Ended June 30,
 
2018
 
2017
 
2018
 
2017
 
(In millions)
Total revenue:
 
 
 
 
 
 
 
Health Plans
$
4,752

 
$
4,868

 
$
9,261

 
$
9,639

Molina Medicaid Solutions
48

 
47

 
99

 
93

Other
83

 
84

 
169

 
171

Consolidated
$
4,883

 
$
4,999

 
$
9,529

 
$
9,903

The following table reconciles gross margin by segment to consolidated income (loss) before income taxes:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2018
 
2017
 
2018
 
2017
 
(In millions)
Gross margin:
 
 
 
 
 
 
 
Health Plans
$
664

 
$
249

 
$
1,265

 
$
786

Molina Medicaid Solutions
4

 
4

 
12

 
8

Other
5

 
1

 
11

 
6

Total gross margin
673

 
254

 
1,288

 
800

Add: other operating revenues (1)
242

 
130

 
431

 
255

Less: other operating expenses (2)
(573
)
 
(671
)
 
(1,155
)
 
(1,260
)
Operating income (loss)
342

 
(287
)
 
564

 
(205
)
Other expenses (income), net
37

 
27

 
80

 
(22
)
Income (loss) before income taxes
$
305

 
$
(314
)
 
$
484

 
$
(183
)
______________________
(1)
Other operating revenues include premium tax revenue, health insurer fees reimbursed, and investment income and other revenue.
(2)
Other operating expenses include general and administrative expenses, premium tax expenses, health insurer fees, depreciation and amortization, impairment losses, and restructuring and separation costs.

12. Commitments and Contingencies
Marketplace Risk Adjustment Program
On July 7, 2018, the Centers for Medicare and Medicaid Services (CMS) announced that a February 28, 2018 ruling in the U.S. District Court for the District of New Mexico prevents CMS from making further collections or payments under the risk adjustment program, including amounts for the 2017 benefit year, until the litigation is resolved. In light of a contrary decision by the U.S. District Court for the District of Massachusetts, the government moved the New Mexico district court to reconsider its decision, and CMS is currently awaiting the court’s ruling. On July 30, 2018, CMS published in the Federal Register the final rule that reissues, with additional policy explanation, the risk adjustment methodology that CMS had previously established. Due to the reissuance of the rule, the risk adjustment program for the 2017 benefit year will proceed, with solely a one-month delay — from August 2018 to September 2018 — in collection settlement. 
As reported in Note 2, “Significant Accounting Policies,” our Marketplace risk adjustment payable amounted to $1,159 million as of June 30, 2018, and is reported in “Amounts due government agencies” in the accompanying consolidated balance sheets.
California Medicaid Expansion Risk Corridor
In the second quarter of 2018, California health plans participating in the Medicaid Expansion program received unofficial and unverified information that CMS did not approve premium rates for the state fiscal year ended June 30, 2017. It is our understanding that, as a condition of approving the rates, CMS may require the application of a risk corridor similar to the risk corridor that was in effect for periods prior to July 2016. The risk corridor for that prior period applied a minimum medical loss ratio (MLR) of 85% and a maximum MLR of 95%. It is our understanding that the state of California is currently evaluating what actions it will take, if any, with respect to the 2016-2017 rates

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and risk corridor issue. The potential impact of retroactively reinstating a minimum MLR requirement, if effected, would be a reduction to premium revenue relating to 2016 and 2017. Such an adjustment for these prior periods, if effected, could have a material adverse effect on our consolidated financial position, results of operations, or cash flows.
Regulatory Capital Requirements and Dividend Restrictions
Our health plans are subject to state laws and regulations that, among other things, require the maintenance of minimum levels of statutory capital, as defined by each state. Regulators in some states may also attempt to enforce capital requirements that require the retention of net worth in excess of amounts formally required by statute or regulation. Such statutes, regulations, and informal capital requirements also restrict the timing, payment, and amount of dividends and other distributions that may be paid to us as the sole stockholder. To the extent our subsidiaries must comply with these regulations, they may not have the financial flexibility to transfer funds to us. Based on current statutes and regulations, the net assets in these subsidiaries (after intercompany eliminations) which may not be transferable to us in the form of loans, advances, or cash dividends was approximately $2,008 million at June 30, 2018, and $1,691 million at December 31, 2017. Because of the statutory restrictions that inhibit the ability of our health plans to transfer net assets to us, the amount of retained earnings readily available to pay dividends to our stockholders is generally limited to cash, cash equivalents and investments held by the parent company—Molina Healthcare, Inc. Such cash, cash equivalents and investments amounted to approximately $350 million and $696 million as of June 30, 2018 and December 31, 2017, respectively.
As of June 30, 2018, our health plans had aggregate statutory capital and surplus of approximately $2,152 million compared with the required minimum aggregate statutory capital and surplus of approximately $1,180 million. All of our health plans were in compliance with the minimum capital requirements at June 30, 2018. 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.
Legal Proceedings
The health care 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.
Steamfitters Local 449 Pension Plan v. Molina Healthcare, Inc, et al. On April 27, 2018, the Steamfitters Local 449 Pension Plan filed a class action securities complaint in the Central District Court of California against the Company and its former executive officers, J. Mario Molina, John C. Molina, Terry P. Bayer, and Rick Hopfer, Case 2:18-cv-03579. The complaint purports to seek recovery on behalf of all persons or entities who purchased Molina common stock between October 31, 2014, and August 2, 2017, for alleged violations under Sections 10(b) and 20(a) of the Securities Exchange Act and Rule 10b-5 promulgated thereunder. The plaintiff alleges the defendants misled investors regarding the scalability of the Company’s administrative infrastructure during the identified class period. The Company believes it has meritorious defenses to the alleged claims and intends to defend the matter vigorously.
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. Supplemental Condensed Consolidating Financial Information
As discussed in Note 7, “Debt,” we have outstanding $700 million aggregate principal amount of 5.375% Notes due November 15, 2022, unless earlier redeemed. The 5.375% Notes were registered in September 2016, and are fully

Molina Healthcare, Inc. June 30, 2018 Form 10-Q | 28

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and unconditionally guaranteed by certain of our wholly owned subsidiaries on a joint and several basis, with exceptions considered customary for such guarantees.
For all periods presented, the following condensed consolidating financial statements present Molina Healthcare, Inc. (as “Parent Guarantor”), the subsidiary guarantors (as “Other Guarantors”), the subsidiary non-guarantors (as “Non-Guarantors”) and “Eliminations”, according to the guarantor structure as assessed as of and for the six months ended June 30, 2018.

CONDENSED CONSOLIDATING STATEMENTS OF INCOME
 
Three Months Ended June 30, 2018
 
Parent Guarantor
 
Other Guarantors
 
Non-Guarantors
 
Eliminations
 
Consolidated
 
(In millions)
Revenue:
 
 
 
 
 
 
 
 
 
Total revenue
$
261

 
$
49

 
$
4,834

 
$
(261
)
 
$
4,883

Expenses:
 
 
 
 
 
 
 
 
 
Medical care costs
3

 

 
3,847

 

 
3,850

Cost of service revenue

 
44

 
74

 

 
118

General and administrative expenses
252

 
3

 
341

 
(261
)
 
335

Premium tax expenses

 

 
106

 

 
106

Health insurer fees

 

 
99

 

 
99

Depreciation and amortization
18

 

 
7

 

 
25

Restructuring and separation costs
(1
)
 

 
9

 

 
8

Total operating expenses
272

 
47

 
4,483

 
(261
)
 
4,541

Operating (loss) income
(11
)
 
2

 
351

 

 
342

Interest expense
31

 

 
1

 

 
32

Other expenses, net
5

 

 

 

 
5

(Loss) income before income taxes
(47
)
 
2

 
350

 

 
305

Income tax expense
1

 
1

 
101

 

 
103

Net (loss) income before equity in net earnings (losses) of subsidiaries
(48
)
 
1

 
249

 

 
202

Equity in net earnings (losses) of subsidiaries
250

 
(1
)
 

 
(249
)
 

Net income
$
202

 
$

 
$
249

 
$
(249
)
 
$
202


CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME
 
Three Months Ended June 30, 2018
 
Parent Guarantor
 
Other Guarantors
 
Non-Guarantors
 
Eliminations
 
Consolidated
 
(In millions)
Net income
$
202

 
$

 
$
249

 
$
(249
)
 
$
202

Other comprehensive gain, net of tax
2

 

 
2

 
(2
)
 
2

Comprehensive income
$
204

 
$

 
$
251

 
$
(251
)
 
$
204


Molina Healthcare, Inc. June 30, 2018 Form 10-Q | 29

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CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
 
Three Months Ended June 30, 2017
 
Parent Guarantor
 
Other Guarantors
 
Non-Guarantors
 
Eliminations
 
Consolidated
 
(In millions)
Revenue:
 
 
 
 
 
 
 
 
 
Total revenue
$
289

 
$
51

 
$
4,952

 
$
(293
)
 
$
4,999

Expenses:
 
 
 
 
 
 
 
 
 
Medical care costs
3

 

 
4,488

 

 
4,491

Cost of service revenue

 
43

 
81

 

 
124

General and administrative expenses
258

 
7

 
433

 
(293
)
 
405

Premium tax expenses

 

 
114

 

 
114

Depreciation and amortization
25

 

 
12

 

 
37

Impairment losses

 

 
72

 

 
72

Restructuring and separation costs
43

 

 

 

 
43

Total operating expenses
329

 
50

 
5,200

 
(293
)
 
5,286

Operating (loss) income
(40
)
 
1

 
(248
)
 

 
(287
)
Interest expense
27

 

 

 

 
27

(Loss) income before income taxes
(67
)
 
1

 
(248
)
 

 
(314
)
Income tax benefit
(14
)
 

 
(70
)
 

 
(84
)
Net (loss) income before equity in net losses of subsidiaries
(53
)
 
1

 
(178
)
 

 
(230
)
Equity in net losses of subsidiaries
(177
)
 
(64
)
 

 
241

 

Net loss
$
(230
)
 
$
(63
)
 
$
(178
)
 
$
241

 
$
(230
)

CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
 
Three Months Ended June 30, 2017
 
Parent Guarantor
 
Other Guarantors
 
Non-Guarantors
 
Eliminations
 
Consolidated
 
(In millions)
Net loss
$
(230
)
 
$
(63
)
 
$
(178
)
 
$
241

 
$
(230
)
Other comprehensive income, net of tax

 

 

 

 

Comprehensive loss
$
(230
)
 
$
(63
)
 
$
(178
)
 
$
241

 
$
(230
)


Molina Healthcare, Inc. June 30, 2018 Form 10-Q | 30

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CONDENSED CONSOLIDATING STATEMENTS OF INCOME
 
Six Months Ended June 30, 2018
 
Parent Guarantor
 
Other Guarantors
 
Non-Guarantors
 
Eliminations
 
Consolidated
 
(In millions)
Revenue:
 
 
 
 
 
 
 
 
 
Total revenue
$
594

 
$
101

 
$
9,426

 
$
(592
)
 
$
9,529

Expenses:
 
 
 
 
 
 
 
 
 
Medical care costs
7

 

 
7,565

 

 
7,572

Cost of service revenue

 
87

 
151

 

 
238

General and administrative expenses
519

 
7

 
753

 
(592
)
 
687

Premium tax expenses

 

 
210

 

 
210

Health insurer fees

 

 
174

 

 
174

Depreciation and amortization
36

 

 
15

 

 
51

Restructuring and separation costs
25

 

 
8

 

 
33

Total operating expenses
587

 
94

 
8,876

 
(592
)
 
8,965

Operating income
7

 
7

 
550

 

 
564

Interest expense
64

 

 
1

 

