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 ~~September 30, 2017~~March 31, 2019



¨	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

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 an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ý Accelerated filer ¨ Non-accelerated filer ¨ (do not check if a smaller reporting company)



~~Large accelerated filer~~	ý	~~Accelerated filer~~	¨

~~Non-accelerated filer~~	Smaller reporting company ¨ Emerging growth company ¨ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section13(a) of the Exchange Act. ¨ ¨ ~~(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 ~~October 27, 2017,~~April 26, 2019, was approximately ~~57,094,000.~~62,619,000.

MOLINA HEALTHCARE, INC. FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED ~~September 30, 2017~~March 31, 2019

TABLE OF CONTENTS



	~~Page~~
~~Financial Statements~~	3
~~Management’s Discussion and Analysis of Financial Condition and Results of Operations~~	39
~~Controls and Procedures~~	63
~~Legal Proceedings~~	65
~~Risk Factors~~	65
~~Unregistered Sales of Equity Securities and Use of Proceeds~~	65
~~Exhibits~~	66
~~Signatures~~	67

~~CROSS-REFERENCE INDEX~~


ITEM NUMBER	ITEM NUMBER	Page	ITEM NUMBER	Page

PART I - Financial Information	PART I - Financial Information		PART I - Financial Information

1.	Financial Statements	3	Financial Statements	3

2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	39	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27

3.	Quantitative and Qualitative Disclosures About Market Risk	57	Quantitative and Qualitative Disclosures About Market Risk	42

4.	Controls and Procedures	63	Controls and Procedures	43

Part II - Other Information	Part II - Other Information		Part II - Other Information

1.	Legal Proceedings	65	Legal Proceedings	43

1A.	Risk Factors	65	Risk Factors	43

2.	Unregistered Sales of Equity Securities and Use of Proceeds	65	Unregistered Sales of Equity Securities and Use of Proceeds	43

3.	Defaults Upon Senior Securities	Not Applicable.	Defaults Upon Senior Securities	Not Applicable.

4.	Mine Safety Disclosures	Not Applicable.	Mine Safety Disclosures	Not Applicable.

5.	Other Information	Not Applicable.	Other Information	Not Applicable.

6.	Exhibits	66	Exhibits	44

	Signatures	67	Signatures	45

~~FINANCIAL STATEMENTS~~

~~MOLINA HEALTHCARE, INC.~~

CONSOLIDATED STATEMENTS OF ~~OPERATIONS~~INCOME


	Three Months Ended September 30,					Nine Months Ended September 30,					Three Months Ended March 31,
	2017			2016		2017			2016		2019			2018
	(In millions, except per-share data) (Unaudited)										(In millions, except per-share amounts) (Unaudited)
Revenue:
Premium revenue	$	4,777		$	4,191	$	14,165		$	12,215	$	3,952		$	4,323
Premium tax revenue											138			104
Health insurer fees reimbursed											—			61
Service revenue	130			133		390			408		—			134
Premium tax revenue	106			127		331			345
Health insurer fee revenue	—			85		—			251
Investment income and other revenue	18			10		48			29		29			24
Total revenue	5,031			4,546		14,934			13,248		4,119			4,646
Operating expenses:
Medical care costs	4,220			3,748		12,822			10,930		3,371			3,722
Cost of service revenue	123			119		369			362
General and administrative expenses	383			343		1,227			1,034		302			352
Premium tax expenses	106			127		331			345		138			104
Health insurer fee expenses	—			55		—			163
Health insurer fees											—			75
Depreciation and amortization	33			36		109			102		25			26
Impairment losses	129			—		201			—
Restructuring and separation costs	118			—		161			—
Restructuring costs											3			25
Cost of service revenue											—			120
Total operating expenses	5,112			4,428		15,220			12,936		3,839			4,424
Operating (loss) income	(81		)	118		(286		)	312
Operating income											280			222
Other expenses, net:
Interest expense	32			26		85			76		23			33
Other income, net	—			—		(75		)	—
Other (income) expenses, net											(3		)	10
Total other expenses, net	32			26		10			76		20			43
(Loss) income before income tax (benefit) expense	(113		)	92		(296		)	236
Income tax (benefit) expense	(16		)	50		(46		)	137
Net (loss) income	$	(97	)	$	42	$	(250	)	$	99
Income before income tax expense											260			179
Income tax expense											62			72
Net income											$	198		$	107

Net (loss) income per share:
Net income per share:
Basic	$	(1.70	)	$	0.77	$	(4.44	)	$	1.79	$	3.19		$	1.79
Diluted	$	(1.70	)	$	0.76	$	(4.44	)	$	1.77	$	2.99		$	1.64

CONSOLIDATED STATEMENTS OF COMPREHENSIVE ~~(LOSS)~~ INCOME

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016

(Amounts in millions)
(Unaudited)
Net (loss) income $ (97 ) $ 42
$ (250 ) $ 99
Other comprehensive income:
Unrealized investment gain (loss) 1
(3 ) 2
10
Less: effect of income taxes 1
(2 ) 1
3
Other comprehensive (loss) income, net of tax —
(1 ) 1
7
Comprehensive (loss) income $ (97 ) $ 41
$ (249 ) $ 106



	Three Months Ended March 31,
	2019		2018
	(In millions) (Unaudited)
Net income	$	198	$	107
Other comprehensive income (loss):
Unrealized investment gain (loss)	7		(7		)
Less: effect of income taxes	2		(1		)
Other comprehensive income (loss), net of tax	5		(6		)
Comprehensive income	$	203	$	101

See accompanying notes.

~~MOLINA HEALTHCARE, INC.~~

CONSOLIDATED BALANCE SHEETS


	September 30, 2017			December 31, 2016			March 31, 2019			December 31, 2018
	(Amounts in millions, except per-share data)						(Dollars in millions, except per-share amounts)
	(Unaudited)						(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	3,934		$	2,819		$	3,224		$	2,826
Investments	1,787			1,758			1,508			1,681
Restricted investments	326			—
Receivables	1,002			974			1,359			1,330
Income taxes refundable	60			39
Prepaid expenses and other current assets	174			131			124			149
Derivative asset	425			267			516			476
Total current assets	7,708			5,988			6,731			6,462
Property, equipment, and capitalized software, net	397			454			376			241
Deferred contract costs	97			86
Intangible assets, net	101			140
Goodwill	430			620
Goodwill and intangible assets, net							185			190
Restricted investments	117			110			100			120
Deferred income taxes	62			10			76			117
Other assets	42			41			111			24
	$	8,954		$	7,449		$	7,579		$	7,154

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Medical claims and benefits payable	$	2,478		$	1,929		$	1,995		$	1,961
Amounts due government agencies	1,324			1,202			932			967
Accounts payable and accrued liabilities	485			385			444			390
Deferred revenue	468			315			207			211
Current portion of long-term debt	782			472			198			241
Derivative liability	425			267			516			476
Total current liabilities	5,962			4,570			4,292			4,246
Long-term debt	1,317			975			1,121			1,020
Lease financing obligations	198			198
Deferred income taxes	—			15
Finance lease liabilities							234			197
Other long-term liabilities	48			42			97			44
Total liabilities	7,525			5,800			5,744			5,507

Stockholders’ equity:
Common stock, $0.001 par value; 150 shares authorized; outstanding: 57 shares at September 30, 2017 and at December 31, 2016	—			—
Preferred stock, $0.001 par value; 20 shares authorized, no shares issued and outstanding	—			—
Common stock, $0.001 par value, 150 million shares authorized; outstanding: 63 million shares at March 31, 2019 and 62 million shares at December 31, 2018							—			—
Preferred stock, $0.001 par value; 20 million shares authorized, no shares issued and outstanding							—			—
Additional paid-in capital	870			841			543			643
Accumulated other comprehensive loss	(1		)	(2		)	(3		)	(8		)
Retained earnings	560			810			1,295			1,012
Total stockholders’ equity	1,429			1,649			1,835			1,647
	$	8,954		$	7,449		$	7,579		$	7,154

See accompanying notes.

~~MOLINA HEALTHCARE, INC.~~CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY



	Common Stock			Additional Paid-in Capital			Accumulated Other Comprehensive Loss			Retained Earnings		Total
	Outstanding	Amount		Additional Paid-in Capital			Accumulated Other Comprehensive Loss			Retained Earnings		Total
	(In millions)
	(Unaudited)
Balance at December 31, 2018	62	$	—	$	643		$	(8	)	$	1,012	$	1,647
Net income	—	—		—			—			198		198
Adoption of new accounting standard	—	—		—			—			85		85
Partial termination of 1.125% Warrants	—	—		(103		)	—			—		(103		)
Other comprehensive gain, net	—	—		—			5			—		5
Share-based compensation	1	—		3			—			—		3
Balance at March 31, 2019	63	$	—	$	543		$	(3	)	$	1,295	$	1,835



	Common Stock			Additional Paid-in Capital		Accumulated Other Comprehensive Loss			Retained Earnings		Total
	Outstanding	Amount		Additional Paid-in Capital		Accumulated Other Comprehensive Loss			Retained Earnings		Total
	(In millions)
	(Unaudited)
Balance at December 31, 2017	60	$	—	$	1,044	$	(5	)	$	298	$	1,337
Net income	—	—		—		—			107		107
Adoption of new accounting standards	—	—		—		(1		)	7		6
Exchange of 1.625% Convertible Notes	2	—		108		—			—		108
Other comprehensive loss, net	—	—		—		(6		)	—		(6		)
Share-based compensation	—	—		1		—			—		1
Balance at March 31, 2018	62	$	—	$	1,153	$	(12	)	$	412	$	1,553

See accompanying notes.

CONSOLIDATED STATEMENTS OF CASH FLOWS


	Nine Months Ended September 30,						Three Months Ended March 31,
	2017			2016			2019			2018
	(Amounts in millions) (Unaudited)						(In millions) (Unaudited)
Operating activities:
Net (loss) income	$	(250	)	$	99
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Net income							$	198		$	107
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	139			135			25			37
Impairment losses	201			—
Deferred income taxes	(68		)	20			15			(6		)
Share-based compensation, including accelerated share-based compensation	38			24
Non-cash restructuring charges	49			—
Amortization of convertible senior notes and lease financing obligations	24			23
Share-based compensation							9			6
Amortization of convertible senior notes and finance lease liabilities							3			7
(Gain) loss on debt extinguishment							(3		)	10
Non-cash restructuring costs							—			17
Other, net	13			14			3			2
Changes in operating assets and liabilities:
Receivables	(28		)	(427		)	(29		)	(83		)
Prepaid expenses and other assets	(53		)	(116		)
Prepaid expenses and other current assets							20			(239		)
Medical claims and benefits payable	549			168			34			(163		)
Amounts due government agencies	122			503			(35		)	172
Accounts payable and accrued liabilities	90			1			(30		)	319
Deferred revenue	153			157			(4		)	130
Income taxes	(22		)	32			43			78
Net cash provided by operating activities	957			633			249			394
Investing activities:
Purchases of investments	(1,896		)	(1,444		)	(185		)	(389		)
Proceeds from sales and maturities of investments	1,538			1,512			366			543
Purchases of property, equipment and capitalized software	(85		)	(143		)	(6		)	(4		)
(Increase) decrease in restricted investments held-to-maturity	(10		)	4
Net cash paid in business combinations	—			(48		)
Other, net	(21		)	(12		)	(4		)	(5		)
Net cash used in investing activities	(474		)	(131		)
Net cash provided by investing activities							171			145
Financing activities:
Proceeds from senior notes offering, net of issuance costs	325			—
Proceeds from borrowings under credit facility	300			—
Proceeds from employee stock plans	11			10
Repayment of principal amount of 1.125% Convertible Notes							(46		)	—
Cash paid for partial settlement of 1.125% Conversion Option							(115		)	—
Cash received for partial termination of 1.125% Call Option							115			—
Cash paid for partial termination of 1.125% Warrants							(103		)	—
Proceeds from borrowings under Term Loan							100			—
Other, net	(4		)	1			1			(5		)
Net cash provided by financing activities	632			11
Net increase in cash and cash equivalents	1,115			513
Cash and cash equivalents at beginning of period	2,819			2,329
Cash and cash equivalents at end of period	$	3,934		$	2,842
Net cash used in financing activities							(48		)	(5		)
Net increase in cash, cash equivalents, and restricted cash and cash equivalents							372			534
Cash, cash equivalents, and restricted cash and cash equivalents at beginning of period							2,926			3,290
Cash, cash equivalents, and restricted cash and cash equivalents at end of period							$	3,298		$	3,824

~~MOLINA HEALTHCARE, INC.~~

CONSOLIDATED STATEMENTS OF CASH FLOWS

(continued)

Nine Months Ended September 30,
2017 2016
(Amounts in millions)
(Unaudited)
Supplemental cash flow information:

Schedule of non-cash investing and financing activities:
Common stock used for share-based compensation $ (21 ) $ (8 )

Details of change in fair value of derivatives, net:
Gain (loss) on 1.125% Call Option $ 158
$ (60 )
(Loss) gain on 1.125% Conversion Option (158 ) 60
Change in fair value of derivatives, net $ —
$ —

Details of business combinations:
Fair value of assets acquired $ —
$ (186 )
Fair value of liabilities assumed —
28
Purchase price amounts accrued/received —
8
Reversal of amounts advanced to sellers in prior year —
102
Net cash paid in business combinations $ —
$ (48 )



	Three Months Ended March 31,
	2019			2018
	(In millions) (Unaudited)
Supplemental cash flow information:

Schedule of non-cash investing and financing activities:
Common stock used for share-based compensation	$	(7	)	$	(5	)

Details of change in fair value of derivatives, net:
Gain on 1.125% Call Option	$	155		$	63
Loss on 1.125% Conversion Option	(155		)	(63		)
Change in fair value of derivatives, net	$	—		$	—

1.625% Convertible Notes exchange transaction:
Common stock issued in exchange for 1.625% Convertible Notes	$	—		$	131
Component allocated to additional paid-in capital, net of income taxes	—			(23		)
Net increase to additional paid-in capital	$	—		$	108

See accompanying notes.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

~~September 30, 2017~~March 31, 2019

1. Organization and 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 ofservices under the Medicaid ~~program.~~and Medicare programs and through the insurance marketplaces (the “Marketplace”). We currently have ~~three~~two reportable ~~segments. These segments consist of~~segments: our Health Plans segment ~~which constitutes~~and our Other segment. We manage the vast majority of our ~~operations;~~operations through our ~~Molina~~Health Plans segment. The Other segment includes the historical results of the Medicaid ~~Solutions segment;~~management information systems (“MMIS”) and ~~our Other~~behavioral health subsidiaries that were sold in the fourth quarter of 2018, as well as certain corporate amounts not allocated to the Health Plans segment. Prior to the fourth quarter of 2018, the MMIS subsidiary was reported as a stand-alone segment.

The Health Plans segment consists of health plans operating in 1214 states and the Commonwealth of Puerto Rico. As of ~~September 30, 2017,~~March 31, 2019, these health plans served approximately ~~4.5~~3.4 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~~individuals including Marketplace ~~(Marketplace)~~ members, most of whom receive government ~~premium subsidies.~~subsidies for premiums. The health plans are generally operated by our respective wholly owned subsidiaries in those states, each of which is licensed as a health maintenance organization ~~(HMO)~~(“HMO”).

Our health plans’ state Medicaid contracts generally have terms of three to ~~four~~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. ~~Our health plan subsidiaries have generally been successful in retaining their contracts, but such~~Such contracts are subject to risk of loss ~~when a state issues a new request~~in states that issue requests for proposal ~~(RFP)~~(“RFPs”) open to competitive bidding by other health plans. If one of our health plans is not a successful responsive bidder to a state RFP, its contract may not be ~~subject to non-renewal.~~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);~~disabled; and regions or service areas.

The Molina Medicaid Solutions segment provides support to state government agencies in the 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~~

~~Illinois Health Plan.~~ In August 2017, Molina Healthcare of Illinois, Inc. was awarded a statewide Medicaid managed care contract by the Illinois Department of Healthcare and Family Services. This Medicaid contract further integrates behavioral health and physical health by combining the State’s three current managed care programs into one program. The contract begins January 1, 2018, for four years with options to renew annually for up to four additional years.

~~Mississippi Health Plan.~~ In June 2017, Molina Healthcare of Mississippi, Inc. was awarded a Medicaid Coordinated Care Contract for the statewide administration of the Mississippi Coordinated Access Network (MississippiCAN). The operational start date for the program is currently scheduled for October 1, 2018, pending the completion of a readiness review. The initial term of the contract is through June 2020, with options to renew annually for up to two additional years.

~~Washington Health Plan.~~ In May 2017, Molina Healthcare of Washington, Inc. was selected by the Washington State Health Care Authority to negotiate and enter into managed care contracts for the North Central region of the state’s Apple Health Integrated Managed Care Program. The start date for the new contract is scheduled for January 1, 2018.

~~Terminated Medicare Acquisition.~~ ~~In August 2016, we entered into agreements with each of Aetna Inc. and Humana Inc. to acquire certain assets related to their Medicare Advantage business. The transaction was subject to closing~~

conditions including the completion of the proposed acquisition of Humana by Aetna (the Aetna-Humana Merger). In January 2017, the U.S. District Court for the District of Columbia granted the request for relief made by the U.S. Department of Justice in its civil antitrust lawsuit against Aetna and Humana, to prohibit the Aetna-Humana Merger. In February 2017, our agreements with each of Aetna and Humana were terminated by the parties pursuant to the terms of the agreements. Under the termination agreements, we received an aggregate termination fee of $75 million from Aetna and Humana in the first quarter of 2017, which is reported in “Other income, net” in the accompanying consolidated statements of operations.

~~New York Health Plan.~~ In August 2016, we closed on our acquisition of the outstanding equity interests of Today’s Options of New York, Inc., which now operates as Molina Healthcare of New York, Inc. The purchase price allocation was completed, and the final purchase price adjustments were recorded, in the first quarter of 2017. Such adjustments were insignificant, and the final cash purchase price was $38 million.

~~Impairment Losses~~

~~Molina Medicaid Solutions segment.~~ ~~In the third quarter of 2017, we recorded a non-cash goodwill impairment loss of $28 million.See Note 10, “Impairment Losses.”~~

~~Other segment.~~ In the third quarter of 2017, we recorded a non-cash goodwill impairment loss of $101 million for our Pathways subsidiary. In the second quarter of 2017, we recorded non-cash goodwill and intangible assets impairment losses of $72 million, primarily for our Pathways subsidiary. See Note 10, “Impairment Losses.”

Consolidation and Interim Financial Information

The consolidated financial statements include the accounts of Molina Healthcare, Inc., and 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.subsidiaries. In the opinion of management, all adjustments considered necessary for a fair presentation of the results as of the date and for the interim periods presented have been included; such adjustments consist of normal recurring adjustments. All significant intercompany balances and transactions have been eliminated. The consolidated results of operations for the ~~current interim period~~three months ended March 31, 2019, are not necessarily indicative of the results for the entire year ending December 31, ~~2017.~~2019.

The unaudited consolidated interim financial statements have been prepared under the assumption that users of the interim financial data have either read or have access to our audited consolidated financial statements for the fiscal year ended December 31, ~~2016.~~2018. Accordingly, certain disclosures that would substantially duplicate the disclosures contained in ~~the~~our December 31, ~~2016~~2018, audited consolidated financial statements have been omitted. These unaudited consolidated interim financial statements should be read in conjunction with our ~~December 31, 2016~~ audited consolidated financial ~~statements.~~statements for the fiscal year ended December 31, 2018.

Use of Estimates

The preparation of consolidated financial statements in conformity with generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities. Estimates also affect the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Principal areas requiring the use of estimates include:

The determination of medical claims and benefits payable of our Health Plans segment;

Health plans’ contractual provisions that may limit revenue recognition based upon the costs incurred or the profits realized under a specific contract;

Health plans’ quality incentives that allow us to recognize incremental revenue if certain quality standards are met;

Settlements under risk or savings sharing programs;

The assessment of long-lived and intangible assets, and goodwill for impairment;

The determination of reserves for potential absorption of claims unpaid by insolvent providers;

The determination of reserves for litigation outcomes;

The determination of valuation allowances for deferred tax assets; and

The determination of unrecognized tax benefits.

2. Significant Accounting Policies

~~Certain~~Cash and Cash Equivalents

Cash and cash equivalents consist of ~~our significant accounting policies~~cash and short-term, highly liquid investments that are ~~discussed~~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 ~~note~~accompanying consolidated balance sheets that sum to ~~which they specifically relate.~~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.



	March 31,
	2019		2018
	(In millions)
Cash and cash equivalents	$	3,224	$	3,729
Restricted cash and cash equivalents	74		95
Total cash, cash equivalents, and restricted cash and cash equivalents presented in the statements of cash flows	$	3,298	$	3,824

Premium Revenue ~~Recognition – 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.”~~the following categories:

Contractual Provisions That May Adjust or Limit Revenue or Profit

Medicaid Program

Medical Cost Floors (Minimums), and Medical Cost ~~Corridors:~~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 ~~$119~~$98 million and ~~$272~~$103 million at ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016, respectively, to “Amounts due government agencies.”~~2018, respectively. Approximately ~~$82 million and $244~~$87 million of the liability accrued at ~~September 30, 2017~~both March 31, 2019 and December 31, ~~2016, respectively,~~2018, relates to our participation in Medicaid Expansion programs.

In certain circumstances, ~~our~~the health plans may receive additional premiums if amounts spent on medical care costs exceed a defined maximum threshold. Receivables relating to such provisions were insignificant at ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016.~~2018.

Profit Sharing and Profit ~~Ceiling:~~Ceiling. Our contracts with certain states contain profit-sharing or profit ceiling provisions under which we refund amounts to the states if our health plans generate profit above a certain specified percentage. In some cases, we are limited in the amount of administrative costs that we may deduct in calculating the refund, if any. Liabilities for profits in excess of the amount we are allowed to retain under these provisions were insignificant at ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016.~~2018.

Retroactive Premium ~~Adjustments:~~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 Program

Risk ~~Adjustment:~~Adjusted Premiums: Our Medicare premiums are subject to retroactive increase or decrease based on the health status of our Medicare members ~~(measured as a~~(as measured by member risk score). We estimate our members’ risk scores and the related amount of Medicare revenue that will ultimately be realized for the periods presented based on our knowledge of our members’ health status, risk scores and ~~the Centers for Medicare & Medicaid Services (CMS)~~CMS practices. Consolidated balance sheet

amounts related to anticipated Medicare risk ~~adjustment~~adjusted premiums and Medicare Part D settlements were insignificant at ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016.~~2018.

Minimum ~~MLR:~~MLR. ~~Additionally, federal regulations have~~The Affordable Care Act (“ACA”) has established a minimum annual medical loss ratio (Minimum MLR) of 85% for Medicare. The medical loss ratio represents medical costs as a percentage of premium revenue. Federal regulations define what constitutes medical costs and premium revenue. If the Minimum MLR is not met, we may be required to pay rebates to the federal government. We recognize estimated rebates under the Minimum MLR as an adjustment to premium revenue in our consolidated statements of ~~operations.~~income. The amounts payable for the Medicare Minimum MLR was not significant at March 31, 2019 and December 31, 2018.

Marketplace Program

~~Premium Stabilization Programs:~~ Risk adjustment.The Affordable Care Act (ACA) established Marketplace premium stabilization programs effective January 1, 2014. These programs, commonly referred to as the “3R’s,” include a permanent risk adjustment program, a transitional reinsurance program, and a temporary risk corridor program. We record receivables or payables related to the 3R programs and the Minimum MLR when the amounts are reasonably estimable as described below, and, for receivables, when collection is reasonably assured. Our receivables (payables) for each of these programs, as of the dates indicated, were as follows:

September 30, 2017 December 31,
2016
Current Benefit Year Prior Benefit Years Total

(In millions)
Risk adjustment $ (655 ) $ —
$ (655 ) $ (522 )
Reinsurance —
10
10
55
Risk corridor —
—
—
(1 )
Minimum MLR (27 ) —
(27 ) (1 )

~~Risk adjustment:~~ Under this ~~permanent~~ 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 ~~transfer~~adjustment payment into the pool if their composite risk scores are below the average risk score (risk adjustment payable), and will receive a risk ~~transfer~~adjustment payment from the pool if their composite risk scores are above the average risk ~~score.~~score (risk adjustment receivable). We estimate our ultimate premium based on insurance policy year-to-date experience, and recognize estimated premiums relating to the risk adjustment program as an adjustment to premium revenue in our consolidated statements of ~~operations.~~

~~Reinsurance: This program was designed to provide reimbursement to insurers for high cost members~~income. As of March 31, 2019, and ~~ended~~ December 31, ~~2016; we expect~~2018, the Marketplace risk adjustment payable amounted to ~~settle the outstanding receivable balance in 2017.~~

~~Risk corridor: This program was intended to limit gains~~$568 million and ~~losses~~$466 million, respectively. As of ~~insurers by comparing allowable costs to a target amount as defined by CMS,~~March 31, 2019, and ~~ended~~ December 31, ~~2016; all outstanding balances were settled as of September 30, 2017.~~2018, the Marketplace risk adjustment receivable amounted to $51 million and $34 million, respectively.

~~Additionally, the~~Minimum MLR. The ACA has established a Minimum MLR of 80% for the Marketplace. ~~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 our Marketplace policyholders. ~~Each of the 3R programs~~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.~~income. Aggregate balance sheet amounts related to the Minimum MLR were insignificant at March 31, 2019 and December 31, 2018.

Quality Incentives

At ~~several~~many of our health plans, revenue ranging from approximately 1% to 3%4% 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 ~~September 30, 2017~~March 31, 2019, 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 ~~September 30, 2017.~~March 31, 2019.


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
	2017			2016			2017			2016			2019			2018
	(Dollars in millions)												(In millions)
Maximum available quality incentive premium - current period	$	36		$	33		$	113		$	114		$	45		$	40

Quality incentive premium revenue recognized in current period:
Earned current period	$	24		$	26		$	72		$	80		$	26		$	24
Earned prior periods	3			—			9			54			20			11
Total	$	27		$	26		$	81		134			$	46		$	35

Quality incentive premium revenue recognized as a percentage of total premium revenue	0.6		%	0.6		%	0.6		%	1.1		%	1.2		%	0.8		%

A summary of the categories of amounts due government agencies is as follows:



	March 31, 2019		December 31, 2018
	(In millions)
Medicaid program:
Medical cost floors and corridors	$	98	$	103
Other amounts due to states	90		81
Marketplace program:
Risk adjustment	568		466
Cost sharing reduction	—		183
Other	176		134
	$	932	$	967

Medical Care Costs

Marketplace Program

In the first quarter of 2018, we recognized a benefit of approximately $70 million in reduced medical care costs related to 2017 dates of service as a result of the federal government’s confirmation that the reconciliation of 2017 Marketplace cost sharing reduction (“CSR”) subsidies would be performed on an annual basis. In the fourth quarter of 2017, we had assumed a nine-month reconciliation of this item pending confirmation of the time period to which the 2017 reconciliation would be applied.

Leases

Right-of-use (“ROU”) assets represent our right to use the underlying assets over the lease term, and lease liabilities represent our obligation to make lease payments arising from the related leases. ROU assets and lease liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. Lease terms may include options to extend or terminate the lease when we believe it is reasonably certain that we will exercise such options. Operating lease ROU assets are reported in other assets, and operating lease liabilities are reported in accounts payable and accrued liabilities (current), and other long-term liabilities (non-current) in our consolidated balance sheets. Finance lease ROU assets are reported in property, equipment, and capitalized software, and finance lease liabilities are reported in accounts payable and accrued liabilities (current), and finance lease liabilities (non-current) in our consolidated balance sheets.

Because most of our leases do not provide an implicit interest rate, we generally use our incremental borrowing rate to determine the present value of lease payments. Lease expenses for operating lease payments are recognized on a straight-line basis over the lease term, and the related ROU assets and liabilities are reduced to the present value of the remaining lease payments at the end of each period. Finance lease payments reduce finance lease liabilities, the related ROU assets are amortized on a straight-line basis over the lease term, and interest expense is recognized using the effective interest method.

Short-term leases (with a term of 12 months or less) are not recorded as ROU assets or liabilities in the consolidated balance sheets. We account for lease and non-lease components as a single lease component. For certain leases that represent a portfolio of similar assets, such as a fleet of vehicles, we apply a portfolio approach to account for the related operating lease ROU assets and liabilities, rather than account for such assets and liabilities on an individual basis. A nominal number of our lease agreements include rental payments that adjust periodically for inflation. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.

For further information regarding our adoption of Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842), see Recent Accounting Pronouncements Adopted, below.

Concentrations of Credit Risk

Financial instruments that potentially subject us to concentrations of credit risk consist primarily of cash and cash equivalents, investments, receivables, and restricted investments. Our investments and a portion of our cash equivalents are managed by professional portfolio managers operating under documented investment guidelines. Our portfolio managers must obtain our prior approval before selling investments where the loss position of those investments exceeds certain levels. Our investments consist primarily of investment-grade debt securities with a

maximum maturity of 10 years. Restricted investments are invested principally in certificates of deposit and U.S. Treasury securities. Concentration of credit risk with respect to accounts receivable is generally limited because our payors consist principally of the governments of each state in which our health plan subsidiaries operate.