 
65

Other expenses, net
15

 

 

 

 
15

(Loss) income before income taxes
(72
)
 
7

 
549

 

 
484

Income tax expense
10

 
2

 
163

 

 
175

Net (loss) income before equity in net earnings (losses of subsidiaries
(82
)
 
5

 
386

 

 
309

Equity in net earnings (losses) of subsidiaries
391

 
(4
)
 

 
(387
)
 

Net income
$
309

 
$
1

 
$
386

 
$
(387
)
 
$
309


CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME
 
Six Months Ended June 30, 2018
 
Parent Guarantor
 
Other Guarantors
 
Non-Guarantors
 
Eliminations
 
Consolidated
 
(In millions)
Net income
$
309

 
$
1

 
$
386

 
$
(387
)
 
$
309

Other comprehensive loss, net of tax
(5
)
 

 
(5
)
 
5

 
(5
)
Comprehensive income
$
304

 
$
1

 
$
381

 
$
(382
)
 
$
304



Molina Healthcare, Inc. June 30, 2018 Form 10-Q | 31

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CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS
 
Six Months Ended June 30, 2017
 
Parent Guarantor
 
Other Guarantors
 
Non-Guarantors
 
Eliminations
 
Consolidated
 
(In millions)
Revenue:
 
 
 
 
 
 
 
 
 
Total revenue
$
630

 
$
99

 
$
9,809

 
$
(635
)
 
$
9,903

Expenses:
 
 
 
 
 
 
 
 
 
Medical care costs
7

 

 
8,595

 

 
8,602

Cost of service revenue

 
85

 
161

 

 
246

General and administrative expenses
555

 
14

 
910

 
(635
)
 
844

Premium tax expenses

 

 
225

 

 
225

Depreciation and amortization
52

 

 
24

 

 
76

Impairment losses

 

 
72

 

 
72

Restructuring and separation costs
43

 

 

 

 
43

Total operating expenses
657

 
99

 
9,987

 
(635
)
 
10,108

Operating loss
(27
)
 

 
(178
)
 

 
(205
)
Interest expense
53

 

 

 

 
53

Other income, net
(75
)
 

 

 

 
(75
)
Loss before income taxes
(5
)
 

 
(178
)
 

 
(183
)
Income tax expense (benefit)
17

 

 
(47
)
 

 
(30
)
Net loss before equity in net losses of subsidiaries
(22
)
 

 
(131
)
 

 
(153
)
Equity in net losses of subsidiaries
(131
)
 
(66
)
 

 
197

 

Net loss
$
(153
)
 
$
(66
)
 
$
(131
)
 
$
197

 
$
(153
)

CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE LOSS
 
Six Months Ended June 30, 2017
 
Parent Guarantor
 
Other Guarantors
 
Non-Guarantors
 
Eliminations
 
Consolidated
 
(In millions)
Net loss
$
(153
)
 
$
(66
)
 
$
(131
)
 
$
197

 
$
(153
)
Other comprehensive income, net of tax
1

 

 
1

 
(1
)
 
1

Comprehensive loss
$
(152
)
 
$
(66
)
 
$
(130
)
 
$
196

 
$
(152
)


Molina Healthcare, Inc. June 30, 2018 Form 10-Q | 32

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CONDENSED CONSOLIDATING BALANCE SHEETS
 
June 30, 2018
 
Parent Guarantor
 
Other Guarantors
 
Non-Guarantors
 
Eliminations
 
Consolidated
 
(In millions)
ASSETS
Current assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
235

 
$
2

 
$
3,155

 
$

 
$
3,392

Investments
105

 

 
2,071

 

 
2,176

Restricted investments
80

 

 

 

 
80

Receivables
2

 

 
1,146

 

 
1,148

Due from (to) affiliates
68

 
(6
)
 
(62
)
 

 

Prepaid expenses and other current assets
62

 

 
282

 

 
344

Derivative asset
657

 

 

 

 
657

Assets held for sale

 
230

 

 

 
230

Total current assets
1,209

 
226

 
6,592

 

 
8,027

Property, equipment, and capitalized software, net
196

 

 
80

 

 
276

Goodwill and intangible assets, net
14

 

 
187

 

 
201

Restricted investments

 

 
117

 

 
117

Investment in subsidiaries, net
2,761

 
76

 

 
(2,837
)
 

Deferred income taxes
33

 

 
99

 
(18
)
 
114

Other assets
39

 

 
5

 
(16
)
 
28

 
$
4,252

 
$
302

 
$
7,080

 
$
(2,871
)
 
$
8,763

 
 
 
 
 
 
 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
 
 
 
 
 
 
 
 
 
Medical claims and benefits payable
$
2

 
$

 
$
1,918

 
$

 
$
1,920

Amounts due government agencies

 

 
1,746

 

 
1,746

Accounts payable and accrued liabilities
211

 

 
543

 

 
754

Deferred revenue

 

 
193

 

 
193

Current portion of long-term debt
484

 

 

 

 
484

Derivative liability
657

 

 

 

 
657

Liabilities held for sale

 
66

 

 

 
66

Total current liabilities
1,354

 
66

 
4,400

 

 
5,820

Long-term debt
1,217

 

 
16

 
(16
)
 
1,217

Deferred income taxes

 
18

 

 
(18
)
 

Other long-term liabilities
23

 
1

 
44

 

 
68

Total liabilities
2,594

 
85

 
4,460

 
(34
)
 
7,105

Total stockholders’ equity
1,658

 
217

 
2,620

 
(2,837
)
 
1,658

 
$
4,252

 
$
302

 
$
7,080

 
$
(2,871
)
 
$
8,763



Molina Healthcare, Inc. June 30, 2018 Form 10-Q | 33

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CONDENSED CONSOLIDATING BALANCE SHEETS
 
December 31, 2017
 
Parent Guarantor
 
Other Guarantors
 
Non-Guarantors
 
Eliminations
 
Consolidated
 
(In millions)
ASSETS
Current assets:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
504

 
$
28

 
$
2,654

 
$

 
$
3,186

Investments
192

 

 
2,332

 

 
2,524

Restricted investments
169

 

 

 

 
169

Receivables
2

 
30

 
839

 

 
871

Due from (to) affiliates
148

 
(6
)
 
(142
)
 

 

Prepaid expenses and other current assets
103

 
14

 
138

 
(16
)
 
239

Derivative asset
522

 

 

 

 
522

Total current assets
1,640

 
66

 
5,821

 
(16
)
 
7,511

Property, equipment, and capitalized software, net
223

 
33

 
86

 

 
342

Goodwill and intangible assets, net
15

 
43

 
197

 

 
255

Restricted investments

 

 
119

 

 
119

Investment in subsidiaries, net
2,306

 
82

 

 
(2,388
)
 

Deferred income taxes
17

 

 
101

 
(15
)
 
103

Other assets
32

 
103

 
7

 
(1
)
 
141

 
$
4,233

 
$
327

 
$
6,331

 
$
(2,420
)
 
$
8,471

 
 
 
 
 
 
 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
 
 
 
 
 
 
 
 
 
Medical claims and benefits payable
$
3

 
$

 
$
2,189

 
$

 
$
2,192

Amounts due government agencies

 
1

 
1,541

 

 
1,542

Accounts payable and accrued liabilities
178

 
40

 
148

 

 
366

Deferred revenue

 
49

 
233

 

 
282

Current portion of long-term debt
653

 

 
16

 
(16
)
 
653

Derivative liability
522

 

 

 

 
522

Total current liabilities
1,356

 
90

 
4,127

 
(16
)
 
5,557

Long-term debt
1,516

 

 

 

 
1,516

Deferred income taxes

 
15

 

 
(15
)
 

Other long-term liabilities
24

 
2

 
36

 
(1
)
 
61

Total liabilities
2,896

 
107

 
4,163

 
(32
)
 
7,134

Total stockholders’ equity
1,337

 
220

 
2,168

 
(2,388
)
 
1,337

 
$
4,233

 
$
327

 
$
6,331

 
$
(2,420
)
 
$
8,471



Molina Healthcare, Inc. June 30, 2018 Form 10-Q | 34

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CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS
 
Six Months Ended June 30, 2018
 
Parent Guarantor
 
Other Guarantors
 
Non-Guarantors
 
Eliminations
 
Consolidated
 
(In millions)
Operating activities:
 
 
 
 
 
 
 
 
 
Net cash provided by operating activities
$
49

 
$
9

 
$
256

 
$

 
$
314

Investing activities:
 
 
 
 
 
 
 
 
 
Purchases of investments
(136
)
 

 
(778
)
 

 
(914
)
Proceeds from sales and maturities of investments
303

 

 
1,032

 

 
1,335

Purchases of property, equipment and capitalized software
(9
)
 
(3
)
 
(2
)
 

 
(14
)
Capital contributions to subsidiaries
(117
)
 

 
117

 

 

Dividends from subsidiaries
60

 
(10
)
 
(50
)
 

 

Change in amounts due to/from affiliates
75

 
1

 
(76
)
 

 

Other, net

 
(14
)
 
5

 

 
(9
)
Net cash provided (used in) by investing activities
176

 
(26
)
 
248

 

 
398

Financing activities:
 
 
 
 
 
 
 
 
 
Repayment of credit facility
(300
)
 

 

 

 
(300
)
Repayment of 1.125% Convertible Notes
(89
)
 

 

 

 
(89
)
Cash paid for partial settlement of 1.125% Conversion Option
(134
)
 

 

 

 
(134
)
Cash received for partial termination of 1.125% Call Option
134

 

 

 

 
134

Cash paid for partial termination of 1.125% Warrants
(113
)
 

 

 

 
(113
)
Other, net
(1
)
 

 

 

 
(1
)
Net cash used in financing activities
(503
)
 

 

 

 
(503
)
Net (decrease) increase in cash, cash equivalents, and restricted cash and cash equivalents
(278
)
 
(17
)
 
504

 

 
209

Cash, cash equivalents, and restricted cash and cash equivalents at beginning of period
513

 
28

 
2,749

 

 
3,290

Cash, cash equivalents, and restricted cash and cash equivalents at end of period
$
235

 
$
11

 
$
3,253

 
$

 
$
3,499


Molina Healthcare, Inc. June 30, 2018 Form 10-Q | 35

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Six Months Ended June 30, 2017
 
Parent Guarantor
 
Other Guarantors
 
Non-Guarantors
 
Eliminations
 
Consolidated
 
(In millions)
Operating activities:
 
 
 
 
 
 
 
 
 
Net cash provided by operating activities
$
90

 
$
44

 
$
538

 
$

 
$
672

Investing activities:
 
 
 
 
 
 
 
 
 
Purchases of investments
(330
)
 

 
(1,306
)
 

 
(1,636
)
Proceeds from sales and maturities of investments
127

 

 
747

 

 
874

Purchases of property, equipment and capitalized software
(45
)
 
(9
)
 
(6
)
 

 
(60
)
Capital contributions to subsidiaries
(238
)
 
2

 
236

 

 

Dividends from subsidiaries
120

 

 
(120
)
 

 

Change in amounts due to/from affiliates
(34
)
 
2

 
32

 

 

Other, net

 
(13
)
 
(11
)
 

 
(24
)
Net cash used in investing activities
(400
)
 
(18
)
 
(428
)
 

 
(846
)
Financing activities:
 
 
 
 
 
 
 
 
 
Proceeds from senior notes offerings, net of issuance costs
325

 

 

 

 
325

Other, net
8

 

 

 

 
8

Net cash provided by financing activities
333

 

 

 

 
333

Net increase in cash, cash equivalents, and restricted cash and cash equivalents
23

 
26

 
110

 

 
159

Cash, cash equivalents, and restricted cash and cash equivalents at beginning of period
86

 
6

 
2,820

 

 
2,912

Cash, cash equivalents, and restricted cash and cash equivalents at end of period
$
109

 
$
32

 
$
2,930

 
$

 
$
3,071


Molina Healthcare, Inc. June 30, 2018 Form 10-Q | 36

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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, the following:
the success of the Company’s profit improvement and maintenance initiatives, including the timing and amounts of the benefits realized, and administrative and medical cost savings achieved;
the numerous political and market-based uncertainties associated with the Affordable Care Act (the “ACA”) or “Obamacare;”
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 the Company’s medical costs;
the Company’s 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 the Company’s efforts to retain existing or awarded government contracts, including those in New Mexico and Texas, and those for Regions 8 and 11 in Florida, including the success of any protest filings or defenses;
the Company’s ability to manage its operations, including maintaining and creating adequate internal systems and controls relating to authorizations, approvals, provider payments, and the overall success of its care management initiatives;
the Company’s ability to consummate and realize benefits from divestitures and acquisitions, including the timely closing of the MMS divestiture;
the Company’s 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;
the Company’s 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;
the Company’s estimates of amounts owed for such cost expenditure floors, administrative cost and profit ceilings, premium stabilization programs, profit-sharing arrangements, and risk adjustment provisions;

Molina Healthcare, Inc. June 30, 2018 Form 10-Q | 37

Table of Contents

the Medicaid expansion medical cost corridors in California, New Mexico, and Washington, 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 the Company’s ability to recognize revenue amounts associated therewith;
cyber-attacks or other privacy or data security incidents resulting in an inadvertent unauthorized disclosure of protected health information;
the success of the Company’s health plan in Puerto Rico, including the resolution of the debt crisis and the effect of the PROMESA law, and the impact of any future significant weather events;
the success and renewal of the Company’s 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 the Company’s health plans;
efforts by states to recoup previously paid and recognized premium amounts;
complications, member confusion, or enrollment backlogs related to the annual renewal of Medicaid coverage;
government audits and reviews, or potential investigations, and any fine, sanction, enrollment freeze, monitoring program, or premium recovery that may result therefrom;
changes with respect to the Company’s provider contracts and the loss of providers;
approval by state regulators of dividends and distributions by the Company’s health plan subsidiaries;
changes in funding under the Company’s 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 ourselves are not a direct party;
the relatively small number of states in which we operate health plans, including the greater scale and revenues of the Company’s California, Ohio, Texas, and Washington health plans;
the availability of adequate financing on acceptable terms to fund and capitalize the Company’s expansion and growth, repay the Company’s outstanding indebtedness at maturity and meet its liquidity needs, including the interest expense and other costs associated with such financing;
the Company’s failure to comply with the financial or other covenants in its credit agreements or the indentures governing its outstanding notes;
the sufficiency of the Company’s funds on hand to pay the amounts due upon conversion or maturity of its outstanding notes;
the failure of a state in which we operate to renew its federal Medicaid waiver;
changes generally affecting the managed care or Medicaid management information systems industries;
increases in government surcharges, taxes, and assessments, including but not limited to the deductibility of certain compensation costs;
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, 2017 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, 2017.


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ABOUT MOLINA HEALTHCARE
OUR MISSION IS TO PROVIDE QUALITY HEALTHCARE TO PEOPLE RECEIVING GOVERNMENT ASSISTANCE.
Molina Healthcare, Inc. provides quality managed health care to people receiving government assistance. We offer cost-effective Medicaid-related solutions to meet the health care needs of low-income families and individuals, and to assist government agencies in their administration of the Medicaid program. We have three reportable segments. These segments consist of our Health Plans segment, which constitutes the vast majority of our operations; our Molina Medicaid Solutions segment; and our Other segment.

OVERVIEW
KEY PERFORMANCE INDICATORS
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2018
 
2017
 
2018
 
2017
 
(In millions, except per-share amounts)
Ending total membership
4.1

 
4.7

 
4.1

 
4.7

 
 
 
 
 
 
 
 
Premium revenue
$
4,514

 
$
4,740

 
$
8,837

 
$
9,388

Health Plans segment medical margin (1)
$
664

 
$
249

 
$
1,265

 
$
786

Operating income (loss)
$
342

 
$
(287
)
 
$
564

 
$
(205
)
 
 
 
 
 
 
 
 
Net income (loss)
$
202

 
$
(230
)
 
$
309

 
$
(153
)
Net income (loss) per diluted share
$
3.02

 
$
(4.10
)
 
$
4.68

 
$
(2.74
)
Diluted weighted average shares outstanding
66.7

 
56.2

 
66.0

 
56.1

 
 
 
 
 
 
 
 
Adjusted net income (loss) per diluted share*
$
3.08

 
$
(4.01
)
 
$
4.80

 
$
(2.55
)
EBITDA*
$
370

 
$
(243
)
 
$
616

 
$
(40
)
 
 
 
 
 
 
 
 
Operating Statistics:
 
 
 
 
 
 
 
MCR (2)
85.3
%
 
94.8
 %
 
85.7
%
 
91.6
 %
G&A ratio (3)
6.9
%
 
8.1
 %
 
7.2
%
 
8.5
 %
Premium tax ratio (2)
2.3
%
 
2.4
 %
 
2.3
%
 
2.3
 %
Effective income tax rate
33.8
%
 
26.8
 %
 
36.2
%
 
16.0
 %
Net profit (loss) margin (3)
4.1
%
 
(4.6
)%
 
3.2
%
 
(1.5
)%
________________________
(1)
Medical margin is equal to premium revenue minus medical care costs.
(2)
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.
(3)
G&A ratio represents general and administrative expenses as a percentage of total revenue. Net profit margin represents net income as a percentage of total revenue.
*Non-GAAP Financial Measures
We use non-GAAP financial measures as supplemental metrics in evaluating our financial performance, making financing and business decisions, and forecasting and planning for future periods. For these reasons, management believes such measures are useful supplemental measures to investors in comparing our performance to the performance of other public companies in the health care industry. These non-GAAP financial measures should be considered as supplements to, and not as substitutes for or superior to, GAAP measures.
See further information regarding non-GAAP measures in the “Supplemental Information” section of this MD&A, including the reconciliations to U.S. GAAP. Non-GAAP financial measures referred to in this report are designated with an asterisk (*).

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CONSOLIDATED RESULTS
Three Months Ended June 30, 2018 Compared with Three Months Ended June 30, 2017
Net income for the second quarter of 2018 was $202 million, compared with a net loss of $230 million for the second quarter of 2017. Net income per diluted share was $3.02 for the second quarter of 2018, compared with net loss per diluted share of $4.10 reported for the second quarter of 2017.
Premium revenue decreased approximately 5%, or $226 million, in the second quarter of 2018, when compared with the second quarter of 2017. Member months declined 14%, partially offset by a PMPM revenue increase of 9%. Lower premium revenue was driven by a decrease in Marketplace membership, partially offset by Marketplace premium rate increases.
Overall, the medical care ratio improved to 85.3%, from 94.8% in the second quarter of 2017. See further discussion below in “Financial Performance by Program.”
Medical margin increased 167% in the second quarter of 2018, compared with the second quarter of 2017.
The general and administrative (G&A) expense ratio decreased to 6.9%, from 8.1% in the second quarter of 2017. Excluding the impact of Marketplace broker commissions and exchange fees in both periods, the G&A ratio decreased to 6.2%, from 6.7% in the second quarter of 2017. This year-over-year improvement was primarily the result of our efforts to reduce G&A costs under the 2017 Restructuring Plan.
Six Months Ended June 30, 2018 Compared with Six Months Ended June 30, 2017
Net income for the six months ended June 30, 2018 was $309 million, compared with a net loss of $153 million for the six months ended June 30, 2017. Net income per diluted share was $4.68 in the six months ended June 30, 2018, compared with net loss per diluted share of $2.74 reported in the six months ended June 30, 2017.
Premium revenue decreased approximately 6%, or $551 million, in the six months ended June 30, 2018, when compared with the six months ended June 30, 2017. Member months declined 13%, partially offset by a revenue PMPM increase of 7%, primarily relating to Marketplace membership as noted above.
Overall, the medical care ratio improved to 85.7%, from 91.6% in the six months ended June 30, 2017. See further discussion below in “Financial Performance by Program.”
Medical margin increased 61% in the six months ended June 30, 2018, compared with the six months ended June 30, 2017.
Approximately $8 million ($0.10 per diluted share) and $33 million ($0.39 per diluted share) of restructuring costs were recognized in the second quarter and six months ended June 30, 2018, respectively. For more information, refer to Notes to Consolidated Financial Statements, Note 10, “Restructuring and Separation Costs.”
Approximately $5 million ($0.06 per diluted share) and $15 million ($0.21 per diluted share) loss on debt extinguishment was recognized in the second quarter and six months ended June 30, 2018, respectively. For more information, refer to Notes to Consolidated Financial Statements, Note 7, “Debt.”
As presented in the table below, in the second quarter and six months ended June 30, 2017, we recorded significant medical care costs relating to prior year dates of service in excess of historical expectations, and Marketplace-related premium deficiency reserves and changes in estimates for prior year dates of service. In addition, we recorded significant impairment losses and restructuring costs under the 2017 Restructuring Plan.
Renewal of Medicaid Contracts
Year to date in 2018, we renewed Medicaid contracts in Washington, Florida and Puerto Rico as follows:
In May 2018, our Washington health plan was selected by the Washington State Health Care Authority (HCA) to enter into a managed care contract for the eight remaining regions of the state’s Apple Health Integrated Managed Care program, in addition to the two regions previously awarded to us. We were selected by HCA for the following regions: Greater Columbia, King, North Sound, Pierce, and Spokane beginning January 1, 2019; and Salish, Thurston-Mason, and Great Rivers beginning January 1, 2020. As of June 30, 2018, we served approximately 742,000 Medicaid members in Washington, which represented premium revenue of $1,083 million for the six months ended June 30, 2018.
In June 2018, our Florida health plan was awarded comprehensive Medicaid Managed Care contracts by the Florida Agency for Health Care Administration (AHCA) in Regions 8 and 11 of the Florida Statewide Medicaid Managed Care Invitation to Negotiate. As of June 30, 2018, we served approximately 96,000 Medicaid members

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in those regions, which represented premium revenue of approximately $232 million for the six months ended June 30, 2018. Services under the new contract are expected to begin on January 1, 2019. We will be serving both the Medicaid and long-term care populations in the two regions.
In July 2018, our Puerto Rico health plan was selected by the Puerto Rico Health Insurance Administration to be one of the organizations to administer the Commonwealth’s new Medicaid Managed Care contract. Services under the new contract, currently expected to begin on November 1, 2018, would cover the entire island. The base contract runs for a period of three years with an optional one year extension. As of June 30, 2018, we served approximately 326,000 Medicaid members in the East and Southwest regions of Puerto Rico, which represented premium revenue of $370 million for the six months ended June 30, 2018.
Capital Plan Progress
In the second quarter of 2018, we repaid $300 million outstanding under the revolving credit facility. In addition, we repaid $96 million aggregate principal amount of our 1.125% Notes, and entered into privately negotiated termination agreements to partially terminate the related 1.125% Call Option and 1.125% Warrants. In the first quarter of 2018, we exchanged $97 million aggregate principal amount and accrued interest of our 1.625% Convertible Notes for 1.8 million shares of our common stock. Year to date, we have reduced the principal amount of outstanding debt by $493 million.
Sale of Molina Medicaid Solutions Segment
In June 2018, we entered into a definitive agreement to sell Molina Medicaid Solutions (MMS) to DXC Technology Company. The divestiture, expected to close in the third quarter of 2018, is subject to the satisfaction of customary closing conditions and the receipt of certain third party consents and regulatory approvals. We expect the net cash selling price for the equity interests of Molina Medicaid Solutions to approximate $220 million after certain adjustments.
Summary of Significant Items
The tables below summarize the impact of certain items significant to our financial performance in the periods presented. The individual items presented below increase (decrease) income before income tax expense.
 