Income Taxes

The provision for income taxes is determined using an estimated annual effective tax rate, which generally differs from the U.S. federal statutory rate primarily because of state taxes, nondeductible expenses such as the Health Insurer Fee ~~(HIF)~~(“HIF”), ~~goodwill impairment,~~ certain compensation, and other general and administrative expenses. The effective tax rate ~~was~~will not be impacted by HIF in ~~2017~~2019 given the ~~2017~~2019 HIF moratorium.

The effective tax rate may be subject to fluctuations during the year ~~particularly as a result of the level of pretax earnings, and also~~ as new information is obtained. Such information may affect the assumptions used to estimate the annual effective tax rate, including ~~factors such as~~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.

~~Premium Deficiency Reserves on Loss Contracts~~

We assess the profitability of our medical care policies to identify groups of contracts where current operating results or forecasts indicate probable future losses. If anticipated future variable costs exceed anticipated future premiums and investment income, a premium deficiency reserve is recognized. We assume a full-year CSR reconciliation (see further information below) in the premium deficiency reserve calculation for the Marketplace program. We recorded a premium deficiency reserve to “Medical claims and benefits payable” on our accompanying consolidated balance sheets relating to our Marketplace program of $30 million as of December 31, 2016, which increased to $100 million as of June 30, 2017, and then decreased to $70 million as of September 30, 2017. If a nine-month CSR reconciliation had been included in the computation rather than a full year, the premium deficiency reserve would have increased by $55 million, to $125 million as of September 30, 2017. The theoretical $55 million increase to the premium deficiency reserve is less than the potential fourth quarter 2017 impact described below, or $85 million, because such adjustment only recognizes the potential CSR impact to the extent it would have created a deficiency in premiums at September 30, 2017.

~~Marketplace Cost Share Reduction (CSR) Update~~

Our third quarter results do not include any potential impact from the October 12, 2017, direction to Centers for Medicare and Medicaid Services (CMS) from Acting Department of Health and Human Services Secretary Hargan to cease payment of Marketplace CSR subsidies. At September 30, 2017, we had a total of approximately $220 million in excess CSR subsidies, recorded as a payable to CMS. This payable represents the extent to which payments received by us from CMS exceeded our estimate of the actual cost of member subsidies incurred by us through September 30, 2017.

We expect to incur approximately $85 million in unreimbursed expense associated with the cessation of CSR subsidies in the fourth quarter of 2017. It has been the practice of CMS to perform a reconciliation on an annual basis of CSR subsidies paid to all health plans against the actual costs incurred by the health plans. Were such a reconciliation to be performed for the full calendar year of 2017—consistent with past practice—we would be able to offset nearly all of the $85 million expense incurred in the fourth quarter against the excess amounts received prior to September 30, 2017. However, should CMS transition to a nine month reconciliation period ending September 30, 2017—the last month for which CSR subsidies have been paid—the absence of CSR subsidy reimbursement would reduce income before income tax expense by approximately $85 million in the fourth quarter of 2017.

Recent Accounting Pronouncements

~~Goodwill Impairment.~~ ~~In January 2017, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2017-04,~~ ~~Simplifying the Test for Goodwill Impairment~~, which eliminates the requirement to calculate the implied fair value of goodwill to measure a goodwill impairment loss. Instead, an impairment loss is measured as the excess of the carrying amount of the reporting unit, including goodwill, over the fair value of the reporting unit. ASU 2017-04 is effective beginning January 1, 2020; we early adopted ASU 2017-04 as of June 30, 2017, in connection with the interim assessment of our Pathways subsidiary. See further discussion at Note 10, “Impairment Losses.”

~~Restricted Cash.~~ ~~In November 2016, the FASB issued ASU 2016-18,~~ ~~Restricted Cash,~~ which will require us to include in our consolidated statements of cash flows the balances of cash, cash equivalents, restricted cash and restricted cash equivalents. When these items are presented in more than one line item on the balance sheet, the new guidance requires a reconciliation of the totals in the statement of cash flows to the related captions in the balance sheet. Transfers between cash and cash equivalents and restricted cash and restricted cash equivalents will no longer be presented in the statement of cash flows. ASU 2016-18 is effective beginning January 1, 2018; early adoption is permitted. We are currently evaluating the changes that will be required in our consolidated statements of cash flows.

~~Stock Compensation.~~ ~~In March 2016, the FASB issued ASU 2016-09,~~ ~~Improvements to Employee Share-Based Payment Accounting, which amends ASC Topic 718,~~ ~~Compensation – Stock Compensation~~. ASU 2016-09 simplifies several aspects of accounting for employee share-based payment transactions, including the accounting for income taxes, forfeitures, statutory tax and classification in the statement of cash flows. We adopted ASU 2016-09 in the first quarter of 2017; such adoption did not significantly impact our consolidated financial statements. In addition, the prior period presentation in the statement of cash flows was not adjusted because such adjustments were insignificant. Adopted

Leases. In February 2016, the ~~FASB~~Financial Accounting Standards Board (“FASB”) issued ~~ASU 2016-02,~~ ~~Leases (Topic 842),~~ asTopic 842, which was subsequently modified by ~~ASU 2017-03,~~ ~~Transition~~several ASUs issued in 2017 and ~~Open Effective Date Information. Under ASU 2016-02, an entity will be required~~2018. Topic 842 was issued to ~~recognize assets~~increase transparency and ~~liabilities for~~comparability among organizations by requiring the ~~rights and obligations created by leases on the entity’s balance sheet for both finance and operating leases. For leases with a term~~recognition of ~~12 months or less, an entity can elect to not recognize lease~~ROU assets and lease liabilities on the balance sheet. Most prominent among the changes in Topic 842 is the recognition of ROU assets and ~~expense~~lease liabilities by lessees for those leases classified as operating leases. In addition, Topic 842’s disclosures are required to meet the ~~lease over a straight-line basis for the term~~objective of ~~the lease. ASU 2016-02 will require new disclosures that depict~~enabling users of financial statements to assess the amount, timing and uncertainty of cash flows ~~pertaining to an entity’s~~arising from leases. ~~ASU 2016-02 is effective for us beginning January 1, 2019, and must be adopted~~Topic 842’s transition provisions are applied using a modified retrospective approach ~~for annual and interim~~under which entities may not retrospectively adjust any periods prior to the earliest comparative period presented, or at the beginning ~~after December 15, 2018. Early~~of the period of adoption, whichever is ~~permitted. Under this guidance, we will record assets and liabilities relating primarily~~later. Entities may elect whether to ~~our long-term office leases. We are evaluating~~apply the ~~effect to our consolidated financial statements.~~transition provisions, including disclosure requirements, at the beginning of the earliest comparative period presented or on the adoption date.

~~Revenue Recognition.~~ ~~In May 2014, the FASB issued ASU 2014-09,~~ ~~Revenue from Contracts with Customers (Topic 606).~~ We ~~intend to adopt this standard and the related modifications on~~adopted Topic 842 effective January 1, ~~2018, using~~2019, and have elected to apply the ~~modified retrospective approach. Under this approach,~~transition provisions as of January 1, 2019. Accordingly, we recognized the cumulative effect of initially applying the ~~guidance will be reflected~~standard as an adjustment to ~~beginning~~the opening balance of retained earnings on January 1, 2019. In addition, we elected the available practical expedients and implemented internal controls and key system functionality to enable the preparation of financial information on adoption.

As indicated in the accompanying consolidated statements of stockholders’ equity, the cumulative effect adjustment was an increase of $85 million to retained earnings, relating primarily to the transition provisions for sale-leaseback arrangements that did not qualify for sale treatment. Accordingly, such arrangements for certain office buildings were de-recognized and recorded as finance lease ROU assets and lease liabilities. The difference between the de-recognized assets and lease financing obligations resulted in an increase to retained earnings. The recognition of these arrangements as finance lease ROU assets and lease liabilities will not materially impact our consolidated results of operations throughout the terms of the leases.

See Note 13, “Leases,” for the required disclosures under Topic 842, including the amount and location of the ROU assets and lease liabilities recognized.

Software Licenses. In August 2018, the FASB issued ASU 2018-15, Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract, which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. We early adopted ASU 2018-15 effective January 1, 2019, using the prospective method, with no material impact to our financial condition, results of operations or cash flows. Adoption of this guidance may be significant to us in the future depending on the extent to which we use cloud computing arrangements that qualify as service contracts.

Recent Accounting Pronouncements Not Yet Adopted

Credit Losses. In June 2016, the FASB issued ASU 2016-13, 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 companies expect to collect over the instrument’s

We have determined that 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 contractscontractual life. ASU 2016-13 is ~~dictated by other accounting standards governing insurance contracts.~~

~~For our Molina Medicaid Solutions segment, we have reevaluated our earlier assessment~~effective beginning January 1, 2020, and ~~determined that revenue for contracts that include design, development and implementation of Medicaid managed care systems shall~~must be deferred until the system ‘go-live’ date, and then generally recognized on a straight-line basis over the hosting period. This approach is consistent with the FASB/IASB Joint Transition Resource Group for Revenue Recognition view for entities that provide softwareadopted as a service solution, and similar to our historical revenue recognition methodology. We are continuing to evaluate the existence of customers’ rights with regard to renewal options and whether such rights may constitute separate performance obligations. We expect that cost of service revenue will generally be recognized in a manner consistent with the corresponding revenue recognition.

~~We believe the~~ cumulative effect adjustment to retained ~~earnings associated with~~earnings; early adoption is permitted. We are in the ~~adoption~~early stages of ~~Topic 606 effective January 1, 2018, will be insignificant for both our Molina Medicaid Solutions and Other segments.~~evaluating the effect of this guidance.

Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the American Institute of Certified Public Accountants, and the Securities and Exchange Commission ~~(SEC)~~(“SEC”) did not have, ~~or are not believed by~~nor does management expect such pronouncements to have, a significant impact on our present or future consolidated financial statements.

3. Net ~~(Loss)~~ Income per Share

The following table sets forth the calculation of basic and diluted net ~~(loss)~~ income per share:


	Three Months Ended September 30,					Nine Months Ended September 30,					Three Months Ended March 31,
	2017			2016		2017			2016		2019		2018
	(In millions, except net income per share)										(In millions, except net income per share)
Numerator:
Net (loss) income	$	(97	)	$	42	$	(250	)	$	99
Net income											$	198	$	107
Denominator:
Denominator for basic net (loss) income per share	57			56		56			55
Shares outstanding at the beginning of the period											62.1		59.3
Weighted-average number of shares issued:
Exchange of 1.625% Convertible Notes											—		0.5
Denominator for basic net income per share											62.1		59.8
Effect of dilutive securities:
1.125% Warrants ⁽¹⁾	—			—		—			1		3.5		4.4
Denominator for diluted net (loss) income per share	57			56		56			56
1.625% Convertible Notes											—		0.7
Stock-based compensation											0.6		0.3
Denominator for diluted net income per share											66.2		65.2

Net (loss) income per share: ⁽²⁾
Net income per share: ⁽²⁾
Basic	$	(1.70	)	$	0.77	$	(4.44	)	$	1.79	$	3.19	$	1.79
Diluted	$	(1.70	)	$	0.76	$	(4.44	)	$	1.77	$	2.99	$	1.64

Potentially dilutive common shares excluded from calculations:
1.125% Warrants⁽¹⁾	2			—		2			—
1.625% Notes⁽¹⁾	1			—		—			—
Potentially dilutive common shares excluded from calculations: ⁽¹⁾
Stock-based compensation											0.1		0.4

(1)

For more information and definitions regarding the 1.125% Warrants, including partial termination transactions, refer to Note 9, “Stockholders' Equity.~~” For more information regarding the 1.625% Notes, refer to Note 7, “Debt.~~” The dilutive effect of all potentially dilutive common shares is calculated using the treasury stock method. ~~Potentially~~Certain potentially dilutive common shares issuable were not included in the computation of diluted net ~~loss~~income per share ~~in the three and nine months ended September 30, 2017,~~ 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 and the current portion of long-term debt) to approximate their fair values because of the

relatively short period of time between the origination of these instruments and their expected realization or payment. For our financial instruments measured at fair value on a recurring basis, we prioritize the inputs used in measuring fair value according to the three-tier fair value hierarchy. For a description of the methods and assumptions that we use to a) estimate the fair value; and b) determine the classification according to the fair value hierarchy for each financial instrument, see Note 5,4, “Fair Value Measurements,” in our ~~2016~~2018 Annual Report on Form 10-K.

Derivative financial instruments include the 1.125% Call Option derivative asset and the 1.125% Conversion Option derivative ~~liability.~~liability (see Note 8 “Derivatives,” for definitions and further information). These derivatives are not

actively traded and are valued based on an option pricing model that uses observable and unobservable market data for inputs. Significant market data inputs used to determine fair value as of ~~September 30, 2017,~~March 31, 2019, included the price of our common stock, the time to maturity of the derivative instruments, the risk-free interest rate, and the implied volatility of our common stock. ~~As described further in Note 8, “Derivatives,” the~~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.~~income. Therefore, the sensitivity of changes in the unobservable inputs to the option pricing model for such derivative instruments is mitigated.

The net changes in fair value of Level 3 financial instruments were insignificant to our results of ~~operations~~income for the ~~nine~~three months ended ~~September 30, 2017.~~March 31, 2019.

Our financial instruments measured at fair value on a recurring basis at ~~September 30, 2017,~~March 31, 2019, were as follows:


	Total		Quoted Market Prices (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total		Observable Inputs (Level 1)		Directly or Indirectly Observable Inputs (Level 2)		Unobservable Inputs (Level 3)
	(In millions)								(In millions)
Corporate debt securities	$	1,162	$	—	$	1,162	$	—	$	947	$	—	$	947	$	—
Government-sponsored enterprise securities (GSEs)	220		220		—		—
U.S. Treasury notes									168		—		168		—
Government-sponsored enterprise securities (“GSEs”)									166		—		166		—
Municipal securities	131		—		131		—		112		—		112		—
Asset-backed securities	125		—		125		—		75		—		75		—
U.S. treasury notes	121		121		—		—
Certificates of deposit	28		—		28		—
Mortgage-backed securities									23		—		23		—
Certificate of deposit									14		—		14		—
Other									3		—		3		—
Subtotal - current investments	1,787		341		1,446		—		1,508		—		1,508		—
Corporate debt securities	229		—		229		—
U.S. treasury notes	97		97		—		—
Subtotal - current restricted investments	326		97		229		—
1.125% Call Option derivative asset	425		—		—		425		516		—		—		516
Total assets	$	2,538	$	438	$	1,675	$	425	$	2,024	$	—	$	1,508	$	516

1.125% Conversion Option derivative liability	$	425	$	—	$	—	$	425	$	516	$	—	$	—	$	516
Total liabilities	$	425	$	—	$	—	$	425	$	516	$	—	$	—	$	516

Our financial instruments measured at fair value on a recurring basis at December 31, ~~2016,~~2018, were as follows:


	Total		Quoted Market Prices (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total		Observable Inputs (Level 1)		Directly or Indirectly Observable Inputs (Level 2)		Unobservable Inputs (Level 3)
	(In millions)								(In millions)
Corporate debt securities	$	1,179	$	—	$	1,179	$	—	$	1,123	$	—	$	1,123	$	—
U.S. Treasury notes									181		—		181		—
GSEs	231		231		—		—		163		—		163		—
Municipal securities	142		—		142		—		114		—		114		—
Asset-backed securities	69		—		69		—		82		—		82		—
U.S. treasury notes	84		84		—		—
Certificates of deposit	53		—		53		—		14		—		14		—
Other									4		—		4		—
Subtotal - current investments	1,758		315		1,443		—		1,681		—		1,681		—
1.125% Call Option derivative asset	267		—		—		267		476		—		—		476
Total assets	$	2,025	$	315	$	1,443	$	267	$	2,157	$	—	$	1,681	$	476

1.125% Conversion Option derivative liability	$	267	$	—	$	—	$	267	$	476	$	—	$	—	$	476
Total liabilities	$	267	$	—	$	—	$	267	$	476	$	—	$	—	$	476

~~There were no current restricted investments as of December 31, 2016.~~

Fair Value Measurements – Disclosure Only

The carrying amounts and estimated fair values of our ~~senior~~ notes payable are classified as Level 2 financial instruments. Fair value for these securities is determined using a market approach based on quoted market prices for similar securities in active markets or quoted prices for identical securities in inactive markets. The carrying amount and estimated fair value of the ~~amount due under our Credit Facility~~Term Loan is classified as a Level 3 financial instrument, because certain inputs used to determine its fair value are not observable. As of ~~September 30, 2017,~~March 31, 2019, the carrying ~~value~~amount of the ~~amount due under the Credit Facility~~Term Loan approximates it fair value because ~~of the recency of this borrowing during the third quarter of 2017.~~its interest rate is a variable rate that approximates rates currently available to us.

September 30, 2017 December 31, 2016

Carrying
Value

Fair Value

Carrying
Value

Fair Value
(In millions)
5.375% Notes $ 692
$ 726
$ 691
$ 714
1.125% Convertible Notes 489
927
471
792
4.875% Notes 325
324
—
—
Credit Facility 300
300
—
—
1.625% Convertible Notes 292
373
284
344
$ 2,098
$ 2,650
$ 1,446
$ 1,850



	March 31, 2019				December 31, 2018
	Carrying Amount		Fair Value		Carrying Amount		Fair Value
	(In millions)
5.375% Notes	$	695	$	725	$	694	$	674
4.875% Notes	326		327		326		301
1.125% Convertible Notes ^(1),(2)	198		716		240		732
Term Loan	100		100		—		—
	$	1,319	$	1,868	$	1,260	$	1,707

______________________


(1)	The fair value of the 1.125% Conversion Option (the embedded cash conversion option), which is reflected in the fair value amounts presented above, amounted to $516 million and $476 million as of March 31, 2019, and December 31, 2018, respectively. See further discussion at Note 7, “Debt,” and Note 8, “Derivatives.”


(2)	For more information on debt repayments in the first quarter of 2019, refer to Note 7, “Debt.”

5. Investments

Available-for-Sale Investments

We consider all of our investments classified as current assets ~~(including restricted investments)~~ to be available-for-sale. Certain of our senior 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 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:


	September 30, 2017								March 31, 2019
	Amortized		Gross Unrealized				Estimated Fair		Amortized		Gross Unrealized				Estimated Fair
	Cost		Gains		Losses		Value		Cost		Gains		Losses		Value
	(In millions)								(In millions)
Corporate debt securities	$	1,162	$	1	$	1	$	1,162	$	949	$	1	$	3	$	947
U.S. Treasury notes									168		—		—		168
GSEs	221		—		1		220		167		—		1		166
Municipal securities	132		—		1		131		113		—		1		112
Asset-backed securities	125		—		—		125		75		—		—		75
U.S. treasury notes	121		—		—		121
Mortgage-backed securities									23		—		—		23
Certificates of deposit	28		—		—		28		14		—		—		14
Subtotal - current investments	1,789		1		3		1,787
Corporate debt securities	229		—		—		229
U.S. treasury notes	97		—		—		97
Subtotal - current restricted investments	326		—		—		326
Other									3		—		—		3
	$	2,115	$	1	$	3	$	2,113	$	1,512	$	1	$	5	$	1,508

December 31, 2016
Amortized
Gross
Unrealized

Estimated
Fair
Cost Gains Losses Value
(In millions)
Corporate debt securities $ 1,180
$ 1
$ 2
$ 1,179
GSEs 232
—
1
231
Municipal securities 143
—
1
142
Asset-backed securities 69
—
—
69
U.S. treasury notes 84
—
—
84
Certificates of deposit 53
—
—
53
$ 1,761
$ 1
$ 4
$ 1,758

~~There were no current restricted investments as of December 31, 2016.~~



	December 31, 2018
	Amortized		Gross Unrealized				Estimated Fair
	Cost		Gains		Losses		Value
	(In millions)
Corporate debt securities	$	1,131	$	—	$	8	$	1,123
U.S. Treasury notes	181		—		—		181
GSEs	164		—		1		163
Municipal securities	115		—		1		114
Asset-backed securities	83		—		1		82
Certificates of deposit	14		—		—		14
Other	4		—		—		4
Total current investments	$	1,692	$	—	$	11	$	1,681

The contractual maturities of our available-for-sale investments as of ~~September 30, 2017~~March 31, 2019 are summarized below:


	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
	(In millions)				(In millions)
Due in one year or less	$	1,154	$	1,153	$	927	$	926
Due after one year through five years	944		943		550		547
Due after five years through ten years	17		17		12		12
Due after ten years					23		23
	$	2,115	$	2,113	$	1,512	$	1,508

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 nine~~ months ended ~~September 30, 2017~~March 31, 2019 and ~~2016~~2018, were insignificant.

We have determined that unrealized losses at ~~September 30, 2017~~March 31, 2019, and December 31, ~~2016,~~2018, are temporary in nature, because the change in market value for these securities has resulted from fluctuating interest rates, rather than a deterioration of the creditworthiness of the issuers. So long as we maintain the intent and ability to hold these securities to maturity, we are unlikely to experience losses. In the event that we dispose of these securities before maturity, we expect that realized losses, if any, will be insignificant.

The following table segregates those available-for-sale investments that have been in a continuous loss position for less than 12 months, and those that have been in a continuous loss position for 12 months or more as of ~~September 30, 2017:~~March 31, 2019:


	In a Continuous Loss Position for Less than 12 Months					In a Continuous Loss Position for 12 Months or More					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	Estimated Fair Value		Unrealized Losses		Total Number of Positions	Estimated Fair Value		Unrealized Losses		Total Number of Positions
	(Dollars in millions)										(Dollars in millions)
Corporate debt securities	$	783	$	1	314	$	—	$	—	—	$	207	$	1	96	$	403	$	2	280
GSEs	—		—		—	58		1		20	—		—		—	122		1		71
Municipal securities	97		1		116	—		—		—	—		—		—	87		1		91
	$	880	$	2	430	$	58	$	1	20	$	207	$	1	96	$	612	$	4	442


	In a Continuous Loss Position for Less than 12 Months					In a Continuous Loss Position for 12 Months or More					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	Estimated Fair Value		Unrealized Losses		Total Number of Positions	Estimated Fair Value		Unrealized Losses		Total Number of Positions
	(Dollars in millions)										(Dollars in millions)
Corporate debt securities	$	542	$	2	378	$	—	$	—	—	$	509	$	3	285	$	412	$	5	298
GSEs	198		1		73	—		—		—	—		—		—	127		1		76
Municipal securities	101		1		129	—		—		—	—		—		—	87		1		90
Asset-backed securities											—		—		—	68		1		52
	$	841	$	4	580	$	—	$	—	—	$	509	$	3	285	$	694	$	8	516

Held-to-Maturity Investments

Pursuant to the regulations governing our Health Plans segment subsidiaries, we maintain statutory deposits and deposits required by government authorities primarily in certificates of deposit and U.S. ~~treasury~~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 ~~regulation~~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.

~~The contractual maturities of our~~Our held-to-maturity restricted investments ~~which~~ are carried at amortized cost, which approximates fair ~~value, as of September 30, 2017 are summarized below:~~

Amortized
Cost

Estimated
Fair Value
(In millions)
Due in one year or less $ 100
$ 100
Due after one year through five years 17
17
$ 117
$ 117
value. Such investments amounted to $100 million at March 31, 2019, and mature in one year or less.

6. Medical Claims and Benefits Payable

The following table provides the details of our medical claims and benefits payable ~~(including amounts payable for the provision of long-term services and supports, or LTSS)~~ as of the dates ~~indicated:~~

indicated.


	September 30, 2017		December 31, 2016		March 31, 2019		December 31, 2018
	(In millions)				(In millions)
Fee-for-service claims incurred but not paid (IBNP)	$	1,681	$	1,352
Fee-for-service claims incurred but not paid (“IBNP”)					$	1,411	$	1,562
Pharmacy payable	125		112		114		115
Capitation payable	57		37		59		52
Other	615		428		411		232
	$	2,478	$	1,929	$	1,995	$	1,961

“Other” medical claims and benefits payable ~~include~~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.~~income. Non-risk provider payables amounted to ~~$403~~$278 million and ~~$225~~$107 million as of ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016,~~2018, respectively.

~~Reinsurance recoverables of $16 million and $72 million as of September 30, 2017 and 2016, respectively, are included in “Receivables” in the accompanying consolidated balance sheets.~~

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 ~~less (more)~~more than the actual amount of the liability based on information (principally the payment of claims) developed since that liability was first reported.


	Nine Months Ended September 30,						Three Months Ended March 31,
	2017			2016			2019			2018
	(Dollars in millions)						(In millions)
Medical claims and benefits payable, beginning balance	$	1,929		$	1,685		$	1,961		$	2,192
Components of medical care costs related to:
Current period	12,813			11,120			3,560			4,033
Prior periods(1)	9			(190		)	(189		)	(311		)
Total medical care costs	12,822			10,930			3,371			3,722

Change in non-risk provider payables	172			70			171			45

Payments for medical care costs related to:
Current period	10,944			9,536			2,197			2,498
Prior periods	1,501			1,278			1,311			1,438
Total paid	12,445			10,814			3,508			3,936
Medical claims and benefits payable, ending balance	$	2,478		$	1,871		$	1,995		$	2,023
Benefit from prior period as a percentage of:
Balance at beginning of period	(0.5		)%	11.3		%
Premium revenue, trailing twelve months	—		%	1.2		%
Medical care costs, trailing twelve months	(0.1		)%	1.3		%

~~Assuming that our initial estimate~~_______________________


(1)	March 31, 2018, includes the 2018 benefit of the 2017 Marketplace CSR reimbursement of $70 million.

Our estimates of ~~IBNP is accurate, we believe that amounts ultimately paid would generally be between 8%~~medical claims and ~~10% less than the IBNP liability~~benefits payable recorded at December 31, 2018, and 2017 developed favorably by approximately $189 million and $311 million as of March 31, 2019, and 2018, respectively.

The favorable prior year development recognized in the ~~end~~first quarter 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 the amount of our initial liability is merely an estimate (and therefore not perfectly accurate), 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%2019, was primarily due to ~~10%~~ lower than expected utilization of medical services by our Medicaid and Marketplace members and improved operating performance. Consequently, the ~~liability that~~ultimate costs recognized in 2019, as claims payment were processed, was ~~initially recorded. Furthermore, because our initial estimate of IBNP is derived from many factors, some of which are qualitative in nature rather~~lower 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 (or now expected to be ultimately paid out) for the most part related 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~~2018.

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.

Prior period development of our estimate as of December 31, 2016, through September 30, 2017, was unfavorable by $9 million, which is substantially less than the favorable prior period development of $190 million we recognized for the same period in the prior year. Further, the unfavorable development through September 30, 2017, was less than the 8% to 10% favorable development we typically expect.

~~We believe that the most significant uncertainties surrounding our IBNP estimates at September 30, 2017 are as follows:~~

At our Florida health plan, the inventory of unpaid claims increased significantly during the first two quarters of 2017, and then dropped in the third quarter. For this reason, the timing between the dates of service and the dates claims are paid will be impacted, making our liability estimates subject to more than the usual amount of uncertainty.

At our Illinois health plan, in 2017 we paid a large number of claims that had previously been denied and were subsequently disputed by providers. We have also established a liability for additional expected claims resulting from provider disputes. This has created some distortion in the claims payment patterns, making our liability estimates subject to more than the usual amount of uncertainty.

At our California health plan, we adjusted our inpatient authorization process. As a result, due to the expected increase in authorized inpatient stays, our liability estimates are subject to more than the usual amount of uncertainty.

At our Illinois and New York health plans, we implemented a new process for increased quality review of claims payments. 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 these two health plans are subject to more than the usual amount of uncertainty.

At our Puerto Rico health plan, Hurricane Maria had a significant impact on both utilization of services and our ability to process claims payments in Puerto Rico. For these reasons, we believe our liability estimates are subject to more than the usual amount of uncertainty.

7. Debt

~~Substantially all~~As of March 31, 2019, contractual maturities of debt were as follows. All amounts represent the principal amounts of the debt instruments outstanding.



	Total		2020		2021		2022		2023		2024		Thereafter

	(In millions)
5.375% Notes	$	700	$	—	$	—	$	700	$	—	$	—	$	—
4.875% Notes	330		—		—		—		—		—		330
1.125% Convertible Notes	206		206		—		—		—		—		—
Term Loan	100		3		7		10		10		70		—
	$	1,336	$	209	$	7	$	710	$	10	$	70	$	330

All of our debt is held at the parent, which is reported, for segment purposes, in the Other segment. The following table summarizes our outstanding debt obligations and their classification in the accompanying consolidated balance ~~sheets (in millions):~~sheets:



	March 31, 2019			December 31, 2018
	(In millions)
Current portion of long-term debt:
1.125% Convertible Notes, net of unamortized discount	$	199		$	241
Lease financing obligations	—			1
Debt issuance costs	(1		)	(1		)
	$	198		$	241
Non-current portion of long-term debt:
5.375% Notes	$	700		$	700
4.875% Notes	330			330
Term Loan	100			—
Debt issuance costs	(9		)	(10		)
	$	1,121		$	1,020

Interest cost recognized relating to our convertible senior notes for the periods presented was as follows:

September 30,
2017 December 31,
2016
Current portion of long-term debt:
1.125% Convertible Notes, net of unamortized discount $ 494
$ 477
1.625% Convertible Notes, net of unamortized premium and discount 293
—
Lease financing obligations 1
1
Debt issuance costs (6 ) (6 )
782
472
Non-current portion of long-term debt:
5.375% Notes 700
700
4.875% Notes 330
—
Credit Facility 300
—
1.625% Convertible Notes, net of unamortized premium and discount —
286
Debt issuance costs (13 ) (11 )
1,317
975
Lease financing obligations 198
198
$ 2,297
$ 1,645



	Three Months Ended March 31,
	2019		2018
	(In millions)
Contractual interest at coupon rate	$	1	$	2
Amortization of the discount	3		7
	$	4	$	9

~~4.875% Notes due 2025~~

On June 6, 2017, we completed the private offering of $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. According to their terms, the guarantees under the 4.875% Notes mirror those of the Credit Facility, defined and described below. See Note 16, “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.

The 4.875% Notes 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 our consolidated balance sheets. 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.

~~5.375% Notes due 2022~~Agreement

We ~~have outstanding $700 million aggregate principal amount of senior notes (5.375% Notes) due November 15, 2022, unless earlier redeemed. According~~are party to ~~their terms, the guarantees under the 5.375% Notes mirror those of the~~a Credit ~~Facility, defined~~Agreement, which provides for an unsecured delayed draw term loan facility described below (the “Term Loan”), and ~~described below. See Note 16, “Supplemental Condensed Consolidating Financial Information,” for more information on the guarantors.~~

~~Credit Facility~~

~~In January 2017, weentered into~~ an ~~amended~~ unsecured $500 million revolving credit facility ~~(Credit Facility), referred~~(the “Credit Facility”). Borrowings under our Credit Agreement bear interest based, at our election, on a base rate or other defined rate, plus in each case the applicable margin. In addition to ~~as the First Amendment. The Credit Facility has a term of five years and all amounts outstanding will be due and~~interest payable on ~~January 31, 2022. As~~the principal amount of ~~September 30, 2017, $300 million was~~indebtedness outstanding from time to time under the Credit ~~Facility, and~~Agreement, we ~~were in compliance with all financial and non-financial covenants under the Credit Facility. Also as of September 30, 2017, outstanding letters of credit amounting~~are required to ~~$6 million reduced our remaining borrowing capacity under the Credit Facility to $194 million.~~

In addition to increasing amounts available to borrow under the Credit Facility and extending its term, the First Amendment provided that all guarantors immediately prior to January 3, 2017, other than Molina Information Systems, LLC, d/b/pay a Molina Medicaid Solutions, Molina Pathways, LLC, and Pathways Health and Community Support LLC, were automatically and unconditionally released from their obligations as guarantors of the Credit Facility and the 5.375% Notes.quarterly commitment fee.

The Credit ~~Facility~~Agreement contains customary non-financial and financial covenants, including a net leverage ratio and an interest coverage ratio. As of March 31, 2019, we were in compliance with all financial and non-financial covenants under the Credit Agreement and other long-term debt. Effective as of the date of the Sixth Amendment to the Credit Agreement described below, there are no guarantors as parties to the Credit Agreement.

In ~~February 2017,~~January 2019, we entered into a ~~second amendment~~Sixth Amendment to the Credit Agreement that provided for a delayed draw term loan facility in an aggregate principal amount of $600 million, under which we may request up to ten advances, each in a minimum principal amount of $50 million, until July 31, 2020. The Term Loan will amortize in quarterly installments, commencing on September 30, 2020, equal to the principal amount of the Term Loan outstanding multiplied by rates ranging from 1.25% to 2.50% (depending on the applicable fiscal quarter) for each fiscal quarter. The Term Loan expires on January 31, 2024; therefore, any remaining outstanding balance under the Term Loan will be due and payable on that date. As of March 31, 2019, $100 million was outstanding under the Term Loan. Each advance under the Term Loan results in a permanent reduction to its borrowing capacity; therefore, our borrowing capacity under the Term Loan as of March 31, 2019, was $500 million.

The Credit Facility ~~(the Second Amendment) which modified~~expires on January 31, 2022; therefore, any amounts outstanding under the Credit ~~Facility’s definition~~Facility will be due and payable on that date. As of March 31, 2019, no amounts were outstanding under the ~~earnings measure used in~~Credit Facility, and outstanding letters of credit amounting to $2 million reduced our borrowing capacity under the ~~financial covenant computations~~Credit Facility to ~~a) allow us to receive credit for risk corridor payments owed to, but not received or accrued by us during 2016; and b) account for the difference between the~~$498 million.

5.375% Notes due 2022

We had $700 million aggregate principal amount of ~~actual risk transfer payments made or accrued by us during 2016,~~senior notes (the “5.375% Notes”) outstanding as of March 31, 2019, which are due November 15, 2022, unless earlier redeemed. Interest on the 5.375% Notes at a rate of 5.375% per annum is payable semiannually in arrears on May 15 and ~~the~~November 15. The 5.375% Notes contain customary non-financial covenants and change in control provisions.

4.875% Notes due 2025

We had $330 million aggregate principal amount of ~~risk transfer payments that would have been~~senior notes (the “4.875% Notes”) outstanding as of March 31, 2019, which are due ~~under~~June 15, 2025, unless earlier redeemed. Interest on the ~~federal government’s proposed 2018 risk adjustment payment transfer formula.~~4.875% Notes at a rate of 4.875% per annum is payable semiannually in arrears on June 15 and December 15. The 4.875% Notes contain customary non-financial covenants and change of control provisions.

1.125% Cash Convertible Senior Notes due 2020

In ~~May 2017,~~the first quarter of 2019, we entered into a ~~third amendment to the Credit Facility (the Third Amendment) which modified the Credit Facility’s definition~~privately negotiated note purchase agreement with certain holders of specified cash, to permit cash that is either subject to customary escrow arrangements or held in a segregated account to be netted from the Credit Facility’s consolidated net leverage ratio if the use of the cash is limited to the repayment of other indebtedness. The Third Amendment also adds a carve-out to the Credit Facility’s negative pledge covenant to allow for the escrow arrangements and segregated accounts.

In August 2017, we entered into a fourth amendment to the Credit Facility (the Fourth Amendment). The Fourth Amendment modified the definition of consolidated adjusted EBITDA to permit the add-back of certain restructuring charges and cost savings subject to certain limitations, and modified the definition of the consolidated interest coverage ratio to include, when calculating such ratio, consolidated interest expense “paid in cash” only.

~~Convertible Senior Notes~~

~~We have~~our outstanding ~~$550 million aggregate principal amount of~~ 1.125% cash convertible senior notes due January 15, 2020 ~~(1.125%~~(the “1.125% Convertible ~~Notes)~~Notes”), ~~unless earlier repurchased~~pursuant to which we repaid $46 million aggregate principal amount, or ~~converted. We~~$44 million aggregate carrying amount, of the 1.125% Convertible Notes. In addition, we paid $115 million to settle the 1.125% Convertible Notes’ embedded cash conversion option feature at fair value (which is a derivative liability we refer to as the “1.125% Conversion Option”).

In the three months ended March 31, 2019, we recorded a gain on debt extinguishment of $3 million for the 1.125% Convertible Notes purchase (net of accelerated original issuance discount amortization), primarily relating to a favorable mark to market valuation on the partial termination of the Call Spread Overlay executed in connection with the related debt extinguishment. This gain is reported in “Other (income) expenses, net” in the accompanying consolidated statements of income. No common shares were issued in connection with the transaction.

In connection with the 1.125% Convertible Notes purchases, we also ~~have outstanding $302~~entered into privately negotiated agreements in the first quarter of 2019, to partially terminate the Call Spread Overlay, defined and further discussed in Note 8, “Derivatives,” and Note 9, “Stockholders' Equity.” The net cash proceeds from the Call Spread Overlay partial termination transactions partially offset the cash paid to settle the 1.125% Convertible Notes.

Following the transaction described above, we had $206 million aggregate principal amount of ~~1.625% convertible senior notes due August 14, 2044 (1.625%~~the 1.125% Convertible ~~Notes), unless earlier repurchased, redeemed, or converted.~~Notes outstanding at March 31, 2019. Interest at a rate of 1.125% per annum is payable semiannually in arrears on January 15 and July 15. The 1.125% Convertible Notes are convertible ~~entirely~~only into cash, and not into shares of our common stock or any other securities. The initial conversion rate is 24.5277 shares of our common stock per $1,000 principal amount, or approximately $40.77 per share of our common stock. Upon conversion, in lieu of receiving shares of our common stock, a holder will receive an amount in cash, per $1,000 principal amount, equal to the ~~1.625%~~settlement amount, determined in the manner set forth in the indenture. We may not redeem the 1.125% Convertible Notes prior to the maturity date. The 1.125% Convertible Notes are convertible ~~partially into cash, each prior to their respective maturity dates under certain circumstances,~~by the holders within one year 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% Convertible Notes is $53.00 per share. The 1.125% Convertible Notes met this trigger in the quarter ended September 30, 2017;~~current balance sheet date until they mature; therefore, they ~~are convertible into cash and~~ are reported in current portion of long-term debt.

Concurrent with the issuance of the 1.125% Convertible Notes in 2013, the 1.125% Conversion Option was separated from the 1.125% Convertible Notes and accounted for separately as a derivative liability, with changes in fair value reported in our consolidated statements of income until the 1.125% Conversion Option fully settles or expires. This initial liability simultaneously reduced the carrying value of the 1.125% Convertible Notes’ principal amount (effectively an original issuance discount), which is amortized to the principal amount through the recognition of non-cash interest expense over the expected life of the debt. The effective interest rate of 6% approximates the interest rate we would have incurred had we issued nonconvertible debt with otherwise similar terms. As of March 31, 2019, the 1.125% Convertible Notes had a remaining amortization period of less than one year, and their ‘if-converted’ value exceeded their principal amount by approximately $456 million and $581 million as of ~~September 30, 2017.~~

The stock price trigger for the 1.625% Convertible Notes is $75.51 per share. The 1.625% Convertible Notes did not meet this stock price trigger in the quarter ended September 30, 2017. However, on contractually specified dates beginning inMarch 31, 2019 and December 31, 2018, holders of the 1.625% Convertible Notes may require us to repurchase some or all of such notes. In addition, beginning May 15, 2018 until August 19, 2018, holders may convert some or all of the 1.625% Convertible Notes. Because of these put and conversion features, the 1.625% Convertible Notes are reported in current portion of long-term debt as of September 30, 2017. As noted above, because the proceeds from the 4.875% Notes are initially restricted to payments upon conversion or redemption of the 1.625% Convertible Notes, such restricted investments are also classified as current in the accompanying consolidated balance sheets.respectively.

Cross-Default Provisions

The ~~terms of our~~indentures governing the 4.875% Notes, the 5.375% Notes and ~~each of~~ the 1.125% ~~and 1.625%~~ Convertible Notes contain cross-default provisions ~~with the Credit Facility~~ that are triggered upon ~~an event~~default by us or any of ~~default under~~our subsidiaries on any indebtedness in excess of the ~~Credit Facility, and when borrowings under the Credit Facility equal or exceed certain amounts as defined~~amount specified in the ~~related indentures.~~applicable indenture.

~~Debt Commitment Letter~~Subsequent Events

1.125% Convertible Notes. In ~~connection with the terminated Medicare Acquisition,~~April 2019, we entered into ~~a debt commitment letter~~privately negotiated note purchase agreements with ~~Barclays Bank PLC (Barclays) in August 2016.~~certain holders of our outstanding 1.125% Convertible Notes. Under ~~this debt commitment letter, Barclays agreed to lend us up to $400~~these agreements, we repaid $128 million ~~subject to satisfaction of certain conditions, including consummation~~aggregate principal amount, or approximately $123 million aggregate carrying amount, of the ~~terminated Medicare Acquisition. The debt commitment letter automatically terminated~~1.125% Convertible Notes. In addition, we paid $332 million to settle the 1.125% Convertible Notes’ embedded cash conversion option feature at fair value.

Credit Agreement. We drew down an additional $120 million under the Term Loan in February 2017 as a result of the termination of this transaction. The costs associated with the debt commitment letter and its termination were reimbursed as described in Note 1, “Basis of Presentation–~~Health Plans Segment Recent Developments~~.”April 2019, further reducing borrowing capacity by that amount permanently.

8. Derivatives

The following table summarizes the fair values and the presentation of our derivative financial instruments (defined and discussed individually below) in the accompanying consolidated balance sheets:


	Balance Sheet Location	September 30, 2017		December 31, 2016		Balance Sheet Location	March 31, 2019		December 31, 2018
		(In millions)					(In millions)
Derivative asset:
1.125% Call Option	Current assets: Derivative asset	$	425	$	267	Current assets: Derivative asset	$	516	$	476
Derivative liability:
1.125% Conversion Option	Current liabilities: Derivative liability	$	425	$	267	Current liabilities: Derivative liability	$	516	$	476

Our derivative financial instruments do not qualify for hedge treatment; therefore, the change in fair value of these instruments is recognized immediately in our consolidated statements of ~~operations,~~income, and reported in “Other ~~income,~~(income) expenses, net.” Gains and losses for our derivative financial instruments are presented individually in the accompanying consolidated statements of cash flows, “Supplemental cash flow information.”

1.125% Convertible Notes Call Spread Overlay. Concurrent with the issuance of the 1.125% Convertible Notes in 2013, we entered into privately negotiated hedge transactions (collectively, the 1.125% Call Option) and warrant transactions (collectively, the 1.125% Warrants), with certain of the initial purchasers of the 1.125% Convertible Notes (the Counterparties). We refer to these transactions collectively as the Call Spread Overlay. Under the Call Spread Overlay, the cost of the 1.125% Call Option we purchased to cover the cash outlay upon conversion of the 1.125% Convertible Notes was reduced by proceeds from the sale of the 1.125% Warrants. Assuming full performance by the Counterparties (and 1.125% Warrants strike prices in excess of the conversion price of the 1.125% Convertible Notes), these transactions are intended to offset cash payments in excess of the principal amount of the 1.125% Convertible Notes due upon any conversion of such notes.

In the first quarter of 2019, in connection with the 1.125% Convertible Notes purchases (described in Note 7, “Debt”), we entered into privately negotiated termination agreements with each of the Counterparties to partially terminate the Call Spread Overlay, in notional amounts corresponding to the aggregate principal amount of the 1.125% Convertible Notes purchased. In the first quarter of 2019, this resulted in our receipt of $115 million for the settlement of the 1.125% Call Option (which is a derivative asset), and the payment of $103 million for the partial termination of the 1.125% Warrants, for an aggregate net cash receipt of $12 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~~income until the cash conversion option settles or expires. For further discussion of the inputs used to determine the fair value of the 1.125% Conversion Option, refer to Note 4, “Fair Value Measurements.”

As of ~~September 30, 2017,~~March 31, 2019, the 1.125% Call Option and the 1.125% Conversion Option were classified as a current asset and current liability, respectively, because the 1.125% Convertible Notes may be converted within twelve months of ~~September 30, 2017,~~March 31, 2019, as described in Note 7, “Debt.”

9. Stockholders' Equity

~~Stockholders’ equity decreased~~ ~~$220 million~~ ~~during the nine months ended September 30, 2017 compared with stockholders’ equity at December 31, 2016. The decrease was due primarily to the net loss of~~ ~~$250 million, partially offset by $29 million related to employee stock transactions in the nine months ended September 30, 2017.~~

1.125% Warrants

In connection with the Call Spread Overlay transaction described in Note 8, “Derivatives,” in 2013, we issued ~~13,490,236~~13.5 million warrants with a strike price of $53.8475 per share. Under certain circumstances, beginning in April 2020, ~~when~~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 ~~(Loss)~~ Income per Share,” for dilution information for the periods presented. We will not receive any additional proceeds if the 1.125% Warrants are exercised. Following the transactions described below, 5.1 million of the 1.125% Warrants remain outstanding.

~~Stock Incentive Plans~~As described in Note 8, “Derivatives,” in the first quarter of 2019, we entered into privately negotiated termination agreements with each of the Counterparties to partially terminate the Call Spread Overlay, in notional amounts corresponding to the aggregate principal amount of the 1.125% Convertible Notes purchased. In the first quarter of 2019, we paid $103 million to the Counterparties for the termination of 1.1 million of the 1.125% Warrants outstanding, which resulted in a reduction of additional paid-in-capital for the same amount.

Subsequent Event

In April 2019, we entered into privately negotiated termination agreements with each of the Counterparties to partially terminate the Call Spread Overlay, in notional amounts corresponding to the aggregate principal amount of the 1.125% Convertible Notes purchased. Pursuant to these transactions, we paid $298 million to the Counterparties for the termination of 3.1 million of the 1.125% Warrants outstanding, which resulted in a reduction of additional paid-in-capital for the same amount.

Share-Based Compensation

In connection with our ~~equity incentive plans and~~ employee stock ~~purchase plan,~~plans, approximately ~~702,000~~84,000 shares of common stock vested or were purchased, net of shares used to settle employees’ income tax obligations, during the ~~nine~~three months ended ~~September 30, 2017.~~March 31, 2019.

~~Except as noted below, we record share-based~~Share-based compensation asis generally recorded to “General and administrative expenses” in the accompanying consolidated statements of ~~operations. Restricted stock awards (RSAs), performance stock awards (PSAs) and performance stock units (PSUs) activity for the nine months ended September 30, 2017 is summarized below:~~

Restricted Stock Awards Performance Stock Awards Performance Stock Units Total
Weighted
Average
Grant Date
Fair Value
Unvested balance, December 31, 2016 577,244
345,656
—
922,900
$ 58.15
Granted 386,273
—
231,100
617,373
57.16
Vested (391,680 ) (260,894 ) (139,272 ) (791,846 ) 57.78
Forfeited (69,346 ) —
—
(69,346 ) 54.37
Unvested balance, September 30, 2017 502,491
84,762
91,828
679,081
57.61

The total fair value of RSAs granted during the nine months ended September 30, 2017 and 2016 was $19 million and $18 million, respectively. The total fair value of RSAs which vested during the nine months ended September 30, 2017 and 2016 was $21 million and $22 million, respectively.

No PSAs were granted during the nine months ended September 30, 2017. The total fair value of PSAs granted during the nine months ended September 30, 2016 was $15 million. The total fair value of PSAs which vested during the nine months ended September 30, 2017 was $15 million. No PSAs vested during the nine months ended September 30, 2016.

The total fair value of PSUs granted during the nine months ended September 30, 2017 was $16 million. The total fair value of PSUs which vested during the nine months ended September 30, 2017 was $9 million. There were no PSUs granted or vested in 2016.

During the nine months ended September 30, 2017, the vesting of 133,957 RSAs, 153,574 PSAs and 139,272 PSUs was accelerated in connection with the termination of our former Chief Executive Officer (CEO) and former Chief Financial Officer (CFO) in May 2017. Share-based compensation expense of $38 million was recorded during the nine months ended September 30, 2017, of which $23 million was recorded to “Restructuring and separation costs” in the accompanying consolidated statements of operations. See Note 11, “Restructuring and Separation Costs” for further discussion. We recordedincome. Total share-based compensation expense ~~of $24 million in~~for the ~~nine~~three months ended ~~September 30, 2016.~~March 31, 2019 and 2018, amounted to $9 million and $6 million, respectively.

As of ~~September 30, 2017,~~March 31, 2019, there was ~~$27~~$71 million of total unrecognized compensation expense related to unvested ~~RSAs, PSAs,~~restricted stock awards (“RSAs”), and ~~PSUs,~~performance stock units (“PSUs”), which we expect to recognize over a remaining weighted-average period of ~~2.2~~2.9 years and ~~1.9~~2.3 years, respectively. This unrecognized compensation cost assumes an estimated forfeiture rate of ~~4.5%~~14.1% for non-executive employees as of ~~September 30, 2017.~~March 31, 2019.

~~10. Impairment Losses~~

~~Goodwill represents the excess~~Also as of ~~the purchase price over the fair value~~March 31, 2019, there was $8 million of ~~net assets acquired in business combinations. Goodwill is not amortized, but is subject to an annual impairment test.~~We are required to test at least annually for impairment, or more frequently if adverse events or changes in circumstances indicate that the asset may be impaired. When testing goodwill for impairment, we may first assess qualitative factors, such as industry and market factors, cost factors, and changes in overall performance, to determine if it is more likely than not that the carrying value of a reporting unit exceeds its estimated fair value. If our qualitative assessment indicates that goodwill impairment is more likely than not, we perform additional quantitative analysis. We may also elect to skip the qualitative testing and proceed directly to the quantitative testing.

An impairment loss is measured as the excess of the carrying amount of the reporting unit, including goodwill, over the fair value of the reporting unit. We estimate the fair values of our reporting units using discounted cash flows. We apply our weighted average cost of capital (WACC) as the best estimate to discount future estimated cash flows to present value. The WACC is based on externally available data considering market participants’ cost of equity and debt, and capital structure. In addition, we apply a terminal growth rate that corresponds to the reporting unit’s long-term growth prospects.

In the discounted cash flow analyses, we must make assumptions about a wide variety of internal and external factors, and consider the price that would be received to sell the reporting unit as a whole in an orderly transaction between market participants at the measurement date. Significant assumptions include financial projections of free cash flow (including significant assumptions about operations, capital requirements and income taxes), long-term growth rates for determining terminal value beyond the discretely forecasted periods, and discount rates.

~~Molina Medicaid Solutions Segment~~

As described in Note 11, “Restructuring and Separation Costs,” in the third quarter of 2017 we wrote off certain costs capitalized at our Molina Medicaid Solutions segment that supported our Health Plans segment provider information management processes to be re-designed. Although the intercompany revenues recorded by Molina Medicaid Solutions under this arrangement were insignificant on a consolidated basis, the termination of such revenue resulted in a triggering event for an interim goodwill impairment analysis of this segment in the third quarter of 2017. In the Molina Medicaid Solutions’ discounted cash flow model, we incorporated significant estimates and assumptionstotal unrecognized compensation expense related to future periods, such as intercompany business support opportunities and prospects for new Medicaid management information systems contracts. Because management has determined that Molina Medicaid Solutions will provide fewer future benefits for its supportunvested stock options, which we expect to recognize over a weighted-average period of ~~the Health Plans segment, the test resulted~~1.5 years. No stock options were granted or exercised in ~~a fair value less than Molina Medicaid Solutions’ carrying amount; therefore, we recorded a goodwill impairment loss for the difference, or $28 million, in the third quarter of 2017.~~

~~Other Segment~~

In the course of developing the Restructuring Plan in the second quarter of 2017, we determined that future benefits to be derived from our Pathways subsidiary, including the integration of its operations with our Health Plans segment, would be less than previously anticipated. In addition, poorer than expected year-to-date operating results, as well as lower projections of operating results for periods in the near term at our Pathways subsidiary, led us to conclude that a triggering event for an interim impairment analysis had occurred in the second quarter of 2017.

In the third quarter of 2017, management determined that Pathways will not provide future benefits relating to the integration of its operations with the Health Plans segment to the extent previously expected. Therefore, we conducted an additional interim impairment analysis.

~~Intangible assets.~~ In the second quarter of 2017, we evaluated Pathways’ finite-lived intangible assets (customer relationships and contract licenses) for impairment, using undiscounted cash flows expected over the longest remaining useful life of the assets tested. Because the undiscounted cash flows over the remaining useful life were less than Pathways’ carrying amount, the intangible assets were impaired. We recorded an impairment loss for the carrying amount of the intangible assets, or $11 million, in the second quarter of 2017.

~~Goodwill.~~ As noted above, we estimated Pathways’ fair value using discounted cash flows, incorporating significant estimates and assumptions related to future periods. Such estimates included anticipated client census which drives service revenue; the likelihood of future benefits to be derived from Pathways (including integration with our health plans); current prospects relating to the behavioral services labor market which drives cost of service revenue; and anticipated capital expenditures. The tests in each of the three months ended ~~June 30, 2017,~~March 31, 2019.

Activity for RSAs, performance stock awards (“PSAs”) and ~~September 30, 2017, resulted in a fair value less than Pathways’ carrying amount; therefore, we recorded an~~PSUs, for the three months ended March 31, 2019, is summarized below:



	RSAs		PSAs		PSUs		Total		Weighted Average Grant Date Fair Value
Unvested balance, December 31, 2018	399,795		3,132		201,383		604,310		$	71.50
Granted	215,178		—		138,994		354,172		137.37
Vested	(119,994	)	(3,132	)	(10,528	)	(133,654	)	68.24
Forfeited	(14,220	)	—		(4,140	)	(18,360	)	74.03
Unvested balance, March 31, 2019	480,759		—		325,709		806,468		100.91

~~impairment loss for the difference.~~ The ~~Pathways goodwill impairment losses amounted to $101 million~~aggregate fair values of RSAs, PSAs and PSUs granted and vested are presented in the ~~third quarter of 2017, and $59 million in~~following table:



	Three Months Ended March 31,
	2019		2018
	(In millions)
Granted:
RSAs	$	30	$	23
PSUs	18		14
	$	48	$	37
Vested:
RSAs	$	16	$	12
PSUs	2		—
PSAs	—		3
	$	18	$	15

10. Restructuring Costs

Restructuring costs are reported by the ~~second quarter of 2017. In the second quarter of 2017, we also recorded a goodwill impairment loss of $2 million for a separate subsidiary in the Other segment that did not pass its impairment test.~~

~~There were no impairments of intangible assets or goodwill during 2016.~~

~~The goodwill impairment losses are recorded to the segments as indicated in following table, and reported as “Impairment losses”~~same name in the accompanying consolidated statements of ~~operations.~~income.

IT Restructuring Plan

Health Plans Molina Medicaid Solutions Other Total
(In millions)
Historical goodwill $ 445
$ 71
$ 162
$ 678
Accumulated impairment losses at December 31, 2016 (58 ) —
—
(58 )
Balance, December 31, 2016 387
71
162
620
Impairment losses, three months ended June 30, 2017 —
—
(61 ) (61 )
Impairment losses, three months ended September 30, 2017 —
(28 ) (101 ) (129 )
Balance, September 30, 2017 $ 387
$ 43
$ —
$ 430
Accumulated impairment losses at September 30, 2017 $ 58
$ 28
$ 162
$ 248
Management is focused on a margin recovery plan that includes identification and implementation of various profit improvement initiatives. To that end, we began a plan to restructure our information technology department (the “IT Restructuring Plan”) in 2018. In early 2019, we have entered into services agreements with Infosys Limited under which Infosys manages certain of our information technology services.

We expect to complete the IT Restructuring Plan by the end of 2019, incurring cumulative total costs of approximately $15 million in the Other segment. This total has decreased compared with the $20 million reported in the 2018 Form 10-K due to more of our IT employees transitioned to Infosys than originally contemplated, resulting in lower one-time termination benefit costs.

As of March 31, 2019, we had incurred cumulative restructuring costs under the IT Restructuring Plan of $11 million, including $7 million of one-time termination benefits and $4 million of other restructuring costs (consulting fees).

As of December 31, 2018, there was $6 million accrued under the IT Restructuring Plan, primarily for one-time termination benefits that require cash settlement. In the first quarter of 2019, we incurred $2 million of other restructuring costs, and paid $2 million to settle one-time termination benefits and $1 million to settle other restructuring costs. As of March 31, 2019, there was $5 million accrued under the IT Restructuring Plan.

2017 Restructuring Plan

As of December 31, 2018, we had $18 million of accrued liabilities for the 2017 Restructuring Plan. In the first quarter of 2019, we incurred $1 million of restructuring costs for adjustments to previously recorded lease contract termination costs implemented pursuant to the restructuring and profitability improvement plan approved by our Board in June 2017 (the “2017 Restructuring Plan”), and paid $3 million to settle one-time termination and lease contract termination costs. As of March 31, 2019, there was $16 million accrued for lease contract termination costs under the 2017 Restructuring Plan. We expect to continue to settle these liabilities through 2025, unless the leases are terminated sooner.

11. ~~Restructuring and Separation Costs~~Segments

Following a management-initiated, broad operational assessment in early 2017, designed to improve our profitability and expand our core Medicaid business, in June 2017, we accelerated the implementation of a comprehensive restructuring and profitability improvement plan (the Restructuring Plan). Under the Restructuring Plan, we are taking the following actions:


1.	We have streamlined our organizational structure, including the elimination of redundant layers of management, the consolidation of regional support services, and other reductions to our workforce, to improve efficiency as well as the speed and quality of our decision-making.


2.	We are re-designing core operating processes such as provider payment, utilization management, quality monitoring and improvement, and information technology to achieve more effective and cost efficient outcomes.


3.	~~We are remediating high cost provider contracts and building around high quality, cost-effective networks.~~


4.	~~We are restructuring our existing direct delivery operations.~~


5.	~~We are reviewing our vendor base to ensure that we are partnering with the lowest-cost, most-effective vendors.~~


6.	Throughout this process, we are taking precautions to ensure that our actions do not impede our ability to continue to deliver quality health care, retain existing managed care contracts, and to secure new managed care contracts.