Three Months Ended June 30, 2018
 
Six Months Ended June 30, 2018
 
Amount
 
Per Diluted Share (1)
 
Amount
 
Per Diluted Share (1)
 
(In millions, except per diluted share amounts)
Marketplace risk adjustment, for 2017 dates of service
$
79

 
$
0.92

 
$
56

 
$
0.66

Marketplace cost sharing reduction (CSR) subsidies, for 2017 dates of service
6

 
0.07

 
76

 
0.90

Restructuring costs
(8
)
 
(0.10
)
 
(33
)
 
(0.39
)
Loss on debt extinguishment
(5
)
 
(0.06
)
 
(15
)
 
(0.21
)
 
$
72

 
$
0.83

 
$
84

 
$
0.96


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Three Months Ended June 30, 2017
 
Six Months Ended June 30, 2017
 
Amount
 
Per Diluted Share (1)
 
Amount
 
Per Diluted Share (1)
 
(In millions, except per diluted share amounts)
Impairment losses
$
(72
)
 
$
(1.01
)
 
$
(72
)
 
$
(1.02
)
Losses at behavioral health subsidiary exclusive of impairment
(8
)
 
(0.09
)
 
(12
)
 
(0.14
)
Medical care costs related to prior year dates of service that were in excess of historical expectations
(85
)
 
(0.95
)
 
(74
)
 
(0.84
)
Marketplace adjustments related to risk adjustment, CSR, and other items for 2016 dates of service
(44
)
 
(0.49
)
 
(47
)
 
(0.53
)
Marketplace premium deficiency reserve for 2017 dates of service
(78
)
 
(0.87
)
 
(70
)
 
(0.79
)
Restructuring and separation costs
(43
)
 
(0.68
)
 
(43
)
 
(0.68
)
Fee received for terminated acquisition

 

 
75

 
0.84

 
$
(330
)
 
$
(4.09
)
 
$
(243
)
 
$
(3.16
)
__________________
(1)
Except for certain items that are not deductible for tax purposes, per diluted share amounts are generally calculated at the statutory income tax rates of 22% for 2018, and 37% for 2017.
 
TRENDS AND UNCERTAINTIES
MEDICAID CONTRACT RE-PROCUREMENT
The following table illustrates Health Plans segment Medicaid contracts scheduled for re-procurement in the near term. While we have been notified of the Medicaid regulators’ intention to re-procure the contracts, the anticipated award dates and effective dates are management’s current best estimates; such dates are subject to change. Premium revenue is stated in millions.
 
 
 
 
 
 
Premium Revenue
 
 
 
 
 
 
 
 
Membership as of
 
Six Months Ended
 
Anticipated
State Health Plan
 
Medicaid Program(s)
 
June 30, 2018
 
June 30, 2018
 
Award Date
 
Effective Date
Texas
 
ABD, MMP
 
99,000

 
$
966

 
Q2 2019
 
6/1/2020
Texas
 
TANF, CHIP
 
127,000

 
159

 
Q1 2019
 
1/1/2020
New Mexico Health Plan Update. In our Annual Report on Form 10-K for 2017, we reported that we were notified by the New Mexico Medicaid agency that we had not been selected for a tentative award of a 2019 Medicaid contract. We filed a brief in support of our judicial protest on July 20, 2018, with proposed protest hearing dates set for September 2018, and a decision expected in or around October 2018. In the interim, a temporary stay allows us to participate in the readiness review process for the new contract award. We are continuing to manage the business in run-off until such time as a different outcome is determined.
Ohio Health Plan MMP Update. In July 2018, the Ohio Medicaid agency submitted a request to Centers for Medicare and Medicaid Services (CMS) for a three-year extension of the MyCare Ohio Duals Demonstration program, through December 31, 2022. The current authority for the program ends December 31, 2019. We estimate annualized premium revenues of approximately $680 million in 2018 under the Ohio MMP program.
PRESSURES ON MEDICAID FUNDING
Currently, there are a number of different legislative proposals being considered, some of which would involve significantly reduced federal spending on the Medicaid program and constitute a fundamental change in the federal role in health care. These proposals include elements such as the following:
Ending the entitlement nature of Medicaid by capping future increases in federal health spending for these programs, and shifting more of the risk for health costs in the 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

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basis (a “per capita cap”);
Requiring Medicaid beneficiaries to work;
Limiting the amount of lifetime benefits for Medicaid beneficiaries; and
Numerous other potential changes and reforms.
ACA AND THE MARKETPLACE
The future of the Affordable Care Act (ACA) and its underlying programs, including the Marketplace, are subject to substantial uncertainty. Effective January 1, 2018, we have:
Exited the Utah and Wisconsin Marketplaces. We are currently evaluating the re-entry into these markets in 2019;
Reduced the scope of our Washington state Marketplace participation;
Increased premiums averaging 58%;
Mitigated our exposure to uncertainties relating to cost share reduction (CSR) funding and reconciliation; and
Adjusted broker commissions to market rates.
Effective January 2019, we have filed rates in nine Marketplace states, including the Utah and Wisconsin Marketplaces.

REPORTABLE SEGMENTS
HOW WE ASSESS PERFORMANCE
We derive our revenues primarily from health insurance premiums, and our primary customers are state Medicaid agencies and the federal government.
One of the key metrics used to assess the performance of our most significant segment, the Health Plans segment, is the medical care ratio (MCR). The MCR represents medical care costs as a percentage of premium revenue. Therefore, the underlying gross 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.
Gross margin for our Health Plans segment is referred to as “Medical margin,” and for our Molina Medicaid Solutions and Other segments, as “Service margin.” The service margin is equal to service revenue minus cost of service revenue. Management’s discussion and analysis of the changes in the individual components of medical margin and service margin follows.
SEGMENT SUMMARY
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2018
 
2017
 
2018
 
2017
 
(In millions)
Health Plans segment medical margin (1)
$
664

 
$
249

 
$
1,265

 
$
786

Molina Medicaid Solutions segment service margin (2)
4

 
4

 
12

 
8

Other segment service margin (2)
5

 
1

 
11

 
6

 
673

 
254

 
$
1,288

 
$
800

 
 
 
 
 
 
 
 
Health Plans segment medical care ratio
85.3
%
 
94.8
%
 
85.7
%
 
91.6
%
_______________________
(1)
Represents premium revenue minus medical care costs.
(2)
Represents service revenue minus cost of service revenue.


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HEALTH PLANS
The Health Plans segment consists of health plans operating in 13 states and the Commonwealth of Puerto Rico. As of June 30, 2018, these health plans served approximately 4.1 million members eligible for Medicaid, Medicare, and other government-sponsored health care programs for low-income families and individuals. This membership includes Marketplace members, most of whom receive government premium subsidies.
BUSINESS OVERVIEW
Health Plans Membership
The following tables set forth our Health Plans membership as of the dates indicated:
 
June 30,
2018
 
December 31,
2017
 
June 30,
2017
Ending Membership by Program:
 
 
 
 
 
Temporary Assistance for Needy Families (TANF) and Children’s Health Insurance Program (CHIP)
2,464,000

 
2,457,000

 
2,517,000

Medicaid Expansion
675,000

 
668,000

 
678,000

Aged, Blind or Disabled (ABD)
415,000

 
412,000

 
408,000

Total Medicaid
3,554,000

 
3,537,000

 
3,603,000

Medicare-Medicaid Plan (MMP) – Integrated (1)
55,000

 
57,000

 
54,000

Medicare Special Needs Plans (Medicare)
45,000

 
44,000

 
44,000

Total Medicare
100,000

 
101,000

 
98,000

Total Medicaid and Medicare
3,654,000

 
3,638,000

 
3,701,000

Marketplace
409,000

 
815,000

 
949,000

 
4,063,000

 
4,453,000

 
4,650,000

 
 
 
 
 
 
Ending Membership by Health Plan:
 
 
 
 
 
California
639,000

 
746,000

 
766,000

Florida
398,000

 
625,000

 
672,000

Illinois
219,000

 
165,000

 
163,000

Michigan
397,000

 
398,000

 
414,000

New Mexico
241,000

 
253,000

 
266,000

Ohio
320,000

 
327,000

 
351,000

Puerto Rico
326,000

 
314,000

 
322,000

South Carolina
114,000

 
116,000

 
112,000

Texas
450,000

 
430,000

 
465,000

Washington
776,000

 
777,000

 
788,000

Other (2)
183,000

 
302,000

 
331,000

 
4,063,000

 
4,453,000

 
4,650,000

_________________________
(1)
MMP members receive both Medicaid and Medicare coverage from Molina Healthcare.
(2)
“Other” includes the Idaho, New York, Utah and Wisconsin health plans, which are not individually significant to our consolidated operating results.


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Premiums by Program
The amount of the premiums paid to our health plans vary substantially between states and among various government programs. The following table sets forth the ranges of premiums paid to our state health plans by program on a per member per month (PMPM) basis, for the six months ended June 30, 2018. The “Consolidated” column represents the weighted-average amounts for our total membership by program.
 
PMPM Premiums
 
Low
 
High
 
Consolidated
TANF and CHIP
$
120.00

 
$
330.00

 
$
190.00

Medicaid Expansion
320.00

 
500.00

 
370.00

ABD
530.00

 
1,510.00

 
1,020.00

MMP – Integrated
1,360.00

 
3,180.00

 
2,180.00

Medicare
690.00

 
1,300.00

 
1,180.00

Marketplace
250.00

 
650.00

 
370.00

FINANCIAL PERFORMANCE BY PROGRAM
The following tables summarize member months, premium revenue, medical care costs, medical care ratio 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 June 30, 2018
 
Member
Months (1)
 
Premium Revenue
 
Medical Care Costs
 
MCR (2)
 
Medical Margin
 
 
Total
 
PMPM
 
Total
 
PMPM
 
 
TANF and CHIP
7.5

 
$
1,393

 
$
186.18

 
$
1,205

 
$
161.13

 
86.5
%
 
$
188

Medicaid Expansion
2.1

 
761

 
372.04

 
676

 
330.83

 
88.9

 
85

ABD
1.3

 
1,288

 
1,033.34

 
1,209

 
969.27

 
93.8

 
79

Total Medicaid
10.9

 
3,442

 
319.52

 
3,090

 
286.89

 
89.8

 
352

MMP
0.1

 
367

 
2,224.30

 
313

 
1,893.91

 
85.1

 
54

Medicare
0.2

 
157

 
1,168.40

 
133

 
989.33

 
84.7

 
24

Total Medicare
0.3

 
524

 
1,751.49

 
446

 
1,488.85

 
85.0

 
78

Total Medicaid and Medicare
11.2

 
3,966

 
358.23

 
3,536

 
319.37

 
89.2

 
430

Marketplace
1.2

 
548

 
440.93

 
314

 
253.04

 
57.4

 
234

 
12.4

 
$
4,514

 
$
366.57

 
$
3,850

 
$
312.68

 
85.3
%
 
$
664

 
Three Months Ended June 30, 2017
 
Member
Months (1)
 
Premium Revenue
 
Medical Care Costs
 
MCR (2)
 