~~In addition to costs incurred under the Restructuring Plan, we~~We currently have ~~recorded costs associated with the separation of our former CEO and former CFO, described in further detail below.~~

~~Expected Costs~~

We estimate that total pre-tax costs associated with the restructuring plan will be approximately $70 million to $90 million in the fourth quarter of 2017, with an additional $20 million to $40 million to be incurred in 2018. Since the initiation of our Restructuring Plan in the second quarter of 2017, the range of total estimated costs have increased by approximately $50 million due primarily to non-cash write-offs of certain capitalized software in connection with the re-design of core processes. Such write-offs were not included in our initial total cost estimates, but as our evaluation of core operating processes proceeded in the third quarter, we determined that certain projects were inconsistent with our future operating goals and were therefore written off.

In addition, in the second quarter of 2017, we reported that we expected restructuring costs to relate only to the Health Plans and Other segments. In the third quarter of 2017, however, we wrote off certain costs capitalized at our Molina Medicaid Solutions segment that supportedtwo reportable segments: our Health Plans segment ~~provider information management~~

~~processes to be re-designed. In addition, we now expect to incur consulting fees in connection with the review of Molina Medicaid Solutions’ core operating processes.~~

The following table illustrates our estimates of the total costs, by segment and major type of cost, that we expect to incur under the Restructuring Plan, and includes costs incurred through September 30, 2017. We expect the Restructuring Plan to be completed by the end of 2018.



~~Estimated Costs Expected to be Incurred by Reportable Segment~~	~~Health Plans~~	~~Molina Medicaid Solutions~~	~~Other~~	~~Total~~
	~~(In millions)~~
~~Termination benefits~~	~~$30 to $35~~	—	~~$30 to $35~~	~~$60 to $70~~
~~Other restructuring costs~~	~~$40 to $45~~	~~$10~~	~~$110 to $115~~	~~$160 to $170~~
	~~$70 to $80~~	~~$10~~	~~$140 to $150~~	~~$220 to $240~~

~~Costs Incurred~~

~~Restructuring Plan~~

Restructuring costs incurred to date consist primarily of termination benefits, write-offs of capitalized software due to the re-design of our core operating processes, restructuring of our direct delivery operations, and consulting fees.

~~Separation Costs~~

On May 2, 2017, we terminated the employment of our former CEO and CFO without cause. Under their amended and restated employment agreements, they were each entitled to receive 400% of their base salary, a prorated termination bonus (150% of base salary for the former CEO and 125% of base salary for the former CFO), full vesting of equity compensation, and a cash payment for health and welfare benefits. We recorded separation costs of $35 million primarily related to these former executives under FASB ASC Topic 712, ~~Nonretirement and Postemployment Benefits~~. Of this total, $23 million related to the acceleration of their share-based compensation, as further discussed in Note 9, “Stockholders' Equity.” Employee separation costs were insignificant in 2016.

Restructuring and separation costs are reported in “Restructuring and separation costs” in the accompanying consolidated statements of operations. The following tables present the major types of such costs by segment. Long-lived assets include capitalized software, intangible assets and furniture, fixtures and equipment.

Three Months Ended September 30, 2017
Separation Costs - Former Executives One-Time Termination Benefits Other Restructuring Costs Total
Write-offs of Long-lived Assets Consulting Fees Contract Termination Costs
(In millions)
Health Plans $ —
$ 27
$ 6
$ —
$ —
$ 33
Molina Medicaid Solutions —
—
8
—
—
8
Other —
23
35
16
3
77
$ —
$ 50
$ 49
$ 16
$ 3
$ 118

Nine Months Ended September 30, 2017
Separation Costs - Former Executives One-Time Termination Benefits Other Restructuring Costs Total
Write-offs of Long-lived Assets Consulting Fees Contract Termination Costs
(In millions)
Health Plans $ —
$ 27
$ 6
$ —
$ —
$ 33
Molina Medicaid Solutions —
—
8
—
—
8
Other 35
23
35
24
3
120
$ 35
$ 50
$ 49
$ 24
$ 3
$ 161

~~Reconciliation of Liability~~

For those restructuring and separation costs that require cash settlement (primarily separation costs, termination benefits and consulting fees), the following table presents a roll-forward of the accrued liability, which is reported in “Accounts payable and accrued liabilities” in the accompanying consolidated balance sheets:

Separation Costs - Former Executives One-Time Termination Benefits Other Restructuring Costs Total
(In millions)
Accrued as of December 31, 2016 $ —
$ —
$ —
$ —
Charges 12
50
27
89
Cash payments (1 ) (9 ) (14 ) (24 )
Accrued as of September 30, 2017 $ 11
$ 41
$ 13
$ 65

~~12. Segment Information~~

~~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.

~~Gross margin~~Description of Earnings Measures for Reportable Segments

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~~

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~~which represents the amount earned by the ~~Health Plans segment~~segments after medical costs are deducted from premium revenue. The medical care ratio represents the amount of medical care costs as a percentage of premium revenue, and is one of the key metrics used to assess the performance of the ~~Health Plans segment.~~segments. 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~~following table presents total revenue ~~minus cost of service revenue.~~

by segment. Inter-segment revenue was insignificant for all periods presented.

Health Plans Molina Medicaid Solutions Other Consolidated

(In millions)
Three Months Ended September 30, 2017
Total revenue ⁽¹⁾
$ 4,899
$ 47
$ 85
$ 5,031
Gross margin 557
5
2
564
Impairment losses —
(28 ) (101 ) (129 )
Restructuring and separation costs (33 ) (8 ) (77 ) (118 )

Nine Months Ended September 30, 2017
Total revenue ⁽¹⁾
$ 14,538
$ 140
$ 256
$ 14,934
Gross margin 1,343
13
8
1,364
Impairment losses —
(28 ) (173 ) (201 )
Restructuring and separation costs (33 ) (8 ) (120 ) (161 )

Three Months Ended September 30, 2016
Total revenue ⁽¹⁾
$ 4,412
$ 48
$ 86
$ 4,546
Gross margin 443
6
8
457
Impairment losses —
—
—
—
Restructuring and separation costs —
—
—
—

Nine Months Ended September 30, 2016
Total revenue ⁽¹⁾
$ 12,835
$ 146
$ 267
$ 13,248
Gross margin 1,285
17
29
1,331
Impairment losses —
—
—
—
Restructuring and separation costs —
—
—
—

Total assets
September 30, 2017 $ 7,031
$ 233
$ 1,690
$ 8,954
December 31, 2016 5,897
267
1,285
7,449

Goodwill and intangible assets, net
September 30, 2017 $ 488
$ 43
$ —
$ 531
December 31, 2016 513
72
175
760

~~______________________~~


~~(1)~~	Total revenue consists primarily of premium revenue, premium tax revenue and health insurer fee revenue for the Health Plans segment, and service revenue for the Molina Medicaid Solutions and Other segments. Inter-segment revenue is insignificant for all periods presented.



	Three Months Ended March 31,
	2019		2018
	(In millions)
Total revenue:
Health Plans	$	4,117	$	4,509
Other	2		137
Consolidated	$	4,119	$	4,646

The following table reconciles ~~gross~~ margin by segment to consolidated income before income ~~tax expense:~~taxes:


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
	2017			2016			2017			2016			2019			2018
	(In millions)												(In millions)
Gross margin:
Margin:
Health Plans	$	557		$	443		$	1,343		$	1,285		$	581		$	601
Molina Medicaid Solutions	5			6			13			17
Other	2			8			8			29			—			14
Total gross margin	564			457			1,364			1,331
Total margin													581			615
Add: other operating revenues ⁽¹⁾	124			222			379			625			167			189
Less: other operating expenses ⁽²⁾	(769		)	(561		)	(2,029		)	(1,644		)	(468		)	(582		)
Operating (loss) income	(81		)	118			(286		)	312
Operating income													280			222
Other expenses, net	32			26			10			76			20			43
(Loss) income before income taxes	$	(113	)	$	92		$	(296	)	$	236
Income before income taxes													$	260		$	179

______________________


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


(2)	Other operating expenses include general and administrative expenses, premium tax expenses, health insurer ~~fee expenses,~~fees, depreciation and amortization, ~~impairment losses,~~ and restructuring ~~and separation~~ costs.

~~13.~~12. Commitments and Contingencies

~~Regulatory Capital Requirements and Dividend Restrictions~~

Our health plans, which are operated by our wholly owned subsidiaries in the states in which our health plans operate, 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 $1,696 million at September 30, 2017, and $1,492 million at December 31, 2016. 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 (excluding restricted investments) held by the parent company – Molina Healthcare, Inc. Such cash, cash equivalents and investments (excluding restricted investments) amounted to $391 million and $264 million as of September 30, 2017 and December 31, 2016, respectively.

The National Association of Insurance Commissioners (NAIC) adopted rules effective December 31, 1998, which, if implemented by the states, set minimum capitalization requirements for insurance companies, HMOs, and other entities bearing risk for health care coverage. The requirements take the form of risk-based capital (RBC) rules which may vary from state to state. All of the states in which our health plans operate, except California, Florida and New York, have adopted these rules. Such requirements, if adopted by California, Florida and New York, may increase the minimum capital required for those states.

As of September 30, 2017, our health plans had aggregate statutory capital and surplus of approximately $1,828 million compared with the required minimum aggregate statutory capital and surplus of approximately $1,113 million. All of our health plans were in compliance with the minimum capital requirements at September 30, 2017. 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 ~~and Medicaid-related business process outsourcing industries are~~industry is subject to numerous laws and regulations of federal, state, and local governments. ~~Compliance with these laws and regulations can be subject to government review and interpretation, as well as regulatory actions unknown and unasserted at this time.~~ Penalties

associated with violations of these laws and regulations include significant fines, exclusion from participating in publicly funded programs, and the repayment of previously ~~billed and~~ collected revenues.

WeIn the ordinary course of business we are involved in legal actions, ~~in the ordinary course of business,~~ 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 ~~and/~~or ~~development of important~~ factual ~~information and legal issues is insufficient~~development to enable us to reasonably estimate a range of possible ~~loss, if any.~~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.

~~Marketplace Risk Corridor Program.~~ On January 19, 2017, we filed suit against the United States of America in the United States Court of Federal Claims, Case Number 1:55-cv-01000-UNJ, on behalf of our health plans seeking recovery from the federal government of approximately $52 million in Marketplace risk corridor payments for calendar year 2015. Based upon current estimates, we believe our health plans are also owed approximately $76 million in Marketplace risk corridor payments from the federal government for calendar year 2016. We have not recognized revenue, nor have we recorded a receivable, for any amount due from the federal government for unpaid Marketplace risk corridor payments as of September 30, 2017. We have fully recognized all liabilities due to the federal government that we have incurred under the Marketplace risk corridor program, and have paid all amounts due to the federal government as required.

~~Rodriguez~~Steamfitters Local 449 Pension Plan v. ~~Providence Community Corrections.~~Molina Healthcare, Inc., et al. On October ~~1, 2015, seven individuals, on behalf of themselves and all others similarly situated,~~5, 2018, the Steamfitters Local 449 Pension Plan filed aits first amended class action securities complaint in the District Court for the Middle District of Tennessee, Nashville Division, Case No. 3:15-cv-01048 (the Rodriquez Litigation), against Providence Community Corrections, Inc. (now known as Pathways Community Corrections, Inc., or PCC). Rutherford County, Tennessee formerly contracted with PCC for the administration of misdemeanor probation, which involved the collection of court costs and fees from probationers. The complaint alleges, among other things, that PCC illegally assessed fees and surcharges against probationers and made improper threats of arrest and probation revocation if the probationers did not pay such amounts. The plaintiffs in the Rodriguez Litigation seek alleged compensatory, treble, and punitive damages, plus attorneys’ fees, for alleged federal and state constitutional violations, as well as alleged violations of the Racketeer Influenced and Corrupt Organization Act. PCC’s agreement with Rutherford County terminated effective March 31, 2016. On November 1, 2015, one month after the Rodriguez Litigation commenced, we acquired PCC from The Providence Service Corporation (Providence) pursuant to a membership interest purchase agreement. In September 2016, the parties to the Rodriguez Litigation accepted a mediation proposal for settlement pursuant to which PCC and Rutherford County would pay the plaintiffs $14 million and $3 million, respectively. The parties are in the process of finalizing the settlement agreement. We expect to recover the full amount of the settlement under the indemnification provisions of the membership interest purchase agreement with Providence.

~~United States of America, ex rel., Anita Silingo v. Mobile Medical Examination Services, Inc., et al.~~ On or around October 14, 2014, Molina Healthcare of California, Molina Healthcare of California Partner Plan, Inc., Mobile Medical Examination Services, Inc. (MedXM), and other health plan defendants were served with a complaint previously filed under seal in the Central District Court of California ~~by Relator, Anita Silingo,~~against the Company and its former executive officers, J. Mario Molina, John C. Molina, Terry P. Bayer, and Rick Hopfer, Case ~~No. SACV13-1348-FMO(SHx).~~2:18-cv-03579. The complaint alleges that MedXM improperly modified medical records and otherwise took inappropriate steps to increase members’ risk adjustment scores, and that the defendants, including Molina Healthcare of California and Molina Healthcare of California Partner Plan, Inc., purportedly turned a “blind eye” to these unlawful practices. On October 22, 2015, the Relator filed a third amended complaint seeking general and compensatory damages, treble damages, civil penalties, plus interest and attorneys’ fees. On July 11, 2016, the District Court dismissed with prejudice the third amended complaint, without leavepurports to ~~amend. On September 23, 2016, the plaintiff filed an appeal with the Ninth Circuit Court~~seek recovery on behalf of ~~Appeals. The appeal has been fully briefed by the parties and we are awaiting the Court’s decision.~~

~~States’ Budgets~~

From time to time, the states in which our health plans operate may experience financial difficulties, which could lead to delays in premium payments. Until July 4, 2017, the state of Illinois operated without a budget for its current fiscal year. As of September 30, 2017, our Illinois health plan served approximately 163,000 members, and recognized premium revenue of approximately $447 million in the nine months ended September 30, 2017. As of September 30, 2017, the state of Illinois owed us approximately $220 million for certain March through September 2017 premiums.all persons or entities

~~On May 3,~~who purchased Molina common stock between October 31, 2014, and August 2, 2017, ~~Puerto Rico’s financial oversight board filed~~ for ~~a form of bankruptcy in the U.S. District Court in Puerto Rico~~alleged violations under Title III of PROMESA. The Title III provision allows for a court debt restructuring process similar to U.S. bankruptcy protection. To the extent such bankruptcy results in our failure to receive payment of amounts due under our Medicaid contract with the Commonwealth or the inabilitySections 10(b) and 20(a) of the ~~Commonwealth~~Securities Exchange Act of 1934, as amended, 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. On December 13, 2018, the Court granted the Company’s motion to ~~extend our Medicaid contract at~~dismiss in its entirety and closed the ~~end~~case. On January 9, 2019, plaintiffs appealed to the United States Court of ~~its current term,~~Appeals for the Ninth Circuit. The Company believes it has meritorious defenses to the alleged claims and intends to defend the matter vigorously. At this time, we are not able to estimate a possible loss or range of loss that may result from this matter or to determine whether such ~~bankruptcy could~~loss, if any, would have a material adverse effect on our ~~business,~~ financial condition, ~~cash flows, or~~ results of ~~operations. As~~operations, or cash flows.

States’ Budgets

Nearly all of ~~September 30, 2017,~~our premium revenues come from the ~~plan served approximately 306,000 members~~joint federal and ~~recorded premium revenue~~state funding of ~~approximately $553 million~~the Medicaid and Children’s Health Insurance Program (“CHIP”) programs. The states and Commonwealth in ~~the nine months ended September 30, 2017. As of October 27, 2017, the Commonwealth was current with its premium payments.~~which we operate our health plans regularly face significant budgetary pressures.

~~14. Related Party Transactions~~13. Leases

~~Our California~~As discussed in Note 2, “Significant Accounting Policies,” we elected the Topic 842 transition provision that allows entities to continue to apply the legacy guidance in Topic 840, Leases, including its disclosure requirements, in the comparative periods presented in the year of adoption. Accordingly, the Topic 842 disclosures below are presented as of and for the three-month period ended March 31, 2019, only.

We are a party to operating and finance leases primarily for our corporate and health plan ~~has entered into a provider agreement with Pacific Healthcare IPA (Pacific),~~offices. Our operating leases have remaining lease terms up to 10 years, some of which ~~is 50% owned by~~include options to extend the ~~brother-in-law of Dr. J. Mario Molina and John C. Molina, who are members of our board of directors. Under the~~leases for up to 10 years. Our finance leases have remaining lease terms of ~~this provider agreement,~~3 to 19 years, some of which include options to extend the ~~California health plan pays Pacific~~leases for ~~medical care Pacific provides~~up to ~~health plan members. For the three and nine months ended September 30, 2017 and 2016, the amounts paid to Pacific were insignificant.~~

~~Refer to Note 15, “Variable Interest Entities (VIEs),” for a discussion of theJoseph M. Molina, M.D. Professional Corporations.~~

~~15. Variable Interest Entities (VIEs)~~25 years.

The~~Joseph M. Molina, M.D. Professional Corporations (JMMPC)~~ components of lease expense were ~~created~~as follows:



	Three Months Ended March 31, 2019
	(In millions)
Operating lease cost	$	9

Finance lease cost:
Amortization of ROU assets	$	4
Interest on lease liabilities	4
Total finance lease cost	$	8

Supplemental consolidated cash flow information related to further advance our direct delivery business. Effective September 30, 2017, we terminated our relationship with JMMPC in Florida, Michigan, Washington, and Utah. Therefore, the agreements described below, for all of our health plans other than those in California and New Mexico, were terminated effective September 30, 2017.leases follows:

JMMPC’s primary shareholder is Dr. J. Mario Molina, who is a member of our board of directors. Dr. Molina is paid no salary and receives no dividends in connection with his work for, or ownership of, JMMPC. JMMPC provides primary care medical services through its employed physicians and other medical professionals. JMMPC also provides certain specialty referral services to our California health plan members through a contracted provider network. The health plans had entered into primary care services agreements with JMMPC, under which the health plans paid $29 million and $31 million to JMMPC for health care services provided in the three months ended September 30, 2017 and 2016, respectively, and $89 million and $92 million for the nine months ended September 30, 2017 and 2016, respectively. JMMPC does not have agreements to provide professional medical services with any other entities.

Our wholly owned subsidiary, Molina Medical Management, Inc. (MMM), had also entered into services agreements with JMMPC to provide clinic facilities, clinic administrative support staff, patient scheduling services and medical supplies to JMMPC. For the three months ended September 30, 2017 and 2016, JMMPC paid $12 million and $13 million to MMM for clinic administrative services, respectively. For the nine months ended September 30, 2017 and 2016, JMMPC paid $38 million and $40 million, respectively, to MMM for clinic administrative services.

As of September 30, 2017, we determined that JMMPC is a VIE, and that we are its primary beneficiary. We reached this conclusion under the power and benefits criterion model according to GAAP. Specifically, we had the power to direct the activities (excluding clinical decisions) that most significantly affected JMMPC’s economic performance, and the obligation to absorb losses or right to receive benefits that were potentially significant to the VIE, under the agreements described above. Because we were its primary beneficiary, we consolidated JMMPC. JMMPC’s assets may be used to settle only JMMPC’s obligations, and JMMPC’s creditors have no recourse to the general credit of Molina Healthcare, Inc. As of September 30, 2017, JMMPC had total assets of $20 million, and total liabilities of $24 million. As of December 31, 2016, JMMPC had total assets of $18 million, and total liabilities of $18 million.

Our maximum exposure to loss as a result of our involvement with JMMPC is generally limited to the amounts needed to fund JMMPC’s ongoing payroll, employee benefits and medical care costs associated with JMMPC’s specialty referral activities.



	Three Months Ended March 31, 2019
	(In millions)
Cash used in operating activities:
Operating leases	$	9
Finance leases	$	4
Cash used in financing activities:
Finance leases	$	1
ROU assets recognized in exchange for lease obligations:
Operating leases	$	94
Finance leases	$	241

~~16.~~ Supplemental ~~Condensed Consolidating Financial Information~~

~~The 5.375% Notes described~~information related to leases, including location of amounts reported in Note 7, “Debt,” are fully and unconditionally guaranteed by certain of our 100% owned subsidiaries on a joint and several basis, with certain exceptions considered customary for such guarantees. The 5.375% Notes and the guarantees are effectively subordinated to all of our and our guarantors’ existing and future secured debt to the extent of the assets securing such debt. In addition, the 5.375% Notes and the guarantees are structurally subordinated to all indebtedness and other liabilities and preferred stock, if any, of our subsidiaries that do not guarantee the 5.375% Notes.

As discussed in Note 7, “Debt,” the First Amendment to the Credit Facility provided that all guarantors immediately prior to January 3, 2017, other than Molina Information Systems, LLC, d/b/a Molina Medicaid Solutions, Molina Pathways, LLC, and Pathways Health and Community Support LLC, were automatically and unconditionally released from their obligations as guarantors under the Credit Facility and the 5.375% Notes.

The following condensed consolidating financial statements present Molina Healthcare, Inc. (as parent guarantor), the subsidiary guarantors, the subsidiary non-guarantors and eliminations, according to the guarantor structure as assessed at the most recentaccompanying consolidated balance ~~sheet date, September 30, 2017.~~

~~CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS~~

sheets, follows:

Three Months Ended September 30, 2017
Parent Guarantor Other Guarantors Non-Guarantors Eliminations Consolidated
(In millions)
Revenue:
Total revenue $ 380
$ 47
$ 4,983
$ (379 ) $ 5,031
Expenses:
Medical care costs 3
—
4,217
—
4,220
Cost of service revenue —
42
81
—
123
General and administrative expenses 244
(1 ) 519
(379 ) 383
Premium tax expenses —
—
106
—
106
Depreciation and amortization 23
1
9
—
33
Impairment losses —
28
101
—
129
Restructuring and separation costs 77
8
33
—
118
Total operating expenses 347
78
5,066
(379 ) 5,112
Operating income (loss) 33
(31 ) (83 ) —
(81 )
Interest expense 32
—
—
—
32
Income (loss) before income taxes 1
(31 ) (83 ) —
(113 )
Income tax expense (benefit) 9
(10 ) (15 ) —
(16 )
Net loss before equity in net losses of subsidiaries (8 ) (21 ) (68 ) —
(97 )
Equity in net losses of subsidiaries (89 ) (77 ) —
166
—
Net loss $ (97 ) $ (98 ) $ (68 ) $ 166
$ (97 )



	March 31, 2019
	(Dollars in millions)
Operating leases
Other assets	$	83

Accounts payable and accrued liabilities	31
Other long-term liabilities	62
Total operating lease liabilities	$	93

Finance leases
Property, equipment, and capitalized software, net	$	237

Accounts payable and accrued liabilities	$	7
Finance lease liabilities	234
Total finance lease liabilities	$	241

Weighted average remaining lease term
Operating leases	4 years
Finance leases	17 years
Weighted average discount rate
Operating leases	5.5		%
Finance leases	6.6		%

~~CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE LOSS~~

Maturities of lease liabilities as of March 31, 2019, were as follows:

Three Months Ended September 30, 2017
Parent Guarantor Other Guarantors Non-Guarantors Eliminations Consolidated
(In millions)
Net loss $ (97 ) $ (98 ) $ (68 ) $ 166
$ (97 )
Other comprehensive loss, net of tax —
—
—
—
—
Comprehensive loss $ (97 ) $ (98 ) $ (68 ) $ 166
$ (97 )

~~CONDENSED CONSOLIDATING STATEMENTS OF INCOME~~

Three Months Ended September 30, 2016
Parent Guarantor Other Guarantors Non-Guarantors Eliminations Consolidated
(In millions)
Revenue:
Total revenue $ 274
$ 48
$ 4,498
$ (274 ) $ 4,546
Expenses:
Medical care costs 19
—
3,730
(1 ) 3,748
Cost of service revenue —
42
77
—
119
General and administrative expenses 223
(4 ) 397
(273 ) 343
Premium tax expenses —
—
127
—
127
Health insurer fee expenses —
—
55
—
55
Depreciation and amortization 25
2
9
—
36
Total operating expenses 267
40
4,395
(274 ) 4,428
Operating income 7
8
103
—
118
Interest expense 26
—
—
—
26
(Loss) income before income taxes (19 ) 8
103
—
92
Income tax expense 4
—
46
—
50
Net (loss) income before equity in net earnings of subsidiaries (23 ) 8
57
—
42
Equity in net earnings of subsidiaries 65
—
—
(65 ) —
Net income $ 42
$ 8
$ 57
$ (65 ) $ 42

~~CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME~~

Three Months Ended September 30, 2016
Parent Guarantor Other Guarantors Non-Guarantors Eliminations Consolidated

(In millions)
Net income $ 42
$ 8
$ 57
$ (65 ) $ 42
Other comprehensive loss, net of tax (1 ) —
(1 ) 1
(1 )
Comprehensive income $ 41
$ 8
$ 56
$ (64 ) $ 41

~~CONDENSED CONSOLIDATING STATEMENTS OF OPERATIONS~~

Nine Months Ended September 30, 2017
Parent Guarantor Other Guarantors Non-Guarantors Eliminations Consolidated
(In millions)
Revenue:
Total revenue $ 1,010
$ 146
$ 14,792
$ (1,014 ) $ 14,934
Expenses:
Medical care costs 10
—
12,812
—
12,822
Cost of service revenue —
127
242
—
369
General and administrative expenses 799
13
1,429
(1,014 ) 1,227
Premium tax expenses —
—
331
—
331
Depreciation and amortization 75
1
33
—
109
Impairment losses —
28
173
—
201
Restructuring and separation costs 120
8
33
—
161
Total operating expenses 1,004
177
15,053
(1,014 ) 15,220
Operating income (loss) 6
(31 ) (261 ) —
(286 )
Interest expense 85
—
—
—
85
Other income, net (75 ) —
—
—
(75 )
Loss before income taxes (4 ) (31 ) (261 ) —
(296 )
Income tax expense (benefit) 26
(10 ) (62 ) —
(46 )
Net loss before equity in net losses of subsidiaries (30 ) (21 ) (199 ) —
(250 )
Equity in net losses of subsidiaries (220 ) (143 ) —
363
—
Net loss $ (250 ) $ (164 ) $ (199 ) $ 363
$ (250 )

~~CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE LOSS~~

Nine Months Ended September 30, 2017
Parent Guarantor Other Guarantors Non-Guarantors Eliminations Consolidated
(In millions)
Net loss $ (250 ) $ (164 ) $ (199 ) $ 363
$ (250 )
Other comprehensive income, net of tax 1
—
1
(1 ) 1
Comprehensive loss $ (249 ) $ (164 ) $ (198 ) $ 362
$ (249 )

~~CONDENSED CONSOLIDATING STATEMENTS OF INCOME~~

Nine Months Ended September 30, 2016
Parent Guarantor Other Guarantors Non-Guarantors Eliminations Consolidated
(In millions)
Revenue:
Total revenue $ 786
$ 147
$ 13,099
$ (784 ) $ 13,248
Expenses:
Medical care costs 50
—
10,881
(1 ) 10,930
Cost of service revenue —
130
232
—
362
General and administrative expenses 659
5
1,153
(783 ) 1,034
Premium tax expenses —
—
345
—
345
Health insurer fee expenses —
—
163
—
163
Depreciation and amortization 70
5
27
—
102
Total operating expenses 779
140
12,801
(784 ) 12,936
Operating income 7
7
298
—
312
Interest expense 76
—
—
—
76
(Loss) income before income taxes (69 ) 7
298
—
236
Income tax (benefit) expense (24 ) (1 ) 162
—
137
Net (loss) income before equity in earnings of subsidiaries (45 ) 8
136
—
99
Equity in net earnings of subsidiaries 144
3
—
(147 ) —
Net income $ 99
$ 11
$ 136
$ (147 ) $ 99

~~CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME~~

Nine Months Ended September 30, 2016
Parent Guarantor Other Guarantors Non-Guarantors Eliminations Consolidated
(In millions)
Net income $ 99
$ 11
$ 136
$ (147 ) $ 99
Other comprehensive income, net of tax 7
—
6
(6 ) 7
Comprehensive income $ 106
$ 11
$ 142
$ (153 ) $ 106



	Operating Leases			Finance Leases
	(In millions)
2019 (excluding the three months ended March 31, 2019)	$	27		$	16
2020	28			22
2021	18			22
2022	12			21
2023	9			21
Thereafter	9			311
Total lease payments	103			413
Less imputed interest	(10		)	(172		)
	$	93		$	241

~~CONDENSED CONSOLIDATING BALANCE SHEETS~~

September 30, 2017
Parent Guarantor Other Guarantors Non-Guarantors Eliminations Consolidated
(In millions)
ASSETS
Current assets:
Cash and cash equivalents $ 356
$ 58
$ 3,520
$ —
$ 3,934
Investments 35
—
1,752
—
1,787
Restricted investments 326
—
—
—
326
Receivables 2
25
975
—
1,002
Income taxes refundable 2
—
58
—
60
Due from (to) affiliates 203
(5 ) (198 ) —
—
Prepaid expenses and other current assets 65
20
89
—
174
Derivative asset 425
—
—
—
425
Total current assets 1,414
98
6,196
—
7,708
Property, equipment, and capitalized software, net 261
37
99
—
397
Deferred contract costs —
97
—
—
97
Goodwill and intangible assets, net 55
43
433
—
531
Restricted investments —
—
117
—
117
Investment in subsidiaries, net 2,625
95
—
(2,720 ) —
Deferred income taxes 10
—
96
(44 ) 62
Other assets 50
2
6
(16 ) 42
$ 4,415
$ 372
$ 6,947
$ (2,780 ) $ 8,954

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Medical claims and benefits payable $ —
$ —
$ 2,478
$ —
$ 2,478
Amounts due government agencies —
—
1,324
—
1,324
Accounts payable and accrued liabilities 227
40
218
—
485
Deferred revenue —
52
416
—
468
Current portion of long-term debt 782
—
—
—
782
Derivative liability 425
—
—
—
425
Total current liabilities 1,434
92
4,436
—
5,962
Long-term debt 1,515
—
16
(16 ) 1,515
Deferred income taxes 12
32
—
(44 ) —
Other long-term liabilities 25
1
22
—
48
Total liabilities 2,986
125
4,474
(60 ) 7,525
Total stockholders’ equity 1,429
247
2,473
(2,720 ) 1,429
$ 4,415
$ 372
$ 6,947
$ (2,780 ) $ 8,954

~~CONDENSED CONSOLIDATING BALANCE SHEETS~~

December 31, 2016
Parent Guarantor Other Guarantors Non-Guarantors Eliminations Consolidated
(In millions)
ASSETS
Current assets:
Cash and cash equivalents $ 86
$ 6
$ 2,727
$ —
$ 2,819
Investments 178
—
1,580
—
1,758
Receivables 2
34
938
—
974
Income tax refundable 17
4
18
—
39
Due from (to) affiliates 104
(5 ) (99 ) —
—
Prepaid expenses and other current assets 58
30
43
—
131
Derivative asset 267
—
—
—
267
Total current assets 712
69
5,207
—
5,988
Property, equipment, and capitalized software, net 301
46
107
—
454
Deferred contract costs —
86
—
—
86
Goodwill and intangible assets, net 58
73
629
—
760
Restricted investments —
—
110
—
110
Investment in subsidiaries, net 2,609
246
—
(2,855 ) —
Deferred income taxes 10
—
—
—
10
Other assets 48
3
6
(16 ) 41
$ 3,738
$ 523
$ 6,059
$ (2,871 ) $ 7,449

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Medical claims and benefits payable $ 1
$ —
$ 1,928
$ —
$ 1,929
Amounts due government agencies —
—
1,202
—
1,202
Accounts payable and accrued liabilities 146
34
205
—
385
Deferred revenue —
40
275
—
315
Current portion of long-term debt 472
—
—
—
472
Derivative liability 267
—
—
—
267
Total current liabilities 886
74
3,610
—
4,570
Long-term debt 1,173
—
16
(16 ) 1,173
Deferred income taxes 11
39
(35 ) —
15
Other long-term liabilities 19
1
22
—
42
Total liabilities 2,089
114
3,613
(16 ) 5,800
Total stockholders’ equity 1,649
409
2,446
(2,855 ) 1,649
$ 3,738
$ 523
$ 6,059
$ (2,871 ) $ 7,449

~~CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS~~

Nine Months Ended September 30, 2017
Parent Guarantor Other Guarantors Non-Guarantors Eliminations Consolidated
(In millions)
Operating activities:
Net cash provided by operating activities $ 215
$ 81
$ 661
$ —
$ 957
Investing activities:
Purchases of investments (333 ) —
(1,563 ) —
(1,896 )
Proceeds from sales and maturities of investments 150
—
1,388
—
1,538
Purchases of property, equipment and capitalized software (67 ) (10 ) (8 ) —
(85 )
Increase in restricted investments held-to-maturity —
—
(10 ) —
(10 )
Capital contributions to/from subsidiaries (363 ) 2
361
—
—
Dividends to/from subsidiaries 136
—
(136 ) —
—
Change in amounts due to/from affiliates (100 ) —
100
—
—
Other, net —
(21 ) —
—
(21 )
Net cash (used in) provided by investing activities (577 ) (29 ) 132
—
(474 )
Financing activities:
Proceeds from senior notes offering, net of issuance costs 325
—
—
—
325
Proceeds from borrowings under credit facility 300
—
—
—
300
Proceeds from employee stock plans 11
—
—
—
11
Other, net (4 ) —
—
—
(4 )
Net cash provided by financing activities 632
—
—
—
632
Net increase in cash and cash equivalents 270
52
793
—
1,115
Cash and cash equivalents at beginning of period 86
6
2,727
—
2,819
Cash and cash equivalents at end of period $ 356
$ 58
$ 3,520
$ —
$ 3,934

~~CONDENSED CONSOLIDATING STATEMENTS OF CASH FLOWS~~

Nine Months Ended September 30, 2016
Parent Guarantor Other Guarantors Non-Guarantors Eliminations Consolidated
(In millions)
Operating activities:
Net cash provided by operating activities $ 43
$ 34
$ 556
$ —
$ 633
Investing activities:
Purchases of investments (114 ) —
(1,330 ) —
(1,444 )
Proceeds from sales and maturities of investments 103
—
1,409
—
1,512
Purchases of property, equipment and capitalized software (102 ) (23 ) (18 ) —
(143 )
Decrease in restricted investments held-to-maturity —
—
4
—
4
Net cash paid in business combinations —
(5 ) (43 ) —
(48 )
Capital contributions to/from subsidiaries (221 ) 7
214
—
—
Dividends to/from subsidiaries 50
—
(50 ) —
—
Change in amounts due to/from affiliates (12 ) 4
8
—
—
Other, net 6
(19 ) 1
—
(12 )
Net cash (used in) provided by investing activities (290 ) (36 ) 195
—
(131 )
Financing activities: ��
Proceeds from employee stock plans

10
—
—
—
10
Other, net 2
—
(1 ) —
1
Net cash provided by (used in) financing activities 12
—
(1 ) —
11
Net (decrease) increase in cash and cash equivalents (235 ) (2 ) 750
—
513
Cash and cash equivalents at beginning of period 360
13
1,956
—
2,329
Cash and cash equivalents at end of period $ 125
$ 11
$ 2,706
$ —
$ 2,842

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ~~(MD&A)~~(“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 ~~facts, included in this quarterly report~~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, ~~expected,~~ or ~~contemplated.~~expected. Those known risks and uncertainties include, but are not limited to, the following:

the ~~success of our previously announced restructuring plan, including the timing and amounts of the benefits realized;~~

~~the~~ numerous political, judicial and market-based uncertainties associated with the Affordable Care Act (the “ACA”) or “Obamacare,” including ~~any potential repeal and replacement~~the ultimate outcome on appeal of the ~~law, amendment of the law, or move to state block grants for Medicaid;~~

Texas et al. v. U.S. et al. matter;

the market dynamics surrounding the ACA Marketplaces, including but not limited to uncertainties associated with risk ~~transfer~~adjustment requirements, the potential for disproportionate enrollment of higher acuity members, the discontinuation of premium tax credits, and the adequacy of agreed ~~rates, and potential disruption associated with market withdrawal from Utah, Wisconsin, or other states;~~

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/risk transfer, risk corridors, and reinsurance;~~

adjustment;

effective management of ~~our~~the Company’s medical costs;

~~our~~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, including~~ criteria;

the ~~payment of all amounts due to our Illinois health plan following the resolution~~full reimbursement of the ~~Illinois budget impasse;~~

ACA health insurer fee, or HIF;

the success of ~~our~~the Company’s efforts to retain existing ~~managed care~~or awarded government contracts, including ~~those in Florida, New Mexico, Puerto Rico, and Texas, and to obtain new government contracts in connection with state~~the success of any requests for ~~proposals (RFPs) in both existing and new states;~~

~~any adverse impact resulting from the significant changes to our executive leadership team and the rightsizing of our workforce;~~proposal protest filings or defenses;

the ~~impact of our decision to exit the Utah and Wisconsin ACA Marketplace markets effective December 31, 2017;~~

~~our~~Company’s ability to manage ~~our~~its operations, including maintaining and creating adequate internal systems and controls relating to authorizations, approvals, provider payments, and the overall success of ~~our~~its care management initiatives;

~~our ability to consummate and realize benefits from acquisitions or divestitures;~~

~~our~~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;

~~our~~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;~~

provisions and requirements;

~~our~~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;

the Medicaid expansion medical cost ~~corridors in California, New Mexico, and Washington,~~corridor, and any other retroactive adjustment to revenue where methodologies and procedures are subject to interpretation or dependent upon information about the health status of participants other than Molina members;

the interpretation and implementation of at-risk premium rules and state contract performance requirements regarding the achievement of certain quality measures, and ~~our~~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 ~~our~~the Company’s health plan in Puerto Rico, including the resolution of the ~~Puerto Rico~~ debt crisis ~~payment of all amounts due under our Medicaid contract,~~and the effect of the PROMESA law, and the impact of ~~Hurricane Maria and our efforts to better manage the health care costs of our Puerto Rico health plan;~~

any future significant weather events;

the success and renewal of ~~our~~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 ~~our~~the Company’s health plans;

efforts by states to recoup previously paid and recognized premium amounts;

complications, member confusion, eligibility redeterminations, or enrollment backlogs related to the annual renewal of Medicaid coverage;

government audits, ~~and~~ reviews, comment letters, or potential investigations, and any fine, sanction, enrollment freeze, monitoring program, or premium recovery that may result ~~therefrom, including any potential demand by the state of New Mexico to recover purportedly underpaid premium taxes;~~

therefrom;

changes with respect to ~~our~~the Company’s provider contracts and the loss of providers;

approval by state regulators of dividends and distributions by ~~our~~the Company’s health plan subsidiaries;

changes in funding under ~~our~~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;~~

proceedings, including litigation involving the ACA to which we are not a direct party;

the relatively small number of states in which we operate health plans, including the greater scale and revenues of the Company’s California, Ohio, Texas, and Washington health plans;

the availability of adequate financing on acceptable terms to fund and capitalize ~~our~~the Company’s expansion and growth, repay ~~our~~the Company’s outstanding indebtedness at maturity and meet ~~our~~its liquidity needs, including the interest expense and other costs associated with such financing;

~~our~~the Company’s failure to comply with the financial or other covenants in ~~our~~its credit agreement or the indentures governing ~~our~~its outstanding notes;

the sufficiency of ~~our~~the Company’s funds on hand to pay the amounts due upon conversion or maturity of ~~our~~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;~~

industry;

increases in government surcharges, taxes, and ~~assessments, including but not limited to the deductibility of certain compensation costs;~~

assessments;

newly emergent viruses or widespread epidemics, public catastrophes or terrorist attacks, and associated public alarm;~~and~~

the unexpected loss of the leadership of one or more of our senior executives; and

increasing competition and consolidation in the Medicaid ~~industry~~;

industry;

Readers should refer to the section entitled “Risk Factors” in ~~each of~~ our Annual Report on Form 10-K for the year ended December 31, ~~2016, our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2017 and June 30, 2017, and this Quarterly Report on Form 10-Q,~~2018 for a discussion of certain risk factors that could materially affect our business, financial condition, cash flows, or results of operations. Given these risks and uncertainties, we can give no assurance that any results or events projected or contemplated by our forward-looking statements will in fact occur.

This ~~quarterly report~~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, ~~2016.~~2018.

~~ABOUT MOLINA HEALTHCARE~~OVERVIEW

~~OUR MISSION IS TO PROVIDE QUALITY HEALTHCARE TO PEOPLE RECEIVING GOVERNMENT ASSISTANCE.~~

Molina Healthcare, Inc. ~~provides quality managed~~, a FORTUNE 500, multi-state healthcare organization, arranges for the delivery of health care services 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~~families who receive their ~~administration of~~care through the Medicaid ~~program.~~ and Medicare programs, and through the insurance marketplaces (the “Marketplace”). Through our locally operated health plans in 14 states and the Commonwealth of Puerto Rico, we served approximately 3.4 million members as of March 31, 2019. The health plans are generally operated by our respective wholly owned subsidiaries in those states, each of which is licensed as a health maintenance organization (“HMO”).

We currently have ~~three~~two reportable ~~segments. These segments consist of~~segments: our Health Plans segment ~~which constitutes~~and our Other segment. We manage the vast majority of our ~~operations;~~operations through our ~~Molina~~Health Plans segment. The Other segment includes the historical results of the Medicaid ~~Solutions segment;~~management information systems (“MMIS”) and behavioral health subsidiaries that were sold in the fourth quarter of 2018, as well as certain corporate amounts not allocated to the Health Plans segment. Prior to the

fourth quarter of 2018, the MMIS subsidiary was reported as a stand-alone segment. Beginning in 2019, we no longer report service revenue or cost of service revenue as a result of the sales of the MMIS and behavioral health subsidiaries noted above.

FIRST QUARTER 2019 HIGHLIGHTS

In summary, we produced pretax earnings of $260 million and net income of $198 million in the first quarter of 2019, resulting in after-tax margin of 4.8%. These results include, on a consolidated basis, a medical care ratio (“MCR”) of 85.3% and a general and administrative (“G&A”) expense ratio of 7.3%.

Overall, the MCR decreased by 80 basis points in the first quarter of 2019, from 86.1% in the first quarter of 2018, driven by year-over-year improvement in the underlying performance across all our ~~Other segment.~~programs.

~~KEY PERFORMANCE INDICATORS~~Program Performance. The underlying performance improved across all our programs on a year-over-year basis. The Medicaid MCR decreased to 88.5% from 90.8%, and the combined Medicare MCR improved 10 basis points, from 84.8% to 84.7%. The Marketplace MCR also improved on a year-over-year basis, excluding a $70 million benefit of the 2017 Marketplace cost sharing reduction (“CSR”) subsidies recognized in the first quarter of 2018.

~~Non-GAAP Financial Measures~~

Health Plan Performance. 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 tosignificantly improved the performance of ~~other public companies~~our locally operated health plans in 2018, and our largest health plans, from a revenue standpoint going forward, have continued to perform well into 2019. California, Illinois, Michigan and Texas, four of our largest plans, performed well during the quarter, and Florida effectively managed the transition of lost regions. In Ohio, our MCR increased year-over-year, mainly due to cost pressures in Medicaid from a shift in the Medicaid Expansion risk pool and a newly carved-in behavioral health ~~care industry. These non-GAAP financial measures should be considered~~benefit, both of which have not been adequately rated.

Operational Improvements. We continue to gain operating efficiencies, as ~~supplements to, and not as substitutes for or superior to, GAAP measures.~~

~~See further information regarding non-GAAP measures~~our G&A expense ratio has improved 30 basis points year over year, from 7.6% in the ~~“Supplemental Information” section~~first quarter of ~~this MD&A, including~~2018. Additionally, we have recently announced new partnerships to upgrade our technology to improve claims payment processes, and to enhance utilization management of certain specialty areas.

Balance Sheet and Capital Management. In the ~~reconciliations~~first quarter of 2019, we repaid $46 million aggregate principal amount of our 1.125% Convertible Notes and entered into privately negotiated termination agreements to ~~U.S. GAAP. Non-GAAP financial measures referred~~terminate the respective portion of the related 1.125% Call Option and 1.125% Warrants.

In April 2019, we repaid an additional $128 million aggregate principal amount of our 1.125% Convertible Notes and entered into privately negotiated termination agreements to terminate the respective portion of the related 1.125% Call Option and 1.125% Warrants. Following these transactions, the remaining principal amount outstanding of our 1.125% Convertible Notes is $78 million. In addition, we have received a conversion notice for $7 million principal amount that will be settled in ~~this report are designated with an asterisk (*).~~August 2019.

FINANCIAL SUMMARY

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
(Dollar amounts in millions, except per-share amounts)
Net (loss) income $ (97 ) $ 42
$ (250 ) $ 99
Net (loss) income per diluted share $ (1.70 ) $ 0.76
$ (4.44 ) $ 1.77
MCR ⁽¹⁾
88.3 % 89.4 % 90.5 % 89.5 %
G&A ratio ⁽²⁾
7.6 % 7.6 % 8.2 % 7.8 %
Premium tax ratio ⁽¹⁾
2.2 % 2.9 % 2.3 % 2.7 %
Effective tax rate 14.6 % 54.0 % 15.5 % 58.0 %
Net profit margin ⁽²⁾
(1.9 )% 0.9 % (1.7 )% 0.7 %
EBITDA* $ (42 ) $ 160
$ (82 ) $ 430
Adjusted net (loss) income* $ (93 ) $ 47
$ (235 ) $ 114
Adjusted net (loss) income per diluted share* $ (1.62 ) $ 0.85
$ (4.17 ) $ 2.03



	Three Months Ended March 31,
	2019			2018
	(Dollars in millions, except per-share amounts)
Premium revenue	$	3,952		$	4,323
Premium tax revenue	138			104
Health insurer fees reimbursed	—			61
Investment income and other revenue	29			24

Medical care costs	3,371			3,722
General and administrative expenses	302			352
Premium tax expenses	138			104
Health insurer fees	—			75
Restructuring costs	3			25

Operating income	280			222
Interest expense	23			33
Other (income) expenses, net	(3		)	10
Income tax expense	62			72
Net income	198			107
Net income per diluted share	$	2.99		$	1.64

Operating Statistics:
Ending total membership	3,393,000			4,061,000
MCR ⁽¹⁾	85.3		%	86.1		%
G&A ratio ⁽²⁾	7.3		%	7.6		%
Premium tax ratio ⁽¹⁾	3.4		%	2.3		%
Effective income tax expense rate	23.8		%	40.3		%
After-tax margin ⁽²⁾	4.8		%	2.3		%

________________________


(1)	MCR represents medical care costs as a percentage of premium revenue; premium tax ratio represents premium tax expenses as a percentage of premium revenue plus premium tax revenue.


(2)	After-tax margin represents net income as a percentage of total revenue. 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.~~

CONSOLIDATED RESULTS

~~Three Months Ended September 30, 2017 Compared with Three Months Ended September 30, 2016~~See table below, under “Summary of Significant Items,” for details relating to significant non-run rate items.

NET INCOME AND OPERATING INCOME

Net ~~loss~~income in the first quarter of 2019 amounted to $198 million, or $2.99 per diluted share, ~~was $1.70 for the third quarter of 2017~~ compared with ~~net income~~$107 million, or $1.64 per diluted share, ~~of $0.76 reported~~ for the ~~third~~first quarter of 2016. Adjusted net loss per diluted share*2018. The improvement was ~~$1.62~~driven by an increase in operating income, which amounted to $280 million in the ~~third~~first quarter of ~~2017,~~2019, compared with ~~adjusted net income per diluted share* of $0.85~~$222 million in the ~~third~~first quarter of ~~2016. Loss before income tax benefit for~~2018. The year-over-year improvement was mainly driven by declines in both the ~~third~~MCR and G&A ratios.

PREMIUM REVENUE

Premium revenue decreased $371 million in the first quarter of ~~2017 was $113 million.~~2019, when compared with the first quarter of 2018. Member months declined 17%, partially offset by a per-member per-month (“PMPM”) revenue increase of 9%.

~~Medical care costs measured~~Lower premium revenue was driven by decreases in Medicaid and Marketplace membership, partially offset by Medicaid and Marketplace premium rate increases.

MEDICAL CARE RATIO

Overall, the MCR decreased to 85.3% in the first quarter of 2019, from 86.1% in the first quarter of 2018. Excluding the $70 million benefit of the 2017 Marketplace CSR reimbursement recognized in first quarter of 2018, the MCR would have been 87.7% in the first quarter of 2018. The improvement in the first quarter of 2019 was mainly due to year-over-year improvement in the underlying performance across all of our programs.

PREMIUM TAX REVENUE AND EXPENSES

The premium tax ratio (premium tax expense as a percentage of premium revenue ~~(the “medical care ratio”~~plus premium tax revenue) was 3.4% in the first quarter of 2019, compared with 2.3% in the first quarter of 2018. The increase is attributed to the state of Michigan implementing an insurance provider assessment in 2019.

INVESTMENT INCOME AND OTHER REVENUE

Investment income and other revenue increased to $29 million in the first quarter of 2019, compared with $24 million in the first quarter of 2018, mainly due to improved annualized portfolio yields.

GENERAL AND ADMINISTRATIVE (“G&A”) ~~declined~~EXPENSES

The G&A expense ratio decreased to ~~88.3%~~7.3% in the first quarter of 2019, from 7.6% in the first quarter of 2018. This improvement was primarily the result of lower expenses and the timing of certain expenditures, which were partially offset by the impact associated with lower premium revenue.

HEALTH INSURER FEES

There are no health insurer fees (“HIF”) expensed or reimbursed in 2019 due to the moratorium under Public Law No. 115-120. In the first quarter of 2018, the HIF amounted to $75 million, and HIF reimbursements amounted to $61 million.

RESTRUCTURING COSTS

In the first quarter of 2019, we incurred restructuring costs of $3 million, mainly in connection with our IT Restructuring Plan that commenced in the third quarter of 2018. In the first quarter of 2018, we incurred restructuring costs of $25 million related to our 2017 ~~from 89.4%~~Restructuring Plan.

INTEREST EXPENSE

Interest expense was $23 million in the ~~third~~first quarter of ~~2016 and from 94.8%~~2019, compared with $33 million in the ~~second~~first quarter of ~~2017. Improved medical cost performance~~2018. As further described below in “Liquidity,” we reduced the principal amount of outstanding debt by $46 million in the ~~third~~first quarter of ~~2017~~2019, and $759 million in the year ended December 31, 2018.

Interest expense includes non-cash interest expense relating primarily to the amortization of the discount on convertible senior notes, which amounted to $3 million and $7 million in the first quarter of 2019, and 2018, respectively. The decline in the first quarter of 2019 is due to repayment of our convertible senior notes throughout 2018 and in the first quarter of 2019. See further discussion in Notes to Consolidated Financial Statements, Note 7, “Debt.”

OTHER (INCOME) EXPENSES, NET

In the first quarter of 2019, we recognized debt extinguishment gains of $3 million, and in the first quarter of 2018, we recognized debt extinguishment losses of $10 million in connection with convertible senior notes repayment transactions in both periods, and an exchange transaction in the first quarter of 2018. The gain in the first quarter of 2019 was attributed to a favorable mark to market valuation on the ~~result of:~~partial termination of the Call Spread Overlay executed in connection with the related debt extinguishment. See further discussion in Notes to Consolidated Financial Statements, Note 7, “Debt.”


◦	~~Improved sequential performance at our Illinois, New Mexico, Ohio, Puerto Rico, Texas, and Washington health plans, exclusive of the Marketplace program.~~


◦	Improved performance of our Marketplace program, including a reduction to the premium deficiency reserve of $30 million ($0.33 per diluted share, net of tax). The reserve, which was $100 million at June 30, 2017, decreased to $70 million as of September 30, 2017.

~~General and administrative costs, measured~~INCOME TAXES

The provision for income taxes was recorded at an effective rate of 23.8% in the first quarter of 2019, compared with 40.3% in the first quarter of 2018. The effective tax rate for 2019 differs from 2018 as a ~~percentage~~result of ~~total revenue (the “administrative cost ratio”), were 7.6%~~higher non-

deductible expenses in 2018, primarily related to the third quarter of 2017, consistent with the third quarter of 2016, and 50 basis points lower than the second quarter of 2017. Excluding Marketplace broker commission and exchange fees, the administrative cost ratio decreased 30 basis points from the third quarter of 2016.

~~Restructuring costs and the impairment of certain purchased intangible assets increased loss before income tax benefit~~non-deductible HIF. The HIF is not applicable in ~~the third quarter of 2017 by approximately $247 million. Specifically:~~

We recorded $118 million ($1.39 per diluted share, net of tax) of restructuring costs in the third quarter of 2017. Restructuring costs incurred to date consist primarily of termination benefits, write-offs of capitalized software2019 due to the ~~re-design of our core operating processes, restructuring of our direct delivery operations, and consulting fees.~~

moratorium under Public Law No. 115-120.

We recorded $129 million ($1.77 per diluted share, net of tax) in non-cash goodwill impairment losses for our Pathways behavioral health subsidiary and our Molina Medicaid Solutions (MMS) segment. In the third quarter of 2017, management determined that neither business will provide future benefits relating to the integration of their operations with the Health Plans segment to the extent previously expected.

SUMMARY OF SIGNIFICANT ITEMS

The table below summarizes 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.

Summary of Significant Items Affecting 2017 Financial Results
Three Months Ended Nine Months Ended
September 30, 2017 September 30, 2017
(In millions, except per diluted share amounts)
Amount
Per Diluted Share ⁽¹⁾
Amount
Per Diluted Share ⁽¹⁾
Restructuring and separation costs $ 118
$ 1.39
$ 161
$ 1.92
Impairment losses 129
1.77
201
2.77
Change in Marketplace premium deficiency reserve for 2017 service dates (30 ) (0.33 ) 40
0.45
Termination fee received for terminated Medicare acquisition —
—
(75 ) (0.84 )
$ 217
$ 2.83
$ 327
$ 4.30



	Three Months Ended March 31,
	2019						2018
	Amount			Per Diluted Share ⁽¹⁾			Amount			Per Diluted Share ⁽¹⁾

Marketplace CSR subsidies, for 2017 dates of service	$	—		$	—		$	70		$	0.83
Restructuring costs	(3		)	(0.03		)	(25		)	(0.30		)
Gain (loss) on debt extinguishment	3			0.03			(10		)	(0.15		)
	$	—		$	—		$	35		$	0.38

~~________________________~~___________________

(1)

Except for permanent differences between GAAP and tax (such as certain ~~items~~expenses that are not deductible for tax ~~purposes,~~purposes), per diluted share amounts are generally calculated at ~~our~~the statutory income tax rate of ~~37%, which is in excess~~22.6% and 22% for the first quarter of ~~the effective tax rate recorded in our consolidated statements of operations.~~

2019 and 2018, respectively

~~Marketplace Cost Share Reduction (CSR) Update~~

REPORTABLE SEGMENTS

HOW WE ASSESS PERFORMANCE

We derive our revenues primarily from health insurance premiums. Our ~~third quarter results do not include any potential impact from~~primary customers are state Medicaid agencies and the ~~October 12, 2017, direction~~federal government.

One of the key metrics used to ~~Centers for Medicare and Medicaid Services (CMS) from Acting Department~~assess the performance of our Health ~~and Human Services Secretary Hargan to cease payment~~Plans segment is the MCR, which represents the amount of ~~Marketplace CSR subsidies. At September 30, 2017, we had a total of approximately $220 million in excess CSR subsidies, recorded~~medical care costs as a ~~payable to CMS. This payable represents~~percentage of premium revenue. Therefore, the ~~extent to which payments received by us from CMS exceeded our estimate of~~underlying margin, or the ~~actual cost of member subsidies incurred by us through September 30, 2017.~~

~~basis of CSR subsidies paid to all health plans against the actual costs incurred~~amount earned by the ~~health plans. Were such a reconciliation~~Health Plans segment after medical costs are deducted from premium revenue, is the most important measure of earnings reviewed by management.

Margin for our Health Plans segment is referred to ~~be performed for the full calendar year of 2017—consistent with past practice—we would be able~~as “Medical Margin.” Medical Margin amounted to offset nearly all of the $85 million expense incurred in the fourth quarter against the excess amounts received prior to September 30, 2017. However, should CMS transition to a nine month reconciliation period ending September 30, 2017—the last month for which CSR subsidies have been paid—the absence of CSR subsidy reimbursement would reduce income before income tax expense by approximately $85$581 million in the ~~fourth~~first quarter of ~~2017.~~

~~Nine Months ended September 30, 2017 Compared with Nine Months Ended September 30, 2016~~

~~Net loss per diluted share was $4.44~~2019, and $601 million in the ~~nine months ended September 30, 2017 compared with net income per diluted share~~first quarter of ~~$1.77 reported for~~2018. Management’s discussion and analysis of the ~~nine months ended September 30, 2016. Adjusted net loss per diluted share* was $4.17~~changes in the nine months ended September 30, 2017, compared with adjusted net income per diluted share*individual components of ~~$2.03~~Medical Margin follows.

See Notes to Consolidated Financial Statements, Note 11, “Segments,” for more information on our reportable segments.

HEALTH PLANS

The Health Plans segment consists of health plans operating in the nine months ended September 30, 2016. Loss before income tax benefit for the nine months ended September 30, 2017 was $296 million. Results for the nine months ended September 30, 2017, were affected by the significant items presented in the table, and as further described, above. In total, these adjustments increased pretax loss in the nine months ended September 30, 2017 by $327 million.