Medical Margin
 
 
Total
 
PMPM
 
Total
 
PMPM
 
 
TANF and CHIP
7.6

 
$
1,391

 
$
182.47

 
$
1,315

 
$
172.48

 
94.5
%
 
$
76

Medicaid Expansion
2.1

 
786

 
383.07

 
689

 
335.26

 
87.5

 
97

ABD
1.2

 
1,285

 
1,053.89

 
1,245

 
1,020.85

 
96.9

 
40

Total Medicaid
10.9

 
3,462

 
317.79

 
3,249

 
298.10

 
93.8

 
213

MMP
0.1

 
361

 
2,217.44

 
333

 
2,050.20

 
92.5

 
28

Medicare
0.2

 
148

 
1,126.14

 
126

 
963.34

 
85.5

 
22

Total Medicare
0.3

 
509

 
1,730.91

 
459

 
1,565.65

 
90.5

 
50

Total Medicaid and Medicare
11.2

 
3,971

 
354.87

 
3,708

 
331.36

 
93.4

 
263

Marketplace
2.8

 
769

 
267.37

 
783

 
272.37

 
101.9

 
(14
)
 
14.0

 
$
4,740

 
$
336.98

 
$
4,491

 
$
319.29

 
94.8
%
 
$
249


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Six Months Ended June 30, 2018
 
Member
Months (1)
 
Premium Revenue
 
Medical Care Costs
 
MCR (2)
 
Medical Margin
 
 
Total
 
PMPM
 
Total
 
PMPM
 
 
TANF and CHIP
14.9

 
$
2,766

 
$
185.66

 
$
2,477

 
$
166.32

 
89.6
%
 
$
289

Medicaid Expansion
4.1

 
1,513

 
372.39

 
1,317

 
324.19

 
87.1

 
196

ABD
2.5

 
2,542

 
1,023.83

 
2,364

 
951.99

 
93.0

 
178

Total Medicaid
21.5

 
6,821

 
318.11

 
6,158

 
287.22

 
90.3

 
663

MMP
0.3

 
724

 
2,180.86

 
618

 
1,858.87

 
85.2

 
106

Medicare
0.3

 
314

 
1,178.58

 
264

 
992.05

 
84.2

 
50

Total Medicare
0.6

 
1,038

 
1,735.05

 
882

 
1,473.30

 
84.9

 
156

Total Medicaid and Medicare
22.1

 
7,859

 
356.59

 
7,040

 
319.43

 
89.6

 
819

Marketplace
2.6

 
978

 
373.67

 
532

 
203.34

 
54.4

 
446

 
24.7

 
$
8,837

 
$
358.40

 
$
7,572

 
$
307.11

 
85.7
%
 
$
1,265


 
Six Months Ended June 30, 2017
 
Member
Months (1)
 
Premium Revenue
 
Medical Care Costs
 
MCR (2)
 
Medical Margin
 
 
Total
 
PMPM
 
Total
 
PMPM
 
 
TANF and CHIP
15.3

 
$
2,793

 
$
182.58

 
$
2,619

 
$
171.25

 
93.8
%
 
$
174

Medicaid Expansion
4.1

 
1,603

 
390.88

 
1,378

 
335.88

 
85.9

 
225

ABD
2.4

 
2,481

 
1,030.68

 
2,375

 
986.54

 
95.7

 
106

Total Medicaid
21.8

 
6,877

 
315.39

 
6,372

 
292.22

 
92.7

 
505

MMP
0.3

 
705

 
2,152.75

 
640

 
1,954.15

 
90.8

 
65

Medicare
0.3

 
286

 
1,097.36

 
243

 
933.20

 
85.0

 
43

Total Medicare
0.6

 
991

 
1,685.72

 
883

 
1,502.36

 
89.1

 
108

Total Medicaid and Medicare
22.4

 
7,868

 
351.35

 
7,255

 
323.98

 
92.2

 
613

Marketplace
5.7

 
1,520

 
264.77

 
1,347

 
234.62

 
88.6

 
173

 
28.1

 
$
9,388

 
$
333.68

 
$
8,602

 
$
305.74

 
91.6
%
 
$
786

_______________________
(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.

Overall
Medical care costs as a percent of premium revenue improved to 85.3% in the second quarter of 2018, from 94.8% in the second quarter of 2017. Excluding the Marketplace risk adjustments and cost sharing reduction (CSR) adjustments relating to prior year dates of service in both periods noted in the tables above in “Overview—Consolidated Results,” the overall medical care ratio would have been 87.0% in the second quarter of 2018, and 93.9% in the second quarter of 2017.
Medical care costs as a percent of premium revenue improved to 85.7% in the six months ended June 30, 2018, from 91.6% in the six months ended June 30, 2017. Excluding the Marketplace risk adjustments and CSR adjustments relating to prior year dates of service in both periods, the overall medical care ratio would have been 87.1% in the six months ended June 30, 2018, and 91.2% in the six months ended June 30, 2017.
Medicaid
TANF and CHIP. The medical care ratio for TANF and CHIP improved to 86.5% in the second quarter of 2018, from 94.5% in the second quarter of 2017; and was 89.6% in the six months ended June 30, 2018, down from 93.8% in the six months ended June 30, 2017. The year over year improvement was primarily due to improved performance at our Illinois and Puerto Rico health plans.
Medicaid Expansion. The medical care ratio for Medicaid Expansion was 88.9% in the second quarter of 2018, up from 87.5% in the second quarter of 2017, and was 87.1% in the six months ended June 30, 2018, up from 85.9% in the six months ended June 30, 2017. These increases were primarily due to the premium reduction we received

Molina Healthcare, Inc. June 30, 2018 Form 10-Q | 46

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in California in July 2017. Medicaid Expansion has generally performed well because rate adequacy has trended favorably, and membership is concentrated in our higher performing health plans, particularly California, Michigan, and Washington.
ABD. The medical care ratio for ABD improved to 93.8% in the second quarter of 2018, compared with 96.9% in the second quarter of 2017; and was 93.0% in the six months ended June 30, 2018, down from 95.7% in the six months ended June 30, 2017. The year over year improvement can be attributed to our continued advancement on key, high acuity management fundamentals.
Medicare and MMP
The medical care ratio for the combined Medicare programs improved to 85.0% in the second quarter of 2018, from 90.5% in the second quarter of 2017; and was 84.9% in the six months ended June 30, 2018, down from 89.1% in the six months ended June 30, 2017. This improvement was partly driven by the recognition of additional MMP at‑risk revenue for dates of service in 2016 and 2017, because at‑risk revenue is often recognized long after medical services have been provided. The Medicare business also benefited from favorable medical care trends and improved medical management of inpatient utilization for this population. Accurate and complete risk score documentation and effective management of chronic and high acuity conditions are critical to the successful management of this program for the rest of the year.
Marketplace
Lower Marketplace premium revenue was driven by a decrease in membership of over 50%, offset by premium rate increases. As previously disclosed, we increased premium rates and reduced our Marketplace presence effective January 1, 2018, as part of our overall program to improve profitability.
The medical care ratio for the Marketplace program decreased to 57.4% in the second quarter of 2018, from 101.9% in the second quarter of 2017; and was 54.4% in the six months ended June 30, 2018, down from 88.6% in the six months ended June 30, 2017.
Excluding the Marketplace risk adjustments and CSR adjustments relating to prior year dates of service in both periods, the Marketplace medical care ratio would have been 68.4% in the second quarter of 2018, compared with 96.3% in second quarter of 2017, and would have been 66.0% in the six months ended June 30, 2018, compared with 86.2% in the six months ended June 30, 2017.
FINANCIAL PERFORMANCE BY STATE
The following tables summarize member months, premium revenue, medical care costs, medical care ratio, 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 June 30, 2018
 
Member
Months
 
Premium Revenue
 
Medical Care Costs
 
MCR
 
Medical Margin
 
 
Total
 
PMPM
 
Total
 
PMPM
 
 
California
1.8

 
$
517

 
$
289.80

 
$
441

 
$
247.36

 
85.4
%
 
$
76

Florida
1.2

 
377

 
353.81

 
362

 
339.31

 
95.9

 
15

Illinois
0.6

 
203

 
311.60

 
170

 
261.59

 
84.0

 
33

Michigan
1.2

 
388

 
342.45

 
331

 
292.20

 
85.3

 
57

New Mexico
0.7

 
313

 
469.88

 
290

 
435.36

 
92.7

 
23

Ohio
1.0

 
535

 
571.08

 
482

 
514.57

 
90.1

 
53

Puerto Rico
0.9

 
184

 
188.26

 
165

 
168.20

 
89.3

 
19

South Carolina
0.4

 
123

 
350.22

 
107

 
304.20

 
86.9

 
16

Texas
0.7

 
576

 
835.66

 
510

 
740.55

 
88.6

 
66

Washington
2.2

 
571

 
252.61

 
526

 
232.49

 
92.0

 
45

Other (1) 
0.5

 
179

 
322.99

 
152

 
274.59

 
85.0

 
27

 
11.2

 
$
3,966

 
$
358.23

 
$
3,536

 
$
319.37

 
89.2
%
 
$
430


Molina Healthcare, Inc. June 30, 2018 Form 10-Q | 47

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Three Months Ended June 30, 2017
 
Member
Months
 
Premium Revenue
 
Medical Care Costs
 
MCR
 
Medical Margin
 
 
Total
 
PMPM
 
Total
 
PMPM
 
 
California
1.9

 
$
598

 
$
318.89

 
$
539

 
$
287.36

 
90.1
%
 
$
59

Florida
1.1

 
380

 
347.20

 
370

 
337.92

 
97.3

 
10

Illinois
0.5

 
149

 
289.51

 
174

 
336.76

 
116.3

 
(25
)
Michigan
1.1

 
390

 
333.26

 
358

 
305.40

 
91.6

 
32

New Mexico
0.8

 
321

 
443.13

 
311

 
428.58

 
96.7

 
10

Ohio
1.0

 
529

 
536.90

 
489

 
496.41

 
92.5

 
40

Puerto Rico
0.9

 
179

 
184.28

 
189

 
194.42

 
105.5

 
(10
)
South Carolina
0.4

 
111

 
326.57

 
102

 
304.14

 
93.1

 
9

Texas
0.7

 
524

 
752.01

 
473

 
679.43

 
90.3

 
51

Washington
2.2

 
618

 
276.90

 
546

 
244.58

 
88.3

 
72

Other (1) 
0.6

 
172

 
294.15

 
157

 
268.91

 
91.4

 
15

 
11.2

 
$
3,971

 
$
354.87

 
$
3,708

 
$
331.36

 
93.4
%
 
$
263

 
Six Months Ended June 30, 2018
 
Member
Months
 
Premium Revenue
 
Medical Care Costs
 
MCR
 
Medical Margin
 
 
Total
 
PMPM
 
Total
 
PMPM
 
 
California
3.6

 
$
1,011

 
$
281.14

 
$
853

 
$
237.26

 
84.4
%
 
$
158

Florida
2.2

 
759

 
352.68

 
707

 
328.26

 
93.1

 
52

Illinois
1.1

 
344

 
305.94

 
292

 
259.87

 
84.9

 
52

Michigan
2.3

 
764

 
339.56

 
662

 
294.19

 
86.6

 
102

New Mexico
1.4

 
632

 
468.00

 
600

 
444.44

 
95.0

 
32

Ohio
1.9

 
1,086

 
573.87

 
942

 
497.75

 
86.7

 
144

Puerto Rico
1.9

 
370

 
190.68

 
339

 
174.74

 
91.6

 
31

South Carolina
0.7

 
245

 
349.15

 
211

 
300.87

 
86.2

 
34

Texas
1.4

 
1,138

 
822.72

 
1,029

 
744.05

 
90.4

 
109

Washington
4.5

 
1,155

 
254.64

 
1,100

 
242.48

 
95.2

 
55

Other (1) 
1.1

 
355

 
318.94

 
305

 
273.97

 
85.9

 
50

 
22.1

 
$
7,859

 
$
356.59

 
$
7,040

 
$
319.43

 
89.6
%
 
$
819

 
Six Months Ended June 30, 2017
 
Member
Months
 
Premium Revenue
 
Medical Care Costs
 
MCR
 
Medical Margin
 
 
Total
 
PMPM
 
Total
 
PMPM
 
 
California
3.7

 
$
1,170

 
$
313.76

 
$
1,023

 
$
274.42

 
87.5
%
 
$
147

Florida
2.2

 
744

 
343.29

 
722

 
333.23

 
97.1

 
22

Illinois
1.1

 
310

 
282.66

 
354

 
322.63

 
114.1

 
(44
)
Michigan
2.3

 
772

 
330.34

 
690

 
295.02

 
89.3

 
82

New Mexico
1.5

 
629

 
432.98

 
610

 
419.65

 
96.9

 
19

Ohio
2.0

 
1,049

 
532.35

 
951

 
482.73

 
90.7

 
98

Puerto Rico
1.9

 
362

 
185.40

 
354

 
181.24

 
97.8

 
8

South Carolina
0.7

 
216

 
321.85

 
200

 
298.79

 
92.8

 
16

Texas
1.4

 
1,051

 
751.94

 
962

 
687.96

 
91.5

 
89

Washington
4.4

 
1,223

 
275.05

 
1,081

 
243.18

 
88.4

 
142

Other (1) 
1.2

 
342

 
291.93

 
308

 
262.97

 
90.1

 
34

 
22.4

 
$
7,868

 
$
351.35

 
$
7,255

 
$
323.98

 
92.2
%
 
$
613

______________________

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

Molina Healthcare, Inc. June 30, 2018 Form 10-Q | 48

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Health Plans Segment Financial Data — Marketplace
 