~~RESTRUCTURING AND PROFIT IMPROVEMENT PLAN UPDATE~~

As previously disclosed, we estimate that our restructuring plan will reduce annualized run-rate expenses by approximately $300 million to $400 million when completed by the end of 2018. We have already achieved $200 million of these run-rate reductions on an annualized basis, which will take full effect no later than January 1, 2018. Our third quarter results include approximately $10 million of these reductions. All savings targets discussed in regards to the restructuring plan represent annualized run-rate savings that we expect to achieve during the year following the indicated implementation date. We expect one-time costs associated with the restructuring plan to exceed the benefits realized in 2017 due to the upfront payment of implementation costs14 states and the ~~delayed benefit~~Commonwealth of ~~full savings until the beginning~~Puerto Rico. As of ~~2018.~~March 31, 2019, these health plans served approximately 3.4 million members eligible for Medicaid, Medicare, and other government-sponsored health care programs for low-income families and individuals, including Marketplace members, most of whom receive government premium subsidies.

TRENDS AND UNCERTAINTIES

Decline in Membership and Premium Revenue

Medicaid. As reported throughout 2018, our Medicaid contracts in New Mexico and in all but two regions in Florida terminated in late 2018 and early 2019. As a result, our Medicaid membership has decreased to 94,000 members in the aggregate in those states as of March 31, 2019, from 468,000 members as of December 31, 2018. During 2019, we continue to serve Medicare and Marketplace members in both Florida and New Mexico, as well as Medicaid members in two regions in Florida. In addition, our Medicaid membership has declined further in Puerto Rico as a result of the entry of more manage care organizations to that market late last year. We served approximately 207,000 members in Puerto Rico as of March 31, 2019, compared with 252,000 members as of

December 31, 2018. As a result of these market changes, we expect our Medicaid revenues to decrease in 2019.

Marketplace. We estimate that our 2019 Marketplace end-of-year enrollment will range from 270,000 to 280,000 members. This enrollment is lower than the 332,000 members enrolled as of March 31, 2019, due to expected attrition. Consequently, we expect our Marketplace revenues to decrease in 2019 compared with 2018.

Status of Upcoming Contract Reprocurements

Medicaid. In November 2018, our Texas health plan submitted two separate RFP responses: one with regard to the Texas ABD program, known in Texas as the STAR+PLUS program; and the other with regard to the Texas TANF and CHIP programs, known in Texas as the STAR and CHIP programs. We expect the STAR+PLUS award to be announced in the second quarter of 2019, with an effective date of June 1, 2020. We expect the STAR and CHIP awards to be announced in the third quarter of 2019, with an effective date of September 1, 2020. As of March 31, 2019, the membership of our Texas health plan under the existing STAR+PLUS contract was 86,000 members. We estimate annualized premium revenues of approximately $1,650 million in 2019 under our existing STAR+PLUS contract. As of March 31, 2019, the membership of our Texas health plan under the existing STAR and CHIP contracts was 120,000 members. We estimate annualized premium revenues of approximately $310 million in 2019 under our existing STAR and CHIP contracts.

We have received information that the Medicaid contracts of our Ohio and California health plans may be subject to RFP in late 2019 and 2020, respectively. A loss of any of our Texas, Ohio, or California Medicaid contracts would have a material adverse effect on our business, financial condition, cash flows, and results of operations.

Medicaid-Medicare Plans (“MMPs”). In late April 2019, CMS approved the California Medicaid agency’s request for a three-year extension of its duals demonstration program, through December 31, 2022. We estimate annualized premium revenues of approximately $180 million in 2019 under our California MMP program.

The current authority for our MMP programs in Illinois and Ohio ends December 31, 2019. In March 2019, the Illinois Medicaid agency submitted a request to CMS for a one-year extension of its duals demonstration program, through December 31, 2020, with a possible three-year extension through 2022. We estimate annualized premium revenues of approximately $100 million in 2019 under our Illinois MMP program. In July 2018, the Ohio Medicaid agency submitted a request to Centers for Medicare and Medicaid Services (“CMS”) for a three-year extension of its duals demonstration program, through December 31, 2022. We estimate annualized premium revenues of approximately $570 million in 2019 under our Ohio MMP program.

Pressures on Medicaid Funding

Due to states’ budget challenges and political agendas at both the state and federal levels, there are a number of different legislative proposals being considered, some of which would involve significantly reduced federal or state spending on the Medicaid program, constitute a fundamental change to the federal role in health care and, if enacted, could have a material adverse effect on our business, financial condition, cash flows and results of operations. These proposals include elements such as the following, as well as numerous other potential changes and reforms:

Ending the entitlement nature of Medicaid (and perhaps Medicare as well) by capping future increases in federal health spending for these programs, and shifting much more of the risk for health costs in the future to states and consumers;

Reversing the ACA’s expansion of Medicaid that enables states to cover low-income childless adults;

Changing Medicaid to a state block grant program, including potentially capping spending on a per-enrollee basis;

Requiring Medicaid beneficiaries to work; and

Limiting the amount of lifetime benefits for Medicaid beneficiaries.

ACA and the Marketplace

~~The~~As a result of the election of President Trump, the Republican party’s control of the Senate and the former Republican party’s control of the House, several changes have been made to the provisions of the ACA, including reduced funding. Accordingly, the future of the ~~Affordable Care Act (ACA)~~ACA and its underlying programs ~~including the Marketplace,~~ are subject to continuing and substantial ~~uncertainty. We have taken~~uncertainty, making long-term business planning difficult. In December 2018, in a case brought by the ~~following steps~~state of Texas and nineteen other states, a federal judge in ~~regards to our participation in~~Texas struck down the ACA ~~Marketplace in 2018:~~


1.	~~As previously announced, we will exit the Utah and Wisconsin ACA Marketplaces effective December 31, 2017.~~


2.	In our remaining Marketplace plans, we are increasing 2018 premiums by 55% to take into account the absence of cost sharing reduction (CSR) subsidies and other risks related to ACA Marketplace uncertainties.


3.	~~We have reduced the scope of our 2018 participation in the state of Washington Marketplace.~~


4.	~~We continue to monitor the current political and programmatic developments pertaining to the ACA Marketplace.~~

~~Medicaid Contract Re-Procurement~~

~~The following table illustrates Health Plans segment Medicaid contracts scheduled for re-procurement in~~based on his determination that the ~~near term. While we have been notified~~ACA’s individual mandate is unconstitutional and, since that mandate cannot be separated from the rest of the ~~Medicaid regulators’ intention~~ACA, the judge ruled that the rest of the ACA is also unconstitutional. The decision has been appealed 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 Nine Months Ended Anticipated
State Health Plan Medicaid Program(s) September 30, 2017 September 30, 2017 Award Date Effective Date
Florida All 355,000
$ 1,105
Q2 2018 1/1/2019
New Mexico All 225,000
893
Q1 2018 1/1/2019
Texas ABD 87,000
1,065
Q3 2018 9/1/2019
Texas CHIP 24,000
31
Q4 2017 9/1/2018

~~Illinois Health Plan.~~ ~~In August 2017, Molina Healthcare~~U.S. Court of Illinois, Inc. was awarded a statewide Medicaid managed care contract by the Illinois Department of Healthcare and Family Services. This Medicaid contract further integrates behavioral health and physical health by combining the State’s three current managed care programs into one program. The contract begins January 1, 2018, for four years with options to renew annually for up to four additional years.

~~Washington Health Plan.~~ ~~In May 2017, Molina Healthcare of Washington, Inc. was selected by the Washington State Health Care Authority to negotiate and enter into managed care contracts~~Appeals for the ~~North Central region of~~Fifth Circuit. Other proposed changes and reforms to the ~~state’s Apple Health Integrated Managed Care Program. The start date for~~ACA have included, or may include the ~~new contract is scheduled for January 1, 2018.~~following:

Prohibiting the federal government from operating Marketplaces;

~~REPORTABLE SEGMENTS~~

~~How We Assess Performance~~

~~We derive our revenues primarily from~~Eliminating the advanced premium tax credits, and cost sharing reductions for low income individuals who purchase their health insurance ~~premiums,~~through the Marketplaces;

Expanding and ~~our primary customers are~~encouraging the use of private health savings accounts;

Providing for insurance plans that offer fewer and less extensive health insurance benefits than under the ACA’s essential health benefits package, including broader use of catastrophic coverage plans, or short-term health insurance;

Establishing and funding high risk pools or reinsurance programs for individuals with chronic or high cost conditions; and

Allowing insurers to sell insurance across state ~~Medicaid agencies and~~lines.

Any final, not-appealable determination that the ~~federal government.~~

~~One of the key metrics used to assess the performance of our most significant segment, the Health Plans segment,~~ACA is ~~the medical care ratio, or MCR. The medical care ratio represents medical care costs as a percentage of premium revenue. Therefore, the underlying gross margin,~~unconstitutional, or the ~~amount earned by the Health Plans segment after medical costs are deducted from premium revenue, is the most important measure~~passage of ~~earnings reviewed by management.~~any of these changes or other reforms, would have a material adverse effect on our business, financial condition, cash flows and results of operations.

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 gross margin, by reportable segment, is presented in the “Health Plans—Financial Overview,” “Molina Medicaid Solutions—Financial Overview,” and “Other—Financial Overview” sections of this MD&A.

~~SEGMENT SUMMARY~~

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
(In millions)
Segment gross margin:
Health Plans medical margin ⁽¹⁾
$ 557
$ 443
$ 1,343
$ 1,285
Molina Medicaid Solutions service margin ⁽²⁾
5
6
13
17
Other ⁽²⁾
2
8
8
29
Total segment gross margin 564
457
1,364
1,331
Other operating revenues ⁽³⁾
124
222
379
625
Other operating expenses ⁽⁴⁾
(769 ) (561 ) (2,029 ) (1,644 )
Operating (loss) income (81 ) 118
(286 ) 312
Other expenses, net 32
26
10
76
(Loss) income before income tax expense (113 ) 92
(296 ) 236
Income tax (benefit) expense (16 ) 50
(46 ) 137
Net (loss) income $ (97 ) $ 42
$ (250 ) 99

~~_______________________~~


~~(1)~~	~~Represents premium revenue minus medical care costs.~~


~~(2)~~	~~Represents service revenue minus cost of service revenue.~~


~~(3)~~	~~Other operating revenues include premium tax revenue, health insurer fee revenue, investment income and other revenue.~~


~~(4)~~	Other operating expenses include general and administrative expenses, premium tax expenses, health insurer fee expenses, depreciation and amortization, impairment losses, and restructuring and separation costs.

~~HEALTH PLANS~~

The Health Plans segment consists of health plans operating in 12 states and the Commonwealth of Puerto Rico. As of September 30, 2017, these health plans served approximately 4.5 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.

~~BUSINESS OVERVIEW~~

~~Recent Developments — Health Plans Segment~~

~~Refer to Notes to Consolidated Financial Statements, Note 1, “Basis of Presentation.”~~

~~Health Plans Membership~~MEMBERSHIP

The following tables set forth our Health Plans membership as of the dates indicated:


	September 30, 2017	December 31, 2016	September 30, 2016	March 31, 2019	December 31, 2018	March 31, 2018
Ending Membership by Program:
Temporary Assistance for Needy Families (TANF) and Children’s Health Insurance Program (CHIP)	2,451,000	2,536,000	2,529,000
Temporary Assistance for Needy Families (“TANF”) and Children’s Health Insurance Program (“CHIP”)				2,016,000	2,295,000	2,435,000
Medicaid Expansion				596,000	660,000	662,000
Aged, Blind or Disabled (“ABD”)				352,000	406,000	411,000
Total Medicaid				2,964,000	3,361,000	3,508,000
Medicare-Medicaid Plan (“MMP”) – Integrated ⁽¹⁾				56,000	54,000	56,000
Medicare Special Needs Plans (“Medicare”)				41,000	44,000	44,000
Total Medicare				97,000	98,000	100,000
Total Medicaid and Medicare				3,061,000	3,459,000	3,608,000
Marketplace	877,000	526,000	568,000	332,000	362,000	453,000
Medicaid Expansion	662,000	673,000	658,000
Aged, Blind or Disabled (ABD)	411,000	396,000	395,000
Medicare-Medicaid Plan (MMP) – Integrated ⁽¹⁾	58,000	51,000	51,000
Medicare Special Needs Plans (Medicare)	44,000	45,000	45,000
				3,393,000	3,821,000	4,061,000
	4,503,000	4,227,000	4,246,000
Ending Membership by Health Plan:
California	751,000	683,000	683,000	600,000	608,000	656,000
Florida	641,000	553,000	563,000
Florida ⁽²⁾				144,000	313,000	414,000
Illinois	163,000	195,000	195,000	219,000	224,000	151,000
Michigan	399,000	391,000	387,000	369,000	383,000	388,000
New Mexico	256,000	254,000	253,000
New York	33,000	35,000	37,000
New Mexico ⁽²⁾				27,000	222,000	250,000
Ohio	343,000	332,000	339,000	295,000	302,000	328,000
Puerto Rico	306,000	330,000	331,000	207,000	252,000	316,000
South Carolina	113,000	109,000	109,000	126,000	120,000	117,000
Texas	444,000	337,000	352,000	377,000	423,000	476,000
Utah	160,000	146,000	150,000
Washington	770,000	736,000	716,000	815,000	781,000	779,000
Wisconsin	124,000	126,000	131,000
Other ⁽³⁾				214,000	193,000	186,000
	4,503,000	4,227,000	4,246,000	3,393,000	3,821,000	4,061,000

_________________________


(1)	MMP members receive both Medicaid and Medicare coverage from Molina Healthcare.

~~Premiums by Program~~

The amount of the premiums paid to our health plans may 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 nine months ended September 30, 2017. The “Consolidated” column represents the weighted-average amounts for our total membership by program.

PMPM Premiums
Low High Consolidated
TANF and CHIP $ 120.00
$ 310.00
$ 180.00
Marketplace 190.00
470.00
280.00
Medicaid Expansion 320.00
510.00
390.00
ABD 380.00
1,480.00
1,030.00
MMP – Integrated 1,250.00
3,280.00
2,190.00
Medicare 960.00
1,260.00
1,140.00


(2)	As reported throughout 2018, our Medicaid contracts in New Mexico and in all but two regions in Florida terminated in late 2018 and early 2019. During 2019, we continue to serve Medicare and Marketplace members in both Florida and New Mexico, as well as Medicaid members in two regions in Florida.


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

~~FINANCIAL OVERVIEW~~

In the third quarter of 2017, premium revenue increased approximately 14%, or $586 million, when compared with the third quarter of 2016. Member months grew 8% while revenue PMPM increased 6%. Medical care costs as a percent of premium revenue decreased to 88.3% in the third quarter of 2017 from 89.4% in the third quarter of 2016. Medical margin increased 26% in the third quarter of 2017 from the third quarter of 2016.

In the nine months ended September 30, 2017, premium revenue increased approximately 16%, or $1,950 million, when compared with the nine months ended September 30, 2016. Member months grew 11% while revenue PMPM increased 5%. Medical care costs as a percent of premium revenue increased to 90.5% in the nine months ended September 30, 2017 from 89.5% in the nine months ended September 30, 2016. Medical margin increased 5% in the nine months ended September 30, 2017 from the nine months ended September 30, 2016.

FINANCIAL PERFORMANCE BY PROGRAM

The following tables summarize member months, premium revenue, medical care costs, ~~medical care ratio~~MCR and medical margin by program for the periods indicated (PMPM amounts are in whole dollars; member months and other dollar amounts are in millions):


	Three Months Ended September 30, 2017															Three Months Ended March 31, 2019
	Member Months ⁽¹⁾	Premium Revenue				Medical Care Costs				MCR ⁽²⁾			Medical Margin			Member Months ⁽¹⁾			Premium Revenue								Medical Care Costs							MCR ⁽²⁾			Medical Margin
	Member Months ⁽¹⁾	Total		PMPM		Total		PMPM					Medical Margin			Member Months ⁽¹⁾		Total				PMPM				Total				PMPM				MCR ⁽²⁾			Medical Margin
TANF and CHIP	7.5	$	1,392	$	185.95	$	1,242	$	165.76	MCR ⁽²⁾	89.1	%		$	150		6.2			$	1,173			$	189.36			$	1,022			$	165.05		87.2	%		$	151
Medicaid Expansion	2.0	773		385.58		667		332.99		86.4			106			1.8			664				369.62				594				330.45			89.4			70
ABD	1.2	1,288		1,038.85		1,259		1,016.06		97.8			29			1.1			1,167				1,068.43				1,042				953.48			89.2			125
Total Medicaid	10.7	3,453		321.77		3,168		295.23		91.8			285			9.1			3,004				330.75				2,658				292.60			88.5			346
MMP	0.2	378		2,263.07		336		2,013.67		89.0			42			0.2			388				2,355.29				333				2,026.83			86.1			55
Medicare	0.1	163		1,231.61		126		951.01		77.2			37			0.1			163				1,284.70				133				1,047.78			81.6			30
Total Medicare	0.3	541		1,806.26		462		1,543.05		85.4			79			0.3			551				1,889.47				466				1,600.84			84.7			85
Excluding Marketplace	11.0	3,994		362.04		3,630		329.08		90.9			364
Total Medicaid and Medicare																9.4			3,555				379.19				3,124				333.26			87.9			431
Marketplace	2.7	783		301.72		590		227.22		75.3			193			1.0			397				393.53				247				244.61			62.2			150
	13.7	$	4,777	$	350.55	$	4,220	$	309.68	88.3	%		$	557		10.4			$	3,952			$	380.59			$	3,371			$	324.65		85.3	%		$	581

Three Months Ended September 30, 2016

Member
Months ⁽¹⁾
Premium Revenue Medical Care Costs
MCR ⁽²⁾
Medical Margin
Total PMPM Total PMPM
TANF and CHIP 7.6
$ 1,373
$ 180.74
$ 1,246
$ 164.04
90.8 % $ 127
Medicaid Expansion 2.0
763
386.98
642
325.68
84.2
121
ABD 1.1
1,186
1,008.28
1,094
929.93
92.2
92
Total Medicaid 10.7
3,322
309.19
2,982
277.55
89.8
340
MMP 0.2
334
2,165.26
280
1,818.75
84.0
54
Medicare 0.1
136
1,019.19
134
1,003.85
98.5
2
Total Medicare 0.3
470
1,633.62
414
1,440.73
88.2
56
Excluding Marketplace 11.0
3,792
343.68
3,396
307.84
89.6
396
Marketplace 1.7
399
238.86
352
210.38
88.1
47
12.7
$ 4,191
$ 329.88
$ 3,748
$ 295.01
89.4 % $ 443

Nine Months Ended September 30, 2017

Member
Months ⁽¹⁾
Premium Revenue Medical Care Costs
MCR ⁽²⁾
Medical Margin
Total PMPM Total PMPM
TANF and CHIP 22.8
$ 4,185
$ 183.69
$ 3,861
$ 169.44
92.2 % $ 324
Medicaid Expansion 6.1
2,376
389.14
2,045
334.93
86.1
331
ABD 3.6
3,769
1,033.45
3,634
996.58
96.4
135
Total Medicaid 32.5
10,330
317.49
9,540
293.21
92.4
790
MMP 0.5
1,083
2,189.96
976
1,974.22
90.1
107
Medicare 0.4
449
1,142.68
369
939.21
82.2
80
Total Medicare 0.9
1,532
1,726.39
1,345
1,516.09
87.8
187
Excluding Marketplace 33.4
11,862
354.88
10,885
325.66
91.8
977
Marketplace 8.4
2,303
276.27
1,937
232.31
84.1
366
41.8
$ 14,165
$ 339.19
$ 12,822
$ 307.03
90.5 % $ 1,343


	Nine Months Ended September 30, 2016															Three Months Ended March 31, 2018
	Member Months ⁽¹⁾	Premium Revenue				Medical Care Costs				MCR ⁽²⁾			Medical Margin			Member Months ⁽¹⁾			Premium Revenue								Medical Care Costs							MCR ⁽²⁾			Medical Margin
	Member Months ⁽¹⁾	Total		PMPM		Total		PMPM					Medical Margin			Member Months ⁽¹⁾		Total				PMPM				Total				PMPM				MCR ⁽²⁾			Medical Margin
TANF and CHIP	22.5	$	3,999	$	177.60	$	3,646	$	161.93	MCR ⁽²⁾	91.2	%		$	353		7.4			$	1,373			$	185.14			$	1,272			$	171.56		92.7	%		$	101
Medicaid Expansion	5.8	2,184		376.98		1,850		319.38		84.7			334			2.0			752				372.75				641				317.46			85.2			111
ABD	3.5	3,466		987.20		3,173		903.85		91.6			293			1.2			1,254				1,014.23				1,155				934.55			92.1			99
Total Medicaid	31.8	9,649		303.23		8,669		272.46		89.9			980			10.6			3,379				316.69				3,068				287.56			90.8			311
MMP	0.5	989		2,160.14		867		1,894.38		87.7			122			0.2			357				2,137.88				305				1,824.21			85.3			52
Medicare	0.4	396		1,015.14		385		986.40		97.2			11			0.1			157				1,188.97				131				994.81			83.7			26
Total Medicare	0.9	1,385		1,633.26		1,252		1,476.57		90.4			133			0.3			514				1,718.61				436				1,457.75			84.8			78
Excluding Marketplace	32.7	11,034		337.76		9,921		303.72		89.9			1,113
Total Medicaid and Medicare																10.9			3,893				354.94				3,504				319.48			90.0			389
Marketplace	5.1	1,181		231.69		1,009		197.77		85.4			172			1.4			430				312.87				218				158.40			50.6			212
	37.8	$	12,215	$	323.44	$	10,930	$	289.41	89.5	%		$	1,285		12.3			$	4,323			$	350.25			$	3,722			$	301.55		86.1	%		$	601

_______________________


(1)	A member month is defined as the aggregate of each month’s ending membership for the period presented.


(2)	“MCR” represents medical costs as a percentage of premium revenue.

Medicaid Program

~~Medicaid: TANF/CHIP,~~Our Medicaid ~~Expansion and ABD~~

~~The medical care ratios of the combined TANF/CHIP, Medicaid Expansion and ABD programs~~Medical Margin increased ~~to 91.8%~~$35 million, or 11%, in the ~~third~~first quarter of 2017, from 89.8% in the third quarter of 2016. Margin pressures at the California health plan (primarily due to reduced Medicaid Expansion premium rates effective July 1, 2017), the Florida health plan; and the Illinois health plan more than offset improved performance at the Washington health plan.

The medical care ratios of the combined TANF/CHIP, Medicaid Expansion and ABD programs increased to 92.4% in the nine months ended September 30, 2017, from 89.9% in the nine months ended September 30, 2016. For the nine months ended September 30, 2017, margin pressures at the Florida, Illinois, New Mexico and Texas health plans more than offset improved performance at the Washington health plan. Financial results for the Texas health plan in 2016 benefited from the recognition of $44 million of quality revenue related to 2015 and 2014.

~~MMP and Medicare~~

~~The medical care ratio for these programs, in the aggregate, decreased in the third quarter of 2017~~2019 when compared with the ~~third~~first quarter of ~~2016, and also~~2018, mainly due to lower MCRs in the ~~nine months ended September 30, 2017,~~TANF and ABD programs, which more than offset the impact of declining Medicaid premium revenue. Medicaid premium revenue decreased $375 million in the first quarter of 2019 mainly due to the loss in membership in connection with the termination of our Medicaid contracts in New Mexico and in all but two regions in Florida in late 2018 and early 2019, partially offset by increases in other markets. The improved MCRs in TANF and ABD were principally driven by lower pharmacy costs resulting from re-contracted pharmacy benefits management and our continued focus on medical cost management.

The Medical Margin of our Medicaid Expansion program declined due to lower premium revenue in California and higher inpatient and outpatient fee for service costs in California and Ohio. The decline in Expansion premium in California mainly resulted from the rate reduction we received in July 2018. As noted above, we expect lower Medicaid premium revenue throughout 2019, when compared with ~~the nine months ended September 30, 2016. Utilization of inpatient and pharmacy services among our~~ 2018.

Medicare ~~members has been subdued for~~Program

Our Medicare Medical Margin increased $7 million, or 9%, in the first ~~nine months~~quarter of ~~2017.~~

~~Marketplace~~

~~Marketplace member months increased 64% in the nine months ended September 30, 2017,~~2019, when compared with the ~~nine months ended September 30, 2016, as~~first quarter of 2018, mainly due to a ~~result of membership growth primarily~~slight improvement in ~~California, Florida~~the MCR. Premiums continue to increase and ~~Texas.~~are higher

compared to the prior year, mainly due to increased premium revenues tied to risk scores that are more commensurate with the acuity of our population.

Marketplace Program

The ~~medical care ratio~~Marketplace Medical Margin decreased $62 million in the first quarter of 2019, when compared with the first quarter of 2018, mainly due to a $70 million benefit of the 2017 Marketplace CSR reimbursement recognized in first quarter of 2018, and a $33 million decrease in premium revenue. The CSR benefit related to 2017 dates of service and was recognized following the federal government’s confirmation that the reconciliation would be performed on an annual basis. In the fourth quarter of 2017, we had assumed a nine-month reconciliation of this item pending confirmation of the time period to which the 2017 reconciliation would be applied. Lower Marketplace premium revenue was driven by a decrease in membership of over 20%, partially offset by premium rate increases. As noted above, we expect Marketplace premium revenue to be lower in 2019, when compared with 2018.

The MCR for the Marketplace program ~~decreased~~amounted to ~~75.3%~~62.2% in the ~~third~~first quarter of ~~2017, from 88.1%~~2019, compared with 50.6% in the ~~third~~first quarter of ~~2016. Absent a $30 million reduction to a previously established premium deficiency reserve,~~2018. Excluding the ~~medical care ratio~~benefit of the 2017 Marketplace CSR reimbursement recognized in first quarter of 2018, the MCR for ~~our Marketplace program~~the first quarter of 2018 would have been approximately ~~79% in~~66.8%. The improved MCR was driven by the ~~third quarter~~impact of ~~2017. The medical care ratio~~rate increases and increased premiums tied to risk scores, partially offset by the impact of ~~the Marketplace program for the nine months ended September 30, 2017 was 84.1%, and generally consistent with the medical care ratio reported for the same period in 2016.~~higher acuity membership.

FINANCIAL PERFORMANCE BY ~~STATE~~HEALTH PLAN

The following tables summarize member months, premium revenue, medical care costs, ~~medical care ratio,~~MCR, and medical margin by state health plan for the periods indicated (PMPM amounts are in whole dollars; member months and other dollar amounts are in millions):

Health Plans Segment Financial Data — ~~Non-Marketplace~~Medicaid and Medicare

Three Months Ended September 30, 2017
Member
Months Premium Revenue Medical Care Costs MCR Medical Margin
Total PMPM Total PMPM
California 1.9
$ 601
$ 322.97
$ 563
$ 302.67
93.7 % $ 38
Florida 1.0
388
355.59
390
356.83
100.3
(2 )
Illinois 0.5
137
287.69
138
289.36
100.6
(1 )
Michigan 1.2
390
337.17
345
298.83
88.6
45
New Mexico 0.7
304
429.07
277
390.91
91.1
27
New York (3) 0.1
43
435.00
41
413.02
94.9
2
Ohio 0.9
549
560.06
483
492.61
88.0
66
Puerto Rico 1.0
191
202.59
159
168.25
83.1
32
South Carolina 0.3
113
332.48
101
297.74
89.6
12
Texas 0.7
541
778.50
506
728.19
93.5
35
Utah 0.2
89
318.98
71
254.99
79.9
18
Washington 2.3
612
276.73
522
236.11
85.3
90
Wisconsin 0.2
34
175.77
27
141.78
80.7
7
Other (4) —
2
—
7
—
—
(5 )
11.0
$ 3,994
$ 362.04
$ 3,630
$ 329.08
90.9 % $ 364


	Three Months Ended September 30, 2016															Three Months Ended March 31, 2019
	Member Months	Premium Revenue				Medical Care Costs				MCR			Medical Margin			Member Months			Premium Revenue								Medical Care Costs							MCR			Medical Margin
	Member Months	Total		PMPM		Total		PMPM					Medical Margin			Member Months		Total				PMPM				Total				PMPM				MCR			Medical Margin
California	1.8	$	575	$	310.64	$	493	$	266.81	MCR	85.9	%		$	82		1.7			$	499			$	299.83			$	448			$	269.33		89.8	%		$	51
Florida	1.0	335		323.98		317		305.71		94.4			18			0.4			162				387.48				127				303.05			78.2			35
Illinois	0.6	163		275.26		145		244.86		89.0			18			0.7			227				348.04				185				282.70			81.2			42
Michigan	1.2	385		335.34		335		291.69		87.0			50			1.1			395				363.04				326				299.99			82.6			69
New Mexico	0.7	323		451.06		293		409.24		90.7			30
New York (3)	0.1	32		427.40		30		403.71		94.5			2
Ohio	1.0	492		497.08		417		421.95		84.9			75			0.9			590				659.09				537				600.07			91.0			53
Puerto Rico	1.0	184		183.46		167		167.44		91.3			17			0.6			102				165.02				90				145.38			88.1			12
South Carolina	0.3	102		312.28		94		285.97		91.6			8			0.4			136				363.14				115				308.87			85.1			21
Texas	0.7	534		728.84		484		662.79		90.9			50			0.6			599				902.56				532				801.53			88.8			67
Utah	0.3	83		288.59		71		242.77		84.1			12
Washington	2.0	546		264.01		500		241.49		91.5			46			2.4			614				258.41				586				246.69			95.5			28
Wisconsin	0.3	35		166.82		26		125.86		75.4			9
Other (4)	—	3		—		24		—		—			(21		)
Other ^{(1) (2)}																0.6			231				370.26				178				285.13			77.0			53
	11.0	$	3,792	$	343.68	$	3,396	$	307.84	89.6	%		$	396		9.4			$	3,555			$	379.19			$	3,124			$	333.26		87.9	%		$	431

Nine Months Ended September 30, 2017
Member
Months Premium Revenue Medical Care Costs MCR Medical Margin
Total PMPM Total PMPM
California 5.6
$ 1,771
$ 316.83
$ 1,586
$ 283.82
89.6 % $ 185
Florida 3.2
1,132
347.41
1,112
341.15
98.2
20
Illinois 1.6
447
284.18
492
312.54
110.0
(45 )
Michigan 3.5
1,162
332.60
1,035
296.28
89.1
127
New Mexico 2.2
933
431.70
887
410.24
95.0
46
New York (3) 0.3
135
444.77
128
421.58
94.8
7
Ohio 2.9
1,598
541.56
1,434
486.02
89.7
164
Puerto Rico 2.9
553
190.99
513
177.01
92.7
40
South Carolina 1.0
329
325.43
301
298.43
91.7
28
Texas 2.1
1,592
760.76
1,468
701.32
92.2
124
Utah 0.8
267
315.35
219
258.64
82.0
48
Washington 6.7
1,835
275.60
1,603
240.83
87.4
232
Wisconsin 0.6
101
170.64
80
136.04
79.7
21
Other (4) —
7
—
27
—
—
(20 )
33.4
$ 11,862
$ 354.88
$ 10,885
$ 325.66
91.8 % $ 977


	Nine Months Ended September 30, 2016															Three Months Ended March 31, 2018
	Member Months	Premium Revenue				Medical Care Costs				MCR			Medical Margin			Member Months			Premium Revenue								Medical Care Costs							MCR			Medical Margin
	Member Months	Total		PMPM		Total		PMPM					Medical Margin			Member Months		Total				PMPM				Total				PMPM				MCR			Medical Margin
California	5.5	$	1,603	$	291.20	$	1,411	$	256.41	MCR	88.1	%		$	192		1.8			$	494			$	272.61			$	412			$	227.31		83.4	%		$	82
Florida	3.0	974		322.69		892		295.43		91.6			82			1.0			382				351.58				345				317.41			90.3			37
Illinois	1.8	466		266.11		414		236.39		88.8			52			0.5			141				298.17				122				257.50			86.4			19
Michigan	3.6	1,136		323.08		1,013		288.13		89.2			123			1.1			376				336.64				331				296.19			88.0			45
New Mexico(2)	2.1	974		460.71		873		412.92		89.6			101			0.7			319				466.17				310				453.30			97.2			9
New York (3)	0.1	32		427.40		30		403.71		94.5			2
Ohio	2.9	1,444		489.63		1,286		435.99		89.0			158			0.9			551				576.60				460				481.26			83.5			91
Puerto Rico	3.0	535		176.44		516		170.46		96.6			19			1.0			186				193.13				174				181.39			93.9			12
South Carolina	0.9	273		288.93		232		245.13		84.8			41			0.3			122				348.08				104				297.52			85.5			18
Texas	2.2	1,650		744.71		1,466		662.01		88.9			184			0.7			562				809.90				519				747.53			92.3			43
Utah	0.9	255		293.33		221		253.79		86.5			34
Washington	6.0	1,576		261.23		1,431		237.20		90.8			145			2.3			584				256.66				574				252.41			98.3			10
Wisconsin	0.7	107		165.53		78		120.82		73.0			29
Other (4)	—	9		—		58		—		—			(49		)
Other ⁽¹⁾																0.6			176				314.93				153				273.36			86.8			23
	32.7	$	11,034	$	337.76	$	9,921	$	303.72	89.9	%		$	1,113		10.9			$	3,893			$	354.94			$	3,504			$	319.48		90.0	%		$	389

______________________


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


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

Health Plans Segment Financial Data — Marketplace


	Three Months Ended September 30, 2017																Three Months Ended March 31, 2019
	Member Months	Premium Revenue				Medical Care Costs					MCR			Medical Margin			Member Months			Premium Revenue								Medical Care Costs							MCR			Medical Margin
	Member Months	Total		PMPM		Total			PMPM					Medical Margin			Member Months		Total				PMPM				Total				PMPM				MCR			Medical Margin
California	0.3	$	88	$	208.19	$	63		$	147.87	MCR	71.0	%		$	25		0.1			$	56			$	342.00			$	33			$	201.46		58.9	%		$	23
Florida	0.9	260		313.36		235			283.13		90.4			25			0.2			61				421.17				26				177.31			42.1			35
Michigan	—	14		212.08		10			150.24		70.8			4			—			10				467.25				5				211.50			45.3			5
New Mexico	0.1	29		383.58		20			269.28		70.2			9
Ohio	0.1	23		386.09		20			364.31		94.4			3			—			30				853.87				15				448.51			52.5			15
Texas	0.7	183		291.14		109			172.70		59.3			74			0.6			148				306.36				109				226.36			73.9			39
Utah	0.3	49		241.65		31			155.13		64.2			18
Washington	0.1	42		327.40		33			256.52		78.3			9			—			47				711.60				29				435.90			61.3			18
Wisconsin	0.2	95		527.17		70			385.65		73.2			25
Other ⁽³⁾	—	—		—		(1		)	—		—			1
Other⁽¹⁾																	0.1			45				476.11				30				314.70			66.1			15
	2.7	$	783	$	301.72	$	590		$	227.22	75.3	%		$	193		1.0			$	397			$	393.53			$	247			$	244.61		62.2	%		$	150


	Three Months Ended September 30, 2016																Three Months Ended March 31, 2018
	Member Months	Premium Revenue				Medical Care Costs					MCR			Medical Margin			Member Months			Premium Revenue								Medical Care Costs							MCR			Medical Margin
	Member Months	Total		PMPM		Total			PMPM					Medical Margin			Member Months		Total				PMPM				Total				PMPM				MCR			Medical Margin
California	0.3	$	37	$	185.04	$	30		$	140.10	MCR	75.7	%		$	7		0.2			$	49			$	253.93			$	31			$	162.64		64.0	%		$	18
Florida	0.6	159		253.16		145			231.78		91.6			14			0.2			45				271.12				(16		)		(95.60		)	(35.3	)		61
Michigan	—	2		221.84		2			132.62		59.8			—			0.1			13				224.11				9				144.16			64.3			4
New Mexico	0.1	15		290.63		11			220.32		75.8			4			0.1			34				438.67				19				246.50			56.2			15
Ohio	—	9		307.24		7			215.01		70.0			2			0.1			26				403.44				17				262.87			65.2			9
Texas	0.4	63		189.85		41			121.06		63.8			22			0.7			229				308.74				146				196.89			63.8			83
Utah	0.1	23		142.10		33			208.48		146.7			(10		)
Washington	0.1	23		307.55		21			300.71		97.8			2			—			39				526.36				30				405.40			77.0			9
Wisconsin	0.1	68		375.60		64			357.60		95.2			4
Other (3)	—	—		—		(2		)	—		—			2
Other⁽²⁾																	—			(5		)		NM				(18		)		NM			NM			13
	1.7	$	399	$	238.86	$	352		$	210.38	88.1	%		$	47		1.4			$	430			$	312.87			$	218			$	158.40		50.6	%		$	212

Nine Months Ended September 30, 2017
Member
Months Premium Revenue Medical Care Costs MCR Medical Margin
Total PMPM Total PMPM
California 1.2
$ 241
$ 193.33
$ 156
$ 124.32
64.3 % $ 85
Florida 2.8
821
296.14
758
273.55
92.4
63
Michigan 0.2
41
187.96
27
126.76
67.4
14
New Mexico 0.2
82
338.18
62
256.05
75.7
20
Ohio 0.2
68
365.35
64
346.93
95.0
4
Texas 2.1
517
252.32
351
171.57
68.0
166
Utah 0.7
135
209.43
135
209.13
99.9
—
Washington 0.4
123
315.95
128
327.51
103.7
(5 )
Wisconsin 0.6
275
469.44
260
443.41
94.5
15
Other (3) —
—
—
(4 ) —
—
4
8.4
$ 2,303
$ 276.27
$ 1,937
$ 232.31
84.1 % $ 366
_________________________


(1)	“Other” includes the New Mexico, Utah and Wisconsin health plans, which are not individually significant to our consolidated operating results in 2019.

Nine Months Ended September 30, 2016
Member
Months Premium Revenue Medical Care Costs MCR Medical Margin
Total PMPM Total PMPM
California 0.6
$ 104
$ 177.57
$ 74
$ 124.29
70.0 % $ 30
Florida 2.0
473
237.37
409
205.37
86.5
64
Michigan —
7
213.35
5
138.37
64.9
2
New Mexico 0.2
42
264.76
32
201.73
76.2
10
Ohio 0.1
28
322.36
20
232.44
72.1
8
Texas 1.1
202
196.45
133
128.97
65.7
69
Utah 0.4
75
160.33
91
194.78
121.5
(16 )
Washington 0.2
58
281.80
48
235.78
83.7
10
Wisconsin 0.5
192
357.80
200
373.94
104.5
(8 )
Other (3) —
—
—
(3 ) —
—
3
5.1
$ 1,181
$ 231.69
$ 1,009
$ 197.77
85.4 % $ 172


(2)	“Other” includes the Utah and Wisconsin health plans, where we did not participate in the Marketplace in 2018. Therefore, the ratios for 2018 periods are not meaningful (NM).

Health Plans Segment Financial Data — Total


	Three Months Ended September 30, 2017															Three Months Ended March 31, 2019
	Member Months	Premium Revenue				Medical Care Costs				MCR			Medical Margin			Member Months			Premium Revenue								Medical Care Costs							MCR			Medical Margin
	Member Months	Total		PMPM		Total		PMPM					Medical Margin			Member Months		Total				PMPM				Total				PMPM				MCR			Medical Margin
California	2.2	$	689	$	301.64	$	626	$	273.90	MCR	90.8	%		$	63		1.8			$	555			$	303.64			$	481			$	263.20		86.7	%		$	74
Florida	1.9	648		337.40		625		325.09		96.4			23			0.6			223				396.13				153				270.76			68.4			70
Illinois	0.5	137		287.69		138		289.36		100.6			(1		)	0.7			227				348.04				185				282.70			81.2			42
Michigan	1.2	404		330.27		355		290.63		88.0			49			1.1			405				365.09				331				298.25			81.7			74
New Mexico	0.8	333		424.61		297		378.98		89.3			36
New York ⁽¹⁾	0.1	43		435.00		41		413.02		94.9			2
Ohio	1.0	572		550.75		503		485.61		88.2			69			0.9			620				666.41				552				594.38			89.2			68
Puerto Rico	1.0	191		202.59		159		168.25		83.1			32			0.6			102				165.02				90				145.38			88.1			12
South Carolina	0.3	113		332.48		101		297.74		89.6			12			0.4			136				363.14				115				308.87			85.1			21
Texas	1.4	724		546.57		615		463.83		84.9			109			1.2			747				651.67				641				559.49			85.9			106
Utah	0.5	138		286.39		102		212.91		74.3			36
Washington	2.4	654		279.52		555		237.23		84.9			99			2.4			661				270.72				615				251.83			93.0			46
Wisconsin	0.4	129		345.63		97		259.66		75.1			32
Other ⁽²⁾	—	2		—		6		—		—			(4		)
Other ^{(1) (2)}																0.7			276				384.08				208				288.99			75.2			68
	13.7	$	4,777	$	350.55	$	4,220	$	309.68	88.3	%		$	557		10.4			$	3,952			$	380.59			$	3,371			$	324.65		85.3	%		$	581


	Three Months Ended September 30, 2016															Three Months Ended March 31, 2018
	Member Months	Premium Revenue				Medical Care Costs				MCR			Medical Margin			Member Months			Premium Revenue								Medical Care Costs							MCR			Medical Margin
	Member Months	Total		PMPM		Total		PMPM					Medical Margin			Member Months		Total				PMPM				Total				PMPM				MCR			Medical Margin
California	2.1	$	612	$	298.05	$	523	$	254.11	MCR	85.3	%		$	89		2.0			$	543			$	270.80			$	443			$	221.03		81.6	%		$	100
Florida	1.6	494		297.24		462		277.79		93.5			32			1.2			427				340.91				329				262.65			77.0			98
Illinois	0.6	163		275.26		145		244.86		89.0			18			0.5			141				298.17				122				257.50			86.4			19
Michigan	1.2	387		334.25		337		290.16		86.8			50			1.2			389				331.08				340				288.68			87.2			49
New Mexico(2)	0.8	338		440.12		304		396.35		90.1			34			0.8			353				463.33				329				431.94			93.2			24
New York ⁽¹⁾	0.1	32		427.40		30		403.71		94.5			2
Ohio	1.0	501		491.51		424		415.87		84.6			77			1.0			577				565.62				477				467.41			82.6			100
Puerto Rico	1.0	184		183.46		167		167.44		91.3			17			1.0			186				193.13				174				181.39			93.9			12
South Carolina	0.3	102		312.28		94		285.97		91.6			8			0.3			122				348.08				104				297.52			85.5			18
Texas	1.1	597		559.98		525		493.07		88.1			72			1.4			791				551.28				665				463.37			84.1			126
Utah	0.4	106		236.31		104		230.53		97.6			2
Washington	2.1	569		265.48		521		243.49		91.7			48			2.3			623				265.20				604				257.25			97.0			19
Wisconsin	0.4	103		262.32		90		231.86		88.4			13
Other ⁽²⁾	—	3		—		22		—		—			(19		)
Other ⁽¹⁾																0.6			171				305.94				135				240.95			78.8			36
	12.7	$	4,191	$	329.88	$	3,748	$	295.01	89.4	%		$	443		12.3			$	4,323			$	350.25			$	3,722			$	301.55		86.1	%		$	601

Nine Months Ended September 30, 2017

Member
Months
Premium Revenue Medical Care Costs MCR Medical Margin
Total PMPM Total PMPM
California 6.8
$ 2,012
$ 294.26
$ 1,742
$ 254.67
86.5 % $ 270
Florida 6.0
1,953
323.86
1,870
310.09
95.7
83
Illinois 1.6
447
284.18
492
312.54
110.0
(45 )
Michigan 3.7
1,203
324.12
1,062
286.35
88.3
141
New Mexico 2.4
1,015
422.25
949
394.66
93.5
66
New York ⁽¹⁾
0.3
135
444.77
128
421.58
94.8
7
Ohio 3.1
1,666
531.17
1,498
477.81
90.0
168
Puerto Rico 2.9
553
190.99
513
177.01
92.7
40
South Carolina 1.0
329
325.43
301
298.43
91.7
28
Texas 4.2
2,109
509.09
1,819
439.11
86.3
290
Utah 1.5
402
269.48
354
237.20
88.0
48
Washington 7.1
1,958
277.83
1,731
245.62
88.4
227
Wisconsin 1.2
376
319.57
340
289.24
90.5
36
Other ⁽²⁾
—
7
—
23
—
—
(16 )
41.8
$ 14,165
$ 339.19
$ 12,822
$ 307.03
90.5 % $ 1,343

Nine Months Ended September 30, 2016

Member
Months
Premium Revenue Medical Care Costs MCR Medical Margin
Total PMPM Total PMPM
California 6.1
$ 1,707
$ 280.21
$ 1,485
$ 243.64
86.9 % $ 222
Florida 5.0
1,447
288.74
1,301
259.60
89.9
146
Illinois 1.8
466
266.11
414
236.39
88.8
52
Michigan 3.6
1,143
322.08
1,018
286.77
89.0
125
New Mexico 2.3
1,016
447.07
905
398.22
89.1
111
New York ⁽¹⁾
0.1
32
427.40
30
403.71
94.5
2
Ohio 3.0
1,472
484.82
1,306
430.14
88.7
166
Puerto Rico 3.0
535
176.44
516
170.46
96.6
19
South Carolina 0.9
273
288.93
232
245.13
84.8
41
Texas 3.3
1,852
570.65
1,599
492.79
86.4
253
Utah 1.3
330
246.78
312
233.14
94.5
18
Washington 6.2
1,634
261.91
1,479
237.15
90.5
155
Wisconsin 1.2
299
252.45
278
235.25
93.2
21
Other ⁽²⁾
—
9
—
55
—
—
(46 )
37.8
$ 12,215
$ 323.44
$ 10,930
$ 289.41
89.5 % $ 1,285

__________________


(1)	~~The~~“Other” includes the Idaho, Mississippi, New York, Utah and Wisconsin health ~~plan was acquired on August 1, 2016.~~plans, which are not individually significant to our consolidated operating results.


(2)	~~“Other” medical care costs include primarily medically related administrative costs of~~ In 2019, “Other” includes the ~~parent company,~~New Mexico health plan. The New Mexico health plan’s Medicaid contract terminated on December 31, 2018, and ~~direct delivery costs.~~therefore its 2019 results are not individually significant to our consolidated operating results.

~~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 September 30,
2017 2016
Amount PMPM % of Total Amount PMPM % of Total
Fee for service $ 3,196
$ 234.51
75.8 % $ 2,799
$ 220.29
74.7 %
Pharmacy 638
46.85
15.1
567
44.65
15.1
Capitation 342
25.07
8.1
302
23.83
8.1
Direct delivery 18
1.37
0.4
21
1.66
0.5
Other 26
1.88
0.6
59
4.58
1.6
$ 4,220
$ 309.68
100.0 % $ 3,748
$ 295.01
100.0 %

Nine Months Ended September 30,
2017 2016
Amount PMPM % of Total Amount PMPM % of Total
Fee for service $ 9,630
$ 230.58
75.1 % $ 8,156
$ 215.96
74.6 %
Pharmacy 1,904
45.60
14.8
1,621
42.93
14.8
Capitation 1,022
24.47
8.0
901
23.86
8.3
Direct delivery 62
1.50
0.5
55
1.46
0.5
Other 204
4.88
1.6
197
5.20
1.8
$ 12,822
$ 307.03
100.0 % $ 10,930
$ 289.41
100.0 %

~~PREMIUM TAXES~~

The premium tax ratio (premium tax expense as a percentage of premium revenue plus premium tax revenue) was 2.2% in the third quarter of 2017 compared with 2.9% in the third quarter of 2016 and 2.3% in the nine months

ended September 30, 2017, compared with 2.7% in the nine months ended September 30, 2016. This decline was primarily due to the temporary suspension of a Michigan HMO use tax effective January 1, 2017, which was partially offset by a higher California premium tax rate effective July 1, 2016, and significant revenue growth at our Florida health plan, which operates in a state with no premium tax.

~~HEALTH INSURER FEE (HIF) REVENUE AND EXPENSES~~

~~The Consolidated Appropriations Act of 2016 provided for a HIF moratorium in 2017. Therefore, there are no HIF revenues or expenses in 2017.~~

~~MOLINA MEDICAID SOLUTIONS~~

~~FINANCIAL OVERVIEW~~

~~The Molina Medicaid Solutions segment service margin for the third quarter of 2017 and 2016, and for the nine months ended September 30, 2017 and 2016, was insignificant.~~

As discussed further in Notes to Consolidated Financial Statements, Note 10, “Impairment Losses,” we recorded a goodwill impairment charge of $28 million, reported in our consolidated statements of operations as “Impairment losses.”

OTHER

The Other segment includes ~~primarily our Pathways~~the historical results of the Medicaid management information systems (“MMIS”) and behavioral health ~~and social services provider, and~~subsidiaries that were sold in the fourth quarter of 2018, as well as certain corporate amounts not allocated to ~~other reportable segments.~~the Health Plans segment. Prior to the fourth quarter of 2018, the MMIS subsidiary was reported as a stand-alone segment. Beginning in 2019, we no longer report service revenue or cost of service revenue as a result of the sales of the MMIS and behavioral health subsidiaries noted above.

FINANCIAL OVERVIEW

The Other segment ~~service margin for~~Service Margin in the ~~third~~first quarter of ~~2017 and 2016, and for the nine months ended September 30, 2017 and 2016,~~2018 was insignificant.

As discussed further in Notes to Consolidated Financial Statements, Note 10, “Impairment Losses,” in the second quarter of 2017 we recorded impairment losses, primarily relating to our Pathways subsidiary, of $61 million for goodwill and $11 million for intangible assets, or $72 million in the aggregate. In the third quarter of 2017, we recorded a further goodwill impairment loss relating to the Pathways subsidiary, of $101 million.

~~OTHER CONSOLIDATED INFORMATION~~

~~GENERAL AND ADMINISTRATIVE EXPENSES~~

The G&A ratio was 7.6% for both the third quarter of 2017 and 2016. The G&A ratio increased to 8.2% for the nine months ended September 30, 2017, compared with 7.8% for the nine months ended September 30, 2016. Refer to discussion above, in “Consolidated Results.”

~~DEPRECIATION AND AMORTIZATION~~

~~Depreciation and amortization, as a percentage of total revenue, was 0.7% and 0.8% in the nine months ended September 30, 2017 and 2016, respectively.~~

~~IMPAIRMENT LOSSES~~

~~See Notes to Consolidated Financial Statements, Note 10, “Impairment Losses.”~~

~~RESTRUCTURING AND SEPARATION COSTS~~

~~See Notes to Consolidated Financial Statements, Note 11, “Restructuring and Separation Costs.”~~

~~INTEREST EXPENSE~~

Interest expense was $32 million for the third quarter of 2017, compared with $26 million for the third quarter of 2016. Interest expense was $85 million for the nine months ended September 30, 2017, compared with $76 million for the nine months ended September 30, 2016. Interest expense includes non-cash interest expense relating primarily to the amortization of the discount on convertible senior notes, which amounted to $8 million for both the third quarter of 2017 and 2016, and $24 million and $23 million in the nine months ended September 30, 2017 and 2016, respectively. We expect interest expense to continue to increase in future periods as a result of our recent $330 million offering of 4.875% Notes, and borrowings under the Credit Facility. See further discussion in Notes to Consolidated Financial Statements, Note 7, “Debt.”

~~OTHER INCOME, NET~~

As described in Notes to Consolidated Financial Statements, Note 1, “Basis of Presentation,” in February 2017, we received an aggregate termination fee of $75 million for the terminated Medicare Acquisition. This amount is reported in “Other income, net” in our consolidated statements of operations.

~~INCOME TAXES~~

The (benefit) provision for income taxes was recorded at an effective rate of 14.6% for the third quarter of 2017, compared with 54.0% for the third quarter of 2016, and an effective rate of 15.5% for the nine months ended September 30, 2017 compared with 58.0% for the nine months ended September 30, 2016. The significant change in the effective tax rate was primarily a result of pretax losses in 2017 combined with significant nondeductible expenses (primarily, separation costs and goodwill impairment) and the 2017 HIF moratorium as described above in “Health Plans—Health Insurer Fee (HIF) Revenue and Expenses.”

LIQUIDITY AND FINANCIAL CONDITION

~~INTRODUCTION~~LIQUIDITY

We manage our cash, investments, and capital structure to meet the short- and long-term obligations of our business while maintaining liquidity and financial flexibility. We forecast, analyze, and monitor our cash flows to enable prudent investment management and financing within the confines of our financial strategy.

We maintain liquidity at two levels: 1) the regulated health plan subsidiaries; and 2) the parent company. Our regulated health plan subsidiaries generate significant cash flows from premium revenue. Such cash flows are our primary source of liquidity. Thus, any future decline in our profitability may have a negative impact on our liquidity. We generally receive premium revenue a short time before we pay for the related health care services. A majority of the assets held by our ~~Health Plans segment~~ regulated health plan subsidiaries is in the form of cash, cash equivalents, and investments.

When available and as permitted by applicable regulations, cash in excess of the capital needs of our regulated health plan subsidiaries is generally paid in the form of dividends to our parent company to be used for general corporate purposes. The regulated health plan subsidiaries paid $289 million in such dividends to the parent company in the first quarter of 2019. No such dividends were paid in the first quarter of 2018. With regard to capital contributions, the parent company contributed capital of $80 million in the first quarter of 2018, to satisfy statutory net worth requirements. No such contributions were required in the first quarter of 2019.

Cash, cash equivalents and investments at the parent company amounted to $443 million and $170 million as of March 31, 2019, and December 31, 2018, respectively. The increase in 2019 was mainly due to cash dividends received from our regulated health plan subsidiaries, and proceeds from a draw-down under the Term Loan facility, partially offset by a partial principal repayment of our outstanding 1.125% Convertible Notes.

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~~board approved investment policies ~~that~~which conform to applicable state laws and regulations.

Our investment policies are designed to provide liquidity, preserve capital, and maximize total return on invested assets, all in a manner consistent with state requirements that prescribe the types of instruments in which our subsidiaries may invest. These investment policies require that our investments have final maturities of 10 years or less (excluding variable rate securities, for which interest rates are periodically reset). Professional portfolio managers operating under documented guidelines manage our investments and a portion of our cash equivalents. Our portfolio managers must obtain our prior approval before selling investments where the loss position of those investments exceeds certain levels.

Our 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.~~

~~Investment income increased~~Treasury securities; we have the ability to ~~$37 million for the nine months ended September 30, 2017, compared with $25 million for the nine months ended September 30, 2016, primarily due to the increase in invested~~hold such restricted investments until maturity. All of our unrestricted investments are classified as current assets.

~~MARKET RISK~~Cash Flow Activities

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 September 30, 2017, the fair value of our fixed income investments would decrease by approximately $25 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 September 30, 2017, $300 million was outstanding under the Credit Facility.

~~LIQUIDITY~~

~~A condensed schedule of~~ cash flows ~~to facilitate our discussion of liquidity~~are summarized as follows:

Nine Months Ended September 30,
2017 2016 Change
(In millions)
Net cash provided by operating activities $ 957
$ 633
$ 324
Net cash used in investing activities (474 ) (131 ) (343 )
Net cash provided by financing activities 632
11
621
Net increase in cash and cash equivalents $ 1,115
$ 513
$ 602



	Three Months Ended March 31,
	2019			2018			Change
	(In millions)
Net cash provided by operating activities	$	249		$	394		$	(145	)
Net cash provided by investing activities	171			145			26
Net cash used in financing activities	(48		)	(5		)	(43		)
Net increase in cash, cash equivalents, and restricted cash and cash equivalents	$	372		$	534		$	(162	)

Operating Activities

Cash provided by operating activities increased $324 million in the nine months ended September 30, 2017 compared with the nine months ended September 30, 2016. The change in net (loss) income, partially offset by the effect of adjustments to reconcile net loss to net cash provided by operating activities, reduced cash provided by operating activities by $169 million. This change was more than offset by the aggregate of the following changes:

~~Medical claims and benefits payable.~~ ~~In 2017, the change in medical claims and benefits payable increased cash flows from operations by $381 million, primarily due to additional accruals relating to increased membership in 2017.~~

~~Receivables and deferred revenue.~~ In 2017, the aggregate change in receivables and deferred revenue increased cash flows from operations by $395 million. Cash flows from operations in each period were impacted by the timing of premium revenues receipts. 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;~~monthly, in advance of payments for medical claims; 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. State or federal payors may delay our premium payments, or they may prepay the following month’s premium payment.

~~Amounts~~Net cash provided by operations for the first quarter of 2019 was $249 million, compared with $394 million for the first quarter of 2018. This decrease in cash flow of $145 million was due ~~government agencies.~~ ~~In 2017, the change in amounts due~~to settlements with government agencies, ~~decreased cash flows from operations by $381 million, primarily due~~mainly related to CSR payments in 2019, timing of CMS Medicare premium receipts in 2018, the ~~third quarter~~use of ~~2017.~~cash associated with declines in Medicaid and Marketplace membership, partially offset by a net benefit from timing differences in other current assets and liabilities.

Investing Activities

Net cash ~~used in~~provided by investing activities ~~increased $343~~was $171 million in the ~~nine months ended September 30, 2017~~first quarter of 2019, compared with $145 million in the ~~nine months ended September 30, 2016,~~first quarter of 2018, an increase in cash flow of $26 million. The year over year improvement was primarily due to higher ~~purchases~~proceeds from sales and maturities of investments, net of ~~sales and maturities,~~purchases, in the ~~current year.~~first quarter of 2019, largely driven by cash flow needs associated with our financing activities, as described below.

Financing Activities

Net cash ~~provided by~~used in financing activities ~~increased $621~~was $48 million in the ~~nine months ended September 30, 2017~~first quarter of 2019, compared with $5 million in the ~~nine months ended September 30, 2016,~~first quarter of 2018, a decrease in cash flow of $43 million. The year over year decline was mainly due to $149 million in net cash paid for partial principal repayment of the 1.125% Convertible Notes and partial settlement of the related 1.125% Conversion Option, 1.125% Call Option and 1.125% Warrants in the first quarter of 2019. These settlements were partially offset by proceeds received from ~~the 4.875% Notes offering and borrowings~~a $100 million draw-down under the ~~Credit Facility.~~

Term Loan facility.