Three Months Ended June 30, 2018
 
Member
Months
 
Premium Revenue
 
Medical Care Costs
 
MCR
 
Medical Margin
 
 
Total
 
PMPM
 
Total
 
PMPM
 
 
California
0.2

 
$
73

 
$
426.16

 
$
21

 
$
117.92

 
27.7
%
 
$
52

Florida
0.1

 
100

 
698.31

 
38

 
269.86

 
38.6

 
62

Michigan

 
15

 
288.67

 
7

 
146.97

 
50.9

 
8

New Mexico

 
31

 
418.82

 
18

 
247.06

 
59.0

 
13

Ohio

 
31

 
518.64

 
23

 
381.46

 
73.6

 
8

Texas
0.7

 
222

 
330.12

 
160

 
238.72

 
72.3

 
62

Washington
0.2

 
56

 
787.80

 
41

 
572.48

 
72.7

 
15

Other (1)

 
20

 
NM

 
6

 
NM

 
NM
 
14

 
1.2

 
$
548

 
$
440.93

 
$
314

 
$
253.04

 
57.4
%
 
$
234

 
Three Months Ended June 30, 2017
 
Member
Months
 
Premium Revenue
 
Medical Care Costs
 
MCR
 
Medical Margin
 
 
Total
 
PMPM
 
Total
 
PMPM
 
 
California
0.5

 
$
81

 
$
186.90

 
$
67

 
$
154.23

 
82.5
%
 
$
14

Florida
0.9

 
269

 
284.60

 
317

 
336.78

 
118.3

 
(48
)
Michigan
0.1

 
16

 
204.15

 
10

 
135.89

 
66.6

 
6

New Mexico

 
31

 
367.98

 
23

 
266.91

 
72.5

 
8

Ohio

 
24

 
377.94

 
27

 
404.20

 
106.9

 
(3
)
Texas
0.7

 
177

 
247.49

 
129

 
180.92

 
73.1

 
48

Washington
0.2

 
44

 
317.42

 
49

 
359.87

 
113.4

 
(5
)
Other (1)
0.4

 
127

 
304.00

 
161

 
383.02

 
126.0

 
(34
)
 
2.8

 
$
769

 
$
267.37

 
$
783

 
$
272.37

 
101.9
%
 
$
(14
)

 
Six Months Ended June 30, 2018
 
Member
Months
 
Premium Revenue
 
Medical Care Costs
 
MCR
 
Medical Margin
 
 
Total
 
PMPM
 
Total
 
PMPM
 
 
California
0.4

 
$
122

 
$
334.47

 
$
52

 
$
141.73

 
42.4
%
 
$
70

Florida
0.3

 
145

 
468.36

 
22

 
73.13

 
15.6

 
123

Michigan
0.1

 
28

 
254.69

 
16

 
145.49

 
57.1

 
12

New Mexico
0.1

 
65

 
429.19

 
37

 
246.77

 
57.5

 
28

Ohio
0.1

 
57

 
458.48

 
40

 
319.53

 
69.7

 
17

Texas
1.4

 
451

 
318.93

 
306

 
216.83

 
68.0

 
145

Washington
0.2

 
95

 
653.89

 
71

 
486.90

 
74.5

 
24

Other (1)

 
15

 
NM

 
(12
)
 
NM

 
NM
 
27

 
2.6

 
$
978

 
$
373.67

 
$
532

 
$
203.34

 
54.4
%
 
$
446



Molina Healthcare, Inc. June 30, 2018 Form 10-Q | 49

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Six Months Ended June 30, 2017
 
Member
Months
 
Premium Revenue
 
Medical Care Costs
 
MCR
 
Medical Margin
 
 
Total
 
PMPM
 
Total
 
PMPM
 
 
California
0.9

 
$
153

 
$
185.68

 
$
93

 
$
112.20

 
60.4
%
 
$
60

Florida
1.9

 
561

 
288.81

 
523

 
269.48

 
93.3

 
38

Michigan
0.2

 
27

 
177.12

 
17

 
116.21

 
65.6

 
10

New Mexico
0.1

 
53

 
317.10

 
42

 
249.90

 
78.8

 
11

Ohio
0.1

 
45

 
356.20

 
44

 
339.26

 
95.2

 
1

Texas
1.4

 
334

 
235.07

 
242

 
171.07

 
72.8

 
92

Washington
0.3

 
81

 
310.26

 
95

 
362.78

 
116.9

 
(14
)
Other (1)
0.8

 
266

 
313.77

 
291

 
342.88

 
109.3

 
(25
)
 
5.7

 
$
1,520

 
$
264.77

 
$
1,347

 
$
234.62

 
88.6
%
 
$
173

_________________________

(1)
“Other” includes the Utah and Wisconsin health plans, which are not individually significant to our consolidated operating results. We terminated Marketplace operations at these plans effective January 1, 2018, so the ratios for 2018 periods are not meaningful (NM).

Health Plans Segment Financial Data — Total
 
Three Months Ended June 30, 2018
 
Member
Months
 
Premium Revenue
 
Medical Care Costs
 
MCR
 
Medical Margin
 
 
Total
 
PMPM
 
Total
 
PMPM
 
 
California
2.0

 
$
590

 
$
301.73

 
$
462

 
$
236.04

 
78.2
%
 
$
128

Florida
1.3

 
477

 
394.38

 
400

 
331.13

 
84.0

 
77

Illinois
0.6

 
203

 
311.60

 
170

 
261.59

 
84.0

 
33

Michigan
1.2

 
403

 
340.08

 
338

 
285.78

 
84.0

 
65

New Mexico
0.7

 
344

 
464.90

 
308

 
416.99

 
89.7

 
36

Ohio
1.0

 
566

 
567.96

 
505

 
506.66

 
89.2

 
61

Puerto Rico
0.9

 
184

 
188.26

 
165

 
168.20

 
89.3

 
19

South Carolina
0.4

 
123

 
350.22

 
107

 
304.20

 
86.9

 
16

Texas
1.4

 
798

 
585.50

 
670

 
492.23

 
84.1

 
128

Washington
2.4

 
627

 
268.84

 
567

 
242.80

 
90.3

 
60

Other (1)
0.5

 
199

 
360.90

 
158

 
285.65

 
79.1

 
41

 
12.4

 
$
4,514

 
$
366.57

 
$
3,850

 
$
312.68

 
85.3
%
 
$
664


Molina Healthcare, Inc. June 30, 2018 Form 10-Q | 50

Table of Contents

 
Three Months Ended June 30, 2017
 
Member
Months
 
Premium Revenue
 
Medical Care Costs
 
MCR
 
Medical Margin
 
 
Total
 
PMPM
 
Total
 
PMPM
 
 
California
2.4

 
$
679

 
$
294.09

 
$
606

 
$
262.34

 
89.2
%
 
$
73

Florida
2.0

 
649

 
318.21

 
687

 
337.39

 
106.0

 
(38
)
Illinois
0.5

 
149

 
289.51

 
174

 
336.76

 
116.3

 
(25
)
Michigan
1.2

 
406

 
325.38

 
368

 
295.06

 
90.7

 
38

New Mexico
0.8

 
352

 
435.34

 
334

 
411.83

 
94.6

 
18

Ohio
1.0

 
553

 
527.14

 
516

 
490.75

 
93.1

 
37

Puerto Rico
0.9

 
179

 
184.28

 
189

 
194.42

 
105.5

 
(10
)
South Carolina
0.4

 
111

 
326.57

 
102

 
304.14

 
93.1

 
9

Texas
1.4

 
701

 
495.93

 
602

 
426.41

 
86.0

 
99

Washington
2.4

 
662

 
279.21

 
595

 
251.16

 
90.0

 
67

Other (1)
1.0

 
299

 
298.29

 
318

 
316.89

 
106.2

 
(19
)
 
14.0

 
$
4,740

 
$
336.98

 
$
4,491

 
$
319.29

 
94.8
%
 
$
249

 
Six Months Ended June 30, 2018
 
Member
Months
 
Premium Revenue
 
Medical Care Costs
 
MCR
 
Medical Margin
 
 
Total
 
PMPM
 
Total
 
PMPM
 
 
California
4.0

 
$
1,133

 
$
286.07

 
$
905

 
$
228.44

 
79.9
%
 
$
228

Florida
2.5

 
904

 
367.18

 
729

 
296.29

 
80.7

 
175

Illinois
1.1

 
344

 
305.94

 
292

 
259.87

 
84.9

 
52

Michigan
2.4

 
792

 
335.59

 
678

 
287.23

 
85.6

 
114

New Mexico
1.5

 
697

 
464.11

 
637

 
424.58

 
91.5

 
60

Ohio
2.0

 
1,143

 
566.77

 
982

 
486.79

 
85.9

 
161

Puerto Rico
1.9

 
370

 
190.68

 
339

 
174.74

 
91.6

 
31

South Carolina
0.7

 
245

 
349.15

 
211

 
300.87

 
86.2

 
34

Texas
2.8

 
1,589

 
567.95

 
1,335

 
477.43

 
84.1

 
254

Washington
4.7

 
1,250

 
267.01

 
1,171

 
250.05

 
93.6

 
79

Other (1)
1.1

 
370

 
333.35

 
293

 
263.24

 
79.0

 
77

 
24.7

 
$
8,837

 
$
358.40

 
$
7,572

 
$
307.11

 
85.7
%
 
$
1,265

 
Six Months Ended June 30, 2017
 
Member
Months
 
Premium Revenue
 
Medical Care Costs
 
MCR
 
Medical Margin
 
 
Total
 
PMPM
 
Total
 
PMPM
 
 
California
4.6

 
$
1,323

 
$
290.56

 
$
1,116

 
$
245.02

 
84.3
%
 
$
207

Florida
4.1

 
1,305

 
317.53

 
1,245

 
303.09

 
95.5

 
60

Illinois
1.1

 
310

 
282.66

 
354

 
322.63

 
114.1

 
(44
)
Michigan
2.5

 
799

 
321.10

 
707

 
284.24

 
88.5

 
92

New Mexico
1.6

 
682

 
421.11

 
652

 
402.27

 
95.5

 
30

Ohio
2.1

 
1,094

 
521.57

 
995

 
473.95

 
90.9

 
99

Puerto Rico
1.9

 
362

 
185.40

 
354

 
181.24

 
97.8

 
8

South Carolina
0.7

 
216

 
321.85

 
200

 
298.79

 
92.8

 
16

Texas
2.8

 
1,385

 
491.46

 
1,204

 
427.48

 
87.0

 
181

Washington
4.7

 
1,304

 
276.99

 
1,176

 
249.79

 
90.2

 
128

Other (1)
2.0

 
608

 
301.11

 
599

 
296.58

 
98.5

 
9

 
28.1

 
$
9,388

 
$
333.68

 
$
8,602

 
$
305.74

 
91.6
%
 
$
786

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


Molina Healthcare, Inc. June 30, 2018 Form 10-Q | 51

Table of Contents


MEDICAL CARE COSTS BY TYPE
The following table provides the details of consolidated medical care costs by category for the periods indicated (dollars in millions except PMPM amounts):
 