FINANCIAL CONDITION

We believe that our cash resources, ~~combined with~~our borrowing capacity available under our Credit ~~Facility,~~Agreement as discussed further below in “Future Sources and Uses of Liquidity—~~Sources”,~~Future Sources,” and internally generated funds will be sufficient to support ~~costs under the Restructuring Plan,~~our operations, regulatory requirements, debt repayment obligations and capital expenditures for at least the next 12 months.

On a consolidated basis, at ~~September 30, 2017,~~March 31, 2019, our working capital was ~~$1,746~~$2,439 million, compared with ~~$1,418~~$2,216 million at December 31, ~~2016.~~2018. At ~~September 30, 2017,~~March 31, 2019, our cash and investments amounted to ~~$6,166~~$4,834 million, compared with ~~$4,689~~$4,629 million at December 31, ~~2016.~~2018.

Regulatory Capital and Dividend Restrictions

Each of our HMO subsidiaries must maintain a minimum amount of statutory capital determined by statute or regulations. Such statutes, regulations and capital requirements also restrict the timing, payment and amount of dividends and other distributions, loans or advances that may be paid to us as the sole stockholder. To the extent our HMO subsidiaries must comply with these regulations, they may not have the financial flexibility to transfer funds to us. Based upon current statutes and regulations, the minimum capital and surplus (net assets) requirement, for these subsidiaries was approximately $1,020 million at March 31, 2019, and $1,040 million at December 31, 2018. Our HMO subsidiaries were in compliance with these minimum capital requirements as of both dates.

Under applicable regulatory requirements, the amount of dividends that may be paid through the remainder of 2019 by our HMO subsidiaries without prior approval by regulatory authorities as of March 31, 2019, is approximately $123 million in the aggregate. Our HMO subsidiaries can pay dividends over this amount, but only after approval is granted by the regulatory authorities.

Debt ~~Ratings.~~ Ratings

Our 5.375% Notes and 4.875% Notes are rated ~~“BB”~~“BB-” by Standard & Poor’s, and “B2” 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

~~Financial Covenants.~~Our Credit ~~Facility~~Agreement contains customary non-financial and financial covenants, including a net leverage ratio and an interest coverage ratio. Such ratios, presented below, are computed as defined by the terms of the Credit ~~Facility.~~Agreement.



Credit Facility Financial Covenants	Required Per Agreement	As of ~~September 30, 2017~~March 31, 2019

Net leverage ratio	<4.0x	~~2.5x~~1.0x
Interest coverage ratio	>3.5x	~~8.8x~~14.7x

In addition, the ~~terms of our~~indentures governing the 4.875% Notes, the 5.375% Notes and ~~each of~~ the 1.125% ~~and 1.625%~~ Convertible Notes contain cross-default provisions ~~with the Credit Facility~~ that are triggered upon ~~an event~~default by us or any of ~~default under~~our subsidiaries on any indebtedness in excess of the ~~Credit Facility, and when borrowings under the Credit Facility equal or exceed certain amounts as defined~~amount specified in the ~~related indentures.~~applicable indenture. As of ~~September 30, 2017,~~March 31, 2019, we were in compliance with all covenants under the Credit ~~Facility.~~Agreement and the indentures governing our outstanding notes.

Capital Plan Progress

In the first quarter of 2019, we repaid $46 million aggregate principal amount of our 1.125% Convertible Notes and entered into privately negotiated termination agreements to terminate the respective portion of the related 1.125% Call Option and 1.125% Warrants.

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

Credit Agreement Borrowing Capacity. As of March 31, 2019, we had available borrowing capacity of $500 million under the ~~nine months ended September 30, 2017 and 2016, we received~~Term Loan, following our draw down of $100 million ~~and~~in the first quarter of 2019. We drew down an additional $120 million under the Term Loan in April 2019, further reducing borrowing capacity by that amount permanently. Under the Term Loan facility, we may request up to ten advances, each in a minimum principal amount of $50 million, ~~respectively, in dividends from~~until July 31, 2020. In addition, we have available borrowing capacity of $498 million under our ~~regulated health plan subsidiaries. We received $36 million in dividends from our unregulated subsidiaries in the nine months ended September 30, 2017.~~Credit Facility. See further discussion in the Notes to Consolidated Financial Statements, Note ~~13, “Commitments and Contingencies—Regulatory Capital Requirements and Dividend Restrictions.~~7, “Debt.”

Savings from the IT Restructuring Plan. ~~As previously disclosed,~~Management is focused on a margin recovery plan that includes identification and implementation of various profit improvement initiatives. To that end, we began a plan to restructure our information technology department (the “IT Restructuring Plan”) in 2018. In early 2019, we have entered into services agreements with Infosys Limited under which Infosys manages certain of our information technology services. We expect the IT Restructuring Plan to be completed by the end of 2019. We currently estimate that ~~our restructuring~~this plan will reduce annualized run-rate expenses by approximately ~~$300~~$15 million to ~~$400~~$20 million ~~when completed~~in the first full year, increasing to approximately $30 million to $35 million by the end of ~~2018. We have already~~the fifth full year. Such savings, if achieved, $200 million of these run-rate reductions on an annualized basis, which will take full effect no later than January 1, 2018. All savings targets discussed in regards to the restructuring plan represent annualized run-rate savings that we expect to achieve during the year following the indicated implementation date. We expect one-time costs associated with the restructuring plan to exceed the benefits realized in 2017 due to the upfront payment of implementation costs and the delayed benefit of full savings until the beginning of 2018. We expect the cost savings towould reduce ~~both “General~~Other segment general and administrative ~~expenses” and “Medical care costs” reported on~~expenses in our consolidated statements of ~~operations.~~income. Further details are described in the Notes to Consolidated Financial Statements, Note 10, “Restructuring Costs.”

~~The following table illustrates our estimates of run-rate savings associated with the restructuring plan. Such savings will be offset, through the end of 2018, by the costs noted below in “~~Future Uses~~.” Following 2018, the savings will be offset by approximately $20 million in run-rate expenses resulting from the implementation of restructuring plan initiatives.~~



~~Estimated Savings Expected to be Realized by Reportable Segment~~	~~Health Plans~~	~~Other~~		~~Total~~
	~~(In millions)~~
~~General and administrative expenses~~	~~$50~~	~~$120 to $140~~		~~$170 to $190~~
~~Medical care costs~~	~~$110 to $190~~	~~$20~~		~~$130 to $210~~
	~~$160 to $240~~	~~$140 to $160~~	��	~~$300 to $400~~

~~Credit Facility.~~Regulatory Capital Requirements and Dividend Restrictions. We have the ability, and have committed to provide, additional capital to each of our health plans as necessary to ensure compliance with statutory capital and surplus requirements.

1.125% Convertible Notes. The fair value of the 1.125% Convertible Notes was $716 million as of March 31, 2019, which amount reflects both the principal amount outstanding and the fair value of the 1.125% Conversion Option. Refer to the Notes to Consolidated Financial Statements, Note 7, “Debt,” for a detailed discussion of ~~our Credit Facility. In August 2017, we drew against the Credit Facility in the amount of $300 million.~~

~~4.875% Notes.~~ The 4.875% Notes 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 our consolidated balance sheets. See further discussion in Notes to Consolidated Financial Statements, Note 7, “Debt.”

~~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 will be provided at the time of an offering. Proceeds from future offerings are expected to be used for general corporate purposes, including, but not limited to, the repayment of debt, investments in or extensions of credit to our subsidiaries and the financing of possible acquisitions or business expansion.

~~Uses~~

~~Restructuring.~~ We recorded $118 million of restructuring costs in the third quarter of 2017. Restructuring costs incurred to date consist primarily of termination benefits, write-offs of capitalized software due to the re-design of our core operating processes, restructuring of our direct delivery operations, and consulting fees. Under the restructuring plan, and also including separation costs to former executives, we have made cash payments of $24 million in the nine months ended September 30, 2017, and have accrued a liability of $65 million for future payments as of September 30, 2017.

We estimate that total pre-tax costs associated with the restructuring plan will be approximately $70 million to $90 million in the fourth quarter of 2017, with an additional $20 million to $40 million to be incurred in 2018. We currently estimate that a majority of the costs we expect to incur in the fourth quarter of 2017 will be settled in cash. The costs we incur associated with the restructuring plan are reported in “Restructuring and separation costs” in our consolidated statements of operations.



~~Estimated Costs Expected to be Incurred by Reportable Segment~~	~~Health Plans~~	~~Molina Medicaid Solutions~~	~~Other~~	~~Total~~
	~~(In millions)~~
~~Termination benefits~~	~~$30 to $35~~	—	~~$30 to $35~~	~~$60 to $70~~
~~Other restructuring costs~~	~~$40 to $45~~	~~$10~~	~~$110 to $115~~	~~$160 to $170~~
	~~$70 to $80~~	~~$10~~	~~$140 to $150~~	~~$220 to $240~~

~~Regulatory Capital Requirements and Dividend Restrictions.~~ ~~For more information on our regulatory capital requirements and dividend restrictions, refer to Notes to Consolidated Financial Statements, Note 13, “Commitments and Contingencies.”~~

~~States’ Budgets.~~ From time to time, the states in which our health plans operate may experience financial difficulties, which could lead to delays in premium payments. Until July 4, 2017, the state of Illinois operated without a budget for its current fiscal year. As of September 30, 2017, our Illinois health plan served approximately 163,000 members, and recognized premium revenue of approximately $447 million in the nine months ended September 30, 2017. As of October 27, 2017, the state of Illinois owed us approximately $220 million for certain March through September 2017 premiums.

On May 3, 2017, Puerto Rico’s financial oversight board filed for a form of bankruptcy in the U.S. District Court in Puerto Rico under Title III of PROMESA. The Title III provision allows for a court debt restructuring process similar to U.S. bankruptcy protection. To the extent such bankruptcy results in our failure to receive payment of amounts due under our Medicaid contract with the Commonwealth or the inability of the Commonwealth to extend our Medicaid contract at the end of its current term, such bankruptcy could have a material adverse effect on our business, financial condition, cash flows, or results of operations. As of September 30, 2017, the plan served approximately 306,000 members and recorded premium revenue of approximately $553 million in the nine months ended September 30, 2017. As of October 27, 2017, the Commonwealth was current with its premium payments.

~~Convertible Notes.~~ We have outstanding $550 million aggregate principal amount of 1.125% cash convertible senior notes due January 15, 2020, unless earlier repurchased or converted. We refer to these notes as our 1.125% Convertible Notes. We also have outstanding $302 million aggregate principal amount of 1.625% convertible senior notes due August 14, 2044, unless earlier repurchased, redeemed, or converted. We refer to these notes as our 1.625% Convertible Notes. We refer to the 1.125% Convertible Notes, ~~and 1.625% Convertible Notes collectively as the Convertible Notes.~~including recent transactions. The 1.125% Convertible Notes are convertible ~~entirely into cash, and~~by the ~~1.625% Convertible Notes are convertible partially into cash, each prior to their respective maturity dates under certain circumstances,~~holders within one year 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~~debt. If conversion requests are received, the 1.625% Convertible Notes is $75.51 per share. The 1.625% Convertible Notes did not meet this stock price trigger in the quarter ended September 30, 2017. However, on contractually specified dates beginning in 2018, holders of the 1.625% Convertible Notes may require us to repurchase some or all of such notes. In addition, beginning May 15, 2018 until August 19, 2018, holders may convert some or all of the 1.625% Convertible Notes. Because of these put and conversion features, the 1.625% Convertible Notes are reported in current portion of long-term debt as of September 30, 2017. As noted above, because the proceeds from the 4.875% Notes are initially restricted to payments upon conversion or redemption of the 1.625% Convertible Notes, such restricted investments are also classified as current in the accompanying consolidated balance sheets.

~~For economic reasons related to the trading market for our Convertible Notes, we believe that the amount~~settlement of the notes ~~that may~~must be converted over the next twelve months, if any, will not be significant. However, if the trading market for our Convertible Notes becomes closed or restricted due to market turmoil or other reasons such that the notes cannot be traded, or if the trading price of our Convertible Notes, which normally trade at a marginal premiumpaid in cash pursuant to the ~~underlying composite stock-and-interest economic value, no longer includes that marginal premium, holders~~terms of ~~our Convertible Notes may elect to convert~~ the ~~notes to cash.~~

applicable indenture. We ~~currently~~ have sufficient available cash, combined with borrowing capacity available under our Credit ~~Facility,~~Agreement, to fund ~~such conversions.~~conversions should they occur.

CONTRACTUAL OBLIGATIONS

A summary of future obligations under our various contractual obligations and commitments as of December 31, ~~2016,~~2018, was disclosed in our ~~2016~~2018 Annual Report on Form 10-K.

AsOther than the financing transactions described ~~further~~ in the Notes to Consolidated Financial Statements, Note 7, “Debt,” on June 6, 2017, we completed the private offering of $330 million aggregate principal amount of senior notes (4.875% Notes) due June 15, 2025. In addition, in the third quarter of 2017, we borrowed $300 million under our Credit Facility.

~~Other than the transactions described above,~~ there were no ~~material~~significant changes to this previously filed information outside the ordinary course of business during the ~~nine months ended September 30, 2017.~~first quarter of 2019.

CRITICAL ACCOUNTING ESTIMATES

When we prepare our consolidated financial statements, we use estimates and assumptions that may affect reported amounts and disclosures; actual results could differ from these estimates. Our critical accounting estimates relate to:

~~Health Plans segment medical~~Medical claims and benefits payable. Refer to Notes to Consolidated Financial Statements, Note 6, “Medical Claims and Benefits Payable,” for a table that presents the components of the change in medical claims and benefits payable, and for additional information regarding the factors used to determine our changes in estimates for all periods presented in the accompanying consolidated financial statements. Other than the discussion as noted above, there have been no significant changes during the ~~nine months ended September 30, 2017,~~first quarter of 2019, to our disclosure reported in “Critical Accounting Estimates” in our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2018.

~~Health Plans segment contractual~~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~~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.”

~~Molina Medicaid Solutions segment revenue~~Goodwill and ~~cost recognition~~intangible assets, net.. There have been no significant changes, during the ~~nine months ended September 30, 2017,~~first quarter of 2019, to our disclosure reported in “Critical Accounting Estimates” in our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2018.

~~Goodwill~~

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our earnings and ~~intangible assets, net.~~ ~~Please~~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 March 31, 2019, the fair value of our fixed income investments would decrease by approximately $13 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 ~~2, “Significant Accounting Policies~~,4, “Fair Value Measurements,” ~~regarding~~and Note 5, “Investments.”

Borrowings under our ~~adoption~~Credit Agreement bear interest based, at our election, on a base rate or other defined rate, plus in each case the applicable margin. As of ~~Accounting Standards Update No. 2017-04 as~~March 31, 2019, $100 million was outstanding under the Term Loan facility of ~~June 30, 2017, which has simplified~~ the ~~test for goodwill impairment. In the third quarter of 2017, we~~

recorded impairment charges of $129 million for goodwill, and in the second quarter of 2017, we recorded impairment charges of $61 million for goodwill and $11 million for intangible assets, or $72 million in the aggregate. Such charges are reported in the accompanying consolidated statements of operations as “Impairment losses.” At September 30, 2017, goodwill and intangible assets, net, represented approximately 6% of total assets and 37% of total stockholders’ equity, compared with 10% and 46%, respectively, at December 31, 2016. Refer toCredit Agreement. For further information, see Notes to Consolidated Financial Statements, Note ~~10, “Impairment Losses~~.7, “Debt.”

~~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.

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 September 30, Nine Months Ended September 30,
2017 2016 2017 2016
(In millions)
Net (loss) income $ (97 ) $ 42
$ (250 ) $ 99
Adjustments:
Depreciation, and amortization of intangible assets and capitalized software 39
42
129
118
Interest expense 32
26
85
76
Income tax (benefit) expense (16 ) 50
(46 ) 137
EBITDA* $ (42 ) $ 160
$ (82 ) $ 430

ADJUSTED NET (LOSS) INCOME* AND ADJUSTED NET (LOSS) INCOME PER SHARE*

We believe that adjusted net (loss) income* and adjusted net (loss) income 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, which we believe to be the most comparable GAAP measure, to adjusted net (loss) income*.

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
(In millions, except diluted per-share amounts)
Net (loss) income $ (97 ) $ (1.70 ) $ 42
$ 0.76
$ (250 ) $ (4.44 ) $ 99
$ 1.77
Adjustment:
Amortization of intangible assets 7
0.13
9
0.15
24
0.43
24
0.42
Income tax effect ⁽¹⁾
(3 ) (0.05 ) (4 ) (0.06 ) (9 ) (0.16 ) (9 ) (0.16 )
Amortization of intangible assets, net of tax effect 4
0.08
5
0.09
15
0.27
15
0.26
Adjusted net (loss) income* $ (93 ) $ (1.62 ) $ 47
$ 0.85
$ (235 ) $ (4.17 ) $ 114
$ 2.03

~~__________________________~~


~~(1)~~	~~Income tax effect of adjustments calculated at the blended federal and state statutory tax rate of 37%.~~

CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and ~~Procedures:~~Procedures. Our management, with the participation of our ~~interim~~ 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”)), ~~were not~~are effective at the reasonable assurance level because of the material weakness in our internal control over financial reporting described below. Notwithstanding the material weakness described below, management has concludedto ensure that our consolidated financial statements included in this interim report on Form 10-Q are fairly stated in all material respects in accordance with U.S. generally accepted accounting principles (GAAP) for each of the periods presented herein.

~~Existence of a Material Weakness in Internal Control as of September 30, 2017~~

~~During the quarter ended September 30, 2017, we determined that a material weakness existed in our internal control over financial reporting relating~~information required to the design and operating effectiveness of our internal control for our interim goodwill impairment tests for our Pathways subsidiary and Molina Medicaid Solutions segment. Specifically, spreadsheet formula errors in our valuation model, and errors madebe disclosed in the ~~calculation of impairment losses~~reports that we file or submit under the Exchange Act is recorded, ~~were not detected in our review procedures. As a result, we initially miscalculated~~processed, summarized, and reported within the ~~goodwill impairment~~time periods specified in the ~~three~~SEC’s rules and nine months ended September 30, 2017. The impairment calculation was corrected prior to the filing of our unaudited consolidated financial statements as of and for the three and nine months ended September 30, 2017.

~~Remediation Plan for Material Weakness~~

We will implement a remediation plan developed to address this material weakness as of September 30, 2017. The remediation efforts we intend to implement include the enhancement of the design of the controls relating to the computation and rigor of review of the goodwill impairment tests. The enhancement of the controls will include the engagement of additional subject matter experts to support the valuation calculations, key assumptions and review process. In addition, we intend to develop new review controls that operate at an appropriate level of precision to prevent or detect potential material errors within the valuation calculations. We believe these measures will remediate the material weakness identified above and will strengthen our internal control over financial reporting for the computation of reporting unit fair value and potential consequent goodwill impairment. We are currently targeting to complete the implementation of the control enhancements during the fourth quarter of 2017. We will test the operating effectiveness of the control enhancements subsequent to implementation. If the remedial measures described above are insufficient to address the material weakness described above, or are not implemented timely, or additional deficiencies arise in the future, material misstatements in our interim or annual financial statements may occur in the future and could have the effects described in “Risk Factors,” in our Annual Report on Form 10-K for the year ended December 31, 2016.forms.

Changes in Internal Control Over Financial ~~Reporting:~~Reporting. ~~Except as described above, management did not identify any~~There has been no change in our internal control over financial reporting during the fiscal quarter ended ~~September 30, 2017~~March 31, 2019 that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.

~~Existence of a Material Weakness in Internal Control as of December 31, 2016~~

As disclosed in our Annual Report on Form 10-K for the year ended December 31, 2016, our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2016, based on the framework set forth in ~~Internal Control-Integrated Framework~~ ~~(2013)~~issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.

We determined that a material weakness existed in our internal control over financial reporting relating to the operation of an element of our process for calculating the amount owed to California by our California health plan. More specifically, a Medicaid Expansion contract amendment executed in the fourth quarter of 2016 changed the medical loss ratio corridor formula and such amendment was not initially considered in determining the liability. As a result, we understated net income by $44 million for the year ended December 31, 2016, which was material to our consolidated results for the year ended December 31, 2016. This amount was corrected prior to the issuance of our consolidated financial statements as of and for the year ended December 31, 2016.

~~Because of this material weakness, management concluded that we did not maintain effective internal control over financial reporting as of December 31, 2016, based on criteria described in~~ ~~Internal Control - Integrated Framework~~ ~~(2013) issued by COSO.~~

~~Remediation Plan for Material Weakness~~

We are executing the remediation plan developed to address the material weakness reported as of December 31, 2016. The remediation efforts we have implemented include the development of robust protocols to ensure that the control, relating to the review of a contractual amendment affecting the computation of the Medicaid Expansion medical loss ratio corridor for our California health plan, is operating as designed. We believe these measures will remediate the material weakness identified above and will strengthen our internal control over financial reporting for the computation of our California Medicaid Expansion medical loss ratio corridor. We currently are targeting to complete the implementation of the control enhancements during 2017. We will test the ongoing operating effectiveness of the control enhancements subsequent to implementation, and consider the material weakness remediated after the applicable remedial control enhancements operate effectively for a sufficient period of time. If the remedial measures described above are insufficient to address the material weakness described above, or are not implemented timely, or additional deficiencies arise in the future, material misstatements in our interim or annual financial statements may occur in the future and could have the effects described in “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2016.

LEGAL PROCEEDINGS

For information regarding legal proceedings, see Notes to Consolidated Financial Statements, Note ~~13,~~12, “Commitments and Contingencies.”

RISK FACTORS

Certain risks may have a material adverse effect on our business, financial condition, cash flows, results of operations, or stock price, and you should carefully consider them before making an investment ~~decision.~~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, ~~2016 and our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2017 and June 30, 2017.~~2018. The risk factors described in our ~~2016~~2018 Annual Report on Form 10-K ~~and our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2017 and June 30, 2017,~~ 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 ~~September 30, 2017,~~March 31, 2019, including shares withheld by us to satisfy our employees’ income tax obligations, are set forth below:

Total Number
of Shares
Purchased ⁽¹⁾

Average Price
Paid per Share

Total Number of Shares
Purchased as Part of
Publicly
Announced
Plans or
Programs

Approximate
Dollar Value
of Shares Authorized to Be Purchased Under the Plans or Programs
July 1 - July 31 665
$ 69.18
—
$ —
August 1 - August 31 285
$ 57.03
—
$ —
September 1 - September 30 —
$ —
—
$ —
Total 950
$ 65.54
—



	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
January 1 - January 31	1,011	$	133.04	—	$	—
February 1 - February 28	—	$	—	—	$	—
March 1 - March 31	48,228	$	137.88	—	$	—
Total	49,239	$	137.78	—

_______________________


(1)	During the three months ended ~~September 30, 2017,~~March 31, 2019, we withheld ~~950~~49,239 shares of common stock under our 2011 Equity Incentive Plan to settle employee income tax obligations.

INDEX TO EXHIBITS



Exhibit No.	Title	Method of Filing

~~10.1~~	~~Employment Agreement, dated October 9, 2017, by and between Molina Healthcare, Inc. and Joseph M. Zubretsky. Filed as Exhibit 10.1 to registrant’s Form 8-K filed October 10, 2017.~~

31.1	Section 302 Certification of ~~Interim~~ Chief Executive Officer ~~and~~	Filed herewith.

31.2	Section 302 Certification of Chief Financial Officer ~~pursuant to Rules 13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934, as amended.~~	Filed herewith.

32.1	Certification of ~~Interim~~ Chief Executive Officer ~~and~~pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.	Filed herewith.

32.2	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.

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:	~~November 5, 2017~~April 30, 2019	/s/ JOSEPH ~~W. WHITE~~M. ZUBRETSKY
		Joseph ~~W. White~~M. Zubretsky
		~~Interim~~ Chief Executive Officer
		(Principal Executive Officer)

Dated:	~~November 5, 2017~~April 30, 2019	/s/ ~~JOSEPH W. WHITE~~THOMAS L. TRAN
		~~Joseph W. White~~Thomas L. Tran
		Chief Financial Officer and Treasurer
		(Principal Financial Officer)

Molina Healthcare, Inc. ~~2017~~March 31, 2019 Form 10-Q | 6745



	September 30, 2017								December 31, 2016
	Current Benefit Year			Prior Benefit Years		Total			December 31, 2016

	(In millions)
Risk adjustment	$	(655	)	$	—	$	(655	)	$	(522	)
Reinsurance	—			10		10			55
Risk corridor	—			—		—			(1		)
Minimum MLR	(27		)	—		(27		)	(1		)



	September 30, 2017				December 31, 2016
	Carrying Value		Fair Value		Carrying Value		Fair Value
	(In millions)
5.375% Notes	$	692	$	726	$	691	$	714
1.125% Convertible Notes	489		927		471		792
4.875% Notes	325		324		—		—
Credit Facility	300		300		—		—
1.625% Convertible Notes	292		373		284		344
	$	2,098	$	2,650	$	1,446	$	1,850



	Amortized Cost		Estimated Fair Value
	(In millions)
Due in one year or less	$	100	$	100
Due after one year through five years	17		17
	$	117	$	117



	Restricted Stock Awards		Performance Stock Awards		Performance Stock Units		Total		Weighted Average Grant Date Fair Value
Unvested balance, December 31, 2016	577,244		345,656		—		922,900		$	58.15
Granted	386,273		—		231,100		617,373		57.16
Vested	(391,680	)	(260,894	)	(139,272	)	(791,846	)	57.78
Forfeited	(69,346	)	—		—		(69,346	)	54.37
Unvested balance, September 30, 2017	502,491		84,762		91,828		679,081		57.61



	Three Months Ended September 30, 2017
	Separation Costs - Former Executives		One-Time Termination Benefits		Other Restructuring Costs						Total
	Separation Costs - Former Executives		One-Time Termination Benefits		Write-offs of Long-lived Assets		Consulting Fees		Contract Termination Costs		Total
	(In millions)
Health Plans	$	—	$	27	$	6	$	—	$	—	$	33
Molina Medicaid Solutions	—		—		8		—		—		8
Other	—		23		35		16		3		77
	$	—	$	50	$	49	$	16	$	3	$	118



	Nine Months Ended September 30, 2017
	Separation Costs - Former Executives		One-Time Termination Benefits		Other Restructuring Costs						Total
	Separation Costs - Former Executives		One-Time Termination Benefits		Write-offs of Long-lived Assets		Consulting Fees		Contract Termination Costs		Total
	(In millions)
Health Plans	$	—	$	27	$	6	$	—	$	—	$	33
Molina Medicaid Solutions	—		—		8		—		—		8
Other	35		23		35		24		3		120
	$	35	$	50	$	49	$	24	$	3	$	161



	Three Months Ended September 30, 2017
	Parent Guarantor			Other Guarantors			Non-Guarantors			Eliminations			Consolidated
	(In millions)
Revenue:
Total revenue	$	380		$	47		$	4,983		$	(379	)	$	5,031
Expenses:
Medical care costs	3			—			4,217			—			4,220
Cost of service revenue	—			42			81			—			123
General and administrative expenses	244			(1		)	519			(379		)	383
Premium tax expenses	—			—			106			—			106
Depreciation and amortization	23			1			9			—			33
Impairment losses	—			28			101			—			129
Restructuring and separation costs	77			8			33			—			118
Total operating expenses	347			78			5,066			(379		)	5,112
Operating income (loss)	33			(31		)	(83		)	—			(81		)
Interest expense	32			—			—			—			32
Income (loss) before income taxes	1			(31		)	(83		)	—			(113		)
Income tax expense (benefit)	9			(10		)	(15		)	—			(16		)
Net loss before equity in net losses of subsidiaries	(8		)	(21		)	(68		)	—			(97		)
Equity in net losses of subsidiaries	(89		)	(77		)	—			166			—
Net loss	$	(97	)	$	(98	)	$	(68	)	$	166		$	(97	)



Summary of Significant Items Affecting 2017 Financial Results
	Three Months Ended						Nine Months Ended
	September 30, 2017						September 30, 2017
	(In millions, except per diluted share amounts)
	Amount			Per Diluted Share ⁽¹⁾			Amount			Per Diluted Share ⁽¹⁾
Restructuring and separation costs	$	118		$	1.39		$	161		$	1.92
Impairment losses	129			1.77			201			2.77
Change in Marketplace premium deficiency reserve for 2017 service dates	(30		)	(0.33		)	40			0.45
Termination fee received for terminated Medicare acquisition	—			—			(75		)	(0.84		)
	$	217		$	2.83		$	327		$	4.30



	PMPM Premiums
	Low		High		Consolidated
TANF and CHIP	$	120.00	$	310.00	$	180.00
Marketplace	190.00		470.00		280.00
Medicaid Expansion	320.00		510.00		390.00
ABD	380.00		1,480.00		1,030.00
MMP – Integrated	1,250.00		3,280.00		2,190.00
Medicare	960.00		1,260.00		1,140.00