Three Months Ended June 30,
 
2018
 
2017
 
Amount
 
PMPM
 
% of
Total
 
Amount
 
PMPM
 
% of
Total
Fee for service
$
2,861

 
$
232.40

 
74.4
%
 
$
3,348

 
$
238.04

 
74.5
%
Pharmacy
567

 
46.05

 
14.7

 
650

 
46.23

 
14.5

Capitation
282

 
22.89

 
7.3

 
356

 
25.29

 
7.9

Other
140

 
11.34

 
3.6

 
137

 
9.73

 
3.1

 
$
3,850

 
$
312.68

 
100.0
%
 
$
4,491

 
$
319.29

 
100.0
%
 
Six Months Ended June 30,
 
2018
 
2017
 
Amount
 
PMPM
 
% of Total
 
Amount
 
PMPM
 
% of Total
Fee for service
$
5,606

 
$
227.38

 
74.1
%
 
$
6,434

 
$
228.68

 
74.8
%
Pharmacy
1,150

 
46.66

 
15.2

 
1,266

 
45.00

 
14.7

Capitation
594

 
24.09

 
7.8

 
680

 
24.17

 
7.9

Other
222

 
8.98

 
2.9

 
222

 
7.89

 
2.6

 
$
7,572

 
$
307.11

 
100.0
%
 
$
8,602

 
$
305.74

 
100.0
%
PREMIUM TAXES
The premium tax ratio (premium tax expense as a percentage of premium revenue plus premium tax revenue) was 2.3% in the second quarter of 2018 compared with 2.4% in the second quarter of 2017 and 2.3% in both the six months ended June 30, 2018 and 2017.
HEALTH INSURER FEES (HIF)
Health insurer fees reimbursed amounted to $104 million and $165 million, and health insurer fees amounted to $99 million and $174 million, in the second quarter of 2018 and the six months ended June 30, 2018, respectively. In the second quarter of 2018, we recognized revenue related to the reimbursement of Medicaid health insurer fees from New Mexico, New York, and Puerto Rico, because we received adequate documentation of the intent to reimburse such fees.
There were no HIF reimbursed or expensed in 2017 due to the HIF moratorium under the Consolidated Appropriations Act of 2016.

MOLINA MEDICAID SOLUTIONS

The Molina Medicaid Solutions segment provides support to state government agencies’ administration of their Medicaid programs, including business processing, information technology development and administrative services.
In June 2018, we entered into a definitive agreement to sell Molina Medicaid Solutions (MMS) to DXC Technology Company. The divestiture, expected to close in the third quarter of 2018, is subject to the satisfaction of customary closing conditions and the receipt of certain third party consents and regulatory approvals.
FINANCIAL OVERVIEW
The Molina Medicaid Solutions segment service margin for the second quarter of 2018 and 2017 and for the six months ended June 30, 2018 and 2017, was insignificant.


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OTHER

The Other segment includes primarily our Pathways behavioral health and social services provider, and corporate amounts not allocated to other reportable segments.
FINANCIAL OVERVIEW
The Other segment service margin for the second quarter of 2018 and 2017 and for the six months ended June 30, 2018 and 2017, was insignificant.

OTHER CONSOLIDATED INFORMATION
GENERAL AND ADMINISTRATIVE EXPENSES
The G&A ratio decreased to 6.9% in the second quarter of 2018, compared with 8.1% in the second quarter of 2017. The G&A ratio decreased to 7.2% for the six months ended June 30, 2018, compared with 8.5% for the six months ended June 30, 2017. Refer to the discussion above, in “Consolidated Results.”
IMPAIRMENT LOSSES
No impairment losses were recorded in the first half of 2018.
In the second quarter of 2017, we recorded $72 million in non-cash impairment losses for goodwill and intangibles, primarily relating to our Pathways subsidiary. In the course of developing the 2017 Restructuring Plan, we determined that future benefits to be derived from Pathways (including integration with our health plans) would be less than previously anticipated.
RESTRUCTURING AND SEPARATION COSTS
See Notes to Consolidated Financial Statements, Note 10, “Restructuring and Separation Costs.”
INTEREST EXPENSE
Interest expense was $32 million for the second quarter of 2018, compared with $27 million for the second quarter of 2017. Interest expense was $65 million for the six months ended June 30, 2018, compared with $53 million for the six months ended June 30, 2017. As further described below in “Liquidity,” year to date we have reduced the principal amount of outstanding debt by $493 million.
Interest expense includes non-cash interest expense relating primarily to the amortization of the discount on convertible senior notes, which amounted to $6 million and $8 million in the second quarter of 2018 and 2017, respectively and $13 million and $16 million in the six months ended June 30, 2018 and 2017, respectively. See further discussion in Notes to Consolidated Financial Statements, Note 7, “Debt.”
OTHER EXPENSES (INCOME), NET
In the six months ended June 30, 2018, we recorded other expenses of $15 million due to the loss on debt extinguishment resulting from our 1.125% Convertible Notes repayments and the 1.625% Exchange. These transactions are described further in Notes to Consolidated Financial Statements, Note 7, “Debt.” In February of 2017, we received a $75 million fee in connection with a terminated Medicare acquisition.
INCOME TAXES
The provision for income taxes was recorded at an effective rate of 33.8% for the second quarter of 2018, compared with a benefit of 26.8% for the second quarter of 2017, and 36.2% for the six months ended June 30, 2018, compared with a benefit of 16.0% for the six months ended June 30, 2017. The effective tax rate for 2018 differs from 2017 as a result of the reduction in the federal statutory rate from 35% to 21% under the TCJA, combined with higher non-deductible expenses in 2018 primarily related to the non-deductible HIF as a percentage of pre-tax income (loss). The HIF was not applicable in 2017 due to the 2017 HIF moratorium.


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LIQUIDITY AND FINANCIAL CONDITION
INTRODUCTION
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.
A majority of the assets held by our Health Plans segment regulated subsidiaries is in the form of cash, cash equivalents, and 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 that conform to applicable state laws and regulations.
Our investments are classified as current assets, except for our held-to-maturity restricted investments, which are classified as non-current assets, and which are not included in the totals below. Our held-to-maturity restricted investments are invested principally in certificates of deposit and U.S. treasury securities.
 
chart-bbdbdeaba0c85990889.jpg
 
Investment income increased to $42 million for the six months ended June 30, 2018, compared with $22 million for the six months ended June 30, 2017, primarily due to increases in our average invested assets, and in our annualized portfolio yield.
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.
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 June 30, 2018, the fair value of our fixed income investments would decrease by approximately $19 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 Facility bear interest based, at our election, on a base rate or an adjusted London Interbank Offered Rate (LIBOR), plus in each case the applicable margin. As of June 30, 2018, no amounts were outstanding under the Credit Facility.

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LIQUIDITY
A condensed schedule of cash flows to facilitate our discussion of liquidity follows:
 
Six Months Ended June 30,
 
2018
 
2017
 
Change
 
(In millions)
Net cash provided by operating activities
$
314

 
$
672

 
$
(358
)
Net cash provided by (used in) investing activities
398

 
(846
)
 
1,244

Net cash (used in) provided by financing activities
(503
)
 
333

 
(836
)
Net increase in cash, cash equivalents, and restricted cash and cash equivalents
$
209

 
$
159

 
$
50

Operating Activities
Net cash provided by operating activities decreased $358 million in the six months ended June 30, 2018, compared with the six months ended June 30, 2017. Increased net income of $462 million was offset by the following:
Receivables and deferred revenue. The aggregate year-over-year change in receivables and deferred revenue reduced cash flows from operations by $293 million. Cash flows from operations in each period were impacted by the timing of premium receipts, including health insurer fees (HIF) to be reimbursed in 2018. In general, state or federal payors may delay our premium payments, which we record as a receivable, or they may prepay the following month’s premium payment, which we record as deferred revenue. We typically receive capitation payments monthly; however, state or federal payors may decide to adjust their payment schedules which could positively or negatively impact our reported cash flows from operating activities in any given period. In 2018, the year-over-year effect of the timing of premiums received at our California, Florida, Ohio, and Washington health plans negatively impacted our cash flows from operating activities. In 2017, no receivables were recorded for the HIF due to the moratorium in that year.
Prepaid expenses and other current assets, and accounts payable and accrued liabilities. Each of these accounts increased significantly in the six months ended June 30, 2018, primarily due to amounts recorded in connection with the reinstatement of the HIF in 2018, with no comparable activity in 2017.
Medical claims and benefits payable. In the six months ended June 30, 2018, the change in medical claims and benefits payable decreased cash flows from operations by $415 million, primarily due to the decline in reserves resulting from reduced Marketplace membership in Florida, Utah, Washington and Wisconsin.
Amounts due government agencies. While amounts due government agencies increased $205 million in the six months ended June 30, 2018, this increase was less than the increase experienced in the six months ended June 30, 2017, resulting in a year over year reduction in cash flows from operations of $437 million. This decrease was primarily due to a decline in the amounts accrued for Marketplace CSR subsidies year over year.
Investing Activities
Investing activities were a source of cash of $398 million in the six months ended June 30, 2018, and a use of cash of $846 million in the six months ended June 30, 2017. This was primarily due to reduced purchases of investments and higher proceeds from sales and maturities of investments in the six months ended June 30, 2018, largely a result of the financing activities described below.
Financing Activities
Net cash used in financing activities increased $836 million in the six months ended June 30, 2018 compared with the six months ended June 30, 2017. The increase in cash used in the six months ended June 30, 2018 was due to the following:
$300 million repayment the Credit Facility;
$89 million repayment of the 1.125% Convertible Notes;
$134 million cash paid for partial settlement of the 1.125% Conversion Option; and
$113 million cash paid for partial termination of the 1.125% Warrants.

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These uses of cash were partially offset by $134 million cash received for the settlement of a portion of the 1.125% Call Option. In the six months ended June 30, 2017, we received proceeds of $325 million from the sale of the 4.875% Notes.
FINANCIAL CONDITION
We believe that our cash resources, our borrowing capacity available under our Bridge Credit Agreement and Credit Facility as discussed further below in “Future Sources and Uses of Liquidity—Future Sources,” and internally generated funds will be sufficient to support operations, regulatory requirements, debt repayment obligations and capital expenditures for at least the next 12 months.
On a consolidated basis, at June 30, 2018, our working capital was $2,207 million, compared with $1,954 million at December 31, 2017. At June 30, 2018, our cash and investments amounted to $5,767 million, compared with $6,000 million at December 31, 2017.
Because of the statutory restrictions that inhibit the ability of our health plans to transfer net assets to us, the amount of retained earnings readily available to pay dividends to our stockholders is generally limited to cash, cash equivalents and investments held by the parent company—Molina Healthcare, Inc. Such cash, cash equivalents and investments amounted to $350 million and $696 million as of June 30, 2018 and December 31, 2017, respectively.
Debt Ratings. Our 5.375% Notes are rated “BB-” by Standard & Poor’s, and “B3” by Moody’s Investor Service, Inc. A significant downgrade in our ratings could adversely affect our borrowing capacity and increase our borrowing costs.
Financial Covenants. Our Credit Facility 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 Facility.
Credit Facility Financial Covenants
Required Per Agreement
 
As of June 30, 2018
 
 
 
 
Net leverage ratio
<4.0x
 
1.4x
Interest coverage ratio
>3.5x
 
9.7x
In addition, the indentures governing the 4.875% Notes, the 5.375% Notes, the 1.125% Convertible Notes and the 1.625% 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. Our Bridge Credit Agreement contains customary non-financial covenants. As of June 30, 2018, we were in compliance with all covenants under the Credit Facility, our Bridge Credit Agreement and the indentures governing our outstanding notes.
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 health care services. Such cash flows are our primary source of liquidity. Thus, any future 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. In the six months ended June 30, 2018, the regulated health plan subsidiaries paid $50 million in dividends to the parent, and the unregulated subsidiaries paid $10 million in dividends to the parent. In July 2018, the regulated health plan subsidiaries paid $60 million in dividends to the parent. For more information on our regulatory capital requirements and dividend restrictions, refer to Notes to Consolidated Financial Statements, Note 12, “Commitments and Contingencies—Regulatory Capital Requirements and Dividend Restrictions.”
Borrowing Capacity and Debt Financing. We have available borrowing capacity of $550 million under our Bridge Credit Agreement (which amount is subject to the use of proceeds restrictions set forth in the Bridge Credit Agreement), and $494 million under our Credit Facility. In addition, we have adequate cash held in a restricted

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account available to satisfy the redemption or conversion cash payments applicable to the $64 million principal balance outstanding under our 1.625% Convertible Notes, when they are redeemed or converted in the third quarter of 2018. See further discussion in the Notes to Consolidated Financial Statements, Note 7, “Debt.”
Sale of MMS. We expect the net cash selling price for the equity interests of MMS to approximate $220 million after certain adjustments. See further discussion in the Notes to Consolidated Financial Statements, Note 1, “Basis of Presentation.”
2017 Restructuring Plan. As previously disclosed, we estimate that the 2017 Restructuring Plan will reduce annualized run-rate expenses by approximately $300 million to $400 million when completed by the end of 2018. This estimate includes run-rate savings of approximately $10 million relating to actions taken in the first quarter of 2018. We expect the cost savings to reduce both “General and administrative expenses” and “Medical care costs” reported in our consolidated statements of operations. The following table illustrates our estimates of run-rate savings associated with the 2017 Restructuring Plan, which have not changed significantly since our estimate at December 31, 2017. Such savings will be offset, through the end of 2018, by the costs referred to in the Notes to Consolidated Financial Statements, Note 10, “Restructuring and Separation Costs.”
Estimated Savings Expected to be Realized by Reportable Segment
 
Health Plans
 
Other
 
Total
 
 
(In millions)
General and administrative expenses
 
$65
 
$92 to $152
 
$157 to $217
Medical care costs
 
$126 to $166
 
$17
 
$143 to $183
 
 
$191 to $231
 
$109 to $169
 
$300 to $400
Shelf Registration Statement. We have a shelf registration statement on file with the Securities and Exchange Commission to register an unlimited amount of any combination of debt or equity securities in one or more offerings. Specific information regarding the terms and securities being offered and the use of proceeds will be provided at the time of an offering.
Future Uses
Regulatory Capital Requirements and Dividend Restrictions. In the six months ended June 30, 2018, the parent company contributed capital of $117 million to our regulated health plan subsidiaries to satisfy statutory net worth requirements.
Convertible Senior Notes. Refer to the Notes to Consolidated Financial Statements, Note 7, “Debt,” for a detailed discussion of our convertible senior notes, including recent transactions.
1.625% Convertible Notes. On July 11, 2018, we announced notice of our election to redeem the remaining $64 million aggregate principal amount of the 1.625% Convertible Notes on August 20, 2018 (the Redemption Date). Pursuant to the terms of the indenture, the 1.625% Convertible Notes will be redeemed for cash equal to 100% of the principal amount plus accrued and unpaid interest to, but excluding the Redemption Date (the Redemption Price).
Also pursuant to the indenture, the 1.625% Convertible Notes may be converted until August 17, 2018, at a conversion rate of 17.2157 shares of our common stock per $1,000 principal amount, or approximately $58.09 per share of our common stock. Upon conversion, we will pay cash for the principal and, if applicable, deliver shares of our common stock to the converting holders in an amount per $1,000 principal amount equal to the settlement amount (as defined in the related indenture). After August 17, 2018, holders will be entitled only to the Redemption Price. As noted above, we have adequate cash held in a restricted account available to satisfy the redemption or conversion cash payments applicable to the $64 million principal balance outstanding under our 1.625% Convertible Notes, when they are redeemed or converted in the third quarter of 2018.
1.125% Convertible Notes. The principal amount of our 1.125% Convertible Notes is convertible into cash prior to its maturity date under certain circumstances, one of which relates to the closing price of our common stock over a specified period. We refer to this conversion trigger as the stock price trigger. The stock price trigger for the 1.125% Notes is $53.00 per share. The 1.125% Convertible Notes met this trigger in the quarter ended June 30, 2018, and are convertible to cash through at least September 30, 2018. Because the 1.125% Convertible Notes may be converted into cash within 12 months, the $420 million carrying amount is reported in current portion of long-term debt as of June 30, 2018. If conversion requests are received, the settlement of the notes must be paid in cash pursuant to the terms of the relevant indentures. We have sufficient available cash, combined with borrowing capacity available under our Credit Facility and Bridge Credit Agreement, to fund conversions should they occur.

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CONTRACTUAL OBLIGATIONS
A summary of future obligations under our various contractual obligations and commitments as of December 31, 2017, was disclosed in our 2017 Annual Report on Form 10-K. Other than the financing transactions noted in the Notes to Consolidated Financial Statements, Note 7, “Debt,” there were no material changes to this previously filed information outside the ordinary course of business during the six months ended June 30, 2018.

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:
Health Plans segment 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 six months ended June 30, 2018, to our disclosure reported in “Critical Accounting Estimates” in our Annual Report on Form 10-K for the year ended December 31, 2017.
Health Plans segment 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.”
Health Plans segment 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 six months ended June 30, 2018, to our disclosure reported in “Critical Accounting Estimates” in our Annual Report on Form 10-K for the year ended December 31, 2017.

SUPPLEMENTAL INFORMATION
FINANCIAL MEASURES THAT SUPPLEMENT U.S. GAAP (NON-GAAP FINANCIAL MEASURES)
We use these non-GAAP financial measures as supplemental metrics in evaluating our financial performance, making financing and business decisions, and forecasting and planning for future periods. For these reasons, management believes such measures are useful supplemental measures to investors in comparing our performance to the performance of other public companies in the health care industry.

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EBITDA*
We believe that earnings before interest, taxes, depreciation and amortization (EBITDA*) is helpful in assessing our ability to meet the cash demands of our operating units.
 
Three Months Ended June 30,
 
Six Months Ended June 30,
2018
 
2017
 
2018
 
2017
 
(In millions)
Net income (loss)
$
202

 
$
(230
)
 
$
309

 
$
(153
)
Adjustments:
 
 
 
 
 
 
 
Depreciation, and amortization of intangible assets and capitalized software
33

 
44

 
67

 
90

Interest expense
32

 
27

 
65

 
53

Income tax expense (benefit)
103

 
(84
)
 
175

 
(30
)
EBITDA*
$
370

 
$
(243
)
 
$
616

 
$
(40
)
ADJUSTED NET INCOME (LOSS)* AND ADJUSTED NET INCOME (LOSS) PER SHARE*
We believe that adjusted net income (loss)* and adjusted net income (loss) per diluted share* are helpful in assessing our financial performance exclusive of the non-cash impact of the amortization of purchased intangibles. The following table reconciles net income (loss), which we believe to be the most comparable GAAP measure, to adjusted net income (loss)*.
 
Three Months Ended June 30,
 
Six Months Ended June 30,
2018
 
2017
 
2018
 
2017
 
(In millions, except diluted per-share amounts)
Net income (loss)
$
202

 
$
3.02

 
$
(230
)
 
$
(4.10
)
 
$
309

 
$
4.68

 
$
(153
)
 
$
(2.74
)
Adjustment:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Amortization of intangible assets
5

 
0.08

 
8

 
0.14

 
10

 
0.16

 
17

 
0.30

Income tax effect (1)
(1
)
 
(0.02
)
 
(3
)
 
(0.05
)
 
(2
)
 
(0.04
)
 
(6
)
 
(0.11
)
Amortization of intangible assets, net of tax effect
4

 
0.06

 
5

 
0.09

 
8

 
0.12

 
11

 
0.19

Adjusted net income (loss)*
$
206

 
$
3.08

 
$
(225
)
 
$
(4.01
)
 
$
317

 
$
4.80

 
$
(142
)
 
$
(2.55
)
__________________________
(1)
Income tax effect of adjustments calculated at the blended federal and state statutory tax rates of 22% and 37% for 2018 and 2017, respectively.

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 of 1934, as amended (the “Exchange Act”)), are effective to ensure that information required to be disclosed in the reports that we file or submit under the 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 June 30, 2018 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.”


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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, 2017. The risk factors described in our 2017 Annual Report on Form 10-K 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.

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 June 30, 2018, 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
April 1 - April 30
2,528

 
$
81.18

 

 
$

May 1 - May 31

 
$

 

 
$

June 1 - June 30
4,096

 
$
85.46

 

 
$

Total
6,624

 
$
83.83

 

 
 
_______________________
(1)
During the three months ended June 30, 2018, we withheld 6,624 shares of common stock under our 2011 Equity Incentive Plan to settle employee income tax obligations.

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INDEX TO EXHIBITS 
Exhibit No.
 
Title
 
Method of Filing
 
 
 
 
 
Purchase and Sale Agreement, dated as of June 26, 2018, by and between Molina Healthcare, Inc. and DXC Technology Company*
 
Filed as Exhibit 2.1 to registrant’s Form 8-K filed June 27, 2018.
 
 
 
 
 
 
Fifth Amended and Restated Bylaws of Molina Healthcare, Inc.
 
Filed as Exhibit 3.1 to registrant’s Form 8-K filed May 7, 2018.
 
 
 
 
 
 
Offer Letter, dated May 4, 2018, by and between Molina Healthcare, Inc. and Thomas L. Tran.
 
Filed as Exhibit 10.1 to registrant’s Form 8-K filed May 24, 2018.
 
 
 
 
 
 
Molina Healthcare, Inc. Amended and Restated Deferred Compensation Plan (2018)
 
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.
* Certain schedules and exhibits to this agreement have been omitted in accordance with Item 601(b)(2) of Regulation S-K. A copy of any omitted schedule and/or exhibit will be furnished to the Securities and Exchange Commission upon request.


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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:
August 1, 2018
 
/s/ JOSEPH M. ZUBRETSKY
 
 
 
Joseph M. Zubretsky
 
 
 
Chief Executive Officer
 
 
 
(Principal Executive Officer)
 
 
 
Dated:
August 1, 2018
 
/s/ THOMAS L. TRAN
 
 
 
Thomas L. Tran
 
 
 
Chief Financial Officer and Treasurer
 
 
 
(Principal Financial Officer)


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